Financial Planning - The 5 Best Investment Of All Time

Every individual in this world is assumed to be a rational decision maker who is never satiated with his resources. In this globalized competitive world people have increasingly become conscious about their financial wellbeing and materialistic in nature. The lifestyle of people over the years has become more tedious who work hard to keep pace with the continuous dynamic competitive environment. All over the world, people have got well acquainted with the liberalized world and they have started to enter the work space early and are very serious about their personal, professional and financial goals. Young people are more aware about the world they live in and so set out to start life early with long term goals. The global economy is presently undergoing serious economic changes in the last few years and the recent recession has taught us, we can expect more such crisis in the future for a positive change and also how to avoid or sail through such times of economic hardships. So in such a changing environment it is important to put your savings into investment that would yield reasonable returns for your hard earned money to meet your various financial goals. Here are few tested investment strategies that would help you plan your investment portfolio according to your needs.

1. Stocks: Equity shares or stocks are the best pick of all time. The best investment plan for high returns is equity linked investment. If you closely observe the investment portfolio arranged by any financial mentor, it will have a heavy share for equity. Though investment in equity is bound to give you high returns it is subjected to market risks and are highly uncertain because of the volatile nature of the stock market. Thus those who are risk appetite or risk lover can go for equity investment because it is bound to give you huge losses or high yields based on the overall performance of the market. When you focus on high returns on investment, equity focused portfolio is essential which is aggressive in nature. Even an aggressive investment portfolio should be well balanced to mitigate the risks to a certain degree. So equity investment is ideal for those who set out to plan their financial goals early and are in their mid 30s or 40s. On the other hand for those who are nearing their retirement unless you have huge savings and liquid cash it is advisable not to invest in stocks. Though you have saved more during your work life it is good to go for other investment avenues like pension funds, bank FDs, diversified equity linked mutual funds etc. than stocks. If you are still insisted to invest in stocks, have small share for equity. Equity investment is for long term so it is important to keep your money invested in stocks atleast for more than 5 years. Short term investment in equity will result in a big blunder which you might regret later. The returns are given to you by the companies in whose shares you are invested in the form of dividends from their profits. So it is advisable to pick quality stocks that have shown good track records in the past and whose Earnings Per Share (EPS) is robust.

2.Mutual Funds: Sometimes one cannot choose the best stock in the market that offer high yields as lack of experience, in that case the investors can allow their fund manager to choose diversified stocks that tend to give decent returns. So it turns out to be that mutual funds are excellent investment vehicles for non-trained investors.The equity linked mutual funds are same as investing in equity shares but the only difference is that instead of buying shares directly you buy them through mutual fund units. Mutual funds are considered to be one of the best investment avenues as they tend to invest your money in various diversified stocks. A mutual fund investment portfolio may consist of many shares that give you good returns on your savings in the long term. For new investors mutual fund investment is the best and safest route to invest in equity as it is generally managed by experts of the share market. There are several advantages of investing in mutual funds. Some of them are they allow best investment diversification. The only thing that you need to look is keep your entry time right. Make sure that you don’t invest when the market is overvalued and let the market dip for a while to invest. Mutual funds can give you good returns than your own portfolio as it is managed by experts. Another easy route for non-trained investors is the Exchange Traded Funds (ETFs) which can be traded online just like equity shares. Some of the common mutual funds available are diversified equity funds, index funds, Exchange Traded Funds, Equity Linked Savings Scheme funds (ELSS) and sectoral funds.

3. Real Estate:The best investment avenue for risk neutral that can give fixed good returns is real estate. Returns from real estate investment may not be as good as equity but they are very reliable. The reasons to consider real estate investment are many. The real estate sector has just undergone a boom period as it resulted in huge profits for the investors across the globe. The returns of the real estate investment is very liquid as monthly rent and is very certain and predictable. The rental yield from the real estate investment only increases with increase in time. But the capital appreciation that you will get in the long term will compensate for the low yield in the initial years as real estate investment is considered to be an asset that creates wealth. Other fixed income investment plans for risk neutral investors are government securities, bonds and debt instruments.

4.Commodities: Commodity investment is termed as a best investment plan during inflationary situation or economic downturn. This includes investing in gold, silver, oil etc. Among these gold is the most sought after investment option of potential investors. Commodity futures are positively correlated with inflation. When the overall general price level rises commodity futures tend to rise as well. Sometimes commodity prices tend to rise during economic downturns as in the present situation. Thus, commodities can serve as a hedge against inflation, stock market and economic risk. But investment in commodities is always not the best way for all types of investors though they are less risky than stocks as their yields are highly volatile and uncertain. Commodities and stocks tend to have a negative correlation and this is very evident from the recent financial crisis. The performance of commodities and stock are opposite in direction over the time. When stock prices go down, commodities tend to move up and vice versa. Thus, a portfolio invested in stocks and commodities is likely to experience less volatility than a portfolio that is comprised of only stocks during recession and economic slowdown.

5. Fixed Deposits: These are best investment option for risk averse investors as they provide you standard returns. This investment avenue is suitable for all types of investors; the reason being is its suitability as a risk free investment. In this type of investment you need to lock your money for a predefined period of time and the gross interest that you earn is quite reasonable. There are different types of fixed deposit investment plans namely deposit in banks, deposit with companies and Fixed maturity plans of mutual funds. The deposit in banks is the easy and common one when it comes to fixed returns. These days all savings accounts are linked with fixed deposit accounts and this makes it easy and convenient for you to transfer your money directly from your savings to FD account. The duration of the deposit period can range from few days to several years depending on the bank. The interest you will earn will depend on the principal value of investment and the tenure of the deposit.  You can also withdraw money when needed.  Remember the income generated from fixed deposits is taxable. The same goes with companies but they are a little riskier than bank FDs. The Fixed Maturity plans are offered by mutual fund companies where they ask you to invest your money in any of their fund for a certain period of time. In case of FMP of mutual funds be careful and read the documents and conditions clearly as there is growing number of fraudulent cases related to these plans.

Risk Lover                    Risk Neutral Risk Averse 1.       Equity Investment 1.       Mutual Funds 1.       Bank Deposits 2. Futures 2.       Corporate Bonds 2.    Certificate of Deposits 3.       Forex Trading 3.       Exchange Traded Funds 3.       Government Bonds 4.       Debentures 4.       Gold        4.    National Saving Certificate 5.       Arts and collections 5.       Real Estate 5.       Public Provident Fund

The above mentioned investment plans are some of the common investment options that worked out quite well in times of economic volatility. These investment avenues have given reasonable returns on the long term. However, one has to understand that there is no thumb rule or a straight shot answer for a best investment plan for all types of investors at all time. Remember that a good investment portfolio consists a mix of various investment avenues in different proportions based on the degree of your risk taking behavior. When making investment decision a lot of factors need to be taken into account. Few of the important decision factors to consider are your investment horizon or time horizon, financial goals, market situation and finally your personal financial constraints. An investor can always expect good returns and create wealth by making wise investment decisions. Just be patient and consistent in your investment decisions. Good Luck!

India Growth Story

India a country with diverse background and rich culture has managed to stand apart and create a space for itself in the global arena. India is one country that has been under British rule for several long years and since independence we have grown tremendously on various fields. The pace and momentum of our growth have been quite reasonable considering the fundamental nature of our economy. India witnessed rapid growth since 1991 with new economic reforms and policies that made India realize its true potential role on the global stage. The new economic policy that opened way to a whole new world of trade and business development made India an emerging and desired nation with full of opportunities. The slow but steady transformation of our economy has helped us to survive in an age of increasing risks and crisis around the world. The Indian growth story is in no way seem to be a miracle, it took years for us to realize this development, we are only half way through and we still have a long way to go in achieving our dreams.

As a part of the emerging nation we know that India has grown leaps and bounds and was able to create a niche space on the global platform. The country has witnessed rapid changes from technological to infrastructural development, healthcare to space research, education to business development and so on and so forth. Gross Domestic Product (GDP) is the standard measure of growth and we have been able to achieve a highest GDP rate of above 9 percent. Over the years we have seen big changes in both manufacturing and service sector that contributed the GDP to rise. But is this what the real growth means? Does GDP alone tell us the real growth of an economy? The answer is no. GDP is just one of the indicators that could tell the actual growth of a nation. Standard of living, Cost of living, literacy rate and many other small factors would indicate the real development of a country. In this article we will look at the India’s growth story in two parts. In the first part we will see the growth of India in more generalized form, the factors that contributed to high GDP rates in the last few years, which is the sole concern of politicians and think is the true growth indicator. In the second part we will see how India has been growing in specified form, which highlights the true growth path of India.

The growth and economic development of India since independence have been robust. The Indian growth story is quite pragmatic compared to its other Asian counterparts. India not only sacrificed its resources and blood during the British rule but also gained and learned equally much from them. The railways, telegram and postal system are very good examples of what we gained from the Britishers and perseverance and unity is what we learned from the freedom struggle. The British rule has given India the boost of industrial revolution and urge to infrastructural development. Over the years, particularly after 1991 India has grown tremendously in industrial and manufacturing output. This has been the major growth driver followed by retail, FMCG and service sector in the recent years. India is tenth in the world in factory and manufacturing output. The economic reform introduced in 1991 brought increasing foreign competition resulting in a continuous dynamic nature of the economy. Post liberalization, the Indian market offers endless possibilities for foreign investors which encouraged the business scenario of our country. India is fifteenth in service industry where the Indian Information Technology industry contributing significantly to the balance of payments but accounts for only one percent of the total GDP. Post the new economic reform the Indian consumerism has seen heightened changes as people started to increase their spending pattern as a result of increasing disposable income.

India saw the beginning of the 21^st millennium as a new beginning of Indian economic development. It started to look for all the opportunities that would help accelerate the growth rate. It has managed to achieve a high growth in the last decade. The rural consumption demand has grown in the recent years and contributed significantly to the high GDP post the global crisis when the urban demand was declining. In the last eight years India achieved an average growth rate of 8.7 percent on the back of wide ranging structural and policy reforms and also growing integration with the global economy. By 2008 India was fourth largest economy in terms of Purchasing Power Parity (PPP), an economic theory that explains the long term equilibrium of exchange rates based on relative price level of the two countries. For a nation that once believed the Hindu rate of growth (low annual growth rate of a socialistic economy) was its destiny, this remarkable growth performance has triggered aspirations for double digit growth rate. On the progress of economic development India started to encourage private players who played a key role in India’s growth story, infrastructural development and foreign investment. As a result, India emerged as a potential player on the global platform. This paved way for increasing competition in the domestic market and scope for foreign trade. Though this high growth octane made India as one of the powerful emerging economy and helped see economic prosperity it has also come with some economic costs such as high inflation, trade deficit, widening CAD and weakening rupee as result of global turmoil. The once growing Indian economy is now facing declining GDP rates in the past two years as a result of increasing domestic and external pressures. The following graph shows the annual GDP in percentage since 2000.

India though has seen tremendous changes and growth it still lags behind many other developing nations on various fronts. One of the greatest problems of India is poverty. This one factor makes me wonder what is the use of India growing in terms of technological advancement, infrastructural development and high industrial production when a certain section of the society struggles even for one meal a day. India constitute a third of the world’s poor. In 2010 the World Bank reported that 32.7% of the total Indian population falls below the international poverty line. It is a great shame that even after 65 years of independence India still can’t eradicate poverty. The poverty in India is also primarily because of income and wealth inequality. The distribution of wealth is highly uneven in India contributing to the increasing poverty. The Ginni Index is a measure of income inequality and India as per 2011 has a Ginni coefficient of 35.6%.Unrealistic poverty line estimate also add to the woes. But there is some good news about the poverty. According to the recent National Sample Survey Organization (NSSO) the poverty levels across India is down by 15 percent in the past eight years. The findings stated that rural poverty declined at a faster rate than urban poverty. India is ranked at 134 out 234 countries in HDI. The HDI is a measure of education, health, standard of living and income parameters. India falls under the category of medium human development index. India despite rapid economic growth in the last decade has a very low per capita income making it the poorest country among the G20 nations.

On literacy, India is ranked at 168 out of 234 countries. On Quality of Life Index India ranks at 77 out of 111 countries. Corruption is one serious issue in India because of which development is stagnant and we are partially hidden from the potential growth. India ranks 95 out of 178 countries in corruption. The Organization for Economic Cooperation and Development for international student assessment program ranked India at 72 out of 73 on global educational survey on account of poor performance by the Indian students. The Indian education system has undergone serious criticism and the future development of the system is a matter of concern as India constitute more number of young population. The poor status of Indian education system is evident as none of our universities are ranked even among the top 200 global universities. India is also one of the countries with huge levels of pollution and carbon emissions. As an emerging nation it produces a large amount of industrial wastes and toxic materials causing severe environmental damages. Over the years in the process of achieving high growth we have ignored the nature around us by exploiting it which has a serious cost to pay. The recent Uttrakhand floods is an example of natural disaster caused by human intervention and exploitation rather than climate change. The OECD report also stated that it is very difficult doing business in India as result of slow clearance. India is ranked at 173 on this regard. Though, India was able to achieve a reasonable growth and witnessed rapid changes in infrastructural and economic development it has not generated equally much jobs because of which our unemployment rate is at 9.8 percent, much beyond many other Asian countries.

The Indian economy at present is undoubtedly at a mess with declining growth rate, depreciating rupee, high CPI inflation, poor investment outlook and widening CAD. No wonder India requires a restructuring in policy measures and decision making. Changes in policy reforms to revive India’s growth is the need of the hour. The Keynesian theory states that during economic downturn the government should increase its expenditure to compensate for the decline in the private demand for goods and services and during an economic boom the government should reduce its expenditure to make room for productive investment and consumption.  Some of the correctives recently desired are reliable laws, renewed investor confidence, more efficient government spending, rationalization of taxes, lower interest rates and perhaps more FDI. The latest hike in FDI cap in key sectors is a significant move in boosting investor confidence and improve the growth prospects. Rapid and inclusive growth in the medium term does not look too likely looking at the unattended constraints. But this current economic slowdown can be seen as an opportunity to grow with a new start as the 1997 Asian financial crisis served as an opportune for India to grow. The pessimism surrounding the economy and the downturn is also because India became too complacent as a country. India seriously needs to address the concerns of farmers and encourage agricultural production. Unless due importance is given to agriculture India can’t achieve inclusive and sustainable growth. India also ignored the needs of small producers not just farmers, who form the bulk of employment and production. We have simply focused on the big corporate guys leading to slow or falling productivity. The fastest way to raise the average productivity is to raise the productivity at the bottom. The present macroeconomic problem of twin deficit has also raised questions about the future growth trajectory of India. Hence to restart the engine of India’s growth story it is highly necessary to look at the issues at the bottom level and restructure our policy reforms to meet the various needs of all the economic agents.

Direct Benefit Transfer

The Direct Benefit Transfer (DBT) also known as the Direct Cash Transfer Scheme (DCT) is the recent ambitious national level policy of the UPA government. The direct cash transfer is an anti poverty program launched by the central government on January 1 2013. This program transfers the subsidies directly to the people living below the poverty line. This is one of the landmark programs of the congress that has received warm welcome by the country.  Cash transfers or direct transfer payment of money to the eligible people is the primary objective of the newly launched scheme. The congress, caught in a web of scams and scandal, this one comes along the way as an opportunity to get away from political opposition and criticism. The scheme with a genuine and helpful objective is bound to serve the nation greatly. Let us now see the overall structure of the policy and how it has been functioning since its inception.

Generally, cash transfer programmes in developing countries like India are constrained by three factors viz. financial resources, institutional capacity and ideology. These factors affect in targeting the people who are entitled to the scheme. This is because governments in developing countries tend to have restricted financial resources and are therefore limited in the amount they can invest both directly in cash transfers and in measures to ensure that such programmes are effective. However, this is a notable initiative taken by the government to directly serve the people in a more efficient manner. In many countries it is considered as a poverty reduction measure because government subsidies and other benefits are given directly to the beneficiaries in the form cash rather than subsidies. Several countries like Jamaica, Turkey, Chile, Mexico, Indonesia, South Africa and Morocco have adopted this system earlier in the form Conditional Cash Transfer (CCT). Under such programs direct cash is provided to poor families on condition that it is used for proper investments or attaining basic nutritional health care. But so far this is unconditional in the Indian case.

The Direct Cash Transfer in India is implemented by Aadhar program launched a few months back. According to which the residents of our country are provided with aadhar card which is a unique identity card by which all the benefits and subsidies amount is directly credited to the beneficiaries bank account using the Aadhar numbers. Such a transaction would result in transparency, fewer leakages and less chance to corruption. It would also develop the financial infrastructure of the country. The DBT scheme was first rolled out in the capital city, Delhi and soon covered other districts. The Direct cash Transfer scheme was initially rolled out in 51 districts. It was then later extended to 18 districts. In December 2012 UPA Chairperson Sonia Gandhi launched a similar cash transfer scheme in Delhi for a beneficiary scheme which provides Rs.600 per month to around six lakh families from economically weaker sections of the society. The launch was later dropped for certain reasons. One serious concern is that how is the amount determined under the DCT. The difference between the market price and the subsidized price is calculated and transferred in proportion to the quantity uplifted from the market. Presently 34 schemes have been identified in 43 districts to implement the DCT scheme.

The DCT policy would help poor access basic goods by reducing demand constraints. The transaction is a carried out by the guidance of a task force and hence is reliable. The commodity purchase and then the transfer of the cash subsidy to the target account will be based on authentication of the beneficiary through aadhar at a point of sale.  Currently, the government subsidizes certain products and services like food grains, fertilizers, education and healthcare by providing them at below the market price.  The scheme though a significant and welcoming one has its own pros and cons. The aadhar enabled direct cash transfer is transacted to only those people who have an UID bank account. This makes the process easier and excludes people who don’t have aadhar numbers but claim to get the subsidies. An aadhar enabled bank account can be used by the beneficiary to receive multiple welfare payments. The scheme eliminates the chances of rent seeking middlemen and also fake identities. It will reduce leakages and diversion of the intended subsidies. This would reduce the burden on the government revenue and cost structure thereby reducing the high fiscal deficit. The cash transferred to the target account will make them buy the goods and services  directly in the open market. This would make people to buy the goods and services at the market price thereby creating a healthy competitive environment. The DCT scheme through the aadhar system will also transfer the cash immediately avoiding delays that is usually an issue in India.  The scheme overall is said to increase the efficiency of the welfare programs. On the other hand the few disadvantages are there is a lack of clarity on whether the aadhar is mandatory. Targeting and identification of the right beneficiaries for the right subsidies is also a problem. The scheme as meant to transfer cash is also likely to lack privacy. India consist a huge number of adult illiterates as a consequence of which many people are unaware about the scheme and how to access it. Most of the BPL families in India don’t even have a bank account and several villages in India presently don’t have any bank branches. Finally, unlike in other countries, India has rolled out the cash transfer scheme in an unconditional way which allows people to wean away from the intended purpose and spend lavishly in an unhealthy way.

                                                                                    

An analysis of the scheme since its first roll out suggests that the DCT has helped the people in more than one way. The congress has also stated an election slogan to the scheme with ‘ Aapka paise aapke haath’ (your money in your hand). People regard it as one of the landmark and prestigious schemes of the government recently. The scheme has said to promote savings habit of many wise consumers. The DCT has provided many benefits to students and children by providing vocational training and scholarships. It is said that those villages in the remote areas where there are no bank branches are likely to get the cash by business correspondents. The scheme is also intended to promote flexible pricing system in the market. As of now it is said that only some small subsidies such as scholarships and pension funds have been given as promised. Other big welfare subsidies such as LPG, fuel and others are likely to come later by this year. The government is still working on to make the DCT scheme a more reliable and efficient scheme to remove the constraints in the administrative side and is also planning to set an authority to overlook the distribution system. The scheme so far is only in the nascent stage and has been partially functioning only in certain districts. Access to aadhar card is still working in many states and the scheme is to serve fully on a large scale when the process of creating UID bank account in all the states is complete. Meanwhile, the central government which is backing on the DBT being a gamechanger with an eye on the upcoming general election is bent on rolling out the scheme all over the country as soon as possible. At the end of the day the political dividends of implementing the scheme are much less important than the real dividends.

Food Security Bill

The National Food Security Bill (NFSB) is one of the flagship programs of the UPA government. It is the election promise made by the congress while taking office in 2009.  The idea of implementing the scheme as desired on the national level started in 2010 following the recommendations of Sonia Gandhi, chairperson of the National Advisory Council (NAC). The government soon on her request started to look into the implications of the program under an expert committee lead by Dr. C. Rangarajan as suggested by the Prime Minister Dr. Manmohan Singh. The Food Security Bill was then finally introduced in the Lok Saba on December 2011.The main objective of the bill is to provide food and basic nutritional security to the deserving by ensuring adequate quantity and quality food at affordable prices to people to live life with dignity.

A country can be healthy only if its people are healthy and productive. India as an emerging nation needs to address the health issue seriously to move on to the development path. This has taken a view by seeing the poor health status of her people. India’s high economic growth rate in the past decade has not been fully reflected in the health status of its people, with 22 percent of people undernourished. According to the National Family Health Survey 2005-06, 40.4 per cent of children under the age of three are underweight, 33 per cent of women in the age group of 15-49 have a body mass index below normal and 78.9 per cent of children in the age group of 6-35 months are anaemic. These are disturbing statistics which point to the nutritional deficiencies. The NAC proposal for a National Food Security Bill is perhaps the most important national effort yet to address these deficiencies in India.

The food security mission is said to increase the production and productivity of wheat, rice and pulses on a sustainable basis so as to ensure food security of the country. The food security bill gives two categories of people the right to get food grains at affordable prices namely the priority households and general households. The problem is with identifying a priority household. Priority household will be entitled to 7Kg food grains per person and general household not less than 3Kg. The priority household will also get access to coarse grain for one rupee, wheat for Rs. 2 and rice for Rs. 3 per kg. The basic structure of the bill is to provide subsidized food grains to at least 75% of the country’s population, 90% in rural area and 50% in urban area. The bill has promised that in the first phase food entitlement will be extended to 72 percent of the population and in the final phase to be completed before March 31 2014; full coverage of food entitlement to 75 percent of the population will be ensured. The bill is said to provide legal entitlements for children, destitute and other vulnerable groups. The National Food Security Bill is to be implemented through the Public Distribution System (PDS).

So now that the basic objective of the NFSB is said and cleared let us analyze whether the proposed bill by the UPA government is feasible and bound to achieve its desired results. A country with a huge population, any policy that concerns the public and one that is of public interest needs attention as it is mostly seen as a just another election game played by the politicians to get votes. First, we all know that India presently faces a tough political uncertainty that may call off the general election anytime soon maybe even by this year. No wonder the congress is in a hurry to implement the scheme hastily before the election as promised. Will a policy that is said to address the poor and mass of the population implemented among such criticism and chaos reach and achieve its full objective? The answer is no because many of the policies implemented earlier on such occasions has been a failure.

Given the fact that the bill is proposed to reach on the national level, the first question arises is that is it not extravagant to subsidize food for such a large part of the population when the poor constitute only 30 percent of the population? India is already running a high fiscal deficit and current account deficit. Not only that, India also faces many other serious macroeconomic challenges, sluggish growth and weakening rupee. So in such a scenario isn’t wise for the congress do something to improve the economy rather than running madly to pass the bill successfully? The proposed food security bill would cost the government $23 billion a year and take a third of the annual grain production. Official projections are that it would cost close to 1.5% of the GDP. But even in the most pessimistic case our GDP is expected to grow only by 5% in the near future. This would hurt the already swollen budget deficit of India next year increasing the risk of the rating agencies to downgrade its investment status. If the bill is passed, India needs as much as 1.3 trillion next year, adding to a total subsidy burden that already eats upto 2.4% of GDP. The international oil and coal prices are likely to rise and don’t seem to come down in the short run. The domestic coal production is also weak and coal India is struggling to meet the growing demand. This has already proved costly for the fuel and fertilizer subsidy. The higher imports results in higher prices and will eventually affect the agricultural sector and farmers who is dependent on fertilizers to enhance his production and is the primary supplier to achieve the objectives of the NFSB. The extra cost would be further translated by spending cuts and higher taxes which is not a healthy way of achieving a sustainable development.

In a bid to reduce the fiscal deficit to 4.8 percent of the GDP in the current fiscal, the finance minister has laid out a budget targeting an efficient allocation by the plan and non plan expenditure. The food subsidy has hence been postponed curbing the financial cost. Another important aspect is the distribution system, India already has 54.7 million tonnes of rice and wheat as stocks with the centre and states. Due to the poor storage facilities the piled up stock will get rot and wasted. By piling up huge volumes of grain stock, the government reduces the supply in the open market, putting upward pressures on the prices. Since the scheme is to be passed through the PDS there will exist leakages and corruption as the government holds the control over the grain trade. Another problem is the exclusion, some people do not have access to ration card and hence subsidized food, from which arouse horrifying reports of starvation. The primary problem is also with identifying the beneficiaries. The government often talks about the poor as if it is well defined group but that is hardly the case. The official poverty threshold is low and many people above the poverty line are also poor and look like people below the poverty line. As a result, there is no reliable way in which subsidies can be targeted to people only below the official threshold.

The government among much criticism and argument is still sticking up with the bill and has now taken an ordinance route to pass the bill in the next parliament session. One point to be noted here is that many Indian states like Tamil Nadu, Andhra Pradesh, Karnataka, west Bengal, Chhattisgarh and Madhya Pradesh are already providing subsidized grain. Feeding its poor is a matter of urgency for India, home to 25 percent of the world’s hungry poor. Also india ranks 65 among 79 nations on the global hunger index. Ofcourse, the bill is one of the landmark schemes of the congress but how far is the bill ready to achieve the results in the present situation is a matter of concern. The FSB is not the best way to reach the poor and hungry, who are dispersed across the country. The best way to go about it is through UID linked bank accounts through which states will be encouraged to switch to cash transfers. The extra cost of government storage and distribution will then be saved and the problems caused by the distortion of grain trade will be mitigated. Many worries from the identification of the food bill with the PDS will disappear. The FSB instead through PDS, if implemented by cash transfers will serve as an income transfer. The effect of the subsidy is that households save money that would have otherwise been used to buy food at market price. The objective of serving the people subsidized foodgrain can be achieved only if the agricultural sector is healthy. But India since the beginning of the 21^st century has been continuously ignoring the sector resulting in weak production and disappointment among the Indian farmers. One of the main reasons of slow economic growth is also because of supply constraints and bottlenecks which the government has to seriously look into before implementing such a massive scheme on a large scale. The promise of near universal coverage is nowhere in sight and the UPA’s seemingly fretful efforts to get the measure through do not appear to be convincing. The policy is noteworthy and the objectives of the bill is highly helpful to the Indian poor but before going ahead with the scheme its wise to clear the present problems, revise the bill to the needs of the poorest of the poor and plan to truly serve the people on the long run rather than sticking to short term political pay off. The country is waiting but for a most reliable FSB. However it is wise to go by the saying:

“Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a whole lifetime.”

Rupee Depriciation - The Falling Indian Rupee

The rupee is the common currency of India and its neighboring country Pakistan. Each country has its own currency that facilitates transaction both within domestic and global market. Europe is an exception to this where a group of countries in the euro zone area follow a single common currency. Ever since the globalization of world economies the value of each currency changes or fluctuates rapidly due to increasing transaction of goods and services. But this is not the only factor for the change in the value of currencies around the world. There are various factors for the currency of each country to appreciate and depreciate. In this article we will look at one of the macroeconomic concern India is facing recently, the depreciation of rupee.

The US dollar is considered to be the global currency and forerunner of the world currencies. The value of each currency around the world is compared against the US dollar to know the real value of the respective currency in a particular period of time. The interesting thing about currencies is that it changes every day with respect to the behavior of the markets. However, one has to know that each currency is traded with other currencies all over the world and in that aspect the value of a particular currency varies with the value of each currency of the countries across the world. Have you ever wondered what rupee has got to do outside our country? Does it hold any significance in the foreign market? Why is it important to know the value of our rupee? Why is it necessary to keep our rupee value high?  If you have given a thought about it, am sure you have an interest in knowing the economic condition of our country and if you haven’t let us try to seek answers to understand what is really happening around the world in terms of our monetary value because it plays a significant role in the economy.

First, we will get the basics right. Now and then almost every day we hear that the rupee is weakening against the dollar. We see in newspapers that the rupee falls to an all time low on a daily basis. So what is it actually means? The rupee or any currency is said to appreciate or depreciate over a period of time. Generally, it is good if the value of rupee appreciates i.e the value of Indian rupee against the dollar strengthens. But the Indian rupee in the recent years is undergoing continuous depreciation i.e its real value is weakening against the US dollar which is really bad to our economy. It not only affects the economy but it also influences our spending on goods and services. Example, at a point of time let us say the rupee value is Rs.55/$ which means that we have to shed out Rs.55 for each dollar we consume. Later, the value is Rs.52/$ which means that the rupee value has appreciated or strengthened against the dollar that will make us spend less against the dollar. On the economy side it affects the cash inflows and outflows, capital inflows and outflows, foreign reserves and foreign trade. On our expenditure side the imported goods becomes expensive when the rupee depreciates. In this globalized world most of the products that we buy are mostly imported as we look for superior quality and better choices.

The Indian rupee can be converted into any other currency. The rate at which we convert one currency into the other currency is known as the conversion rate. This rate changes on the daily basis based on the demand and supply of the currencies. The Indian rupee can be converted into dollar based on the prevailing rate on that day and this is usually done in a foreign exchange market or a commercialized bank. The Indian rupee appreciates and depreciates for various reasons and there is no straight cut answer as to explain why the currency value changes on a daily basis. But there are few common reasons as to understand why the Indian rupee changes against other currencies. Generally, economic conditions of other countries say US influence the Indian rupee. If the US economy is performing well there will be a huge demand for dollar and people tend to sell rupee and buy dollar. This strengthens the US dollar against the Indian rupee and the value of rupee is said to depreciate against dollar. The value of Indian rupee is determined through various factors such as forex reserves, FDI & FII inflows, rate of interest, exchange rate and so on. With the change in the indicators, the value of rupee as per the dollar changes. So now you know that just like any other commodity the rupee also has a price, the value you pay to exchange a rupee.

The rupee value mostly fluctuates with changes in the behavior of the market. The spot and share market greatly affects the rupee value and is influenced by the changes in the value of rupee. Each currency value depends on the domestic macroeconomic condition of the country. The rupee value changes if we expect any changes in the fiscal and monetary policies. The rupee value also tends to move along with the speculation of the markets and its agents. The trading market opens and closes on the value of rupee against the US dollar thus equity investors and corporate tend to track the values of the currencies. In the last few months demand for dollar by oil companies and increasing selling pressure in domestic equities precipitated the fall of rupee. The major reason for the fall in rupee is the immense strength of the dollar index which reached its three year high of 84.30. The record setting performance of the US equities and improvement in the labour market has made Americans and global rating agencies more optimistic of the outlook for US economy, thereby spurring greater hopes. And also the strengthening of dollar against major currencies globally aided the fall. The increasing demand for oil and gold imports has also affected the rupee. This continuous depreciation of the rupee makes our struggling economy further vulnerable as imports become costlier, inflation risk higher, growth plummets as a result of low aggregate demand and record high Current Account Deficit worsens. Negative capital inflows in the recent months also impacted the currency value to slide. Political and domestic market uncertainity has also added to the woes.

The changes in the value of rupee either appreciating or depreciating influence a whole lot of economic agents mainly the exporters and importers. The fluctuation has both positive and negative aspects. Rupee depreciation brings cheers to exporters on the long run as they will get more money against other currencies when they sell their goods. Indian companies borrowing money from other countries will benefit big time as they get more rupees for the dollars they bring in. Similarly, families of NRIs remitting money from abroad get more rupees. If a foreign MNC is planning to invest in Indian business for lesser dollars they will get more value in India. Broadly, for those who receive dollars it is happy time. On the other hand a falling rupee brings rib tickling experience to importers. Indian importers have to shed out more rupees for the goods they buy against dollars. Overseas travel will become expensive as you need to allocate more rupees to get the same amount of dollars. The budget of parents whose children staying abroad will feel the pinch of a depreciating rupee.  If you look at the trade data of India over the years you will see that Indian imports exceed the exports. At the end a depreciating rupee is just bad for the majority of us. If you see weakening of all currencies against the dollar, the rupee is also not unaffected in that sense. But this is panic in the market which is unwarranted. Experts are already forecasting the rupee to sink further to near 60 levels against the dollar. It is also expected that the Indian rupee may depreciate 10% versus the US dollar by the end of December. According to Nomura, a Japanese financial services company, a 10% depreciation in rupee value cause the CAD to rise by 0.4%. In the last few months there were no visible signs of RBI intervention to check rupee slide. Unless RBI takes some kind of steps to stabilize the currency the rupee may touch alarming levels. As the rupee is depreciating at a faster rate RBI is highly expected to intervene to check the volatility of the market as a result of a falling rupee and control it from falling further to improve the market sentiment and meet the various other macroeconomic challenges. The present value of rupee against the US dollar as on June 20th is 59.57 a great fall in the last ten month following US Fed chief Ben Bernanke's revelation on plans to withdraw on quantitative easing stimulas this year as US economy has started to grow. The following graph shows the rupee movement against the US dollar since 2000.

IPL Betting - Sports or Business?

Cricket is the game that is been celebrated and followed greatly in India with a lot of passion and enthusiasm. The sport has always been the favorite both to watch and play. Cricket has a great fan following around the world compared to all other sports and thus continues to dominate the sports world. Cricket is called the gentleman’s game which is deeply celebrated with abundant passion and love for the game by the Indians particularly. No matter the age, in this country, both young children and the old are so fond of this particular game. It is also so surprising that even the grandparents and parents go crazy by the game. You could very well see every streets and empty grounds in India occupied with people of all age passionately playing cricket even during the scorching summer heat. The players are celebrated and treated godly in this land and the cricketers are seen as the one by all when the game is on. This has given the players popularity and fame but at the same time open to criticism and comments. Unlike other sport, cricket has always gained attention and is thus open to continuous change and welcome to new game formats. The one that has gained popularity recently is the 20-20 format which gave way to the concept of Indian Premier League.

The IPL was first introduced in 2008 with warm welcome and enthusiasm among the cricket fraternity. The young generation of India was looking forward to more excitement from the new league. Ever since its first edition the IPL has believed that roping in actors and celebrities from the film world would gain the attention of a larger audience which would help in generating more revenue. This trick of involving actors and other big business magnets made the IPL and particularly the game commercialized with a big dose of entertainment than the spirits of the game and sportsmanship. I don’t have to say and there is no need to introduce the rules of this great league but I would like to mention the formation of teams and its ownership. There are totally nine teams in the IPL each of which is either owned by a Bollywood celebrity or bureaucrats. The players of the teams are formed based on an auction prior to the beginning of the league. So the very formation and ownership of the teams brings in the practices of business. The players and the teams are valued based on the highest bid and their performance in the league every year. So you happen to see no big shuffle in the teams as the owners try to retain their old players. Here let me mention the owners of the nine teams, Chennai super kings owned by Gurnath Meyiapaan who is the grandson of Meyiappan and is the owner of AVM a big production house in south. Rajasthan Royals owned by Bollywood actress Shilpa Shetty, Mumbai Indians by Reliance owner Mukesh Ambani and his wife, Kolkata Knight riders by Badshah of bollywood Sharukh khan, Delhi Daredevils by GMR group, Bangalore Royal Challengers by Kingfisher owner Vijay Mallya, Kings XI Punjab by Bollywood actress Preity Zinta, Sunrisers Hyderabad by Kalanidhi Maran and Pune warriors by Sahara India Pariwar.

The concept of IPL is interesting as it gives the viewers a T-20 game format which makes the audience adrenaline rush as the matches are mostly edge of the seat thriller where anything can happen in the last minute which can turn the whole fate of the game. Apart from this the IPL encourages the concept of integrating foreign players. This is one of the facts that I personally like most, where the mixing of foreign players is a sign of good sportsmanship that allow players to share their ideas and strategy with their fellow players. When I first heard about the IPL I was really thrilled and curious for the tournament to begin because I am generally not that cricket enthuse. But I really love the T-20 format as it makes us glued to the game rather than the usual ODI and test cricket. Ever since the IPL begun I eagerly await the summer holidays during which the IPL season take off. I have been regularly watching the IPL in the last five years with the same excitement and this year too its no exception. But this time towards the end when the dark side of the sport revealed and the story of spot fixing made flash on the news channels I seriously started thinking what this whole thing of IPL is all about. For a die hard cricket fan the drama of spot fixing surrounding the IPL in this season may not be a matter of concern or excuse to wean away from watching the great league. As an amateur viewer of the game, I really started to ponder over the issue and what the league gives its loyal consumers at the end.

As usual, this year too the IPL season 6 started with the same celebrations and fanfare but this year apart from the game it gave us the story of betting and spot fixing. IPL is born in the land where cricket is treated as the god of sports and where cricketers are seen as super heroes sent to the ground to fight the battle. So in such a land you can imagine how crazy and loving the people will be when a great cricket tournament like IPL takes place.  Does the IPL brand live up to the expectations of these people? Does it continue to provide good sport? The question needs to be answered. The cricket world in India is managed by a separate official body called BCCI. This year when the match fixing and betting threw light on the other side of the sport world it makes clear that the official body has not managed the sport effectively making the people of this country a victim to false game and match fixing. However the BCCI cannot take the whole blame as the IPL involves other intermediaries and franchises who are big boss in the corporate world who have the right to rule the league as they happen to be the sponsors and owners of the teams. But now that the dirty picture got revealed the BCCI has to take moral responsibilities to avoid such scams further in the coming years in order to make the IPL survive.

The picture of spot fixing got reveled days before the quarterfinals and when fans of the four teams that qualified for quarterfinals were curiously waiting for the climax of the tournament. It started with Sreesanth a player of Rajasthan Royals involved in fixing. Subsequently the police probed the issue and provided more evidence of Sreesanth involved in spot fixing and finally confirmed that his firm owned betting houses. Within a day other two players of the same team were accused and arrested on match fixing. The Rajasthan Royals was then on a fix and the police started to investigate whether other teams were linked to spot fixing. And within days other big heads of the IPL betting scam came into the spotlight. It was then Gurunath Meiyappan the team principal of CSK and son in law of the president of BCCI Mr. Srinivasan. Further investigation by the Mumbai and Delhi police officials found other big names who was allegedly involved in the betting scam. Bollywood actor Vinod singh was one of the main accused who was in frequent touch with Ramesh Vyas a bookie. Soon it came to know that Meiyappan, Vinod singh and few other suspects placed heavy bets not only in the T-20 matches in the IPL but also on Indian Cricket League (ICL) and Bangladesh Premier League (BPL). Further investigation by the police officials on the case revealed that there were more bookies involved in the betting scandal and some of them had been earlier arrested on charges of betting. The investigation and court case is still on and many more insights and evidences are yet to pop out once the case is taken to the jurisdiction. So far the Delhi police say the betting operation exactly follows a well planned hierarchy. The big bosses of the game provide protection since the entire betting operation is illegal. The CEOs seem to initiate the bets and manage a network of sub bookies. These sub bookies fix matches through mediators.  The whole betting scandal involved big cats like Meiyappan and Vinod singh, Chief bookies from the Indian metros, sub bookies and also some international heads.

The Indian Premier League is now rotten to the core but this rot did not set in yesterday. In the previous years also we saw the former chairman of the IPL, Lalit Modi accused of corruption and fixing, its now just the turn of his successor. Whoever thought these two gentlemen were fit to head IPL ought to be hauled up for all its present ills. Let us at least hope for a new successor who is really capable of handling the league for what it actually meant to serve the nation. The Indian Cricket is now in ferment and its credibility is lost in a crisis caused by the dirty game played by the body that controls it. The great golden IPL trophy seems to lose all its prestige and shine now because of the greedy nature of its administrators. The IPL has become a brand of its own in this country that glorifies the sport. A well established brand is bound to generate crores of money and IPL is no exception to this since its inception. The payment made to players for a twenty 20 match seem to be Rs. 2 Lakh. A rough expenditure for cricketing activities in India seem to be around Rs. 340 Crore and for associations Rs. 275 Crore out of which the share to players come around Rs. 47.49 Crore and coaching around 6.58 Crore. The gross income from the IPL turns out to be Rs. 265.14 Crore. So in a place where money seems to play a vital role few stringent regulations are mandatory for a clean sport. On this regard there were some strong recommendations and few of them are the Anti Corruption and Security Unit (ACSU) of the BCCI has said that from the next IPL edition every franchise will have to appoint an ACSU officer who would monitor access to the players. The process of educating the players on the perils of spot and match fixing have to be further strengthened. The ministry of law and sports together has said a bill to effectively tackle spot fixing and match fixing would hopefully be introduced in the next parliament session. There is a strong support for making the betting process legal which would help in creating a legal environment and avoid such illegal dirty fixing process in the future. It is said that Cricket is a game that is played by eleven idiots and watched by eleven thousand fools, this year the IPL and the ongoing betting scandal makes it true. However, just because some of the players were involved in spot fixing it doesn’t mean that the entire IPL is wrong, there are still legends playing the game passionately being true to their inner self. A country where millions of fans watch the game seriously and prayers are on air for their respective teams to win, it is the duty of the IPL to give a fair game to its audience. But this time the matches were predictable and it was obvious that CSK will lose in the final which by no means provide a good sport and justice to their fans and people watching the tournament. The controversies surrounding the IPL seem to have not affected the audiences viewing the sport which is a good sign but its now in the hands of the BCCI and IPL administrators to make the league survive in the future. However, the IPL betting and spot fixing scandal has put India’s cricket establishment in the dock and left people wondering whether the sport will ever regain its lost image as a gentleman’s game.

Current Account Deficit - A Real Danger

Current Account Deficit (CAD) is one of the primary components of balance of payments the other being the capital account. The current account deficit is referred to when a country’s total imports is higher than the total exports. Current Account Surplus (CAS) is just the opposite where the exports are higher than the imports. The former of the balance of payment make a country a debtor to the nations which it has trade relationship and the latter a creditor to other nations. Obviously, now you know that a surplus in current account is good and a deficit being really bad for a country. This is one of the important macroeconomic indicators that describe the state of a nation’s Balance of payments (BOP) and foreign exchange reserves. In the age of globalization where each country has a significant and potential role in international trade and finance, this indicator is crucial in understanding a nation’s foreign exchange reserve and trade account.

India entered into the globalized world in 1991 with the effect of New Economic Policy. The new economic reform was initiated by the then finance minister Dr. Manmohan Singh which helped India to come out of a serious Balance of Payment (BOP) crisis. The policy was and is still considered as a milestone in the history of Indian economic reform. The reform not only saved India from a severe bop that was threatening but also paved way to a new world of globalization. The important concept under the new economic policy was liberalization, privatization and globalization what came to be shortly known as LPG. hat came to be shortly known as LPG.economic policy was liberalization, privitization n indian economic reformme out a serious Before 1991 India had many restrictive trade barriers and did not support much trade related activities. The policy introduced liberalization which freed those trade barriers and encouraged world trade and practices. India by signing General Agreement on Trade and Tariff (GATT) soon became an emerging global hub of international trade. Privatization is encouraging private players. Many public sector companies were changed partially to private sector and India started encouraging many private sectors entering into the playing field. Globalization is the result of liberalization and privatization. India opened its hands to the global world encouraging international trade and foreign investment like Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII).

The highlights of the policy were noteworthy and significant in the development of India in many aspects. Prime Minister Manmohan Singh being an economist exactly knew where the economy was heading and the dangers in the long run and thus with much thought would have introduced the new economic policy. The policy was applauded by many industrialists and people from both within and opposite party. But the same man now has no idea of what is happening to our economy, maybe, he knows but sitting ideally with no option than listen to what Sonia Gandhi has got to say. Though this may sound rude to some who are in favor of politics but this is the case in the past few years. For those who have a high regard of the Indian political and administration system, the so called “Indian patriotism” I would like to tell that its not the defensive trait you have within you that supports the system but it’s the feeling of what others think about India, which is not nationalism but narcissism. Then why a man with such great caliber was able to save the economy from a crisis in 1991 but not now? The point to be noted here is he saved our country when he was a finance minister but now being a prime minister which means he has more power and experience couldn’t do anything much to save the economy from a brink of a crisis. Of course, I understand that our economy has undergone several structural changes and India now is not the same India when it was in 1991. And thus the same old tonic cannot be offered now to save the economy. Moreover now its even more difficult as we are exposed to global shocks and crisis. But there must sure be a way to solve the present problems whatever may be the situation but the only thing I am concerned and trying to reiterate here is that every day we have been seeing new problems but the existing old problems being untouched or even ignored. One of the serious problem India is facing today is the ballooning CAD. Though our economy has grown leaps and bounds since 1991 it is the same problem we face today that we faced in 1991. The high CAD is of a big concern and finance minister and other government officials have been making statements to reduce it  if not at least control it. What are the steps they have taken in this regard? Do they seem to be efficient and produce the desired results?

The Current Account Deficit (CAD) touched a record high of 6.7 percent of Gross Domestic Product (GDP) in the third quarter of the last fiscal (October-December).  This created panic among some individuals but the policymakers seem to be not surprised by the figure because in the past few months all economic indicators have pointed to rise continuously, though the magnitude have been beyond imagination. Holding this upward trend there have also been poor policy responses to meet the problems. The finance minister said and promised to bring the CAD to 4.8 percent of GDP by the end of this fiscal which is still high but not alarming. The CAD has been funded through capital inflows and not through the foreign reserves which is a good sign. Infact in last few months there have also been increase in the reserves. Though this is good to hear the CAD is still high which is really unacceptable and much beyond actual RBI forecast of 3 percent of GDP. No wonder this high CAD has seldom caused so much concern. Another way to calculate the CAD is the merchandise trade deficit plus or minus invisibles from net earnings from services. The primary reason for the widening CAD is the large merchandise trade deficit. The large imports of oil, gold and silver have been the main contributor. Since the global crisis the exports have been constant or sometimes declining but the merchandise imports continue to increase sharply. The lackluster performance of the net receipts and net invisibles has helped the balance of payments but has added to the pressures. The dependence on short term capital flows to bridge the gap and finance the CAD is dangerous. According to RBI, the pickup in capital inflows was mainly due to foreign portfolio investments. Foreign direct investment, by far the most desirable investment flows declined in the third quarter of previous fiscal. The government has been taking several strategy based policy decisions that could help the environment conducive for short term capital flows. The finance minister in the last few months has asked the people of India to control their passion for gold. He raised the import duty of gold in the last budget to reduce the demand of the yellow metal which has been the main component in widening the CAD. The fall in gold and commodity prices will reduce the current account deficit but they are not the real solution. He has planned to introduce Inflation Indexed Bond (IIB) in this fiscal year to curb the demand for gold and encourage investments that could well be used as a hedge against inflation.  He also encouraged investors to invest in mutual funds by raising the limit through Rajiv Gandhi Equity Savings Scheme. The following graph shows the CAD, export and import as a percentage of GDP in the last thirteen years.

Anyway it is the job of the finance minister to hold out hope. The marginal propensity to import by borrowing money in India is small. People borrow more money when the interest rates are low and they then spend. Some of the extra spending gets translated into imports. Without imports, the extra demand would get translated into higher prices. India being India, we have both inflation and higher imports. And add to lower exports and what we have is something very worrying, a looming balance of payments crisis. Government should control fiscal deficit no matter what the goals are, to achieve long term sustainability. The big bang reforms of 1991 happened because the government then was much more tempted by short term political pay offs rather than long term sustainability. The current set of reforms is also happening because a crisis is looming. A revival in exports depends on the economic conditions in USA and Europe. There is not much India can do about it. But financial incentives for export promotion can help in a long way to reverse and improve the scenario. In the 22 years since the last major crisis, the economy is right back where it started. One should know that two decades ago, Manmohan Singh started off by getting the economy out of a very deep trouble. Now he seems to end his career by landing it right back into it. 

Gold - The shining yellow metal

Gold in India apart from being seen as a traditional and luxurious good has always been considered as one of the best investment option. This yellow metal particularly has gained attention and interest in recent times since the global recession. As our country is facing high inflation and people are constantly fighting the inflationary pressure, gold seems to be the best investment option that stands as a hedge against inflation. Over the years, particularly in the last five years people in India have become increasingly obsessed with the yellow metal. India is the largest consumer of gold. Gold has always been considered as a significant commodity since early age. Before money came into existence, people those days had gold as their reserve for all the transactions. The evolution of money came from the barter system and the gold standard system. The barter system is where people exchanged goods for transaction. With its limitations, then came the gold standard where gold coins and paper were minted and used for all the transactions. With its limitations came the currency paper system that we use today. Many kings valued gold both in terms of monetary and investment. Thus gold holds a significant importance in history. Today, gold is a long term store of value for governments and individuals. One cannot forget gold when talking about the evolution of money.

Gold of all the other precious metals is the most popular investment choice of the retail investors. What is there in this metal that lures people? Generally people follow an option that attracts everyone. In this case the demand for gold has always been high and that is why many are enticed to invest in this precious metal. The demand for gold is always on the rise making it more valuable and attractive. This is one of the primary reasons for the soaring price of the metal. The other is the demand supply mismatch that causes the price to fluctuate rapidly. The supply of gold in general is limited as the cost of production is very high and globally gold bullions are limited resources. Like all the other markets, gold market is also subjected to speculation and fluctuation. There is a plethora of various investment platforms and this raises the uncertainty and speculative nature of each investment option. A good investment should give high return or at least expected return so that we don’t go in losing our money. The risk associated with each of these investment options out there varies according to the market in which they are traded. Out of all these the stock markets namely the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) in India is more volatile. The stock market is a place where equity shares of companies are bought and sold by buyers and sellers. In an inflationary situation or the economy facing a crisis this is the first market that is bound to get affected greatly because of slower economic growth and capital investment. During recession bank deposits also don’t give you high returns but moderate assured returns.  In a situation like this gold investment is better as it yields good profit and value for your money. So a careful analysis of the market condition and macroeconomic indicators should be carried out in order to choose and invest in the most rewarding investment platform. The factors surrounding gold as a best investment option against a falling economy is not clear for many first time gold buyers.

Gold is more commercial than stocks as gold is easy to buy and sell. Many countries across the world have gold as reserve as its easily convertible into cash. Gold investments have become easy now with wide avenues open to trade the metal. Thanks to internet now buyers and sellers can bargain and negotiate on gold prices and use it as a platform to promote gold stock. In the present economic situation with weaker economic growth, persistent high inflation and financial uncertainty gold is easy to liquidate as well. Even during recession, gold by many is considered as a fashion statement and thus increasing the demand and the jewelry business. But once if you consider investing in gold have the patience and be prepared to wait for good returns that are viable only in the long run. The more years you hold gold the better returns you get. Gold can be easily sold in times of emergency. Since gold is an asset class it is considered as wealth insurance. So unlike other investments like stocks and real estate, investment in gold does not value timing. Before deciding on to invest in gold one should know which form of gold to buy to make it for a better investment because gold can be bought in many ways. Indians mostly buy gold as jewelry and ornaments but this is not the right choice for gold as a investment since jewelry  is just a personal belonging for adornment  and does not guarantee you assured returns when sold. So gold like bars and biscuits is a better form of investment than jewelry as they are in the purest form. Of all, the one that is gaining popular in recent times is the gold Exchange Traded Funds (ETFs). These are just like mutual funds held in paper form in your demat account. This form of gold investment offers better option as it is easy to transact.

The recent drop in the gold prices signaled caution and speculation across the world shaking investor confidence. Does this signal the lust for gold is coming to an end? Does gold started losing its shine? What caused the international gold price to fall suddenly? First, it is not the demand for gold jewelry but gold investment that spurred the prices of gold to escalate since 2000. Historically, gold has been the safest investment. The demand for gold biscuits and ETFs doubled between 2005 and 2012. The main reason for this increase in demand for gold as an investment is because of the globalization of world economies. Since the 21^st millennium many emerging nations across the world due to globalization entered into the growth phase that caused inflation to move higher making investors to buy gold as a hedge against financial instability. Since 2003 the dollar value has been on decline helping the gold price to sky rocket. This sharp increase in gold prices attracted investment funds in search of high yielding assets, fuelling the price increase. So many investment and hedge fund companies started taking a leveraged bet on prices through futures trading. Commodity trading seems to be risky but the most rewardable of all the other investment options. A classic example was the rise in the crude oil prices in 2008. Data suggests that there is a strong correlation between prices of gold and crude oil.  The continuous surge in the international gold prices peaked since 2003. However, the international gold prices started declining gradually since the financial crisis of 2008. Many investment fund managers and small investors started losing interest in the asset that is declining or trending sideways. The decrease in the gold price internationally made investors to doubt the returns of the asset. Evidently, this decrease delivered very low return of just 5 to 10 percent in 2011 and 2012 compared to high returns since 2001. Thus many investors and fund managers are parting with the gold holdings. World gold council data reflects that the investment in gold has been declining in the past two years. The sudden plunge in the gold prices is also because of the gloomy situation prevailing in the Eurozone. Cyprus is the latest to join the league of default in the euro crisis. The banks in Cyprus were shut down because it went bankrupt of inadequate liquidity. Cyprus started to pay its debt through its gold reserve that made the gold price to fall dramatically.

The fall in the prices of gold came as a rude shock to some of the investors who thought they were playing with the safest bet. The question that ponders many investors is that whether this fall is permanent? No, because nothing in the business and investment world can be permanent. And there are many factors that are still supportive of gold prices. The gold jewelry business is bound to see profits as the demand for gold jewelry is to rise with the price decline. Many jewelers say that the fall in the gold price is just seasonal and temporary and expected to see the value of gold to increase again by later this year. Inflation continues to be a concern in most emerging economies like India and the depreciating value of rupee will make many investors park at least part of their money in gold or gold backed assets. The government and central banks will also have to continue increase in their gold holdings against the risk from a weaker dollar and euro. Investors can still look on gold for investment as it still seems to be an alluring investment option. Any asset that has trended in only one direction for years is bound to decline. Seen in this context, the recent decline in the gold price may be healthy. The banking sector and the stock market globally have become weaker and are prone to uncertainty prevailing around the global economy. In such a situation the demand for gold is expected to be strong. Keynes has acknowledged that “gold has become part of the apparatus of conservatism and is one of the matters which we cannot expect to see handled without prejudice.” The gold purchase will be high this month during the Akshaya Tritya as it is believed that investment made on this day tend to appreciate and continue to grow.