Sunday, July 29, 2007
Sunday, July 22, 2007
In this article, we look at the two main objectives of our national policy - growth in GDP, and curbing Inflation.
GDP, the Gross Domestic Product, captures the national income, measured through the concept of production (and not consumption). Remember, income is a flow, not a stock, and hence has to be measured over a period of time. GDP therefore represents how much we are producing in the nation over a given period of time.
Let us take a simple example, where the country produces only three products: cotton (produced value = 100), cloth (150) and clothes (210). Since the final product is only clothes, the GDP would be 210. But this is politically incorrect, since it excludes cotton and cloth, which is equally important to the economy! Hence, instead of the final product only, we measure the value addition (output - input) at each stage. This results in GDP = value of cotton (100, assuming 0 inputs), cloth (50) and clothes (60) = 210, exactly the same as before, but politically much more correct!
The national income, or GDP, is thus the aggregation of value additions in all its industries & sectors.
Let's consider the national P&L (profit and loss) statement. The incomes comes from sales. What about the expenditures? It comprises cost of raw materials, fuel/power, depreciation, salaries/benefits, rent (land cost), interest, taxes AND profits. Why is profit an expense? Think about it this way - you pay salaries to retain the workers, the rent to retain the land, interest to retain capital, and the profits to retain enterprenuers in the industry!
Since the P&L statement is balanced, we can say,
Sales = (Raw Materials + Fuel) + (Worker Cost + Rent + Interest + Profits)
Remember, only Profits can be negative, and this is the risk of enterpreneurship.
Now, Sales - (Raw Materials + Fuel) = (Worker Cost + Rent + Interest + Profits) = Value Addition
Thus, VA, as used in the calculation of the GDP, is not just the profits, but also includes the labour wages, rent, interest generated in the system.
India has Inflation target of 5% and GDP targets of 9% (growth). Let's see what this means.
We know, Sales = Price * Quantity
With increase in rates as above, we get,
Growth in Sales = 1.05 * 1.09 = 1.1445, which is approximately 14%.
What does this mean? It means that on an average, with the targets we have set for ourselves, any enterprise will show growth in value addition of around 14%. To be a leader in this economy, a company/enterprise will need to grow at twice this rate - and with a 28% growth rate over 15 years, the company will grow 32 times what it is today!
Now let's look at Inflation. Inflation is the growth in prices, and the target 5% relates to the growth rate for prices, not the price levels themselves!
The government typically targets the wholesale price index (WPI), which reflects the cost of production of a basket of goods. Consumers, on the other hand, are affected by the consumer price index (CPI), related to the cost of living, and this is what your dearness allowance tries to compensate you for. Remember, the basket of goods considered for WPI and CPI are very different, though there might be some overlap like food items. WPI considers industrial materials, fuel etc, and does not consider services. CPI accounts for rent, services and other items instead.
Obviously, if your company's real inflation is below the national rate, you can take the difference and pass it on to your customers, or rake in the profits!
Now, Money Supply = Price * Quantity. However, remember, money moves and changes hands, and this means that the actual money required in the system is much less. The rate at which money changes hands is called the velocity of circulation, which typically remains constant.
Assuming that quantity also remains constant, it is clear that money supply directly influences prices. To reduce prices, reduce the money supply!
With this, we come to the end of this series of articles.. hope you enjoy reading them as much as I enjoyed writing them!
The most important objective of the national policy is to increase the growth rate of the economy, represented as the GDP (gross domestic product). This article will give you an exciting insight into the growth of the Indian Economy since independence.
Introduction to Growth
Everyday in the papers, you read about GDP and the concept of "inclusive growth" - a phrase coined by the government to get a buy-in of the Left parties. Growth itself, is always inclusive. If India grows at the existing rate of 8-10% for the next 15-20 years, the economy will bring down unemployment to zero, and result in unemployable people getting trained and employable. This growth, if not sustained though, will only result in sucking out the unutilized potential in the country, and not create more opportunities for training and employing the trainable unemployed.
In the last few years, informal and small/cottage industries have resulted in huge increases in employment - it is interesting to note that the dire employment growth numbers come only from the registered, formal employment sectors like large industries which have trade unions, and hence are the vote banks of the left parties. This is less than 10% of the total manufacturing and services industry!
Check these numbers - employment has been growing at 2.49% per year, while the population is growing at 1.7%. Backlog of unemployedis thus being utilized at > 0.8% per year. In 10 years, there will be no backlog left to utilize. Is this inclusive growth? Decide for yourselves - poverty rates in India are down from > 50% to around 20% today.
Growth Rates in India
Upto the 1980s, we were growing at 3.5% per annum. While even most of the western economies grew at a similar rate, our rate of growth soon came to be called the "Hindu Rate of Growth". Why? Because in every 5-year plan, the government was promising 5%, for 30 long years, and always under-performing. Yet, the country returned the same family to power, never punishing it for its failures. Foreign observers confirmed that the elections were free and fair - and no one could explain why the electorate was OK with these failures, year after year. At the end they concluded it was because we were a Hindu nation, a population of under-achievement and complacency... a result of the voluntary poverty and renunciation of riches advocated in Hinduism.
Between 1981 and 1990, we targetted, AND achieved 5.5%, and finally caught the attention of the world. Between 1991 and 2006, this had shot up to 6.5%. In the 2001-10 decade, we are targetting 8%, and are all set to achieve a phenomenal 9-10% in 2011-2020.
Why? Because our so called biggest liability - our huge population- is coming to our rescue today. We are the only significantly sized country in the world with a steadily increasing population in the productive 15-64 age band. This will continue to rise till 2026-30, when it might touch a high of around 68-70%.
What does this mean? Larger labour force, falling dependency rates, higher savings - from 30% today, to around 38%. Where will this money go? Into investments - if you want to raise money, you now know where to go for it!
A Bit of History
Nehru strongly believed that trade with the British took away our freedom. His basic tenet for India was self-sufficiency. This, along with his Marx-influenced socialistic pattern of society, screwed India for a whole 4 decades.
Self-sufficiency meant that you should consume only what you can produce. Socialism meant that no individual would be allowed to be big enough to influence economics. If you cannot bring everyone above the poverty line, bring some below it, to achieve a more equal society. These two tenets fuelled his self-fulfilling prophecies - his actions and policies brought the Indian economy down to its knees.
His idea - to protect our freedom, take away the freedom to trade! Consume only what can be produced in India. Put barriers for foreign trade - high import duties, sometimes as high as 600%! Socialism knocked out private enterpreneurship and growth. Policy dictated everything through the license raj - not only what you can produce, where you can produce, but also how much! The government consistently planned for over installation and under utilization - after all, India was a poor country, and we couldn't consume all that we could produce - and we did not want to trade! The country planned for wastage of resources, while all the time maintaining that we were a resource-scarce country!
Trade was disallowed, but aid was OK!
To consume anything, you needed to produce it first. You needed raw materials and heavy industries to produce those raw materials like steel and copper! There was no private industry, so the government created the public sector. Remember, they could only produce limited quantities, and were operating at very low capacities, automatically resulting in high average cost, much lower than world prices. But we did not want to encourage trade! So the government put in exorbitant import duties, sometimes as high as 600%, to make imports and trade unviable!
Now, someone (the government) had to finance these heavy industries since they required huge investments - where will it get the money from? By taxing commodities through customs and excise duties - thereby hitting the very poor it was trying to protect! Indirect taxes, the worst form of taxation, became necessary. The government was also a constant borrower from the RBI, and that meant it couldn't be given autonomy.
Nehru started saying no one would buy from us, and then implemented policies like quotas in production, and high import duties that ensured exactly that - no one bought from India, because we had priced ourselves out of the world market. In 40 years, India's share of global trade came down from 2.4% in 1951, to 0.4% in 1991! Nehru had proved himself right!
The Turn around
The early nineties saw a few events that proved critical in India's turn around story. The Soviet Russia collapsed, and India lost over 25% of its miniscule trade in one stroke. Bush attacked Iraq, and our entire workforce in the Middle East beat a hasty retreat back to India, chocking off a critical source of revenues! At the same time, the imports bill was steadily increasing - specially the expensive oil!
When Narsimha Rao took up the reins of the country, we were on the brink of bankruptcy, and no politician was ready to take the mantle of the MoF. In stepped an academician, an economist, a professional - Dr. Manmohan Singh! (ps: My original article read Dr Manmohan Desai :) Thanks to kartz for pointing it out :))
In his first budget speech, Manmohan reiterated his commitment to the Gandhi/Nehru family - and then uttered the magic words - India would emphasize self-reliance (and not self-sufficiency). No one understood it at that time, but the message was clear - henceforth, we should be able to buy whatever we want to consume. India now had a clear make versus buy choice. While self-sufficiency enforced make, self-reliance allowed you to buy if it was cheaper to buy than to make. And we could buy only if we could sell - India was thus required and encouraged to produce what we could most efficiently and cheaply compared to the world market, and this money could then be used for buying what we could not make!
No aid, but trade!
To enable lower rates - the government needed to open the private sector to areas hitherto restricted to the public sector. This was privatization - and is very different from the left-propagated notion of selling off public sector industries to the private sector! He demolished the license raj - you now had the freedom to manufacture what you wanted, and how much you wanted! He demolished MRTP - the monopolistic and restrictive trade practices act, enacted to promote the socialistic pattern of society by discouraging private enterprise and growth. The planning commission no longer made the yes/no decision - it was now free to think, to plan!
This cycle, from opening up the economy to private players, to increased competition, to reduced costs, reduced import tariffs and trade barriers, to making the economy and industry globally competitive - this is what globalization is all about.
The other objective of the national policy, which goes hand in hand with growth, is inflation. Growth will always be inclusive, as long as inflation is low. The RBI continues to remain in charge of controlling inflation.
In the next article, we will see what our national targets for GDP and Inflation are, and what it means to all of us.
Here are my notes from the lecture... an exciting journey into the basics of economics, and a peek into what goes behind running a country. While I will not even pretend to be a shade as effective as Prof Dholakia, this is a sincere attempt at giving you a brain dump of what I tried to soak in yesterday!
Introduction to Economics
While management can be called the art of making decisions, economics is the science of decision making, the only social science to have a Nobel Prize. Economics is all about managing (and minimizing) "Opportunity Cost" - the cost of your decisions, the value of the best alternative you have forgone because of your decision.
Government policies can be sectoral or macro. Sectoral policies are for lawyers, they are specific to certain sectors, and its all about the language of specifics of how and what. Macro policies, on the other hand, have a much wider, all-pervasive impact, and it is necessary for managers to be aware of these policies and their implications.
Macro Policies - Fiscal and Monetary
Fiscal Policies are those that directly impact government expenditures or revenues. These policies are not restricted to the central government only. In India, only 50-55% of total revenue collected is by the central government. The state has another 40-45%, while the remaining 5-10% goes to the local government.
The Budget is a comprehensive statement of the government's fiscal policy. The budget is a process. In India, the budget process lasts around 6 months, starting in Oct-Nov, when the Ministry of Finance starts meetings with various stakeholders including industry, academicians, NGOs, customer groups, banks and politicians. At the same time, the government conducts an internal appraisal of the economy, through the Chief Economic Advisor, and this apprisal is presented to parliament 2 days before the presentation of the budget as the Economic Survey. The Economic Survey is really representative of the inside thinking and direction sought to be taken by the government in terms of the budget and the fiscal policy.
The MoF may not always implement the recommendations of the Economic Survey right away, but he is constrained to justify any decisions taken contrary to the recommendations. The MoF typically uses roll-back as a political tool to drive acceptance for other tough decisions that may be taken by the government in the budget.
In India, the "inside lag" - the time taken for identification, recognition, decision making - for fiscal policy is enormous, unlike in China, where opinions and debates do not matter. This inside lag is really the cost of democracy, and the price we pay for the freedom to have and to be able to express our opinions! However, once the fiscal policy is announced (through the budget) the "outside lag" - time for implementation and the effect to register - is minimal or non-existent. Changes are implemented right away, without any delay (change in tax structure, for example).
Remember, fiscal policies come through political process, and they mean nothing without political stability.
Monetary Policies are those that direct influence quantity and cost of liquidity in the system. Liquidity is the ability to settle transactions - any medium of exchange, unit of account, store of value - the money supply. Here, quantity represents the total money in the system, while the cost is represented by the Interest rates.
Democracy has no role to play in the monetary policies of India - this is handled independent of Parliament by the RBI. After 1998, the government of India freed the RBI from the MoF, which now has no executive powers over it, but only advisory powers. And unlike fiscal policies which take a long time to come out with, monetary policies may be changed rapidly, sometimes even a couple of times a day! Formally, there are two credit policy announcements a year - April (busy season) and October (slack season).
Interest rates and exchange rates are now no longer dictated by the RBI - these are now dependent on the market. However, as a player, the RBI can influence these heavily. When the RBI sells its bonds in the market, it sucks out liquidity, and when it buys bonds, it infuses fresh cash into the system. As you can see, the "inside lag" for monetary policy is much lower, while the "outside lag" is much higher - the effects of these decisions, like changing interest rates, have a long term effect, and do not really make any difference in the short term (you will still buy that house you were in the process of buying).
(In the next post - the GDP, and the exciting story of India's growth)
While the previous movies at least had some novelty, some excitement, and some story in them to justify spending the money on the trip to the theatres, this latest offering is a complete disaster. The visuals, though interesting, are just repetitions of what we have been fed a lot of times before, and the story really, really disappoints - all through the movie, you wait for the showdown, the fight, the real stuff to begin - and the curtains come down, leaving you wondering whether the authors forgot to finish the book!
My take aways: Emma Watson, pretty as ever, and the moving photographs, pretty cute!
Also, didn't help that I was in the second row, craning my neck and manoeuvering hard to get the entire screen into sight, before sensing the futility of the exercise and settling down to seeing half screen at a time :)
Saturday, July 21, 2007
We visited it late at night the other day, and it looked simply beautiful. The best thing about it are it's curves, and absolutely clean lines - unlike the unwieldy, burly giants that typical flyovers are, the UoP flyover, as well as it's two older and smaller cousins, the ESquare and Agricultural Chowk flyovers, are slim and sexy - and you can't help but oggle everytime you pass them!
While on the topic, have you noticed how the roads in Pune are much better this year? The PMC has taken it's job seriously finally - and inspite of heavier than usual monsoons, motorists are having absolutely no problems, unlike the last 2-3 years, when driving through Pune's roads was akin to life on the moon...
And as you drive by, you will notice that footpaths are coming up all over, clean dividers are making their presence felt, and hitherto single, dangerous lanes are quietly, but surely, turning into beautiful, shaded and tree-lines avenues...
Can you imagine Pune 5 years later? I can... the BRTS buses zooming around, a few sky bus lanes, cycle paths and footpaths with happy, young and old couples, beautiful cars zooming along freshly tarred and cobbled streets... mmmmm.. can't wait to see it!
Saturday, July 14, 2007
So.. how do you make a Humpty Dumpty?
Chop three tomatoes, and a large onion. Keep three eggs ready. Take a deep, flat pan. Sautee the onion in olive oil till brown, them dump the tomatoes. Add chlli and turmeric, and a dash of salt. Let the concoction simmer for some time. All the while, mash up the tomatoes till they become a thick pasty gravy.
Now comes the interesting part...
Make "wells" in the onion-tomato paste, one for each egg. Dump each egg into it's well, and let it simmer on low flame till the egg cooks a bit. You might want to keep poking the egg dump a bit to let it cook through.
Finally, add some chopped coriander, and grind some black pepper.. your Humpty Dumpty is ready to be had with whole wheat bread!
The first step was ordering the set top box. I called the help line, and five mins later, it was through. The call center quickly passed me on to customer care, which offered me a 4 month free offer if I booked using my credit card. After taking a few basic details, they put me on to an automated system, which prompted me to enter the credit information by pressing buttons on the phone, and I was done.
Two days later, the set top box had been delivered. I called the help desk with the id numbers, and they immediately gave me a few options for the installation itself. I chose Saturday evening.
Saturday evening, the installation team was here - a couple of very pleasant guys, who got down to the task. Clean. Fast. Efficient.
And when I offered them a tip at the end of the job, they refused saying, "We had tea with you, felt very good."
I do not know how things will play out later, but for the experience so far, Tata Sky gets absolute full marks!
How your best friends can swear by you, and yet, suddenly, all those promises mean nothing when they decide to walk out?
Take Sourav Ganguly - one day he was a hero, and the darling of the nation. The day he picked up a quarrel with Chappel, not a single person supported him. Suddenly, he was the untouchable, shunned even by his life long mentor Dalmiya? How his team mates suddenly realised he was a bad influence in the dressing room, how the media turned against the "arrogant" cricketer who thought he was king, when this same "arrogance" was heaped with praises when he won the Natwest tournament, and took on the Pakis and the Aussies, beating them at their own psychological games?
Why - why does the world hit you when you are down? Why don't your friends stand by you, why don't your mentors give you that support you need when you really, most need it?
Maybe this is Darwin's survival of the fittest at work - what better way to eliminate you when you are already weak? It's almost like you are prey, the world waiting like a vulture for that first stumble, that first mistake, that first sign of weakness - before it goes for your throat....
Scared? Be so. Only the paranoid survive.
Monday, July 09, 2007
Best deep fried, they make excellent gravy dishes too!
Available in packs of 100, wrapped in these large leaves...
...they take a lot of hard work, to get them rid of the caked mud...
Dinner is usually a time for family bonding, and sharing anecdotes from the day! A 16 seater table means that no one misses out on the action!
An internal staircase provides access to the "Mali" (upper storey)
A typical, Goan Balcao (Verendah)
Closer home, in Nerul, we were shocked to see the havoc wrecked by the sea on our very own favourite village beach. This article is a sad reminder of how turbulent and painful our relationship with nature can be.. or maybe, it's jus a reflection of how mankind is exploiting what he has, and in turn, paying the price for it!
And a similar sad fate awaits this beautiful tree.. even the Ganesha idol installed on the tree will not save it from certain uprooting.
While Mumbai is looking at skybuses and mega multi-storey flyovers, Navi Mumbai is set to become the biggest planned city in the world, with an estimated population of over 4.5 million residents. From railway stations designed to disperse the large crowds quickly, to catchment ponds with tidal control gates aimed at preventing flooding even in heavy rains and high tides, Navi Mumbai is learning it's lessons from the problems of Mumbai.
As one of the engineers on the program aptly said, we now have the money, the people, the talent, the future!
As soon as I came back to Pune, I ordered a connection for myself - and was pleasantly surprised at the level of customer service I encountered on the help line. Within a few mins, I had entered my HDFC Netsafe card details on the phone, made the payment, and I am now eagerly waiting for the hardware!
Happy TV times are here again!
Catch a tall glass of Strawberry flavoured Ice Tea and a Sizzling Brownie at midnight at the Cafe Coffee Day by the beach
Drive 3 kms from home to a city street corner, to feed the left over chicken to our favourite stray dog
Get caught in a sand storm accompanied by biting cold rain and take cover behind a car - then come home and spend an hour in the shower, getting rid of all the accumulated sand
Have crabs and prawns for breakfast, fried fish and prawns and crabs for lunch, and squid, crabs and fish for dinner
After a harrowing overnight journey through heavy rain and blinding fog in the ghats, I woke up in the morning close to the Goa border. Looking eagerly out of the bus from the upper berth...
...I saw the palm trees and green rice fields race by in a blur...
...until finally the sun broke through the dense clouds just as we entered the beautiful city of Panaji, or amche Ponje!
Sunday, July 01, 2007
Caught Mrs Crab crawling across the road with her dozen tiny children (not in pic) on a drive in the city's outskirts last week.
Reona takes a break from driving around...
... to check out this beautiful village nestled in the bosom of the hills.
Jason Bourne Returns in
Robert Ludlum's (biggest font)
The Bourne Betrayal
A new novel by
Eric Van Lustbader
Isn't it cool? I mean - years after your death, writers want to use your character, and your name, to sell their work?
The book, of course, is OK - it has the familiar feel of a Ludlum book, but it's not really the same!
But now I am hungry again - maybe it's time for an apple?
On the world stage, there are only two real issues dominating the news channels and newspapers - The fight against terrorism (dominated by the West's fight against Islamist fundamentalists) and global warming.
After taking on the Taliban in Afghanistan, and seeing a big victory in terms of being able to dislodge the Taliban government and install Hamid Karzai as President, the US took on Al-Qaeda in Iraq - and has now landed in a big soup. The gains in Afghanistan seem to be vanishing day by day. Pakistan's north east lawless tribal areas are a safe haven for terrorists now, and Pervez Musharraf is finding it increasingly hard to get a grip on the fundamentalists in his own country. Iraq is a quagmire, and is slowly moving into a civil war. Palentinians are no closer to peace, with Hamas and Fatah movements both fighting each other, Israel a frustrating bystander to the violence in Gaza. And Islamistes else where, from the south of Africa to south east Asia, are creating fresh trouble. This is also turning into a fight against the Burkha, with many European contries contemplating a ban on the burkha - a judge recently walked out of his court in protest when a Burkha clad lady walked inside.
Interestingly, inspite of recurring bomb blasts and attacks, Kashmir seems to be getting quieter, and tourism is booming in the valley again!
Global warming has finally landed on the world leader's conference table - and in the drawing rooms of every home with a TV. And the effects, whether real of imaginary, are being felt. Pune, for example, is witnessing torrential rains the like of which was never seen a decade back. While some parts of the world are facing cyclones and flooding, as in the Omani desert, Europe is experience heat waves like never before. Flooding and typhoons have ravaged the world, and rising sea levels are threatening coastal cities, especially in countries like Bangladesh.
The world is now looking at China and India to be the superpowers of this century. China, with it's huge population and strict military/communist order is marching on as a manufacturing super-power, while India with it's teeming millions of educated middle class, is showing up as the world's back office and IT/other services provider, as well as in biotechnology and other cutting edge areas. And their large middle class populations means they are a self-contained economy now, with no real worries of sanctions or trade barriers. Russia, which had lost it's edge over the US after the collapse of the Soviet Union, is now flexing muscles amidst a resurging economy, using it's oil and gas reserves to good effect, holding the world to ransom. Iran and North Korea are the latest trouble spots for the US and it's allies, both holding the threat of nuclear weapons, and taking the US head-on.
In India itself, times have never been better. From cell phones to Mercedes cars, even rural and small-town India is joining the party. A news item reported today that Ludhiana and Kolhapur have the highest per capita Mercedes' in the country. Kolhapur itself has more than 500 hundred! An awesome road network is coming up, huge malls springing up in every nook and corner, and the real estate and stock markets are booming like never before. Forex reserves have balooned up to almost 200 Billion USD, a 2000 times rise from the early ninetees when India had to mortgage it's gold, and was forced to take the economic reforms path. IT services and manufacturing, automobiles, pharma, telecom - India is riding it's success in not one, but multiple ways.
Judicial activism, the right to information act, and an aggressive press and a vigilant society is leading to some serious convictions of politicians and public figures, hethereto immune to the law. Corruption may not be out, but it is definitely on the wane.
Yes, we still have lots to do, and for every Indian, this is a time to stand for your country and help her, rather than criticize the system and run off to the West. With the number of Indians coming back swelling by the day, it's almost LS to say you are planning to take flight and become a NRI!
For some lighter moments now... a judge in the US sued his laundry cleaner a whopping 57 Million USD for losing his pants and causing him emotional trauma, by not living up to it's "Satisfaction Guaranteed" promise. Thankfully, all is not lost in the US - he lost his case and was ordered by the court to pay the court expenses. India's prez-to-be talked about how a dead Baba came to her and gave her divine premonition of the good days to come. Saurav and Sachin are still batting for India, and recently broke the world record for the highest number of century stands.
And I am on a weight-control diet and lost 2 kgs in one month...