Saturday, 29 November 2008

Terror Strikes Mumbai

India was a witness to the worst terror strikes. the audacity of the terrorists to attack civilian soft spots and battle for long hours was shocking. All this while terrorists were supposed to strike from behind and run away or die in the process. But, this was exceptional that the terrorists attacked and tried the patience of the forces for a good 60 hours. What lessons do we learn from this? That India can no longer be casual about the threats of terrorists. India is viewed as a soft state as far as terrorists are concerned, as any terrorist is branded a religious one and the Government dithers on taking action against these elements, afraid of the wrath of the religious bodies. Terrorists have no religion, no Nationality and no Humanity, they need not be shown any pity while dealing with them. just branding them as people belonging to some nationality, region, religion or group will not suffice, this will lead to a lackadaisical attitude towards them and give them more strength to strike again. Our country need laws which are stringent enough to deter criminal activities, and a legal system which acts fast to book criminals and dispense with the justice.
After a crime is committed and the suspect is arrested, many time it so happens that it takes six months to an year until the charges are framed, then comes the trial where lawyers take advantage of the loopholes of the detective system or the investigations and are able to save the criminals from sentence. There are umpteen instances where criminals have gone Scot-free because of the delayed (and therefore shoddy) investigations. Justice delayed is justice denied and therefore we have to take steps to speed up the process of justice.
Stock Markets: Markets rallied in spite of the terror strikes in Mumbai. There is a lot bad news happening around the world about more an more banks wanting bail out packages. Worlds largest automakers also want bail outs, The American dream wants a bail out package and industry leaders are asking for virtual nationalization of their industries in US. These are bad times, if you have bought when the markets bottomed in October then SELL NOW only to buy when the markets retrace the bottoms again.

Sunday, 23 November 2008

Policy reassurance

The events in the last week have been extraordinary. Our honourable finance minister called for reducing prices by industrialists. The honourable Prime Minister of India and the Chairman of the UPA addresses the Hindustan Times Leadership summit and used this opportunity to instill confidence in the nation about the economy. The Prime Minister particularly said "Government is aware of the enormous task ahead and will take necessary steps to mitigate the effect of the global financial crisis", If that does not instill confidence in the public mind then what can? Here we have an acknowledged world leader, a leader of people and thoughts and a noted economist saying that his government is seized of the matter and is ready to do whatever it takes to tide over this situation in the country. We should all be proud and glad that we have the necessary resource to battle this situation in the form of mind and motivation to counter this crisis.
Now we move over to the G-20 declaration: All the leaders of G-20 countries pledged to counter this crisis and do whatever it takes to tackle the situation. One thing that comes as a cropper in this deliberation is the mandate to formulate accounting policies to value illiquid securities. How do you value a security as X amount when nobody is ready to pay that X amount to purchase the security. the fundamental basis of value or price is the agreement of two parties to exchange that asset at a price or value. So what is the value or price of the security that is ILLIQUID?

Monday, 17 November 2008

India ahead

Indian's rejoice! the world "leaders" have finally realised that the it is not G-5, oops G-6, oh no! G-7, Oh My God G-8, but the G-20 which will decide the fate of the world's economy. So, finally Indian's can rejoice on being included in the hallowed club of decision makers for the world.

Come 2010, India will be a show case of withering financial crises and the financial storms. Then we will witness the world giving India its due as the thought leader of the world.

It was India which invented the ZERO to teach the world to count beyond 9, It was India which helped the world adapt to the understanding that years should be counted in four digits and not in 2 digits (remember Y2K?). Now It will be India again which will show the world that the middle path or the mixed economy is the correct way of managing ones economy, that is the way to absorb the shocks.

My definition of mixed economy is a little different from that of the popular one!

Here we have an organised industry, American Style with 12000 listed companies on the stock exchanges, investment banks, commercial banks, mutual funds, and all the trappings of the so called developed world.

Then an unorganised industry of big and small businessmen who have never been part of the organised world. people who have bought plots, built homes and managed families oblivious to home loans, income taxes and PAN cards.

Another part of the economy is the co-operative one, we have borrowers co-operatives running finance operations, cane suppliers co-operatives running sugar factories, consumers running consumer co-operatives, farmers running Agriculture produce marketing co-operatives... i.e. generally all those who have no bargaining power ganging up and setting up down stream co-operatives to manage their own interests. This also meant that depositors or capital providers of finance co-operatives are at the mercy of the borrowers who are also the owners of the finance co-operatives, Sugar consumers and sugar factories at the mercy of sugar cane suppliers (raw material suppliers), etc.

Prima facie, doesn't it seem like we have segregated the problem areas and kept them at arms length distance from each other?

So, In India we not only have a mixed economy, but also a segregated economy and thus "bad" credit, "bad" customers, "bad" suppliers and "bad" consumers are segregated in the economy and do not have anything to do with the "organized" sector.

That's the Indian Economy, cheers!

Wednesday, 12 November 2008

Indian Industry comes of Age

The Global Dow ( publishes by Dow Jones is the newest index kid off the block. It is heartening to know that amongst the 150 companies across the world who have found a place on the list, India lists high on the list. There are 4 home grown companies in the list: Tata Steel, Bharti Airtel, Infosys and Reliance Industries. 15 companies have subsidiaries in India which are listed on the Indian Exchanges. 21 companies have joint ventures with Indian Companies, 46 companies have their wholly owned subsidiaries and rest (64) of the companies are not yet represented in India. That makes it 82 companies which have business interests in India. This is a perfect repudiation of India not being completely integrated with the world economy.
This is also an answer to those who talk of India not being on the radar of global companies. This also proves that more than 50% of global companies are eyeing the ever growing markets of India.
Apart from these companies, there are scores of foreign companies which have a presence in India, some of these interests have been built up in the last two decades of liberalization and Globalization. With these business interests and their lobbyists it is hard to break away from the global economy. But this association itself will guarantee the stability of democracy and the continuance of principles of economic management followed in the last two decades.

Monday, 10 November 2008

China Shows the way

Lord Maynard Keynes must be a very happy man today and must be celebrating in his grave. The Chinese Government has toed his line and announced a $586 billion revival package, most of it is the promise to build infrastructure. This was what was expected of Indian Government too. But our policy makers are busy playing in the money markets. They huddle together for days and come up with damp squibs of reduced interest rates, reduced CRR and SLR. The fiscal deficit be damned, this is the time to act and push for higher government spending in infrastructure, housing, irrigation, power, water and so on.
The government should take a cue from the Chinese government and start a resurgent India programme of stimulating investment. We cannot tamely sit back and murmur about slowing growth, we have to do something ourselves and cannot expect FDI to walk in into India. Unless government starts investing private investors will not bring money to the table. This is a blackjack game where the house has to deal first and put money on the table, unless the players are convinced about money available to be won they will not play. That sums up the need for creation of investment climate in the country.

Saturday, 8 November 2008

Information processing speed is the key!

One of the major shortcomings of economy management is the speed and method employed in data collection by various agencies of the government. Today, the IIP number for September were announced, which showed a growth of 5.1% in the core sectors in September!. my only objection is that with the turmoil in October and the pace of disintegration of financial markets and financial institutions, do these number carry any weight? don't we have a mechanism to find out ground realities on "Ground Zero" on a real time basis?
For example steel prices declined by 30% in the month of October (This information is from the market and not from a government source and we are on 8th of November) if this information is available to an individual like me in a remote town in India, why is it not available to Government data collectors?
Iron ore prices have crashed starting from September through October and it is common knowledge in mining areas that iron ore miners, transporters and traders are in dire straits, does this information reach the government or it will reach when one of the transporters, traders commits suicide or one big timer goes bankrupt?
Tata Motors and Ashok Leyland have cut production of commercial vehicles as thousands of HCVs are lined up in the second hand market. A result of ore transporters losing business completely. Does this reflect in the statistics of the Government now or will it reflect only in December 2008 or January 2009. Would it be any useful to the policy makers or the public to know this after most of the single truck owners have defaulted on their loan payments and their trucks confiscated?
There is an immediate need to tone up the information gathering process and make it real time. In this era of IT and e-governance this is the least our government can do, more so, when we proclaim to be the World leaders in Information Technology.

Tuesday, 4 November 2008

Wrong Prescription Again

Injecting liquidity is a very short term measure for the markets and the economy. The patient wants vitamins, proteins and carbohydrates so that he can get up and start walking again. I am talking about the Indian Economy. But, our doctor has given him a pain killer and a bottle of glucose. I met a friend here, who said this liquidity injection is like a ritual we have in our homes during January (Sankranti) : we pour sweets, chocolates, puffed rice, sugar cane pieces and coins on the small kids in the house. We call the neighbouring kids who will sit around the kid and collect all the sweets, etc. and then go away. The same thing is going to happen here, injected liquidity will find its way to the stock markets and other markets to buy puffed up stocks which will be downloaded by the FII's.

Expect the markets to come down after the initial euphoria of the liquidity injection and the US Presidential Election. This bearish phase in the Indian stock markets will last till the middle of next year (of course, I am repeating this line again!). So, if you have bought when I wrote BUY you could offload the stocks now and make a neat 10% gain. the Regulators, Government, Politicians and FIIs will give enough opportunities to re-enter the markets at better prices.