Some Economy related thoughts

The year just gone by hasn't been great for India, economically. The Government obviously gets blamed when things go wrong, and it did go horribly wrong last year. That is par for the course, because the Government is quick to accept credit when the economy does well.

Though, it is easy to blame the Government for the mess the economy is in, the fact is that our economy runs on auto pilot and is not very dependent on Government initiatives. Services constitute 55-60% of the GDP and this sector is by and large independant of Government interventions. Inflation was in double digit throughout the year, but this normally should be good news for the Corporate Sector, as in the short term, inflation means addtional revenue.

So why did the economy become sluggish. Global economic situation is very bad. USA is in trouble, as the sins of 2007 are fast catching up. Eurozone is in a melt down. Japan is still recovering from the Tsunami and Earthquake, and even Chinese economy is splitting at seams. There is hardly any demand for our products and services, and with internal consumption sluggish, due to higher interest rates and inflation, and with Government not willing to make any bold (or even routine) initiatives, the Corporates lost confidence. The current crisis is more of crisis of confidence than a crisis of economics.

The Government can think of stimulus to increase the demand. Allowing the Rupee to devalue by not intervening is one option. This would make Indian goods and services cheaper, boosting demand. Agreed imports will become dearer, but that can be compensated by supporting CAPEX importers with soft loans. Investment in the Agricultural sector will have a direct impact on stimulating the local demand. Sector specific easing of loans can be made available to select manufacturing sectors, that are critical to the growth. While it is tempting to suggest reduction of interest rates, one has to keep in mind its impact on inflation. But since an increase in interest rates did not contain inflation, one really wonders whether a decrease in interest rates will have a negative impact on inflation. One has to wait and see.

In short, have confidence in our Corporates and people, show that you are taking meaningful actions in a calibrated way, and you will have the economy up and running again.

This is assuming that the economy was performing purely due to internal competencies in the past. I had always suspected that the black money pouring in through the Mauritius route as FII was more responsible for Indian economy doing well in the past, than because of strong fundamentals.

Ohm shanthi shanthi shanthi

For all my readers

Ohm santhirasthu
Ohm pushtirasthu
Ohm tustirasthu
Oham vrudhirasthu
Ohm ayushyamasthu
Ohm arogyamasthu
Ohm dhanadhanyasamruthirasthu

Ohm shanthi shanthi shanthi!!!

Singing National Song with Deep Regret!!!!!!!

There is a scene in one of P G Wodehouse's Books on Bertie Wooster and Jeeves, where Jeeves narrates the rioutous scene on a village school annual ceremony. He explains the scene where Bertie Woosters friend Augustus Finknottle, under the influence of liquor while addressing a village school gathering, enters into an argument with the parent of a student, leading to an acrimonious exchange. Jeeves abruptly rounds it off by saying " Then they sang the National Anthem". Bertie wonders how the two antagonists can think of singing the national anthem when they are about to come to blows, and Jeeves clarifies to him that the Principal decided to end the charade by asking the School Band to sing the National Anthem as a prelude to closing the function. The absurdity and hilarity of Bertie wondering ("Jeeves! Surely not..............." were the words if my memory serves me right) how they can think of singing the national anthem at such a time is beautifully illustrated by PGW.

I was reminded of this, when I was watching the absurd proceedings in the Rajya Sabha, just prior to the Mid night adjournment. Vice President Hamid Ansari was in the chair, and the decibel level in the house was at its peak. The time was already past mid night, and Ansari was admonishing the members as to how they are lowering the dignity of the house (as if it has any dignity left!!!), and how proceedings couldnt continue because of the din. Then he abruptly said, "I have to say with deep regret........... (Pause).........National song" and then 'Vande Matharam' was played.

The first absurdity was the VP, hassled, having no control of the House. The second was the need to sing the National song (which is a practice) after the members (mainly the Government) having done its best to not pass the Lokpal Bill, which was being watched by everyone in the Nation. And the third absurdity was Ansari's words in effect coming out as he is asking National song to be played with 'deep regret'!!!

What else can we expect from a bunch of criminals, clowns, self serving politicians led by a nincompoop Prime Minister who gives a damn about Nation and the people they are supposed to represent???

Greetings in poor taste

Come New Year time, my Mail Inbox is flooded with E-Greetings, either in the form of E-Cards or in the form of Mail Greetings.

I have reservations regarding both. The E-Cards are sent through E-Card sites, that offer them free. What the sender doesn't understand that nothing comes free in life. The E-Card sites makes a living out of selling our E-Mail ID's, both the Sender's and the Receiver's to Marketing Companies. This results in these companies sending unsolicited promotional offers to us, which adds to SPAM. Thus, by sending E-Greetings, the sender is condemning himself and the intended receiver with an year of SPAM.

My main grouse with the New Year Greetings send as a mail, is that the sender does not take the trouble of sending a Personal Mail, but rather drafts a one liner like "Wishing you and your family a Happy New Year" AND THEN SENDS IT TO ALL IN HIS ADDRESS BOOK as a single mail. Thus my e-mail ID, which is personal and given to the sender in confidence is revealed to all in his address book, which is incorrect. It also adds to SPAM, as many in this address list sends a one liner reply greeting to the sender, using the reply all option, which means my ID automatically gets registered in his address book. Come another occassion, this guy starts sending bulk e-mails. Leave this aspect. The idea of sending a greeting, is to indicate to the receiver that he is remembered on a joyous occassion, and the sender wishes him from the heart. But I cant understand how wishing 100 people from the address list, without even knowing who is in the address list, gives an impression that the sender remembers me!!!. I have nearly 700 plus people on my gmail contacts!!.

The greetings have to be personal, and marked only to the intended recipient. Can't we spare one hour in an year to remember our friends and to send personal greetings?

Anything other than this is in poor taste.

Re 1 Rice Gaffe

The Food Security Bill is on hold for now. This pet project of the Sonia led National Advisory Council (a wasteful body, comprising of a few left liberals, including a know maoist sympathiser on bail, and who has absolutely no accountability to anyone) basically called for nearly 60% of India's population to be given food at highly subsidised rates of less than Re 3 per kg. This would have resulted in increasing the subsidy burden of the government by another One lakh crore, though more realistically it is closer to Two lakh crore. On the one hand Government has been taking a tough stand on reducing subsidies on Petroleum products or fertizers claiming it cannot afford, and on the other hand it wants to increase the subsidy on food. We do have a major supply side constraint on food. The farmers are not getting fair prices for their produce making them move away from farming. The area under cultivation is dwindling, and with the Government hardly taking any initiative on the second Green Revolution, the per acre productivity has remained stagnant. With the Food Security Bill in place, Government would have found it extremely difficult to increase the support price of food grains, adding to the woes of the farmer.

And would the poor have benefitted. Not in the way Government expects. If Sonia and NAC thinks that poor will buy and consume Re 1 or Re 2 rice, they are living in blunderland. Poor have more dignity than what these clowns assume they have. And the basic food the proposed bill is aiming to give are essentially Giffen Goods (google it if you dont know what a Giffen Good is), the purchase of which wont be compromised by the poor (and consuming poor quality Re 1 rice is a compromise for them). And this beats the fundamental economic principle that the same good should not have differentiated prices in an undifferentiated market!

I was reminded of a story narrated by a Tamilian Taxi Driver. He used to depend on small roadside hotels and iddly shops to eat iddly and dosa, while on duty. As anyone knows, some of these small roadside iddly shops serve delightful iddlis and dosas, and are very inexpensive. But ever since the Tamil Nadu Government started doling our Re 1 rice, the quality of these iddlis and dosas have deteriorated sharply to such an extend, that they are unpalatable, as per this guy. The reason? The poor happily collect their Re 1 rice from the Fair Price shop, and then, instead of taking it home to cook, they make haste to the nearest iddly shop to sell it at Re 4 or 5, pocketing the difference (because the Re 1 rice is of such a poor quality that no one will even dream of eating it). Thus, if he gets 35 kg of rice, he makes a profit of Re 140, and use it to buy 10 kg of higher quality rice, which he doesnt want to give up, as it is a giffen good!. The shop keeper is pleased because he gets rice at Re 5, against the market price of Re 15, and his cost of inputs have gone down substantially, increasing the profit margin, which was getting squeezed due to inflation. But in the bargain, quality is given a go by, which affects his business in the long run. But hey! who cares. One of these days the Economic PM shall allow FDI in Food Retail, which will anyway make him redundant, like the FDI in retail will do to the petty shop owners!

Preoccupied with work

Really preoccupied with work. Do not just have the mindspace to come up with a blog post. Bear with me

The classic diversionary tactic!

So the FDI in retail sector is rolled back!

The government and congress party has achieved its purpose of diverting the attention from 2G, Corruption, P Chidambaram, Jan Lokpal, inflation and the crumbling economy.

Half the Parliament session is gone. Now even if the opposition wants to, it cannot stall the parliament anymore on the above issues, as the public mood is against the MPs now.

And Congress and Government lost nothing as anyway FDI in retail was never a critical issue.

Remember the old adage of where to hide a leaf? In a forest.

Likewise how to hide a problem? Create another problem as a divertionary tactic!