How Not to Sell Reforms:Retail FDI

When it comes to selling economic reforms to its people,  the Indian government will walk away with the top prize for doing the worst job across the globe. Otherwise, how can you explain the sudden mad way of first announcing retail FDI approval without tryin to reach any political consensus. Don't tell me that the ruling party forgot that it is minority in the Parliament. More than that did it even try to tell people why this is beneficial to the people? Now hare-brained is that? How do you expect public support when you don't communicate? The other problem is that when government representatives even try and communicate to people--and that happens rarely--it is in an idion so alien to the common people. Of course, let;s also not get fooled by the uproar in some quarter. The couple of thousand marketing agents who procure agri-produce across the country are seriously powerful. They have practically stalled agri-marketing reforms, part of overall agri-reforms. They influence the political class across the board.

Of course, if you are a sucker for conspiracy theories as some journalists are, you could argue (without hard evidence as some are doing now) that the government's retail FDI move has been not usher in reforms but to distract people and expose the political opposition. If that were to be true, we can put that down  in the column of dreadful tragedies.

Government's counter punch to India Inc

I just loved it. When some ministers of the government at an awards event with top honchos from India Inc suggested that India Inc also look within and beyond the government (read: opposition parties) instead of "government's policy paralysis", it gave a much needed width of focus to the whole issue. Of course, there is still a policy paralysis in the government, the only difference now is that they are trying to do something about it. But the problem of being inert for too long is that you can't get on to high-octane action 0 to 60 seconds. And then, an opposition which is as short of ideas and afflicted by an absence of economic vision (or is it impaired vision?) as the government will really not let things move, will it? So like last year, we don't have houses of Parliament functioning. It is another matter that we have far fewer parliament sessions that we did historically (why, I can't understand as legislative and governance requirements have only increased).

Anyway, I am too glad that the government gave it back to India Inc. I think it is a little too much when people who bribe government officials, manipulate government policy through lobbying and other smart moves, do insider trading, make mockery of corporate governance, are intransparent and the works, put themselves up on a pedestal and start pontificating. This is not to suggest all of India Inc is like this. But those of us who have been business journalism for long do know a thing or two about many of these distinguished gentleman. Government's counter hasn't come a day late. Government's one point agenda of exposing the opposition and India Inc is making everybody naked (not forget its own incredible nakedness). Amusing.   

Our reforms clamour: pining of the naive?

For many months now, I have been reading with much amusement the statements of India's top business leaders and best brains voicing their concern about the near-stalling of the economic reforms process. Some of them talk about the present PM being the fther of economic reforms and find the current situtation an irony. A person can't take such a line of thought seriously beyond a certain point. If you consider the popularly acknowledged reforms flag-off point of late-June 1991, you also need to know that it was a flag-off out of compulsion rather than love for reforms. India's precarious forex reserve situation is well-documented as well as its other woes. India had little choice but to do the things it had to do to get IMF assistance. That is also how Manmohan Singh who was the secretary general of South Commission headed by former Tanzanian president Julius Nyrere suddenly found himself as India's finance minister and in the hot seat, talking and doing things that completely went against his intellectual and other leanings. In fact, many leftist economists accused Manmohan Singh of being "intellectually dishonest", a charge he took pains to defend himself against. What is also forgotten is that the V.P.Singh, Janta Dal and Chandrashekhar governments kept sitting on the decision to go for the IMF loan letting the economy go for a tailspin--in the backdrop of the first Gulf War of 1990 as Iraq invaded Kuwait and later was attacked by US and NATO-- even as they went overdrive working out their political fortunes in the backdrop of Mandal disturbances and BJP's Rath Yatra. If you need evidence you could go through the archives of Business India magazine during that period. It may sound terrible but unless pushed to the wall, we can't really expect a reforms burst from ths government. Neither do we have across the spectrum political consensus that gives these issues primacy nor do we have a leadership that can muscle the agenda  through.

Worldwide, in democracies, in the first two years of a government's term, one finds the boldest moves since the governments are high on confidence since they have just got the people's mandate. They go slow subsequently since they want to get re-elected and thus prepare the ground for it by populist measures and or paying lip service to some reform measures. What I find odd in case of UPA-II is that they have screeched to a halt very early on. Can they break this typical trend of democatic governments? Time will tell.      

Small Savings in Your Tomorrow's Portfolio

Now that small savings rates have been linked to government securities and has thus become market-linked, the role it plays in people's investment portfolio will change over time. Once you are not sure of what you will get at the end of the day as will be the case with long-term options such as Public Provident Fund, you will also start looking at the risk-return equation in fixed income investments unlike the past. Before, you could put money in a government-backed scheme with tax-breaks and chill out. Not any more. In fact, the small savings regime harks back to the very late 60's and early 70's when India desperately needed to mobilise savings, something that got a boost from the bank nationalisation in 1969. Now, that is not the case with people's incomes increasing much faster than expenses when you compare it with that period. As has always happened in case of other kinds of subsidies, the interest rate subsidy for small savings has gone mostly to people who least needed it. I have a PPF account. I am sure that a rural self-employed needs it more than me.  In fact, I should be barred from having an account. Maybe I should have fun till it lasts.

But coming back to the role of small savings in tomorrow's portfolio, if the Direct Taxes Code does what it should do i.e. reduce tax leakage routes, then people would only invest it to a limit as the overall portfolio returns will suffer. Being market linked, it will not be able to generate high returns at practically no risk since these investment options are government backed. People are likely to consider other options with equal or slightly higher risk. Unless mutual funds and other alternates make themselves available to people, something that should have been done long ago instead of banking on corporate money for their debt funds, we will see bank and corporate deposits getting more popular. Bonds will get more popular too. If you need proof, check out dicussions on people's portfolios in US and British personal finance books.   

Kingfisher'sGourmet Cuisine Served Hot

Getting back to blogging after 5 days, there are quite a few things to write about. First, of course is Kingfisher Airlines. Many years back, an equity analyst friend from a large US investment bank had told me," You run the automobiles and airlines business for passion, not to make money." Does the Kingfisher Airlines experience vindicate that viewpoint? I don't have proof but it is tempting to believe that Kingfisher owner Vijaya Mallya's role model is Richard Branson. But unlike Branson, Mallya seems to have the Indian touch--the fedual mindset. If not, why would a top executive say in a recorded video message that he has personally hired the air hostesses and he has "instructed" them to look after you as if they are guests in his home? But travelling on this airline I always felt the biggest put-off was its pretence: making a big deal out of "Kingfisher experience" when there wasn't much to be proud of ( I have suffered some of the biggest delays on this airline). For quite some time now, I have been having "paranthas, chana and cauliflower sabzi". Now if you call that "gourmet cuisine" as Mallya does, can you say more?

But the biggest issue here is why should the government try and bail out this private airline? Nobody asked Mallya to start the airline. He did it like any entreprenuer knowing that he would be bearing uncertainty and he could fail. So why should daddy help the big boy now? One more question. If Kingfisher makes profits would it be shared with taxpayers? Let us also not forget the kind of losses SBI would have already suffered after it bought the airline's equity in the recent past. What will happen next? Brace yourself for the bizarre for that has become the order for the day. Did someone say we are a market economy?

 
 

More from the post office

So, it has finally happened. The rates for small savings investment products from post office has been raised. I would say that the PPF limit raised to Rs 1 lakh and interest rate raised to 8.6 per cent per annum was long overdue move. I don't think the rates have changed since 2004. But the key change to watch out will be linking the small savings rates with government securities which will make it more dynamic, realistic and market determined. Not only will the risk-return equation get fixed but also with such a large pool of funds being priced near market rates, it will make the interest rates in the economy more market linked. There also will be a level playing field for competing products especially the New Pension System which really deserves a leg-up. Indian investor desperately need to have an investment menu where there is a gradual gradation of risk. Right now it is too jerky. 

Things Get Scarier in Europe

The happenings in the Italian bond market, the third largest in the world, are getting scarier. Unless the political scene there gets fixed with a PM who inspires confidence in the markets and European Central Bank comes up with a big enough emergency fund, the world economy and global markets would be on the edge. After Italy, it will be the turn of France. For India, the biggest challenge will be the rapidly declining rupee as dollars move out of India. It is already at a 3-year low I believe. This means more inflation among other miseries. Like my previous visits to the All India Radio studios, yesterday I was asked about eurozone in their popular stockmarkets programme. 

Now Italy, Next France?

Well, the whole eurozone mess is broadly playing out according to the sequence people like me had expected. After Greece, attention had to go to Italy, the larger and vulnerable European country, though the mess in Greece is far from over. For a country with so many coalation governments since World War II, I am constantly amazed to see how much Italy has acutally achieved economically. But now with the kind of prime minister it has and the kind of political squabbling that is expected, it is keeping global markets on the edge. If things get worse, it's France's turn. While most European countries have flouted the fiscal norms for eurozone, including Germany, perhaps countries like Italy and Greece just went over the top. If things get bad in Europe, we are talking about more forex flowing out of India, rupee depreciating, imports getting costlier and inflation fire getting some more pumping. Then how can we expect RBI not to raise interest rates in December, 2011? Well, looks like its a better idea to talk about the weather. Darn! The weather in Delhi is also not good. There you go.  

Bengal's religious ritual for better business fortunes

At home on a Sunday after a hectic week, with another one all set to begin, I am quite amused to see a newspaper picture of industrialists based in Bengal conducting a religious ritual (yagya) to improve the business fortunes in the state. So now things have come to this where businesses need other-wordly help and not just entrepreneurial hard work and vision besides government support to move ahead. To be honest, I am not really aware of too much of  government support for Bengal-based businesses for long. In fact, bravehearts would be doing business there with the kind of labour and infrastructure situation that exists.

In the past, I used to find instances of people shirking work there and formed a certain impression of workers in the state. But that was corrected by many of my friends establishing and operating ITES businesses from Bengal. They found the employees to be serious and hardworking since they had to support their families unlike the fun-loving college pass-outs in many other states of India.

Anyway, the current scene in Bengal is a far cry from what things were before the Naxal days of 1970, when many of India's premier businesses such as Ballarpur Industries had their headquarters in Kolkata. That disturbance was followed by prolonged militant labour and other practices. Those must be among the chief reasons why things are so messed up now. In the last 10 years successive governments have tried to revive things but old habits die hard for politicians, Singur being the last major flashpoint. Being born in Kolkata and still having many family members, I do wish things were not so much at the mercy of gods.  

Beyond RBI's Rate Hike

I was in All India Radio studios last evening again as an expert to comment on news developments. As luck would have it, RBI raised the interest rates for the 13th time yesterday and most of the anchors' questions moved around the event. While asnwering the questions, one or two interesting things struck me. Apart from the usual things that a rate hike typically does, such as raising the rates for retail loans and fixed income options, which this move will obviously do, there are a few other things that are possible. First, if things get real bad on the global economic front such as a deeper mess in Europe and the US and there is a credit squeeze in India with forex moving out and back, the RBI could reverse the rate regime as an emergency measure. The state of government finances is such that instead on the fiscal side, fire-fighting might have to be done on the monetary side. Second, it is now quite clear that corporate earnings  will suffer for some quarters. This means that in the absence of increasing revenues and profitability, companies will try to cut costs. First, future investments, travel, promotion and advertising. Then, manpower. During a Diwali party, some people told me the kind of job losses taking place in the telecom industry. Of course, bloodletting on the manpower front in mutual funds and insurance industry is now known to all. What a reversal of fortune? Maybe a case of "what goes up.......".

Nouriel Roubini's latest article in Project Syndicate (http://www.project-syndicate.org/commentary/roubini43/English) touches a point that has been worrying me for so long: the relation between inequality and the current global economic and political situation. Many people call Roubini Dr Doom and many of his predictions haven't come true. But I do like the kind of analysis and facts that he brings to the public mindspace. We do need people who will keep us honest and not let us get carried away. Roubini's team, Roubini Global,  incidentally, has many Indians contributing. Talk about Indian brain trust contributing to far-reaching contrarian ideas    

Rogoff's interview in McKinsey Quarterly-Worth a look

Eminent Harvard economist Kenneth Rogoff's latest  McKinsey Quarterly interview (http://www.mckinseyquarterly.com/Economic_Studies/Productivity_Performance/Understanding_the_Second_Great_Contraction_An_interview_with_Kenneth_Rogoff_2871) on economic contraction is definitely worth a look. Rogoff has written a great book on the history of economic recessions and I had a great opportunity of interacting with him in June 2010 while researching for one of the Outlook Money Anniversary issue articles. It is amazing the amount of data he and his co-author went through to write the book. Ironically, he was in Spain when I interviewed him over mobile phone. The interview was definitely one of the high points of my journalistic career.    

An Export Scam?

It is difficult to be in Delhi and not to get to know whispers or chats about some scam or the other. More so if you are a journalist. Coming on the back of so many outbreaks of scams, I think now definitely it is a case of a scam overload. A recent short chat with a few journalist aquaintances and I come to know about something new. Apparently, there is a huge amount of unaccounted foreign money of India's big daddies and fat cats is coming into the country and then being laundered through export over-invoicing. Knowledgeable people, it seems, are all in the know. Of course, this only proves how dumb and ill-informed I am! The argument is that this is the reason for our recent rocking export growth figures, even in times of global slowdown. What about hard evidence? None. But anybody who knows how our export-import machinery and people function will not find it difficult to believe this allegation. But then other countries also do these things. Export and import figures of countries don't match with those of other countries--some people told me and they cite IMF on this. With stocks and realty markets down, this could be the new trick for money laundering. In this season of scam-exposing, I wouldn't be too surprised if some evidence got suddnely uncovered.        

Eurozone: Our Misplaced Hopes

Went to All India Radio studios on Tuesday as an expert in their stockmarkets programme to   comment on news developments. One of the anchors asked me what I thought of reports that European leaders wouldn't be able to hammer out a solution to the eurozone problem this weekend and whether it wasn't too much to expect something like that over a weekend. I agreed with the anchor and said that the problem was just too big and too messy for a weekend clean-up job. As in every economic crisis driven by a financial crisis, trust and faith become casualties. Somebody has to lend for the borrowers who can't pay. The job was done by financial insitutions for sub-prime guys before many of whom went broke. Governments then stepped in and some of them are now broke for that reason or general over-indulgence. Anybody who is lending now needs an assurance that the money will come back. When governments go broke just who gives that assurance and how? Just how much of your future income do you use to mend your today? You got to be kidding to think that this will blow over soon. How much more time will this take? Some more years? Perhaps.   

Euro Mess

Was at the radio station yesterday as an expert in a stockmarkets programme, commenting on some of the news developments. One of the anchors asked me what I thought of reports that European leaders wouldn't be able to hammer out a solution to the eurozone problem this weekend and whether it wasn't too much to expect something like that over a weekend. I agreed with the anchor and said that the problem was just too big and too messy for a weekend clean-up job. As in every economic crisis driven by a financial crisis, trust and faith become casualties. Somebody has to lend for the borrowers who can't pay. The job was done by financial insitutions for sub-prime guys before many of whom went broke. Governments then stepped in and some of them are now broke for that reason or general over-indulgence. Anybody who is lending now needs an assurance that the money will come back. When governments go broke just who gives that assurance and how? Just how much of your future income do you use to mend your today? You got to be kidding to think that this will blow over soon. How much more time will this take? Could be some more years.   

"Occupy Wall Street" Protests and Our Future

"Occupy Wall Street" type of protests are now spreading across many nations. Every economic crisis makes things difficult for people especially the poor and those in the margins. When economic crisis is triggered off by financial crisis, things take much longer to come back to longer. History of financial crises testify to this fact. If you go through such history, you would know that the current global financial crisis may not show signs of getting over before 2013-14 at the earliest, if the past is anything to go by. Some of the side-effects of the remdies will remain one one or two generations for many countries. What makes things a little different from the kind of financial crisis-triggered economic crisis is that now, we are all globalised and news travels fast and far. There are media to give vent to discontent and give it a critical mass. There is Facebook, Twitter, TVand so on. A prolonged global economic crisis will test the patience of more and more people. That puts prevalent systems, which have extablished primacy over time, such as democracy and market-led economic systems, under enormous pressure. If a system doesn't work why would people respect them? What is frightening is that there are no other well-tested alternatives. This leaves the fiield open for demagogues and pretenders who could manipulate systems and people channelising discontents. We have enough examples of people who in the past have effectively undermined democracy and market economies. In the near future, could world change from the way we know it? It may well be.   

Fireworks Before Diwali

The industry and the banks may not be wanting any further hike on interest rates but to me it seems another one is in the offing on October 25 when the Reserve Bank of India will make a policy announcements. The main reason for this is the stubbornly high inflation. It seems economists have advised RBI to keep tightening the screws. This will surely men crackers exploding a day before Diwali and take some light out of the "Festival of Lights" the next day. Having said that I would expect this trend of rising rates to continue for some more months at the most. At a certain point, every cycle turns and this one seems fairly near that point. The RBI at a juncture in the near future, will start getting the evidence it wants and that is likely to happen through lower demand. Supply side issues such as infrastructural bottlenecks, which need the help of the government--which is near-absent at the moment--don't get sorted out so soon as they need policy changes, investments and so on.   

Stay Hungry, Stay Foolish

Steve Jobs' death got me back to his Stanford University Commencement speech of 2005. I really liked it in 2005. I love it even more now. I suppose I can "connect the dots", as he mentioned in the speech, a bit better now. Honestly, for me, staying foolish is much easier than staying "hungry and foolish" as Jobs exhorted in that famous speech. Maybe I should give it a shot. But going through the speech I stumbled across the "The Whole Earth Catalogue" that Jobs mentioned in the speech. If it had a cult following till mid-70's, when it closed down, I say it deserved that status. Their stuff  was truly mind-blowing. Obviously, on the way, Jobs had been doing quite a few things right--apart from dropping out of boring college courses--like reading the right things.   

A Nobel complex

Well, the Nobel prizes are being announced. So, what's new for me? It's tragic that one of the winners died just a few days before the announcement and will luckily still get awarded posthumously. But honestly, what gave me the complex was a 41-year-old co-winner for the physics Nobel prize. Here was a person a little younger than me getting the ultimate recognition. So, the moot question I had to ask myself: "What have I been upto?" My mind also raced back to my Delhi Univ. days. As I was escorting my friend to a cycle rickshaw one evening after he visited my home, he cast his eyes on two skirted beauties passing by in one rickshaw. Out came the memorable lines (for me) from him:" Had it not been for these distractions the Nobel would have been mine." 

Well, I can't honestly blame such distractions. My economist father argues that most Nobel prize winning work happens in the late 20's and 30's. while people may actually get the award later, typically in late 50's and 60's. Lawrence Bragg was possibly the exception getting it at 25 with his father. I can't argue with facts. With 30's behind me, options have narrowed down haven't they? Especially with no original research work behind me. I suppose that rules out Nobels for Physics, Chemistry, Medicine and Economics. The only hope lies in Literature and Peace Nobels.  The only solace: there have been high achievers beyond Nobel. Jesus, Alexander, Swami Vivekananda and very few others finished their this-worldly business by age 32. I need not feel too bad about underachieving. But it sure looks like a lot of writing lies ahead to get the literature Nobel. This blog might just be a good begining. Talk of steep odds.