Determinants that Impacts our Economy

By: Albert Dovei

Have you ever wonder what was the exchange rate of INR (vs USD) when Indian got Independent?

To your taste, the equation is,

1 INR= 1 USD as of 15th August 1947.

(Although the dynamics of Exchange rate between the currencies is not the same as today and make 1USD=59.4 INR)

Not many people from among the Nagas, are aware of this change. And still fewer are aware of the impact of this change.

No one would precisely know which factors had moved the currency value of a country and by what quantum. It is because the factors are numerous and its impact could be varied. The impact is still further made complicated because some of these factors are interrelated. So, many different economists may cite various different factors, but they could mean the same thing at different time- giving them the benefit of doubts. If there is one clear cut rule, then the currency traders wouldn’t be having so much of fun and bonuses and vice versa.

Economists had played very safe and have club all these factors together to fit into the term “DEMAND and SUPPLY”. Consider, if there are only few soya growers and still fewer who make AKHUNI/Fermented Soya – SUPPLY, judging by the way we (the nagas) consume AKHUNI – DEMAND, we would be at the mercy of the soya growers and the manufacturer of AKHUNI. In a world without UG, we would be amazed at the way they priced Soya and AKHUNI like the way many are amazed by the TAX.

Of the so many factors, the following are significant and common;

  1. Inflation
  2. Interest Rates
  3. Other country’s Economic Indicators ( Growth, Country’s current Account, Govt debt)
  4. Terms of Trade
  5. Political Stability

1. Countries with a lower inflation rate, generally will have a rising currency value as compared to the one with higher inflation rate. Purchasing Power Parity or popularly knows as PPP is an economic theory which reflects that a currency value of a country moves towards an equilibrium. Its basis is the law of “one price”.

Consider the following example;

Say there are three countries and exist independently (no communal feelings):

COUNTRY 1; NAGA (AKHUNI Consumer and Producer)


COUNTRY 3: KUKI (AKHUNI Consumer and Producer)

Cost of 100 gms of AKHUNI = 10 NAGA $(=10 KUKI $ = 10 MEITEI $)

Let us also suppose that the values of these countries’ currency are same as at 31-12-2010. Imagine the total cost of transporting (including Trade terms such as Tax) AKHUNI to imphal from KUKI CITY and NAGA CITY and between KUKI CITY and NAGA CITY is same and equal =ZERO (an assumption so that this factor does not influnced the outcome though it reality, this never exist). Imagine everything else remain the same, MEITEI will likely import 50% from NAGA CITY and 50% from KUKI CITY. Lets consider for now, there is nothing like Supra State and Kuki state equally in DEMAND.

Consider a scenario, the price of AKHUNI in NAGA CITY has increased (now 11 NAGA $ per 100gms of AKHUNI) because of increase of labour cost for production of AKHUNI in NAGA city – A case of INFLATION. BUT the price of AKHUNI in KUKI remain the same. This is called ARBITRAGE.

You can expect the following situation;

  1. MEITEI and NAGA consumer of AKHUNI will certainly desire to buy AKHUNI from KUKI CITY.
  2. The DEMAND for NAGA AKHUNI declines–> They need to lower their price to be competetive.
  3. The DEMAND for KUKI AKHUNI increases–> they took advantage

Eventually, the three factors will meet somewhere where the business will continue as usual but with one thing change – the value of the currency.

Lets say in the process, the price of the KUKI AKHUNI is increased 10.53 per 100 gms and the NAGA AKHUNI price has thus declined to 10.8, this would push the bring the Exchange rate to.

1 NAGA $ = 0.975 KUKI $

Or is it the other way round? Because of the three activities above,

1 NAGA $ = 0.975 KUKI $

And has push the price of KUKI AKHUNI to 10.3 KUKI $ per 100gms and NAGA AKHUNI to 10.8 NAGA $ per 100 gms.

You may also refer to REER (Real Effective Exchange rate Index) for readings an improve your knowledge on Exchange Rates.

2. Interest Rates plays a very important in the cash Inflows/Outflows of foreign currency into a country. You will see many central banks across the world change their policy rate based the changes in other countries. Many Asian countries’ central Banks waits for the Fed’ Rate policy revision. Investors today are very clever, and a slight arbitarage could shift their investment destination. If you look closely, FORWARD Exchange rate is related to the Interest Rates.

F= S(1+id)/(1+if)


F is the forward exchange rate

S is the current spot exchange rate

id is the interest rate in domestic currency

if is the interest rate in foreign currency

Note: Time factored in

The Forward exchange rate is used for Forward Exchange Rate trading and impacts the currency exchange rate. From the above formula, we know the interest rate of a country impacts the exchange rates.

Govt. 10 Year bond for some countries are as follows (All annualised as at the day of 31-12-2012);

India =7.5% (Interbank rate 7.31%)

Pakistan=12.07% (9.33%)

China = 3.71% (Interbank Rate 6%)

Japan = 0.86% ( Interbank Rate 0.16%)

Have you been thinking to borrow money from Japan and invest in India?

Sometimes, the interest rates in certain countries goes negative (have you ever thought how it could possibly happen?)

3. Economic indicators of a country are the beckoning light for the investors. Based on the soundness of the state of the economy, investors will regulate their inflow of money into the country. As at the current Quarter, the FOREX EXCHANGE RESERVE of India stood at USD mio 287,846 rose from 4,646 in 2003. China on the other hand, during the same period the Forex Exchange Reserve stood at USD mio 3,442,649 as against 403,251 in 2003.

We can see what has been happening. Growth in India and China has been phenomenon during the last decades. And that was how, the FOREX increases and during some part of the period, the value of Indian currency picked up to as high as INR 38 against a dollar.

Investors examine their risk appetite before investing into any country. Often investors perform their risk return profile analysis for investments. China and India top the list in the GDP growth rate and this provided a platform to the foreign investors for capital gain and high interest income.

Besides the GDP, there are many other economic indicators that tells the health of a country economy. PUBLIC DEBT and Current Account are also important economic indicators. Public debt of China is 23% as compared to 50.40% for Pakistan and 67.57% for India (as per 2012). Partly because of this high public debt, the rating agent has downgrade India to the last investment grade (BBB-) with a negative outlook, last year (this is as per S&P rating, Baa3 as per Moody’s with a stable outlook). As a comparison, Pakistan was rated B- by S&P with stable outlook and China with AA- and stable outlook by S&P.

Here are public debt figures of some countries;

US= 101.60%

Japan= 211.70%

Greece= 156.90%

Greece is currently facing economic turbulence because of the high public debt.

Current Account figure is a reflection of the movement of currency across the boundary of the country. Current Acccount (as a fraction of GDP) of India, China and Pakistan for the FY2012 are -4.8%, 2.3% and -2% respectively. Negative values also indicate, total import outweighs total exports.

4. Terms of Trade: Governments sets the terms of Trade and it has direct impacts on import and export. Taxation is a very important factor which could promote/discourage any business. For example, Bangladesh textile exporters have more privilege than the Indian counterparts among the textile consumer countries (e,g Europe). What does this mean? There will be more business for Bangladesh textile industry meaning more exports to other countries. Foreigners need to buy Bangladeshi Taka for import of Bangladesh’s goods. Bangladesh gains on Textile Industry.

Similarly, there are many industries, where trade with one country is more convenient/cost efficient than the other leading to preference of one country over the other leave aside the political issues. Recently, the European countries have asked India to reduce the import tax on luxury cars to India and it is learnt that India has asked European union to lift the tax on Indian textile imported to European countries. Likewise the import tax between countries could be very complex and sometimes not healthy.

Are we trying to understand such complexities?

Do you know why Cars are so cheap in America and Middle East? If not because of import tax, average middle Indian could be driving HONDA CITY.

5. Political Stability is one of the most important factors for investors to invest in a country. The less stable the country, the less number of investors will be for the country. Rating Agency uses political stability as one of the key elements for risk rating.

Three years ago when I tried to book a hotel in Sydney, the price of Zimbabwe dollar runs into million per night. Of course it was during one of those days when the political situation was very volatile and inflations could be in 1200 (%). Have you ever wonder what does this mean? Imagine how much money the middle man (brokers) would have made.


However, the current volatility in the currency exchange rate is more to do with complex thing which are happening around the world. Although the traditional economic theorems hold true to a certain extend, the dynamics of modern businesses could (and has) created a precarious situation to the financial markets at times. Many structured financial products look very attractive from outside but its real value can be very minimal. The recent financial crisis of 2007 was tagged to US subprime mortgage crisis, but in reality the parties that helped fuel the crisis ranges from Finacial institutions, regulators, credit rating agencies, government housing policies, consumers, insurance companies etc. Using a complex financial instrument known as Credit Default Swaps (CDS), the investors were made to believe that the risks were perfectly hedged in relation to Mortgage backed securities. A synthetic CDO (Collaterilized debt obligations) were created whose payment streams were derived from the premium of CDs. What happen here in the process is, an enormous value was created out from that limited financial instrument’s intrinsic value- can you believe that?

The questions; what happen when such a financial crisis loom large in an economy? What would the investors do when the borrower’s (Government) expenses become too much as compared to the income and the government cannot manage their budget deficit anymore? This is exactly what happens in Greece which along with other European countries almost brought down Europe economy recently. What would you do when you think your borrower is not managing your borrowed money and also his own money properly? Most lenders/investors would try to pull out his investment money. And this adds to the woes of the falling exchange rates when investors pull out their money from your country and never to come back again in the near future.

Specific situations in Financial Institutions can create a temporary volatitlity in the Exchange rate and Interest rate. When SBI launched the Indian Millenium Deposits amounting to Rs 37,000 Crore, it created a considerable volatility in the exchange rate, yields on gilt securities etc.

Another situation is when investors have alternative investment destinations. You will see when the US ecnonomy information (job, GDP etc.) are good, the stock index rises in Dow Jones. Similarly, when the Federal reserve review their policy (e.g Rates) in favour of investors in their home country, you will see a sudden shift in the Market.

In the current scenario, it is reported that overseas investors have pulled out a staggering Rs 29,191 core from the Indian debt and equities in less than a month (during June 2013) due to the weakness in the rupee.

All these reasons add to the volatility in the market rates. But behind all these there is the resources availability, the consumers and the managers of this economy. And how well they managed the economy, is left to the bloggers.

Central Banks also play an important role in controlling the exchange rates by setting policies for the Banks in relation to kinds of financial instruments the Banks are allowed to transact, limits on the open positions for individual currency, external borrowings, capital requirements etc. At times, Central Banks buys or sells foreign currency as a temporary controlling tool for exchange rates movements. Financial news has reported that RBI has intervened to stop further falling down of INR value.

Central banks sometimes squeeze the liquidity with sale of government securities. Currently (since last week) the RBI is trying a sell Rs 12k Crore through open market operations but it looks like the whole process is pushing the interest high indicating the yield which the market demand is definitely higher than what RBI has offered. By squeezing the liquidity from the market- which should decrease the supply of INR- thereby increasing the INR currency value.

But then do you know what would this impact the commoners? By trying to solve an issue, another problem could be just created.

The government of India had on 16th July, in order to boost the economy and put a stop to the sliding of the INR exchange rate has relax the cap on Foreign Direct Investments in the following sector;

INDUSTRY WAS (in %) NOW (in %)
TELECOM 74 100
DEFENCE PRODUCTION 26 26 (allows to increase on a case by case basis)





A Rejoinder to ‘Nagaland Tribes: The Latest Bone of Contention’

Dr. D.Kuolie, Head, Deptt of Tenyidi

NU & Secretary General, Ura Academy, Kohima.

Reading the write up of Thepfulhouvi Solo in your esteemed daily 9-6-2013 I am compelled to clarify certain points on the question of Tenyimia, Tenyidie and its related issues though this rejoinder for public interest. I will also add those left out vital points of his earlier article published in Nagaland Post on 30-11-2009 as the present article is obviously, an extension of the earlier.

The theory of the writer claimed that the term ‘Angami’ is a corrupted form of ‘kerügumia’ (thief) from Zeliang language ‘kergami’. In fact, the Angami people used it without knowing its source and meaning in the early days. However, during 1970s, this theory was clarified by late John of Viswema. According to him, the British army under Captain Jenkin and Lieut. Penberton, when about to cross Tenyimia country from Imphal to Assam in 1832, they asked the Meiteis, what sort of people lived that side, by pointing at Tenyimia country.

They were told ‘Ngami’ which means ‘perfect/independent people’. The word did not conform to the English language and therefore, it was noted as ‘Angami’. That interpretation of late John had a matching version because the velar nasal sound /ŋ/ never occurs in initial English language. To suit to their language, a syllable vowel /a/ was prefixed to the word to form /aŋami/. That version was accepted by Ura Academy since then. Although, the ‘Angami’ is a popular term till today, it has no other meaning in Tenyidie beyond late John’s version. The continuity in use of the term,

‘Tenyimia/Tengima/Tenyimi’ which originates from ‘Tenyiu’ the name of the forefather of the Tenyimia group was accepted by all units by their historical knowledge. ‘Tenyimia’ therefore, means the descendant of Tenyiu. TPO is purely a reunion of the divided family based on blood-lineage. Tenyimia or Tenyidie is a canonized term and TPO is not seeking ‘Tribal Recognition’ from any quarters. The writer’s claim, ‘Tenyimie consists of a convenient number of Nagaland tribes together with one or more from the outside’ is perfectly in line with his earlier writing, ‘The Khezamas, the Sopfümas (Mao), the Zeliangs and the Rengmas never hitherto took themselves as ‘Tenyimia’. So far to my knowledge, the Tenyimia were in unity-form many a time although irregular, till regular formation established in 1993.

Every TPO units stood firm by their history of brotherhood. despite disparagers existed. As such, the idea of ‘disbanding the Tenyimi Union for the future good of the Nagaland’ is not a healthy suggestion, the fact that TPO is a reunion of the Tenyimia family, which is in consonance to the basis of all Naga society. The formation of Ura Academy too, is on the same base. Rev. J.E.Tanquist instituted the Angami Literature Committee (ALC) in 1939 and approved by the then Deputy Commissioner, Sir C.R.Pawsey. In 1960s, those early educated people who served in various Government institutions at Kohima, were also leaders of respective sub-communities.

Having a common wish to bring the people together, those personalities made frequent meeting and deliberation over oral historical account of our ancestors. Following such mutual understanding and acknowledgement, they resolved to modify the name of ALC into Tenyimia Literature Committee in 1970 and ever after the Angami language was renamed to its original term call ‘Tenyidie’. Nomenclature was further made to Ura Academy in 1971, in which representatives of Angami, Chokri, Khezha, Pochury, Rengma, Zeliang and Mao were all present. Their objective is to develop literature, preserve and promote culture and other aspects of Tenyimia community through academic study. We still have some living pioneers for a living testimony.

There is nothing wrong in adapting the meaningful original term called ‘Tenyidie’ by ‘Tenyimia people’ as Mother Tongue. To clarify another significant point is the misinterpretation of the term, ‘Keviu Ú Ya’. I would prefer to translate it as ‘the good (part) is ours’ rather than his translation ‘the better is mine’. The expression is derived from religious philosophy that denotes the claiming of godly blessing to both the villages/parties during celebration of events like ‘vitho’ (treaty) and ‘sonyi’ (friendly exchange festival). His claim of it as a political wisdom for the propagation and promotion of Tenyimia is far from truth.

The writer claimed that except ‘Chokri’ all other tribes within Tenyimia community have distinct languages and having respective Bible and Hymn Book of the Church. The emergence of such books is mainly the product of the church workers for evangelizing the gospel, however, without understanding the gravity of power of a common language. Dialectal variation is natural to all languages of the world. Considering languages as distinct on the basis of those bible and hymn books is far from complete, and therefore, his theory is not acceptable. It will be a safer attempt to study ‘dialectology’ before jumping into a pool of controversy.

Ura Academy has achieved to certain degree in the development of Tenyidie language and literature for the future benefit of Tenyimia community in general, the younger generations in particular. The establishment of Department of Tenyidie under Nagaland University is symbolically, a genuine recognition by the highest institute of learning. There are regular academic activities including research programs rather than a mere coaching class.
The division of geographical area into administrative set-up is generally the outcome of a political decision that binds to the people.

That is why the Tenyimia community as well as the Nagas remained separate till today. However, Tenyimia community like the Nagas, accepted the transmitted history and shall ever remain a family despite shower of spikes and arrows from any quarters. The writer contributes many valuable suggestions for the Naga future, but his historical interpretation on Tenyimia and Tenyidie is not acceptable. It will be better to avoid application of intriguing politics to confuse the Tenyimia people and Tenyidie.

Expansion of NPF beyond Nagaland: A Naga unification movement (Part I)

By : Gairiangmei M Naga

The Naga People’s Front (NPF) is one of the oldest regional parties in the whole NE India. The NPF-led Democratic Alliance of Nagaland (DAN) ruled the Nagaland state from 2003 to 2008. Again, the NPF-led DAN alliance came to power after the polls in Nagaland Assembly elections in February, 2013. Earlier, the NPF was called Nagaland People’s Party. But now its nomenclature has been renamed to Naga People’s Front along with amendment of its constitution to broaden the scope of its political activities beyond Nagaland State. On 1st April 2011, the NPF was formally declared the formation of NPF’s units in Manipur and Arunachal Pradesh with adhoc office bearers appointed. The main intention to expand the NPF’s units beyond Nagaland State was to work for unity and integrity of the Naga people by integrating all contiguous Naga inhabited areas under one administrative roof. Large populations of Naga people are living in different parts of Northeast region: Assam, Manipur, Arunachal Pradesh and Myanmar. Nagaland Chief Minister, Neiphiu Rio called for an integration of Naga inhabited area under a single administrative unit. The NPF President Dr Shurhozelie said the entry of NPF to Manipur and Arunachal Pradesh was in the light of the four resolutions passed by the Nagaland assembly on the issue of integration of Naga inhabited areas. Replying to a query as to why the NPF did not launch its unit in Assam, as large population of Nagas too lived there, Rio said they could not do so as the election in Assam came closer. The 13th Assam Legislative Assembly election was held in two phases on 4 and 11 April, 2011 and the result was announced on 13 May, 2011. During the declaration of the NPF’s units in Manipur and Arunachal Pradesh, the NPF President Dr Shurhozelie explained the party position for not fielding their candidates in the last election in Arunachal Pradesh. He said when his party had already prepared to take part in the elections; the Election Commission of India did not permit them to go ahead as some procedural incompletion of NPF.

The NPF’s formation of its unit in Arunachal Pradesh created a political storm in the State and it was strongly opposed by the All Arunachal Pradesh Students’ Union (AAPSU), Save Arunachal Forum (SAF), and All Nyishi Students’ Union (ANSU). AAPSU questioned the motive behind the formation of NPF’s unit in Arunachal Pradesh. “The office bearer of NPF Arunachal Pradesh unit should immediately relinquish their post and apologize to the people of Arunachal Pradesh. If not, people of Arunachal Pradesh will teach them a lesson,” stated AAPSU President. SAF in a communiqué said, “The NPF’s move to form its party unit in Arunachal Pradesh should be treated as most unfortunate and rejected outright by every right thinking Arunachalee and the idea of NPF to safeguard the interest of Nagas is simply not acceptable as this trend would set a dangerous precedent in the peaceful state of Arunachal Pradesh”. Disapproving the NPF’s bid to start their Arunachal Pradesh unit, the ANSU termed it as “direct insult on the people of Arunachal Pradesh”.

On 26 May 2011, all Manipur based political parties convened a meeting to discuss the issue on formally launched NPF’s unit in Manipur. Other than the Chief Minister Ibobi Singh, the Congress was represented by Th Debendra, Phungzathang Tonsing and Gaikhangam, the CPI by P Parijat and L Iboyaima, CPI (M) by Sarat Salam and Yumnam Ratan, Radhabinod Koijam of NCP, Ch Ajang Khongsai of NPP and O Joy of MPP. After seriously studying the objectives of the NPF as enshrined in its Constitution and read as “To work for unity and integrity of the people by integrating all contiguous Naga inhabited areas under one administrative roof and also to provide protection to all the ethnic groups who are indigenous inhabitants of the State,” all the representatives of political parties attended the meeting strongly opposed the opening of NPF’s unit in Manipur at Senapati as it would lead to instability of Manipur and spread disharmony among different communities of the State. Congress-led Secular Progressive Front (SPF) Government Cabinet also discussed the proposed visit of Neiphiu Rio to Senapati and resolved to urge the Prime Minister and the Union Home Minister to persuade the Nagaland Chief Minister to defer his proposed visit. Now, the proscribed United National Liberation Front (UNLF) has joined the chorus and it has slammed the entry of NPF in Manipur, terming it a ploy to advance NSCN (IM)’s agenda of disintegrating Manipur. The UNLF also hailed the decision of the people, political parties and the incumbent Government to oppose Neiphiu Rio’s plan as justified.

AMUCO had criticized the SPF Government’s stance on the launching of NPF’s unit in Manipur by saying that if the SPF Government was opposed to the launching of NPF’s unit in Manipur, then why they did not raise any voice when an NPF office was opened at Dewlahland, Imphal on March 31, 2011. It is questionable why the Government first decided to oppose the move before it was reversed after a few hours, AMUCO stated in a press release.

Explaining its justification on the expansion of the NPF’s units in neighbouring states, Dr. Shurhozelie Liezietsu said: “There is no law/rule to stop a recognised political party to extend its activities in any state in the country, adding because the Constitution of India guarantees to all citizens the democratic right to choose the party of their choice which can best represent them in the assembly in as much as an individual has the right to vote for the candidate of its choice.
The United Naga Council (UNC) has been struggling to achieve “integration of Naga inhabited areas”. UNC has been launching Non-cooperation movement against the Manipur Government: Boycott of the Autonomous District Council elections; Severance of ties with the Manipur Government; and Demand for an Alternative Arrangement. But no positive response is forthcoming from the Government of India.
The Nagas from Manipur had extended support to the People’s Democratic Alliance (PDA) and got elected six MLAs to the Manipur State Assembly with the blessing of the UNC. These MLAs could not deliver the expectations of people that the mandate assigned to them. Besides, the All Naga Students’ Association, Manipur had initiated an affiliation of the schools in the Naga areas of Manipur to Nagaland Board. This initiative was also going nowhere.

In 1972, the United Naga Integration Council (UNIC) was merged with the Manipur Pradesh Congress Committee, it was agreed upon that the Congress party would not oppose Naga integration movement as anti-party, anti-national, anti-state and unconstitutional activity. Today, contrary to what was agreed earlier, the Congress party led by Chief Minister Ibobi Singh has been scheming to derail the legitimate cause of the Nagas. Even those Naga leaders like former Chief Minister, Rishang Keishing who was a signatory to the above Agreement and Gaikhangam who is the President of MPCC remain mute spectators to the rule of the Congress party. The national political parties have completely failed to fulfill the political aspirations of the Nagas.