CARBON TAX:Is Imposition of Carbon Tax An Effective Tool To fight Global Warming ?
What Is Carbon Tax ?
A carbon tax is an environmental tax on emissions of carbon dioxide and other greenhouse gases. The primary purpose of a carbon tax is to discourage the inefficient use of fossil fuels, which when burnt release carbon dioxide and other greenhouse gases into the atmosphere and contribute to global warming.
Motive Of Carbon Tax:
In addition to discouraging the use of fuels that contribute to global warming, the intention of a carbon tax is to, by extension, encourage the use of non-combustion energy sources, such as wind, sunlight, hydropower, and nuclear, which do not directly emit greenhouse gases into the atmosphere and contribute to global warming.
Pertinent Questions That Government, World Regulators (UN,WTO,etc), Businessmen, Environmentalists, Economists, Citizens, and Humanity should try to address:
The main question confronting governments is: should governments adopt a carbon tax system as part of their comprehensive plans to combat global warming?
Additional questions help frame the debate: Is a tax a good way to incentivize reductions in greenhouse gas emissions?
Can a carbon tax have a major impact on global warming? In this regard, how does a carbon tax compare to its main market-based approach - emissions trading or cap-and-trade systems?
What are the economic implications of a carbon tax?
Will it harm businesses and industries? Will it harm consumers?
Are emissions-trading schemes a more efficient and economically-friendly way to reduce emissions?
Is a carbon tax simple to understand and implement, particularly when compared to cap-and-trade systems?
Will a carbon tax require much government oversight?
How about a cap-and-trade system?
Is a carbon tax more feasible and manageable? How might the revenues generated by a carbon tax be spent?
Overall, is a carbon tax system fair? Can it be implemented equitably and without political biases?
Are there any other alternatives?
Examples of Countries practising carbon tax system:
While the European Union considered a carbon tax covering its member states, it ultimately initiated an emissions trading scheme in 2005. The United Kingdom, however, unilaterally introduced a range of carbon taxes and levies to accompany the EU ETS trading regime. For the rest of the world, the question of whether to adopt any of these approaches, and which one, remains an open question.
Emissions: Is a carbon tax effective at lowering emissions and combating global warming?
Carbon tax adds a clear cost to pollution that incentivizes reductions: The higher prices for the most damaging fuels would encourage people and companies to use them less and more of other types of energy, including nuclear, solar, wind and bio fuels. This approach also would affect all sources — not just cars, which account for only one-fifth of all U.S. carbon dioxide emissions."
A carbon tax helps symbolize political will to fight global.
A carbon tax helps reduce emissions in all industries: A carbon tax applies to all industries, broadening the scope of emissions reductions. This compares favourably to emissions trading schemes, which sometimes only cover a select group of industries.
A carbon tax can be implemented immediately.
A carbon tax provides superior incentives for green innovation.
Criticism:
Cap-and-trade systems ensure emissions reductions to the set cap: In a cap-and-trade carbon market, total emissions are guaranteed to go down. The cap is the cap, and assuming some reasonably effective enforcement mechanism, not a pound more carbon can be emitted. A carbon tax, on the other hand, merely encourages people to emit less by making it more expensive to do so. And in the case of fossil fuels, people seem perversely resistant to financial incentives.
Carbon trading incentivizes companies to cut emissions: A cap-and-trade system provides companies with credits if they are able to reduce their emissions below an established level. They can then sell these credits for a profit. So, if a company takes action to reduce its carbon emissions below the designated level, than it can make a profit. This is a powerful market incentive that is more likely to cause companies to invest money in finding ways to reduce their carbon emissions. A carbon tax, conversely, only provides the incentive of cutting costs, and does not offer this important profit motive.
Fairness: Is a carbon tax fair?
A carbon tax fairly treats all carbon emissions as "bad": A carbon tax essentially considers all carbon emissions harmful to the environment, and warranting of equal punishment. A cap-and-trade system only punishes carbon emissions above a certain level, treating only certain kinds of emissions as "bad". A carbon tax, therefore, sends a strong message to polluters that all their emissions are harmful, that they should be phased out, and that they should invest in environmentally-friendly sources of energy. This dramatic message may be particularly important if we view global warming to be a serious crisis.
Revenue from a carbon tax can be used to fund global aid programs: The advantage of a carbon tax is that it generates revenue that can be used for good. It converts a social bad, pollution, into a social good.
Economics: Is a carbon tax economical?
A carbon tax is less volatile than a cap-and-trade system A carbon tax is predictable, as are most simple tax systems. A cap-and-trade system, on the other hand, is subject to market fluctuations, speculation, and volatility. This could have a bad effect on energy prices. Additionally, predictability is a trait desired by corporations.
A carbon tax would better distribute the costs of carbon emissions A carbon tax will distribute the costs to all companies that emit greenhouse gases. It will not discriminate. There is much more room in a cap-and-trade system for discrimination.
Carbon taxes are simple and easy to understand Like most taxes, a carbon tax is very straight forward, assigning a specific cost to the emission of greenhouse gases
Criticism:
A carbon tax would damage an economy "Carbon tax to hit miners". The Australian. 5 Feb. 2007: "A $25 per tonne carbon tax would cost the state's alumina industry more than $200 million a year."
A carbon tax is "regressive". A "regressive" tax is one that disproportionately burdens poorer groups. Energy consumption generally makes up a larger portion of the personal budgets of poorer groups. Because energy consumption would be taxed equally across social groups with a carbon tax (it's a "flat tax"), the costs of the tax would disproportionately affect poor groups.
A carbon tax passes costs onto consumers. A carbon tax makes it more expensive for companies to do business. To compensate, businesses will raise the price of the products they are selling, which diminishes the pockets of the consumer. The consumer, therefore, pays a significant portion of a carbon tax. In this way, a carbon tax does not merely punish polluting businesses, but ordinary citizens as well.
A carbon tax requires substantial government monitoring In a carbon tax, emitters would pay a tax for every ton of carbon emitted. This requires that the government know precisely how much carbon is being emitted by energy producers. This is not easy to determine, and requires that a government put in place monitoring mechanisms. Deploying these mechanisms universally would be very complicated, expensive, and require much administration. Then, ensuring that all these monitoring devices operate properly and that all energy producers comply with the tax would also involve a substantial administrative burden. This would be equally as complicated as a cap-and-trade system.
Conclusion:
Carbon Tax or NO Carbon Tax.....World or Humanity should understand the ramification of Global Warming and instead of debating, the matter concerning global warming, they should undertake steps to control Global Warming initially, and then gradually reduce pollution levels to zero. Otherwise, the writing is ON THE WALL and sooner rather than latter, there might not be any wall for us to write “GLOBAL WARMING”.
Showing posts with label Economy and Finance. Show all posts
Showing posts with label Economy and Finance. Show all posts
Wednesday, November 19, 2008
The Indian Slowdown
The Indian economy is plummeting with weakening export markets, higher inflation and shortage of talented workforce. Besides, the industrial growth has fallen to a disappointing low as wholesale prices inch higher. The double-digit inflation has been causing sleepless nights to the Finance Ministry. Standard and Poor’s, the global Rating agency, confirmed the economic downfall and warned that it might lower India’s sovereign rating of BBB-(investment grade status) due to the country’s deteriorating credit profile over the last 12 months. According to the Economist Intelligence Unit, economic growth will slow down to 7.7% in the current fiscal from 9%in the previous year and growth will be primarily driven by domestic consumption and demand.
The devil called Inflation
Asian countries are facing the inflation spiral, which was brought on by multiple upward pressures on prices compounded by supply constraints. The skyrocketing food and fuel prices are strong factors behind this surge in the rate of inflation; structural factors are also being at work. A report from Asian development Bank (ADB) suggests that behind the economic slowdown of the Asian region, infrastructure bottlenecks and skill shortages that are forcing up wages and prices are also playing a major part. At the same time , in some countries , money supply is expanding because of burgeoning current account surpluses and the accumulation of foreign reserves.
Inflation pressure is not limiting to Asia alone, it has become a global phenomenon. ADB urges policymakers to tackle inflation at its roots. For some economies it could mean a more flexible exchange rate. In others, fiscal spending and priorities could be scrutinized or measures taken to ease supply bottlenecks that are adding to cost pressures.
India’s steps
In the recent past RBI has raised interest rates repeatedly to restraint inflation and tightened bank’s reserve requirements. Interest rates at a six-year high impacted industrial production and restrained consumption demand. A slowdown in the industrial sector is serious as a healthy industrial sector is needed for better employment. Meanwhile, high interest rates have led to a stronger currency, making the country’s exports more expensive in the world markets. Export growth deceleration is very significant in rupee terms; 5.34% in the first half of this fiscal. Thus, going forward, further slowdown impacts the country’s GDP badly.
There is a great concern that the credit market crisis may make it tougher for the FIIs to invest in India. A slowdown in FDI investment on account of tightening global liquidity and higher domestic rate of interest are affecting the current investment boom. Also, the restrictions on easy accessibility of foreign funds and political uncertainty arising from the forthcoming elections are not conducive for investment demand. Besides, fears of global slowdown are bound to have an adverse impact on India.
Further….
China’s economic growth is driven by exports, while India’s growth is driven mostly by domestic demand. The government is still hopeful that the strong fundamentals of the economy would continue to attract significant investments in equity market from abroad. Attention could be paid to improve the infrastructure and make public sector –driven fundamental issues such as education and human resources more effective to sustain high growth. India’s infrastructure has so far been predominantly public-financed. The need of the hour is greater incentives towards public and private partnerships for infrastructure projects.
US recession implications
The recent World Bank report reveals that the economies of developing countries will not be directly affected over the next two years by either the US subprime mortgage crisis or a US economic recession. Developing countries would feel the impact , but it would be overshadowed by the domestic dynamism that we are seeing in countries such as India, China and other Asian countries. Like in India, technology is responsible for the strong economic performance. On the whole , a slowdown in the developed economies may not have a major impact on the domestic economy. On, the flip side, the pressure on prices of oil, food and other raw materials is likely to continue making inflation management a challenging task this current fiscal.
The way Ahead
India expanded at an average of 8.6% over the past 4 years. It is much less dependant on the external markets than the Chinese economy. While some export demand compression is likely to put an additional burden on the exports of goods and services , it is unlikely to be significant as to depress growth. Despite a surge of value in the rupee against the dollar, higher interest rates and record global crude oil prices, policy makers are confident of maintaining growth momentum. On the other hand, the economy is slowing down faster than what was expected 2 months ago. For the current fiscal, even achieving a 7% growth would be a challenge. It is going to be tightrope walk for the finance ministry to sustain the pace of growth while controlling inflation.
The devil called Inflation
Asian countries are facing the inflation spiral, which was brought on by multiple upward pressures on prices compounded by supply constraints. The skyrocketing food and fuel prices are strong factors behind this surge in the rate of inflation; structural factors are also being at work. A report from Asian development Bank (ADB) suggests that behind the economic slowdown of the Asian region, infrastructure bottlenecks and skill shortages that are forcing up wages and prices are also playing a major part. At the same time , in some countries , money supply is expanding because of burgeoning current account surpluses and the accumulation of foreign reserves.
Inflation pressure is not limiting to Asia alone, it has become a global phenomenon. ADB urges policymakers to tackle inflation at its roots. For some economies it could mean a more flexible exchange rate. In others, fiscal spending and priorities could be scrutinized or measures taken to ease supply bottlenecks that are adding to cost pressures.
India’s steps
In the recent past RBI has raised interest rates repeatedly to restraint inflation and tightened bank’s reserve requirements. Interest rates at a six-year high impacted industrial production and restrained consumption demand. A slowdown in the industrial sector is serious as a healthy industrial sector is needed for better employment. Meanwhile, high interest rates have led to a stronger currency, making the country’s exports more expensive in the world markets. Export growth deceleration is very significant in rupee terms; 5.34% in the first half of this fiscal. Thus, going forward, further slowdown impacts the country’s GDP badly.
There is a great concern that the credit market crisis may make it tougher for the FIIs to invest in India. A slowdown in FDI investment on account of tightening global liquidity and higher domestic rate of interest are affecting the current investment boom. Also, the restrictions on easy accessibility of foreign funds and political uncertainty arising from the forthcoming elections are not conducive for investment demand. Besides, fears of global slowdown are bound to have an adverse impact on India.
Further….
China’s economic growth is driven by exports, while India’s growth is driven mostly by domestic demand. The government is still hopeful that the strong fundamentals of the economy would continue to attract significant investments in equity market from abroad. Attention could be paid to improve the infrastructure and make public sector –driven fundamental issues such as education and human resources more effective to sustain high growth. India’s infrastructure has so far been predominantly public-financed. The need of the hour is greater incentives towards public and private partnerships for infrastructure projects.
US recession implications
The recent World Bank report reveals that the economies of developing countries will not be directly affected over the next two years by either the US subprime mortgage crisis or a US economic recession. Developing countries would feel the impact , but it would be overshadowed by the domestic dynamism that we are seeing in countries such as India, China and other Asian countries. Like in India, technology is responsible for the strong economic performance. On the whole , a slowdown in the developed economies may not have a major impact on the domestic economy. On, the flip side, the pressure on prices of oil, food and other raw materials is likely to continue making inflation management a challenging task this current fiscal.
The way Ahead
India expanded at an average of 8.6% over the past 4 years. It is much less dependant on the external markets than the Chinese economy. While some export demand compression is likely to put an additional burden on the exports of goods and services , it is unlikely to be significant as to depress growth. Despite a surge of value in the rupee against the dollar, higher interest rates and record global crude oil prices, policy makers are confident of maintaining growth momentum. On the other hand, the economy is slowing down faster than what was expected 2 months ago. For the current fiscal, even achieving a 7% growth would be a challenge. It is going to be tightrope walk for the finance ministry to sustain the pace of growth while controlling inflation.
The Wall Street.
Wall Street's acid test
Is this the financial apocalypse the world has been dreading since the subprime crisis first hit the global economy more than a year ago? Or is there more to come? That’s the question uppermost on most minds as nothing the US administration does, including the once-unthinkable nationalisation of two big financial institutions, Fannie Mae and Freddie Mac, seems able to stem the slide. If only we could be sure this is indeed apocalypse then maybe we could hope the worst is behind us and expect things to improve. Unfortunately the world has no such luxury — instead there is mind-numbing uncertainty about how many more financial giants may finally go down (and drag economies down with them) as the crisis unravels. Monday’s announcements by Lehman Brothers Holdings, once the bluest of investment banks, that it would file for Chapter 11 bankruptcy protection, and by Bank of America that it had agreed to buy Merrill Lynch in an all-stock deal worth $50 billion only add to the sense of foreboding. It remains to be seen whether the sale of Merrill and the controlled demise of Lehman will be enough to finally turn the tide in the financial crisis that has crippled Wall Street. Reports that American International Group, (AIG) the largest US insurer by assets and Washington Mutual, the largest S&L institution are also seeking Fed support suggest it might not. There is also the danger that the winding down of the 158-year-old investment bank could expose other banks to losses on Lehman’s assets, risking more bank failures even as the Federal Deposit Insurance Corporation exhausts its reserves, raising the spectre of a repeat of the savings and loan meltdown. The only difference is that this time the rest of the world is hitched on to the US economy in a way that was not the case earlier. Inevitably the ripple effects are being felt in markets round the world. The sensex dropped more than 5% in the first 15 minutes of trading (the market finally closed 470 points down at 13,531) and the rupee fell to 46.08 as US financial woes added to fear psychosis created by bomb attacks in the Capital on Saturday. Fortunately many Asian markets were closed, else the carnage might have been much worse. How events will finally pan out is hard to predict but they are bound to hit the broader US economy and the world, including India, pretty hard.
Rescue act
On Tuesday the Reserve Bank of India joined the global rescue act mounted by central banks across the world. Unlike the US Fed which is in the ignominious position of having to bail out one financial institution after another, the latest being insurance giant AIG, RBI’s rescue act was far less drastic. It is aimed at addressing liquidity fears. Thus banks in need of funds will be allowed to borrow more from the RBI, if necessary by holding less than the mandated 25% of deposits that banks need to hold in approved (primarily government) securities, or SLR (statutory liquidity ratio). Banks will also be given temporary access to additional funds through a second LAF (liquidity adjustment facility) auction. At the same time, in a bid to check downward pressure on the rupee that ended Tuesday at 46.93 to the dollar, it assured market players it would ensure adequate supply of dollars. Its move to raise the interest ceiling on non-resident deposits, both rupee and dollar-denominated is of a piece with this since higher rates will increase inflows from non-residents. On paper, its multi-pronged attack has the right touch, aimed at calming frazzled nerves without going overboard. But whether it will have to be followed up with more aggressive steps (a cut in interest rates a la the People’s Bank of China) remains to be seen. Much will depend on whether the US government’s bid to contain the ongoing financial tsunami succeeds. The decision to shore up AIG by agreeing to lend up to $85 billion in emergency funds in return for a stake of 79.9% and effective control of the world’s largest insurer is a marked departure from the hands-off approach to Sunday’s collapse of Lehman Bros. But then the US administration had no choice. Whether this will reduce ‘already significant levels of financial market fragility’ and ward off ‘materially weaker US economic performance’ remains to be seen. The Fed is clearly hopeful, which is why it held the Fed funds rate (indicative overnight interbank rate) unchanged at 2% in its meeting on Tuesday. Unfortunately, it has been wrong-footed before. For the moment, then, the RBI will have to wait and watch.
Is this the financial apocalypse the world has been dreading since the subprime crisis first hit the global economy more than a year ago? Or is there more to come? That’s the question uppermost on most minds as nothing the US administration does, including the once-unthinkable nationalisation of two big financial institutions, Fannie Mae and Freddie Mac, seems able to stem the slide. If only we could be sure this is indeed apocalypse then maybe we could hope the worst is behind us and expect things to improve. Unfortunately the world has no such luxury — instead there is mind-numbing uncertainty about how many more financial giants may finally go down (and drag economies down with them) as the crisis unravels. Monday’s announcements by Lehman Brothers Holdings, once the bluest of investment banks, that it would file for Chapter 11 bankruptcy protection, and by Bank of America that it had agreed to buy Merrill Lynch in an all-stock deal worth $50 billion only add to the sense of foreboding. It remains to be seen whether the sale of Merrill and the controlled demise of Lehman will be enough to finally turn the tide in the financial crisis that has crippled Wall Street. Reports that American International Group, (AIG) the largest US insurer by assets and Washington Mutual, the largest S&L institution are also seeking Fed support suggest it might not. There is also the danger that the winding down of the 158-year-old investment bank could expose other banks to losses on Lehman’s assets, risking more bank failures even as the Federal Deposit Insurance Corporation exhausts its reserves, raising the spectre of a repeat of the savings and loan meltdown. The only difference is that this time the rest of the world is hitched on to the US economy in a way that was not the case earlier. Inevitably the ripple effects are being felt in markets round the world. The sensex dropped more than 5% in the first 15 minutes of trading (the market finally closed 470 points down at 13,531) and the rupee fell to 46.08 as US financial woes added to fear psychosis created by bomb attacks in the Capital on Saturday. Fortunately many Asian markets were closed, else the carnage might have been much worse. How events will finally pan out is hard to predict but they are bound to hit the broader US economy and the world, including India, pretty hard.
Rescue act
On Tuesday the Reserve Bank of India joined the global rescue act mounted by central banks across the world. Unlike the US Fed which is in the ignominious position of having to bail out one financial institution after another, the latest being insurance giant AIG, RBI’s rescue act was far less drastic. It is aimed at addressing liquidity fears. Thus banks in need of funds will be allowed to borrow more from the RBI, if necessary by holding less than the mandated 25% of deposits that banks need to hold in approved (primarily government) securities, or SLR (statutory liquidity ratio). Banks will also be given temporary access to additional funds through a second LAF (liquidity adjustment facility) auction. At the same time, in a bid to check downward pressure on the rupee that ended Tuesday at 46.93 to the dollar, it assured market players it would ensure adequate supply of dollars. Its move to raise the interest ceiling on non-resident deposits, both rupee and dollar-denominated is of a piece with this since higher rates will increase inflows from non-residents. On paper, its multi-pronged attack has the right touch, aimed at calming frazzled nerves without going overboard. But whether it will have to be followed up with more aggressive steps (a cut in interest rates a la the People’s Bank of China) remains to be seen. Much will depend on whether the US government’s bid to contain the ongoing financial tsunami succeeds. The decision to shore up AIG by agreeing to lend up to $85 billion in emergency funds in return for a stake of 79.9% and effective control of the world’s largest insurer is a marked departure from the hands-off approach to Sunday’s collapse of Lehman Bros. But then the US administration had no choice. Whether this will reduce ‘already significant levels of financial market fragility’ and ward off ‘materially weaker US economic performance’ remains to be seen. The Fed is clearly hopeful, which is why it held the Fed funds rate (indicative overnight interbank rate) unchanged at 2% in its meeting on Tuesday. Unfortunately, it has been wrong-footed before. For the moment, then, the RBI will have to wait and watch.
SAAS `software as a service' model’
Can you imagine changing your car every quarter?" the car buyer generally keeps the same model for at least half a decade. This is regarded as a sound investment as the user takes ownership of the car for a long term.
Software, however, changes every three months. So it would make sense for the provider to license the software only for three or more months at a lower price, and allow the user the freedom to look for better software or choose an update from the provider
Enter SaaS or `software as a service.' SaaS is a method of selling software in which a vendor or service provider hosts the applications and makes them available to customers as a service, rather than as a product. The fundamental idea remains constant: instead of buying and installing expensive packages (enterprise applications), users can now access them over a network, with an Internet browser being the only absolute necessity. Termed as an irreversible phenomenon, this model is set to flip India's software makers on their side and give the consumer control. For it allows you to do all the work that you ever do on your regular computer (home or office) using any computer in the world as long as it is connected to the Internet.
Portal to your data
"It is the portal to your enterprise data: your browser is now the only thing you need to access all critical office information," says Jeremy Cooper, vice-president, marketing, Asia-Pacific, Salesforce.com, a Web site that offers enterprise resource planning (ERP) and customer relationship management (CRM) applications online.
Enterprises that need CRM had to previously spend lakh on licenses, training and implementation. Now, with a few clicks, they can get under way, thanks to Web-based firms such as Salesforce.com that host the software at their offices, allowing the buyer to access the information over the Internet, using a browser.
With high economic growth perceived in the small and medium segments, coupled with large enterprises consolidating their IT investments, software licenses will soon have to vie for attention alongside software as a service, adds Kiran Datar, Managing Director, WebEx Communications India.
WebEx offers conferencing applications online and is one of the pioneering firms offering software via this model. Tata Consultancy Services is also adopting the software as a service model. Initiatives include the offer of a core-banking system (FNS) for cooperative and regional rural banks online and plans to extend the model to its suite of products in the insurance, healthcare and retail spaces.
Opportunities in India
India and China have been ranked as having the greatest potential in the mid to long-term future by `software as a service' application vendors. The market for this is expected to grow to $48 million by 2008
Application areas
Currently, the software as a service model is gaining traction in both generic applications such as CRM, HR/Payroll as well as the more specialized chip design industry.
"It is expected that the market for enterprise resource planning, supply chain management and human resources applications will grow significantly, opening up new opportunities for on-demand vendors," say analysts. E-learning and conferencing are also expected to take off with its adoption. Online banking and share trading would offer an opportunity to use the SaaS model. One of the innovative trends noticed by experts is the use of software as a service in publishing. With the increasing availability of e-books that can be bought and read on the Internet, this concept would probably see book lovers opting for the online medium.
Saving on costs
By adopting SaaS-based applications for certain business processes, small and medium businesses can reduce capital investment (which they might incur in terms of setting up huge infrastructure, resources, software licenses, maintenance/upgrade costs and skilled IT manpower, if they buy and run similar applications within their premises)
Feedback mechanism
An advantage of the concept highlighted by Datar of WebEx is the ingrained feedback mechanism giving more power to the lay user: SaaS users can constantly provide a stream of feedback on what's working and what's not. With `software as a service', the average Indian can use custom versions of the big software packages at affordable costs. One example is TCS's webhealthcenter.com, which offers professional medical advice reachable to anybody with access to a PC. The Rent-a-software model is bound to work as it did in other markets — from real estate to cars to video-cassettes and DVDs
Benefits of 'Software as a Service'
Software as a Service (SaaS) is an emergent mechanism of delivering software applications to customers over the Internet. Software as a Service or On Demand software can be implemented rapidly and eliminates the infrastructure and ongoing costs that traditional applications require. cyn.in offers all the following advantages of Software as a Service.
Low cost of entry
As opposed to on premise software, SaaS is delivered to organizations as a subscription model, usually billed on a per user per month basis. This means that the costs are granular in nature and are incurred only as long as benefits are achieved. This does away with the enormously large upfront payments and massive annual license fees. cyn.in offers a simple pay as you go pricing with no long term contractual requirements.
Zero Infrastructure - Reduced Overheads
Since the application is hosted by the service provider, investing in expensive infrastructure is no longer required. All large initial investments on hardware, licenses, databases, ongoing overheads of employing and training IT staff, software and hardware maintenance and upgrades are minimized.
Cost-effective Infinite Scalability
The pay as you go model of SaaS, gives the customer the freedom to adapt to the changing usage of the software, on demand. For example: You can buy the application for two employees to start with and then after a few months decide to adapt it for a department of 10 people, and on achieving measurable benefits, the software can be provided to the entire organization of say 5,000 users. Software delivered as services provide all of this scalability, without requiring customers to plan for it.
Focus internal IT initiatives only on direct, line of business technology
SaaS strategy not only eliminates the need for additional IT infrastructure spends, it substantially takes the burden off your internal IT staff. With the SaaS advantage, your staff does not have to manage upgrades, troubleshoot problems for generic software applications. This helps the company to direct limited in-house IT resources towards more business oriented initiatives.
Platform Independence
SaaS based solutions are hosted centrally with the service provider. No software to be installed at the customer€™s premises. The software can be accessed on the Internet via a browser only. On Demand applications can be used by Windows, Linux or Mac users, providing true platform independence.
Software, however, changes every three months. So it would make sense for the provider to license the software only for three or more months at a lower price, and allow the user the freedom to look for better software or choose an update from the provider
Enter SaaS or `software as a service.' SaaS is a method of selling software in which a vendor or service provider hosts the applications and makes them available to customers as a service, rather than as a product. The fundamental idea remains constant: instead of buying and installing expensive packages (enterprise applications), users can now access them over a network, with an Internet browser being the only absolute necessity. Termed as an irreversible phenomenon, this model is set to flip India's software makers on their side and give the consumer control. For it allows you to do all the work that you ever do on your regular computer (home or office) using any computer in the world as long as it is connected to the Internet.
Portal to your data
"It is the portal to your enterprise data: your browser is now the only thing you need to access all critical office information," says Jeremy Cooper, vice-president, marketing, Asia-Pacific, Salesforce.com, a Web site that offers enterprise resource planning (ERP) and customer relationship management (CRM) applications online.
Enterprises that need CRM had to previously spend lakh on licenses, training and implementation. Now, with a few clicks, they can get under way, thanks to Web-based firms such as Salesforce.com that host the software at their offices, allowing the buyer to access the information over the Internet, using a browser.
With high economic growth perceived in the small and medium segments, coupled with large enterprises consolidating their IT investments, software licenses will soon have to vie for attention alongside software as a service, adds Kiran Datar, Managing Director, WebEx Communications India.
WebEx offers conferencing applications online and is one of the pioneering firms offering software via this model. Tata Consultancy Services is also adopting the software as a service model. Initiatives include the offer of a core-banking system (FNS) for cooperative and regional rural banks online and plans to extend the model to its suite of products in the insurance, healthcare and retail spaces.
Opportunities in India
India and China have been ranked as having the greatest potential in the mid to long-term future by `software as a service' application vendors. The market for this is expected to grow to $48 million by 2008
Application areas
Currently, the software as a service model is gaining traction in both generic applications such as CRM, HR/Payroll as well as the more specialized chip design industry.
"It is expected that the market for enterprise resource planning, supply chain management and human resources applications will grow significantly, opening up new opportunities for on-demand vendors," say analysts. E-learning and conferencing are also expected to take off with its adoption. Online banking and share trading would offer an opportunity to use the SaaS model. One of the innovative trends noticed by experts is the use of software as a service in publishing. With the increasing availability of e-books that can be bought and read on the Internet, this concept would probably see book lovers opting for the online medium.
Saving on costs
By adopting SaaS-based applications for certain business processes, small and medium businesses can reduce capital investment (which they might incur in terms of setting up huge infrastructure, resources, software licenses, maintenance/upgrade costs and skilled IT manpower, if they buy and run similar applications within their premises)
Feedback mechanism
An advantage of the concept highlighted by Datar of WebEx is the ingrained feedback mechanism giving more power to the lay user: SaaS users can constantly provide a stream of feedback on what's working and what's not. With `software as a service', the average Indian can use custom versions of the big software packages at affordable costs. One example is TCS's webhealthcenter.com, which offers professional medical advice reachable to anybody with access to a PC. The Rent-a-software model is bound to work as it did in other markets — from real estate to cars to video-cassettes and DVDs
Benefits of 'Software as a Service'
Software as a Service (SaaS) is an emergent mechanism of delivering software applications to customers over the Internet. Software as a Service or On Demand software can be implemented rapidly and eliminates the infrastructure and ongoing costs that traditional applications require. cyn.in offers all the following advantages of Software as a Service.
Low cost of entry
As opposed to on premise software, SaaS is delivered to organizations as a subscription model, usually billed on a per user per month basis. This means that the costs are granular in nature and are incurred only as long as benefits are achieved. This does away with the enormously large upfront payments and massive annual license fees. cyn.in offers a simple pay as you go pricing with no long term contractual requirements.
Zero Infrastructure - Reduced Overheads
Since the application is hosted by the service provider, investing in expensive infrastructure is no longer required. All large initial investments on hardware, licenses, databases, ongoing overheads of employing and training IT staff, software and hardware maintenance and upgrades are minimized.
Cost-effective Infinite Scalability
The pay as you go model of SaaS, gives the customer the freedom to adapt to the changing usage of the software, on demand. For example: You can buy the application for two employees to start with and then after a few months decide to adapt it for a department of 10 people, and on achieving measurable benefits, the software can be provided to the entire organization of say 5,000 users. Software delivered as services provide all of this scalability, without requiring customers to plan for it.
Focus internal IT initiatives only on direct, line of business technology
SaaS strategy not only eliminates the need for additional IT infrastructure spends, it substantially takes the burden off your internal IT staff. With the SaaS advantage, your staff does not have to manage upgrades, troubleshoot problems for generic software applications. This helps the company to direct limited in-house IT resources towards more business oriented initiatives.
Platform Independence
SaaS based solutions are hosted centrally with the service provider. No software to be installed at the customer€™s premises. The software can be accessed on the Internet via a browser only. On Demand applications can be used by Windows, Linux or Mac users, providing true platform independence.
M-COMMERCE-----Making life faster and smooth.
Rohit was returning to Kolkata from Mumbai completing a tour. Suddenly, it struck in his mind that tomorrow is their first wedding anniversary and he has not got anything for his love. He was directly going to home and has not got enough time to buy anything. He then took out his mobile and browsed through the options and ordered a beautiful necklace to be delivered by tomorrow at his address.
-----End of scene 1.
Mayank was leaving for an important meeting some other day while he remembered that it’s the last day to pay the premium of the Life Insurance of this quarter including the penalty period. He cannot afford to cancel the meeting or rely on somebody else to pay the premium. He then took out his mobile and using it paid the premium while on the move.
-----End of scene 2.
Anu was returning from Singapore to kolkata and she wanted to attend her sister’s wedding the next day at Lucknow. She desperately wanted to book a ticket of the flight. She took out her mobile and simply booked the ticket.
-----End of scene 3.
This is a very small view of the power of M-Commerce or Mobile commerce that the India vis-à-vis the whole world is going to enjoy very soon. Now let me throw some light on the various aspects of M-Commerce.
What is M-Commerece?
M-Commerce or Mobile Commerce is any transaction, involving the transfer of ownership or rights to use goods and services, which is initiated and/or completed by using mobile access to computer-mediated networks with the help of an electronic device.
Fields of application :
Mobile purchase
Mobile banking
Mobile ticketing
Information services
Content purchase and delivery
Mobile brokerage
Auctions
---These are only a few applications to name……in fact you can imagine anything you like to add in this list,that is the power of M-Commerce,which is why it is sometimes rightly called U-Commerce or Ubiquitous commerce.
Mobile Purchase: Mobile purchase allows customer to shop online anytime, in any location using a mobile phone.Customers can browse order and pay using their mobile phone or any other mobile device.
It will be a safe transaction. The features of such transaction will be ----
Unique username/password
Flexible subscription period
External authentication option
Simple integration
Secure authentication of users
Cross service marketing
Simple opt-out for customers
Mobile Banking : Banks are also exploring the use of M-Commerce to allow their customer to transact also apart from checking the status of the accounts only.
Mobile Ticketing: The on the move booking of tickets will make the traveling much faster, flexible and hustle free. Tickets can be sent to mobile phones using a variety of technologies . Users are then able to use their tickets immediately by presenting their phones at the venue. Moreover, the tourism industry will flourish better than ever using this mantra of m-commerce.
Mobile Brokerage: Stock market services offered via mobile devices have also become more popular and are known as Mobile Brokerage. They allow the subscriber to react to market developments in a timely fashion and irrespective of their physical location.
Information services : A wide variety of information services can be delivered to mobile phone users in much the same way as it is delivered to PCs. These services include:
news services
stock data
sports results
financial records
traffic data and information
Particularly, more customized traffic information, based on users' travel patterns, will be multicast on a differentiated basis, instead of broadcasting the same news and data to all Users. This type of multicasting will be suited for more bandwidth-intensive mobile equipment.
Auctions : Over the past three years mobile reverse auction solutions have grown in popularity. Unlike traditional auctions, the reverse auction (or low-bid auction) bills the consumer's phone each time they place a bid.
Future of M-Commerce :
The m-commerce service at the very outset requires 3G or more mobile service,which is getting started in India in mid 2009.And there are more than 300 million existing mobile users in the market place.It is expected that the number is going to increase over 500 million by 2010.So,we can see how large and promising the market can be.More over this m-commerce can create employment. That is emerging entrepreneurs can include their products or concepts in the m-commerce chain,which will cause them to grow more and create employment in turn.
Conclusion :
M-Commerce is taking the world of commerce and economy to the next level,a much faster and flexible world of trade.But to make it all successful a perfect balance and synchronization between application developers, financial institution and mobile phone network is elemental.A very well supported infrustructure is also neede for its boom.Lastly,simplicity coupled with the idea of developing the trust with audiences is the key to proliferation of M-Commerce.
-----End of scene 1.
Mayank was leaving for an important meeting some other day while he remembered that it’s the last day to pay the premium of the Life Insurance of this quarter including the penalty period. He cannot afford to cancel the meeting or rely on somebody else to pay the premium. He then took out his mobile and using it paid the premium while on the move.
-----End of scene 2.
Anu was returning from Singapore to kolkata and she wanted to attend her sister’s wedding the next day at Lucknow. She desperately wanted to book a ticket of the flight. She took out her mobile and simply booked the ticket.
-----End of scene 3.
This is a very small view of the power of M-Commerce or Mobile commerce that the India vis-à-vis the whole world is going to enjoy very soon. Now let me throw some light on the various aspects of M-Commerce.
What is M-Commerece?
M-Commerce or Mobile Commerce is any transaction, involving the transfer of ownership or rights to use goods and services, which is initiated and/or completed by using mobile access to computer-mediated networks with the help of an electronic device.
Fields of application :
Mobile purchase
Mobile banking
Mobile ticketing
Information services
Content purchase and delivery
Mobile brokerage
Auctions
---These are only a few applications to name……in fact you can imagine anything you like to add in this list,that is the power of M-Commerce,which is why it is sometimes rightly called U-Commerce or Ubiquitous commerce.
Mobile Purchase: Mobile purchase allows customer to shop online anytime, in any location using a mobile phone.Customers can browse order and pay using their mobile phone or any other mobile device.
It will be a safe transaction. The features of such transaction will be ----
Unique username/password
Flexible subscription period
External authentication option
Simple integration
Secure authentication of users
Cross service marketing
Simple opt-out for customers
Mobile Banking : Banks are also exploring the use of M-Commerce to allow their customer to transact also apart from checking the status of the accounts only.
Mobile Ticketing: The on the move booking of tickets will make the traveling much faster, flexible and hustle free. Tickets can be sent to mobile phones using a variety of technologies . Users are then able to use their tickets immediately by presenting their phones at the venue. Moreover, the tourism industry will flourish better than ever using this mantra of m-commerce.
Mobile Brokerage: Stock market services offered via mobile devices have also become more popular and are known as Mobile Brokerage. They allow the subscriber to react to market developments in a timely fashion and irrespective of their physical location.
Information services : A wide variety of information services can be delivered to mobile phone users in much the same way as it is delivered to PCs. These services include:
news services
stock data
sports results
financial records
traffic data and information
Particularly, more customized traffic information, based on users' travel patterns, will be multicast on a differentiated basis, instead of broadcasting the same news and data to all Users. This type of multicasting will be suited for more bandwidth-intensive mobile equipment.
Auctions : Over the past three years mobile reverse auction solutions have grown in popularity. Unlike traditional auctions, the reverse auction (or low-bid auction) bills the consumer's phone each time they place a bid.
Future of M-Commerce :
The m-commerce service at the very outset requires 3G or more mobile service,which is getting started in India in mid 2009.And there are more than 300 million existing mobile users in the market place.It is expected that the number is going to increase over 500 million by 2010.So,we can see how large and promising the market can be.More over this m-commerce can create employment. That is emerging entrepreneurs can include their products or concepts in the m-commerce chain,which will cause them to grow more and create employment in turn.
Conclusion :
M-Commerce is taking the world of commerce and economy to the next level,a much faster and flexible world of trade.But to make it all successful a perfect balance and synchronization between application developers, financial institution and mobile phone network is elemental.A very well supported infrustructure is also neede for its boom.Lastly,simplicity coupled with the idea of developing the trust with audiences is the key to proliferation of M-Commerce.
Tuesday, November 18, 2008
The fall of Financial Giants
(Lehman bros story)
The biggest financial pandemic since the Great Depression roared through the USA and many parts of the world. Lehman Brothers and Merrill Lynch, the storied symbols of American money might no longer exist as they existed some days ago. Lehman Brothers, the 158-year old investment bank has filed for bankruptcy; Merrill Lynch, the premier brokerage and Wall Street’s third largest bank has agreed to be subsumed into Bank of America. Merrill worth $100 billion last year will sell itself for $50billion to Bank Am. To top it all, American International group (AIG) has asked the Fed to for an emergency loan of $40billion.If the appeal is turned down then AIG may have a few days for its survival.
Lehman Bros- How could such a big player like it fall?
Financial markets can be cruel and punishing at times. More so, if an institution is overleveraged-when loan and investment books are much , much bigger than its capital. What compounds the problem are strange accounting practice and high risk nature of loans and investments. There are also disclosure issues- Lehman, in its last conference with the investors did not give any clue that it was on the brink.
The Crisis build-up
An investment bank uses its proprietary book (own money) to lend others and invest. It started with the subprime crisis. Banks like Lehman, buy mortgage loans from other banks and then package them to sell bonds against the loan pool. Often they add cash to make the loan pool more attractive, so that the bonds can be sold at a higher price. Suppose mortgage was earning 6% and these bonds were sold at 4%. The difference is the spread which the investment bank earns. By selling these structured bonds, it raises money and frees capital. But when the homebuyers started defaulting , these bonds started losing value. It began all like this and spread like a virus across all markets. But according to the layman investment banks play only an advisory role. They do it, they also organize big loans for their clients for funding acquisitions. At times, they take up positions only to palm off securities to other clients and banks. In a crisis, they may not get the opportunity to down sell such positions . This adds to the panic.
How does this domino effect play out?
Suppose Lehman has to pay a bank from which it has borrowed. If it sells the mortgage-backed loans whose prices have fallen, it will not raise that much money as was earlier expected. So, it sells some of the other good assets or bonds which may have nothing to do with mortgages. But since the bank has started to dump these assets , prices of these bonds also dip. This is when the crisis spreads from subprime to prime.
Now, its effect on the balance sheet is attributed to the strange accounting of bonds and derivatives like mortgage-backed securities. All banks are required to mark to-market (MTM) their investments. So, if the price of an instrument falls, the difference between the prices it was bought and the current market price has to be provided-meaning, it has to be deducted from the earnings. So, a drop in the prices leads to a drop in MTM. But there’s a big problem which has really deepened the crisis. An MTM loss can be provided only if there’s a “MARKET”. The reason being that its very different from checking the price of a stock from the stock exchange website.
Many of the instruments are over-the counter derivatives, which are stuck over stuck on a one-to-one basis between the two parties. Suppose, a derivative is linked to variables like the yen-dollar rate , and may be prices of other activity traded assets, say gold price and US Treasury bills. What the bank does is construct a model, feeds the available market price of these variables to the computer to arrive at what the derivatives price could or should be. This is called mark-to-model.
The trouble is when the bank actually goes out to sell the derivatives; it discovers that there are no takers. Even if there are buyers they are willing to play only a fraction. In other words, there is a sea of difference between the price that is offered in the market and the high artificially generated price thrown up by the model. So, when the bank ends up selling the instrument or unwinding derivatives, the loss suffered is far in excess of the mark-to-model loss. Such extra losses on thousand of securities and multiple portfolios can wipe out the capital of the bank.
Nature of instruments-
There are collateralized debt obligations (CDOs), credit default swaps (CDSs) and all kinds of derivatives. CDOs are asset (or loan)-backed securities, while CDSs are like a guarantee. Say Bank A lends to a corporate but is unwilling to take the full credit risk. So, Bank A enters into a CDS deal with Bank B; under this , Bank B promises to pay Bank A if the corporate defaults. The money that Bank B earns for this is the CDS premium, which is similar to insurance premium. Now, if the markets turn choppy, risks go up and so does the CDS premium. So, bank B which is earning a lower premium has to promote a mark-to market loss against the CDS position.
So, what is the solution?
No easy answer to that. Maybe, some of the accounting norms need to be changed, so that the definition of MTM gets narrowed down. Besides, to stop banks from going overboard, capital requirement may have to be raised for derivatives position. But all this may be easier said than done.
The Lehman Story in a Nutshell-
Lehman’s slow collapse began as the mortgage market crisis unfolded during the summer of 2007. Its stock began a steady fall from a peak of $82 a share. The fears were based on the fact that the firm was a major player in the market for sub prime and prime mortgages. Lehman managed to avoid the fate of Bear Stearns, which was bought by JP Morgan Chase at a bargain basement price under the threat of bankruptcy. Lehman & Bear Stearns had some similarities. Both had relatively small balance sheets, they were heavily dependent on the mortgage market and they relied heavily on the repo market or the repurchase market most often used as a short term financing tool.
On June 9, 2008 Lehman announced a second quarter loss of $2.8 billion, far higher than analysts predicted. The situation became worse after the government announced on September 8 a take over of Fannie Mae and Freddie Mac. Lehman’s stock plunged as the markets wondered whether the move to save those mortgage giants made it less likely that Lehman might be bailed out. Treasury secretary Henry M. PaulsonJr. And Fed officials did encourage other financial institutions to buy Lehman, but by the end of the weekend, two main suitors Barclay’s and Bank of American, had both said no. Lehman had reached the end of line.
Effects of Lehman’s fall:
The move by Lehman Brothers Holdings, the fourth largest investment bank to file for bankruptcy in the US, will impact partly the country’s largest private bank-ICICI Bank. It will have to take a hit of $28 million on account of the additional provisioning that ICICI Bank’s UK subsidiary will have to make. During this quarter, it pared its Credit default swaps (CDS) exposures to overseas corporates from $65 million to $80 million. Some of the larger state owned banks are also likely to take small hits because of marked-to-market provisioning on their overseas investments.
Regulators in various markets are trying to ring fence their institutions from Lehman. RBI has barred Lehman Indian arm from remitting money to the parent, while Japan’s Financial Services agency has ordered Lehman to retain sufficient assets in Japan to cover its liabilities in the country.
Lehman Bros. won federal court approval to sell its North American business to Barclays Plc for $1.75 billion.
The Bush administration is asking the Congress to let the government buy$700 billion in toxic mortgages in the largest financial bailout since the Great Depression. (updated till 21.09.08)
The biggest financial pandemic since the Great Depression roared through the USA and many parts of the world. Lehman Brothers and Merrill Lynch, the storied symbols of American money might no longer exist as they existed some days ago. Lehman Brothers, the 158-year old investment bank has filed for bankruptcy; Merrill Lynch, the premier brokerage and Wall Street’s third largest bank has agreed to be subsumed into Bank of America. Merrill worth $100 billion last year will sell itself for $50billion to Bank Am. To top it all, American International group (AIG) has asked the Fed to for an emergency loan of $40billion.If the appeal is turned down then AIG may have a few days for its survival.
Lehman Bros- How could such a big player like it fall?
Financial markets can be cruel and punishing at times. More so, if an institution is overleveraged-when loan and investment books are much , much bigger than its capital. What compounds the problem are strange accounting practice and high risk nature of loans and investments. There are also disclosure issues- Lehman, in its last conference with the investors did not give any clue that it was on the brink.
The Crisis build-up
An investment bank uses its proprietary book (own money) to lend others and invest. It started with the subprime crisis. Banks like Lehman, buy mortgage loans from other banks and then package them to sell bonds against the loan pool. Often they add cash to make the loan pool more attractive, so that the bonds can be sold at a higher price. Suppose mortgage was earning 6% and these bonds were sold at 4%. The difference is the spread which the investment bank earns. By selling these structured bonds, it raises money and frees capital. But when the homebuyers started defaulting , these bonds started losing value. It began all like this and spread like a virus across all markets. But according to the layman investment banks play only an advisory role. They do it, they also organize big loans for their clients for funding acquisitions. At times, they take up positions only to palm off securities to other clients and banks. In a crisis, they may not get the opportunity to down sell such positions . This adds to the panic.
How does this domino effect play out?
Suppose Lehman has to pay a bank from which it has borrowed. If it sells the mortgage-backed loans whose prices have fallen, it will not raise that much money as was earlier expected. So, it sells some of the other good assets or bonds which may have nothing to do with mortgages. But since the bank has started to dump these assets , prices of these bonds also dip. This is when the crisis spreads from subprime to prime.
Now, its effect on the balance sheet is attributed to the strange accounting of bonds and derivatives like mortgage-backed securities. All banks are required to mark to-market (MTM) their investments. So, if the price of an instrument falls, the difference between the prices it was bought and the current market price has to be provided-meaning, it has to be deducted from the earnings. So, a drop in the prices leads to a drop in MTM. But there’s a big problem which has really deepened the crisis. An MTM loss can be provided only if there’s a “MARKET”. The reason being that its very different from checking the price of a stock from the stock exchange website.
Many of the instruments are over-the counter derivatives, which are stuck over stuck on a one-to-one basis between the two parties. Suppose, a derivative is linked to variables like the yen-dollar rate , and may be prices of other activity traded assets, say gold price and US Treasury bills. What the bank does is construct a model, feeds the available market price of these variables to the computer to arrive at what the derivatives price could or should be. This is called mark-to-model.
The trouble is when the bank actually goes out to sell the derivatives; it discovers that there are no takers. Even if there are buyers they are willing to play only a fraction. In other words, there is a sea of difference between the price that is offered in the market and the high artificially generated price thrown up by the model. So, when the bank ends up selling the instrument or unwinding derivatives, the loss suffered is far in excess of the mark-to-model loss. Such extra losses on thousand of securities and multiple portfolios can wipe out the capital of the bank.
Nature of instruments-
There are collateralized debt obligations (CDOs), credit default swaps (CDSs) and all kinds of derivatives. CDOs are asset (or loan)-backed securities, while CDSs are like a guarantee. Say Bank A lends to a corporate but is unwilling to take the full credit risk. So, Bank A enters into a CDS deal with Bank B; under this , Bank B promises to pay Bank A if the corporate defaults. The money that Bank B earns for this is the CDS premium, which is similar to insurance premium. Now, if the markets turn choppy, risks go up and so does the CDS premium. So, bank B which is earning a lower premium has to promote a mark-to market loss against the CDS position.
So, what is the solution?
No easy answer to that. Maybe, some of the accounting norms need to be changed, so that the definition of MTM gets narrowed down. Besides, to stop banks from going overboard, capital requirement may have to be raised for derivatives position. But all this may be easier said than done.
The Lehman Story in a Nutshell-
Lehman’s slow collapse began as the mortgage market crisis unfolded during the summer of 2007. Its stock began a steady fall from a peak of $82 a share. The fears were based on the fact that the firm was a major player in the market for sub prime and prime mortgages. Lehman managed to avoid the fate of Bear Stearns, which was bought by JP Morgan Chase at a bargain basement price under the threat of bankruptcy. Lehman & Bear Stearns had some similarities. Both had relatively small balance sheets, they were heavily dependent on the mortgage market and they relied heavily on the repo market or the repurchase market most often used as a short term financing tool.
On June 9, 2008 Lehman announced a second quarter loss of $2.8 billion, far higher than analysts predicted. The situation became worse after the government announced on September 8 a take over of Fannie Mae and Freddie Mac. Lehman’s stock plunged as the markets wondered whether the move to save those mortgage giants made it less likely that Lehman might be bailed out. Treasury secretary Henry M. PaulsonJr. And Fed officials did encourage other financial institutions to buy Lehman, but by the end of the weekend, two main suitors Barclay’s and Bank of American, had both said no. Lehman had reached the end of line.
Effects of Lehman’s fall:
The move by Lehman Brothers Holdings, the fourth largest investment bank to file for bankruptcy in the US, will impact partly the country’s largest private bank-ICICI Bank. It will have to take a hit of $28 million on account of the additional provisioning that ICICI Bank’s UK subsidiary will have to make. During this quarter, it pared its Credit default swaps (CDS) exposures to overseas corporates from $65 million to $80 million. Some of the larger state owned banks are also likely to take small hits because of marked-to-market provisioning on their overseas investments.
Regulators in various markets are trying to ring fence their institutions from Lehman. RBI has barred Lehman Indian arm from remitting money to the parent, while Japan’s Financial Services agency has ordered Lehman to retain sufficient assets in Japan to cover its liabilities in the country.
Lehman Bros. won federal court approval to sell its North American business to Barclays Plc for $1.75 billion.
The Bush administration is asking the Congress to let the government buy$700 billion in toxic mortgages in the largest financial bailout since the Great Depression. (updated till 21.09.08)
3G mobile communications systems in India
3G mobile communications systems, due to succeed to the Present 2G such as the GSM, will be able to provide users with a large range of high throughput capacity multimedia Services and applications. These new possibilities will be founded upon three main innovations: founded upon three main innovations:
• Broadband radio-frequency access allowing rates up
to 2 Mbit/s;
• Intelligent network (IN) architecture allowing to
create a single access mode to the services for the
user whatever the network he uses, and to provide
numerous supplementary services;
• Convergence between fixed and mobile networks
(FMC) is in progress.
Considering the multimedia nature of the services envisaged, it is to be expected that alliances will be set up between the actors of several industries: telecommunications,
computer and audio-visual industries [2]. For developing a new mobile service based on 3G a huge investment is required. Therefore, it is necessary to have a
market study and understand what costumers need.
India will soon join the elite club of countries that have 3G mobile services with Mahanagar Telephone Nigam (MTNL) setting up India’s first 3G networks in Delhi and Mumbai. The network will have a capacity of 4m lines and will be operational next year. First, the basics. The total investment in the project will be to the tune of Rs 4,000 crore. The company has already started discussions with equipment suppliers.
On August 1, 2008, India joined the elite list of countries to announce a policy for third generation mobile service that will enable customers to enjoy voice, video, data and downloading facilities on theirThe much-awaited 3G policy would allow up to 10 players in a service area including foreign companies. India has 60 MHz of 3G spectrum available. The auction will take place in the 2.1 GHz band. The government has set a base price of Rs 2,020 crore (Rs 20.20 billion) for each bid for a pan-India license. Initially, there will be three to five operators to sell the 3G services, including state-run BSNL and MTNL. The state-run telecom firms have an edge to start the 3G services earlier than others as they do not have to bid for the spectrum as they only have to match the highest bid in their respective circles.
There is no firm date set for the auction of 3G spectrum, but it is likely to take place before February 2009 since the government may need the money to keep its deficit within control; current estimates put the initial entry fee bids that the government will get at anywhere between Rs 30,000 crore (Rs 300 billion) and Rs 40,000 crore (Rs 400 billion). In that case, by about December 2009, India may get broadband-type internet speeds on mobile phones. That, in turn, will allow users to view movies on their mobile phones, conduct video telephony while on the move, and so on. How do 3G services help us? 3G services enable video broadcast and data-intensive services such as stock transactions, e-learning and telemedicine through wireless communications All telecom operators are waiting to launch 3G in India to cash in on revenues by providing high-end services to customers, which are voice data and video enabled. India lags behind many Asian countries in introducing 3G services. Packet-based data provides several advantages over the existing circuit-switched techniques used for carrying mobile voice. It allows higher call volumes and support for multimedia data applications, such as video and photography. Users will be charged on how much data they transmit, not on how much time they are connected to the network, because with 3G you are constantly online and only pay for the information you receive
Cheaper, and better, phones With 3G mobile services, which provide high-speed downloads of data, movies and videos, around six month away, mobile phone makers are getting ready to offer handsets for as little as Rs 3,500, against the currently available minimum price of over Rs 8,000. Chinese telecom giant Huawei Technologies is already in talks with leading Indian operators of GSM mobile services to sell a 3G entry-level phone within $80 to $100. South Korean electronics giant LG Electronics has the KU250 3G phone model, which is positioned as one of the cheapest phones in this category around the globe. "We will launch an adaptation of this model in India for around $100. Motorola India also expects prices to fall dramatically. It expects the prices of phones to come down to Rs 4,000-5,000. Motorola has about three 3G models that range from Rs 14,000 to Rs 19,000. Also, contrary to common belief, 3G will not be a premium service. Operators said a start-up package could cost around Rs 299, which is roughly what consumers pay for a fixed broadband service. Unlimited downloading may require subscribers to pay Rs 500 to Rs 1,000 a month.How is 3G different from 2G and 4G? While 2G stands for second-generation wireless telephone technology, 1G networks used are analog, 2G networks are digital and 3G (third-generation) technology is used to enhance mobile phone standards. While 2G is focused on voice, 3G supports high-speed data of at least 144 kbps enabling broadband Internet access on the mobile, and 'triple play' features like mobile TV and converged communication services. 3G helps to simultaneously transfer both voice data (a telephone call) and non-voice data (such as downloading information, exchanging e-mail, and instant messaging. The highlight of 3G is video telephony. 4G technology stands to be the future standard of wireless devices. Currently, Japanese company NTT DoCoMo and Samsung are testing 4G communication. What are the issues regarding 3G for providers and users? 3G has successfully been introduced in Europe. But several issues continue to hamper its growth. High spectrum licensing fees for the 3G services. Huge capital required to build infrastructure for 3G services. Health impact of electromagnetic waves. Prices are very high for 3G mobile services. Will 2G users switch to 3G services? Takes time to catch up as the service is new. In how many countries does 3G exist? There are about 60 3G networks across 25 countries. In Asia, Europe and the United States, telecom firms use Wideband Code Division Multiple Access (WCDMA) technology. The WCDMA standard provides seamless global evolution from today's GSM with support of the worlds' largest mobile operators. WCDMA technology is built on open standards, wide ranging mobile multimedia possibility, and vast potential economies of scale with the support of around 100 terminal designs to operate 3G mobile networks. 3G services were introduced in Europe in 2003. In which country was 3G spectrum first introduced? Japan was the first country to introduce 3G on a large commercial scale. In 2005, about 40 per cent of subscribers used only 3G networks. It is expected that during 2006 the subscribers would move from 2G to 3G and upgrade to the next 3.5 G level. The success of 3G in Japan also shows that video telephony was the killer application for 3G networks. Downloading music was the biggest draw in 3G services. India, which has 287 million wireless subscribers, saw its mobile user base grow 25 times in the last five years making it the second largest wireless market in the world after China.
For the geeks, here’s what the tech-tonic shift is all about: 3G services allow high-speed mobile broadband access at a speed of more than 386 kbps. This will be a techie’s dream come true. 3G technology enables you to work out of your mobile instrument. It becomes your work station with high-speed bandwidth enabling video downloads and other critical functions. Mobile subscribers in India will soon have access to wireless applications and the internet at broadband speeds with the latest 3G CDMA devices. 3G services have already become popular in Japan, UK, Hong Kong, Australia, Sweden and Denmark. NTT DoCoMo has a subscriber base of more than 3.5m in Japan. Swedish mobile service provider ‘3’ has a subscriber base of 350,000 in Sweden and Denmark, adding around 150,000 customers since mid-August. In UK, Hutchison is the 3G service provider. 3G services enable high data applications. Therefore, the average revenue per user from 3G subscribers is more than that of ordinary mobile subscribers. Internationally, revenues from 3G services is about 60% higher than that of ordinary mobile services.
• Broadband radio-frequency access allowing rates up
to 2 Mbit/s;
• Intelligent network (IN) architecture allowing to
create a single access mode to the services for the
user whatever the network he uses, and to provide
numerous supplementary services;
• Convergence between fixed and mobile networks
(FMC) is in progress.
Considering the multimedia nature of the services envisaged, it is to be expected that alliances will be set up between the actors of several industries: telecommunications,
computer and audio-visual industries [2]. For developing a new mobile service based on 3G a huge investment is required. Therefore, it is necessary to have a
market study and understand what costumers need.
India will soon join the elite club of countries that have 3G mobile services with Mahanagar Telephone Nigam (MTNL) setting up India’s first 3G networks in Delhi and Mumbai. The network will have a capacity of 4m lines and will be operational next year. First, the basics. The total investment in the project will be to the tune of Rs 4,000 crore. The company has already started discussions with equipment suppliers.
On August 1, 2008, India joined the elite list of countries to announce a policy for third generation mobile service that will enable customers to enjoy voice, video, data and downloading facilities on theirThe much-awaited 3G policy would allow up to 10 players in a service area including foreign companies. India has 60 MHz of 3G spectrum available. The auction will take place in the 2.1 GHz band. The government has set a base price of Rs 2,020 crore (Rs 20.20 billion) for each bid for a pan-India license. Initially, there will be three to five operators to sell the 3G services, including state-run BSNL and MTNL. The state-run telecom firms have an edge to start the 3G services earlier than others as they do not have to bid for the spectrum as they only have to match the highest bid in their respective circles.
There is no firm date set for the auction of 3G spectrum, but it is likely to take place before February 2009 since the government may need the money to keep its deficit within control; current estimates put the initial entry fee bids that the government will get at anywhere between Rs 30,000 crore (Rs 300 billion) and Rs 40,000 crore (Rs 400 billion). In that case, by about December 2009, India may get broadband-type internet speeds on mobile phones. That, in turn, will allow users to view movies on their mobile phones, conduct video telephony while on the move, and so on. How do 3G services help us? 3G services enable video broadcast and data-intensive services such as stock transactions, e-learning and telemedicine through wireless communications All telecom operators are waiting to launch 3G in India to cash in on revenues by providing high-end services to customers, which are voice data and video enabled. India lags behind many Asian countries in introducing 3G services. Packet-based data provides several advantages over the existing circuit-switched techniques used for carrying mobile voice. It allows higher call volumes and support for multimedia data applications, such as video and photography. Users will be charged on how much data they transmit, not on how much time they are connected to the network, because with 3G you are constantly online and only pay for the information you receive
Cheaper, and better, phones With 3G mobile services, which provide high-speed downloads of data, movies and videos, around six month away, mobile phone makers are getting ready to offer handsets for as little as Rs 3,500, against the currently available minimum price of over Rs 8,000. Chinese telecom giant Huawei Technologies is already in talks with leading Indian operators of GSM mobile services to sell a 3G entry-level phone within $80 to $100. South Korean electronics giant LG Electronics has the KU250 3G phone model, which is positioned as one of the cheapest phones in this category around the globe. "We will launch an adaptation of this model in India for around $100. Motorola India also expects prices to fall dramatically. It expects the prices of phones to come down to Rs 4,000-5,000. Motorola has about three 3G models that range from Rs 14,000 to Rs 19,000. Also, contrary to common belief, 3G will not be a premium service. Operators said a start-up package could cost around Rs 299, which is roughly what consumers pay for a fixed broadband service. Unlimited downloading may require subscribers to pay Rs 500 to Rs 1,000 a month.How is 3G different from 2G and 4G? While 2G stands for second-generation wireless telephone technology, 1G networks used are analog, 2G networks are digital and 3G (third-generation) technology is used to enhance mobile phone standards. While 2G is focused on voice, 3G supports high-speed data of at least 144 kbps enabling broadband Internet access on the mobile, and 'triple play' features like mobile TV and converged communication services. 3G helps to simultaneously transfer both voice data (a telephone call) and non-voice data (such as downloading information, exchanging e-mail, and instant messaging. The highlight of 3G is video telephony. 4G technology stands to be the future standard of wireless devices. Currently, Japanese company NTT DoCoMo and Samsung are testing 4G communication. What are the issues regarding 3G for providers and users? 3G has successfully been introduced in Europe. But several issues continue to hamper its growth. High spectrum licensing fees for the 3G services. Huge capital required to build infrastructure for 3G services. Health impact of electromagnetic waves. Prices are very high for 3G mobile services. Will 2G users switch to 3G services? Takes time to catch up as the service is new. In how many countries does 3G exist? There are about 60 3G networks across 25 countries. In Asia, Europe and the United States, telecom firms use Wideband Code Division Multiple Access (WCDMA) technology. The WCDMA standard provides seamless global evolution from today's GSM with support of the worlds' largest mobile operators. WCDMA technology is built on open standards, wide ranging mobile multimedia possibility, and vast potential economies of scale with the support of around 100 terminal designs to operate 3G mobile networks. 3G services were introduced in Europe in 2003. In which country was 3G spectrum first introduced? Japan was the first country to introduce 3G on a large commercial scale. In 2005, about 40 per cent of subscribers used only 3G networks. It is expected that during 2006 the subscribers would move from 2G to 3G and upgrade to the next 3.5 G level. The success of 3G in Japan also shows that video telephony was the killer application for 3G networks. Downloading music was the biggest draw in 3G services. India, which has 287 million wireless subscribers, saw its mobile user base grow 25 times in the last five years making it the second largest wireless market in the world after China.
For the geeks, here’s what the tech-tonic shift is all about: 3G services allow high-speed mobile broadband access at a speed of more than 386 kbps. This will be a techie’s dream come true. 3G technology enables you to work out of your mobile instrument. It becomes your work station with high-speed bandwidth enabling video downloads and other critical functions. Mobile subscribers in India will soon have access to wireless applications and the internet at broadband speeds with the latest 3G CDMA devices. 3G services have already become popular in Japan, UK, Hong Kong, Australia, Sweden and Denmark. NTT DoCoMo has a subscriber base of more than 3.5m in Japan. Swedish mobile service provider ‘3’ has a subscriber base of 350,000 in Sweden and Denmark, adding around 150,000 customers since mid-August. In UK, Hutchison is the 3G service provider. 3G services enable high data applications. Therefore, the average revenue per user from 3G subscribers is more than that of ordinary mobile subscribers. Internationally, revenues from 3G services is about 60% higher than that of ordinary mobile services.
CHINDIA Rising : A global threat or boon
The 20th century belonged to the advanced economies, but the 21st, economists believe, will be driven by the emerging ones. Among the large emerging economies such as Brazil, Russia, Nigeria and Indonesia, it is the rise of China and India (Chindia) which will have (and already has) enormous business implications during the first half of this Century mostly beneficial to the world.
Rise of Chindia : Global Relief and Benefits
First, both nations will require enormous natural resources because not only are they manufacturing and service centers of the world, but because of their own rapidly expanding domestic consumer markets. And this demand for natural and industrial resources such as oil, gas, coal, copper, bauxite, aluminum, iron and steel will be for many years. Since a vast majority of these untapped resources are in other dormant or emerging economies in Africa, Caribbean, Latin America, Central Asia and Russia, the rise of Chindia will create economic boom for them which otherwise did not happen for nearly 200 years of colonial rule.
Second, the global integration of China and India will be radically different. India's economy and enterprises will be globally integrated especially with other advanced countries (Europe, US, Canada, UK, Australia, Singapore, Japan, South Korea) through large scale acquisitions of well established and well respected foreign companies with technology, branding and manufacturing assets. The journey has already begun with Mittal Steel's acquisition of Arcelor, Tata Steel's acquisition of Corus Steel, and Hindalco's acquisition of Novelis (largest North American sheet aluminum company). And it will not be limited to industrial raw materials and to private enterprises of India. For example, several large public sector units (PSUs) of India such as ONGC (Oil and Natural Gas Corporation), Indian oil and SBI (State Bank of India), who have the domestic scale and capital reserve, are starting to fl ex their acquisition muscles. In other words, India will contribute to global growth as much, if not more, through revitalizing and investing in Western assets as it would through growth of its domestic consumer markets.
On the other hand, China's growth will be proportionately more domestic and only on a selective basis through global acquisitions. This is due to several reasons. First, China has begun to focus on domestic demand especially in consumer markets such as consumer electronics, appliances, automobiles and financial services. It has the physical infrastructure as well as large scale domestic state-owned enterprises such as Haier, Lenovo, China Mobil, Petro China and China Development Bank to capitalize on domestic demand.
Second, the advanced world seems less willing to sell their assets to China (especially technology assets) due to myopic misperceptions about the peaceful rise of China (in contrast to rise of India).
For example, Chinese oil company, CNOOC's attempt to buy Unocal as well as Haier's (the largest Chinese appliance company) attempt to buy Maytag Company in the US, met with political resistance. The obvious exception is IBM's sale of its personal computer (PC) business to Lenovo.
China v/s India : The Comparison
China has a 20-year lead time. Reforms in China started in 1976-78, whereas in India, they started in 1991 — what we call India’s Second Independence. Now, in China, the government runs like a corporation — a corporate state. India is a democracy — its policies are based on democratic viewpoints. The speed at which India makes its decisions is slower — it comes only after several rounds of debates. China doesn’t allow that, and thus things happen at a faster pace. For instance, infrastructure development in China has been much faster than in India.
But according to analysis Chinese economy will start plateauing by 2035, probably sooner. The main reason is that by then China will become very affluent, and its population will be ageing. Its growth will start slowing down, just as it happened in the case of Japan, Western Europe or even the US. Checking the population growth rate — the one-child policy that it put in place — is going to come in the way.
If we extrapolate, presuming things will work out, between now and 2035, India will be able to build infrastructure — which can help add 1.5 to 2 per cent additional GDP, with no inflation. Infrastructure investment has always been non-inflationary. By 2035, India will have good infrastructure, though it may not be world-class. Infrastructure means, financial and human capital infrastructure, which includes education and health of its people.
China will plateau, but by then it will become the number one economy in the world. The US will be number two and India will be number three or four, depending upon how the EU will function as an economy. India would be number three, but it does have the potential to become number one or two in the long term.If you take the economies of India and China as 100 per cent, China is 90 per cent and India is 10. But by 2035, India’s share will increase to about 40 per cent or even more. It’s not because India would do better, but primarily because China will lose its edge in terms of population growth. Another reason is that China will not remain self-sufficient in agriculture — it just does not have enough land mass that is irrigable. So China will always be a net importer of food and fuel. India is likely to remain self-sufficient in food because of its fertile land.
Threats from China
There are signs that Chindia especially China is allocating more priority to resources for its military than it has done in recent years. Currently it spends about half the amount the UK does on defence. Military pay may be considerably below that enjoyed by British troops, but the funds still have to be found for nearly 2.5 million soldiers, sailors and airmen: over ten times as many as the UK fields. The Chinese announced that their defence budget is to enjoy an 18% rise. At the same time the new US Administration is signalling that it will be reshaping its defence policy to focus on the emerging threat that China poses to the Asian region. All of this sounds like the opening rounds of a new Cold War with China taking the place of the Soviet Union. There seem to be wrong assessments both in Beijing and in Washington.
Conclusion
Let alone all the political concerns looming with China and US, the rise of Chindia is definitely an advantageous situation for the global scenario. Soon the largest trading bloc will be Asia especially with free trade with India. This will require formation of a new currency comparable to the Euro; and it will become the dominant currency of the world similar to the rise of the dollar as a global currency after World War I. While the global integration paths taken by China and India will be different, their impact on businesses worldwide either as suppliers, customers, partners or competitors will be beneficial and enormous. In fact, it is no exaggeration to state that the future survival of most admired enterprises from all advanced economies including the United States, Canada, Europe, Australia, Japan, and South Korea will depend on how quickly they participate in ensuring rise of China and India even if they have to distance from their own government's politics and public opinion.
Rise of Chindia : Global Relief and Benefits
First, both nations will require enormous natural resources because not only are they manufacturing and service centers of the world, but because of their own rapidly expanding domestic consumer markets. And this demand for natural and industrial resources such as oil, gas, coal, copper, bauxite, aluminum, iron and steel will be for many years. Since a vast majority of these untapped resources are in other dormant or emerging economies in Africa, Caribbean, Latin America, Central Asia and Russia, the rise of Chindia will create economic boom for them which otherwise did not happen for nearly 200 years of colonial rule.
Second, the global integration of China and India will be radically different. India's economy and enterprises will be globally integrated especially with other advanced countries (Europe, US, Canada, UK, Australia, Singapore, Japan, South Korea) through large scale acquisitions of well established and well respected foreign companies with technology, branding and manufacturing assets. The journey has already begun with Mittal Steel's acquisition of Arcelor, Tata Steel's acquisition of Corus Steel, and Hindalco's acquisition of Novelis (largest North American sheet aluminum company). And it will not be limited to industrial raw materials and to private enterprises of India. For example, several large public sector units (PSUs) of India such as ONGC (Oil and Natural Gas Corporation), Indian oil and SBI (State Bank of India), who have the domestic scale and capital reserve, are starting to fl ex their acquisition muscles. In other words, India will contribute to global growth as much, if not more, through revitalizing and investing in Western assets as it would through growth of its domestic consumer markets.
On the other hand, China's growth will be proportionately more domestic and only on a selective basis through global acquisitions. This is due to several reasons. First, China has begun to focus on domestic demand especially in consumer markets such as consumer electronics, appliances, automobiles and financial services. It has the physical infrastructure as well as large scale domestic state-owned enterprises such as Haier, Lenovo, China Mobil, Petro China and China Development Bank to capitalize on domestic demand.
Second, the advanced world seems less willing to sell their assets to China (especially technology assets) due to myopic misperceptions about the peaceful rise of China (in contrast to rise of India).
For example, Chinese oil company, CNOOC's attempt to buy Unocal as well as Haier's (the largest Chinese appliance company) attempt to buy Maytag Company in the US, met with political resistance. The obvious exception is IBM's sale of its personal computer (PC) business to Lenovo.
China v/s India : The Comparison
China has a 20-year lead time. Reforms in China started in 1976-78, whereas in India, they started in 1991 — what we call India’s Second Independence. Now, in China, the government runs like a corporation — a corporate state. India is a democracy — its policies are based on democratic viewpoints. The speed at which India makes its decisions is slower — it comes only after several rounds of debates. China doesn’t allow that, and thus things happen at a faster pace. For instance, infrastructure development in China has been much faster than in India.
But according to analysis Chinese economy will start plateauing by 2035, probably sooner. The main reason is that by then China will become very affluent, and its population will be ageing. Its growth will start slowing down, just as it happened in the case of Japan, Western Europe or even the US. Checking the population growth rate — the one-child policy that it put in place — is going to come in the way.
If we extrapolate, presuming things will work out, between now and 2035, India will be able to build infrastructure — which can help add 1.5 to 2 per cent additional GDP, with no inflation. Infrastructure investment has always been non-inflationary. By 2035, India will have good infrastructure, though it may not be world-class. Infrastructure means, financial and human capital infrastructure, which includes education and health of its people.
China will plateau, but by then it will become the number one economy in the world. The US will be number two and India will be number three or four, depending upon how the EU will function as an economy. India would be number three, but it does have the potential to become number one or two in the long term.If you take the economies of India and China as 100 per cent, China is 90 per cent and India is 10. But by 2035, India’s share will increase to about 40 per cent or even more. It’s not because India would do better, but primarily because China will lose its edge in terms of population growth. Another reason is that China will not remain self-sufficient in agriculture — it just does not have enough land mass that is irrigable. So China will always be a net importer of food and fuel. India is likely to remain self-sufficient in food because of its fertile land.
Threats from China
There are signs that Chindia especially China is allocating more priority to resources for its military than it has done in recent years. Currently it spends about half the amount the UK does on defence. Military pay may be considerably below that enjoyed by British troops, but the funds still have to be found for nearly 2.5 million soldiers, sailors and airmen: over ten times as many as the UK fields. The Chinese announced that their defence budget is to enjoy an 18% rise. At the same time the new US Administration is signalling that it will be reshaping its defence policy to focus on the emerging threat that China poses to the Asian region. All of this sounds like the opening rounds of a new Cold War with China taking the place of the Soviet Union. There seem to be wrong assessments both in Beijing and in Washington.
Conclusion
Let alone all the political concerns looming with China and US, the rise of Chindia is definitely an advantageous situation for the global scenario. Soon the largest trading bloc will be Asia especially with free trade with India. This will require formation of a new currency comparable to the Euro; and it will become the dominant currency of the world similar to the rise of the dollar as a global currency after World War I. While the global integration paths taken by China and India will be different, their impact on businesses worldwide either as suppliers, customers, partners or competitors will be beneficial and enormous. In fact, it is no exaggeration to state that the future survival of most admired enterprises from all advanced economies including the United States, Canada, Europe, Australia, Japan, and South Korea will depend on how quickly they participate in ensuring rise of China and India even if they have to distance from their own government's politics and public opinion.
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