India is Not Alone: Global Slowdown Woes

Back in Delhi after an outstation trip, I must say the first two days of the week brought little surprise or cheer to me in terms of developments in the economy or the markets. Of course, it is easier on everybody’s nerves not to see the rupee fall the way it did last week. While driving back from work yesterday, I heard something interesting on a radio show reviewing the stockmarkets for the day. It said that the rating agency Moody’s doesn’t see its India rating change due to the fall in rupee (this is an old news though). The reason:  Since India’s political leadershop doesn’t look well-placed to bring about the much-needed adjustments in the fiscal space it thinks that the rupee’s correction accurately reflects the country’s realities. Coincidentally, this is a line I and my co-authors took last week when we wrote the latest cover story of Outlook Money magazine (www.outlookmoney.com). The issue hits the stand today. Hopefully, our readers will like the cover story and will find it useful.  The other disconcerting news coming in is the slowdown in China. Over the weekend, I read an interesting New York Times article on the slowdown there. The link is given here. http://www.nytimes.com/2012/05/25/business/global/chinas-once-hot-economy-is-turning-cold.html?pagewanted=all. Then, there is a video link from the Financial Times http://video.ft.com/v/1660792089001/China-faces-difficult-choices. The China real estate and construction scene always looked dicey to me. But now things should be worrying. The other interesting update I have managed to get is about the Brazilian economy. Apparently, in that country as well the authorities have tried to cool things down and they are now looking at a growth rate of about 4 per cent. Like India, it needs further reforms. A recent Economist articles argues on the same line. Here is a Wall Street Journal article link on demand for Brazilian debt http://online.wsj.com/article/SB10001424052702303395604577434412657454798.html?mod=rss_markets_main. Before I sign off, I need to say I thoroughly enjoyed reading the recent Economist survey on retail banking http://www.economist.com/node/21554742.

Reality Check at Smartphone Outlets

The mobile phone market is undergoing transformation with the rapid proliferation of smartphones. Not surprisingly, Samsung which has come up with the most number of new offerings seems to have toppled Nokia from the top spot where it had found itself perched for long. The smartphone wave was not unexpected since with the spread of 3G services this had to happen. For a person looking for a new mobile handset after almost four-and-a-half years, I found my market research process has been educative and fascinating. The Nokia shops in Gurgaon, the Delhi suburb, where I stay have been far less crowded than what was the case when I bought my last handset. The gap in their product portfolio seems to be telling from this simple indicator. People don't seem to swarming single company stores too. The shopkeepers scoring well seem to be those who are selling handsets from different companies. In some of the shops I have visited in the last 45 days or so, there is no place to stand at any time of the day. You will find yourself elbowed around. Then, there is the fascinating world of mobile accessories. There is simply no end to what you can do with your mobile phone. Of course, while I might not use most of them but this gives customers like me a feeling of empowerment. That's not to forget that making a choice has become more difficult. I have seen that for myself with the amount of time it has taken me to get a fix on what I want and what I can afford. But a more important thing is that I realised that with this kind of proliferation of mobile phones and their accessories, there is little doubt that our future is, well, mobile. For a finance person, there can be little doubt that the next frontier is mobile money--financial transactions and financial information dissemination on the mobile. While some might kind argue that it is already happening. But I suspect  we have seen nothing yet. After mobile shops never used to sport the look they do today. Smartphones are really promising an exciting new and smart future for us.

A Problem Called Europe

Uncertainty over events in Europe and its impact on the European crisis continues to take a toll across the globe. In India, its impact on stockmarkets this week is clearly visible where despite the Finance Minister's clarification on GAAR (which to some is "half-hearted", if not half-baked") there have been downward moves in the market and less-than-required-enthusiasm. To me, the "euromess" if I am allowed to coin this has two important messages. First, to enjoy economic benefits of a economic union you need to have monetary and fiscal policies both under single control. Minus the fiscal levers and fiscal discipline, it is not very difficult to get into the kind of mess Europe has got into. For instance, tt is now common knowledge that all the members of EU have flouted their fiscal deficit many times during the period the Union has been around. Included in the list is Germany which at times pontificates to other nations. If you take a step back and take a hard look, you will see similarities between and Europe and India as well. While India's monetary authority has been taking action in the recent past in India we don't find matching contribution by the government on the fiscal front.

The second lesson from Europe is the more worrying one. Recent elections have thrown out governments that have been following policies of economic austerity. While there are eminent economists such as Paul Krugman who feel that these policies should have not been initiated in the first place since what was required was more good old Keynesian government spending to create jobs and not worry about deficits and inflation as some governments have, the message from the electorate is that if a government's policy doesn't work for people, it will be thrown out. But can people throw out a system be thrown out if it doesn't work? History is replete with examples be it Germany in early 1930's or many others when demagogues seized power after thwarting democracy, free speech and free markets, encashing on people's desperation. In Spain, it seems about 50 per cent of the youth are unemployed. Anybody in the know of the economic situation can tell that the current euromess and global financial crisis will not go away in a hurry. Thus, while it will be easy for political parties and politicians to seize power encashing on popular disenchantment, it will not be easy to deliver the moon they promise as there are no easy ways out of the mess. The danger lies in people getting disillusioned with existing systems altogether and we will have a global cesspool. If one reads accounts of Greeks reeling under the impact of austerity measures one would start realising the meaning of "lost generation". While in US the situation is better thanks to a lower unemployment rate, but profound changes are already happening to people and their lives. Popular media is documenting how people even in their 70's are continuing to work sometimes at half the pay, because they can't afford to lead the retired life. The other scary lesson from anti-austerity movements is that once people get used to certain things they will not be able to live without them. It will be difficult for politicians to convince people on matters of economics. For instance, how will you convince people in India to pay user charges for electricity, cooking gas and diesel? Who can? Try telling this to our legislators who dole out one freebie after the other to the public as if there is no tomorrow.          

New Pension System (NPS): What Lies Ahead

It is now three years since the New Pension System (NPS) was made available for the general public (May 2009). For government employees who started working after January 1, 2004, their mandatory pension contributions are being managed by default by this system. However, managing government's pension liabilities was just one of the objectives of setting up NPS.Sure, thanks to the previous defined benefit system where a retired person gets pensions based on a pre-determined formula, the pension liabilities of central and state governments were spinning out of control. NPS, which is based on defined contributions where the pensions you get depends on the final outcome of the investment performance of pension fund managers and your choice of investment options, would have helped stem the rot quite a bit. Things are quite precarious when it comes to pension liabilities in case of some states. But the biggest reason for having NPS was to cover 89 per cent or so of the workforce not covered by any form of pensions. There the progress has been dismal. I wonder  if NPS has even crossed 10,000 subscribers from the general public. Why? The pensions regulator PFRDA thinks that incentives to distributors holds the key. For NPS, the absence of distributor incentives and a very small fund management charge by fund managers makes major stakeholders far less excited about it. No wonder, there is very little awareness about the scheme in the first place. Only recently there have been some TV ads. All this is a pity for NPS is a great product, something acknowledged by all experts. It provides great options. It is portable i.e. you can move from one job to other or cities and you won't have to open another account. Besides it doesn't allow easy withdrawals, a bane of all Indian pension schemes. But I don't think the two problems I just mentioned are the only ones bothering NPS and Indian pensions reforms in general. The key to giving fillip to pension reforms and NPS is to get the PFRDA Bill passed something that is being opposed by UPA allies like TMC and former allies, the Left. Like all sectors, you need a regulator or an umpire to get the development and regulations rules in place. People will only start taking things seriously then. PFRDA then can also make efforts to make NPS better known. The PFRDA Bill  passage through the Parliament seems postponed yet again. In the next 12-13 years, India will possibly add about 100 million people in the ranks of the retired. That's the population of many European countries put together. Don't tell me that it isn't important enough to be attended to.      

FD and Loan Rates: The Road Ahead

Back in Mumbai after a fortnight, I am finding the combo of heat and traffic jams a little difficult to handle. A short meeting with the top executive of a large PSU Bank yesterday was illuminating. It seems that there is no visible impact of the RBI's recent rate cut though it is a bit too early. Neither are any trends visible as far loan offtake is concerned. Last year, there was clear decelaration as far as home, car and other retail loans were concerned. The top banker expects this year to be no different. Possibilities of any further rate cut look remote with so many factors being in the play. For instance, international commodity prices. And yes, thanks to the interest rate differential between savings accounts and FDs, there was a large scale migration from savings account to FDs. You know what that means for banking stocks, To me, in the days to come, one can expect the situation to remain more or less at the level existing last year and not anything dramatically different.