Matter of shame: Will the guilty be punished
What happened in the assembly yesterday was shameful. It raised some basic questions in my mind. How does it matter which language is used during oath-taking? Does the language matter more than the actual oath itself? Will we ever evaluate whether a MLA/MP ever delivers on his promises or will we be judge them by the language they use? Are we really a democracy or are we doing a lip service to democracy? Will the goons who cause shame to India ever be brought to book?
I am no fan of Mr. Abu Azmi nor am I an enemy of these ‘goons’ who caused havoc in the assembly. What bothers me is the shame that such an action causes to India and its image across the world. We are a country rich in talent and have a great potential to be one of the best in the world. Some of the best scientists come from our motherland, we’ve discovered water on the moon, our engineers work on the best bridges/buildings…
Such actions shake the roots of a democracy. Aren’t we free to think ahead of time? Aren’t we free to wear what we want? Aren’t we free to choose the language we want? Aren’t we free to share our views openly? We need to move forward. It is better to take oath in a language one understands rather than mutter some other language without understanding it. What we should question is the performance on the promises made? What we should question is the corruption after oath? What we should question is the sanctity of the oath?
Lastly, should we allow some ‘goons’ to cause unrepairable damage to a democracy like ours. Isn’t it time that these goons are sent in exile for life? Isn’t it time for our media not to report behaviour of these goons? Isn’t it time we stopped reporting any ‘riot’ caused by these goons in the name of ‘marathi manoos’? I am sure that the very ‘marathi manoos’ for whom they are raising hell, is embarrassed of these goons. If we really want to punish these goons, we should not report even on word/sound byte of their ‘riots’ in our newspapers or on TV. Because the fact is, they are unimportant and an irrelevant part of our society. Our media should take high moral ground and not report any thing that these miscreants do or say. By reporting their act, we are playing into their hands. We have made a mistake by voting for these goons. Lets use our right to vote wisely. Most importantly, lets vote!
A sons visit
We finally landed in Srinagar on 17th Oct 2009 at about half past twelve – it was Diwali. I had left Mumbai the day before to reach Gurgaon and from there the entire Sharma family boarded an air plane to go to Kashmir – the land of my forefathers before they moved south to Jammu. Both my parents were visibly tense in the anticipation that something might go wrong, but the excitement of going back was palpable underneath their cool demeanour. This trip had come about in a random discussion that I had with my wife a month ago. And it was under threat in the past few days as seasonal weather changes had taken a toll on almost every one, the latest being my 2 yr old son. We were all a bit apprehensive but decided to push ahead silently, any concerns that any one of us had were not voiced; after all this trip was very significant. We were going there for the first time after my marriage almost five yrs ago and we were blessed with a son after that.
We had originally planned to go to Srinagar in Aug 2008 for our son’s mundan ceremony. But it did not materialize as the valley was very tense then due to the Amarnath Yatra protests. Now here we were, enjoying the cool breeze with the temp at 18 deg centigrade. I wasn’t able to see much out of the air plane, as the window seats were occupied by my parents, but could finally see Kashmir the moment we stepped out of the airport arrival terminal after collecting our luggage. The last time I had been here was as a mere 6-year old, almost 25 yrs ago.
My father who was doubting his eloquence in Kashmiri that very morning in Gurgaon was now firing away his sentences in Kashmiri at the cab driver who he had befriended instantaneously. The driver too responded like a long lost friend. We settled in the car and it started to move. Just as we got out of the airport I saw a familiar sight – the houses in Srinagar, which are so different from what I have seen anywhere else in this country. These houses are designed for snowfall and hence have sloping metal roofs painted in beautiful bright colours. On the way we stopped by some farmland which was owned by my forefathers.
We finally moved towards our family house, where my father and most of his siblings were born and brought up. Since childhood I had heard regal stories of its splendour. My father asked the driver to pull over and as we looked out the car I found the house standing right in front of my eyes, a three storied structure painted white with a sloping wooden roof painted an earthy brown. It looked withered – it had stood there for over 80 yrs as a strong and beautiful specimen but the last 20 yrs of lack of companionship had tak en a toll and reduced it to a shadow of its earlier being. This house was inhabited by a family of Kasmiri pandits who had leased it from my grandfather. But they had to flee from Kashmir in the wake of extremists threatening their existence.
As we walked into the compound I could see our family temple “Mandir Sri Raghunath Ji” – an ancient structure that has withstood two centuries of harsh kashmiri winters. I had also heard legends of the power of this 200-year-old temple and its priests as a child, but there it stood in the middle of 4 feet of weed. We followed my parents and waited till they said their prayers and then my wife and I sat there looking at our son who was sleeping in front of us and the gods. I prayed while my wife went out with my son who had woken up by then. She walked back in to see me sit there with moist eyes, and said smilingly “Soby profound experience ki nahi ho rahi hai yaar”. I smiled back at her. Wiping my eyes, my gaze went to the burnt religious texts, a reminiscence of the communal attack on this temple where a lot was lost, and a lot was abused, by some misled souls who think that in keeping your faith you must destroy all other faiths.
As she sat next to me she too had tears rolling down her eyes. I laughed, she remembered what she had said just a few moments back and started to smile. We both sat there quietly admiring or inheritance and a thinking about the prospect of a better tomorrow…..
Lateral View: The Asian Bloc, most powerful economic bloc on the planet?
Today, most of the developing countries (as in Asia) are reliant on exports to increase their GDP and thereby their standard of living. And for their exports to be competitive they ensure that their national currencies are weaker as compared to the industrialized countries to which they export. Hence the Chinese Yuan is artificially pegged low against the Dollar and the Euro to ensure Chinese Exports remain competitive. Similarly Indian central bank buys dollar when it senses the rupee strengthening against the dollar.
Currency is a contract by a country’s government (monitored by the central bank) to honor paper against gold. However after 1914 and subsequently in 1933 and 1971, world government’s have dishonored this contract and taken back gold from the bullion banks (Central banks hold gold which should be redeemable against paper-currency held by the citizens. This gold is then leased to Bullion banks in lieu of an interest payment. Bullion banks then typically sell off this gold to invest in other securities. In the event that there is a run on gold, then neither the bullion banks nor the central banks can honor the paper-currency). Currently, currencies around the world are not pegged to the gold which means that there could be 100 rupees in circulation but to back this Rs. 100 only Rs. 10 of Gold could be in the RBI reserves.
How does this current devaluation affect the world economy and more specifically the Asian Economies? You must be aware that the US Annual Trade Deficit is approximately $500 Billion. Today most Asian economies have huge reserves of dollar and Euro denominated currency/securities which mean that they are funding the Total US deficit of $1.75 trillion. And you may ask who possesses these foreign currency reserves? As per a World Bank report, the developing Countries have $2.95 Trillion as opposed to $1.5 Trillion with Industrialized countries. The breakup of the amount present with the Developing countries is as follows
Dollars = 1.75 Trillion
Euros = 0.80 Trillion
Others = 0.40 Trillion
Now that we know of the total currency reserves, let’s move onto the actual commodity that is supposed to be backing the currency…GOLD!
Of the total gold in the world, 40% is with Central bank reserves, 45% with individuals and the remaining in private bullion. However the huge central reserves held in industrialized countries, most of the gold may have already been leased and found their way to privately held sources. It is a well known fact that most of the worlds privately held gold is with Asian countries like India (due to their traditional value for gold) and China (which is keen on shoring up its gold reserves). To give you an estimate of the total gold in circulation and their current status, the figures below will suffice approximately for our discussion.
Total Gold in circulation = Estimated between 150,000 to 160,000 Tonnes
There are three kinds of Gold reserves
1. Reserves held by Central Banks = 60,000
a) Asian Economies = 3,000 tonnes
b) Rest of world economies = 57,000 tonnes
2. Gold held by Individuals = 70,000 to 80,000 tonnes
3. Privately Held Bullion = 20,000 tonnes
Of the 60,000 tonnes with Central Reserve bank, 6% is with Asia, 26% with USA and 39% with the Euro bloc. Hence if we assume that of the 57,000 tonnes, at least 50% has been leased and then sold to Asian economies. Then along with the privately held bullion and gold held by individuals then there is a huge market of gold willing to be bought by Asian economies. This is important because not all Gold is available to be bought if one so wishes. This is pertinent to take forward our theory.
It is a fact that most Asian economies have huge amounts of paper-backed securities instead of Gold in their reserves (along with dollar currency). In fact, 70% of the World’s Currency Reserve is in Asia. Coupled with this fact, you will be amazed to know that only 1% of the World’s sovereign Debt is held in Central Bank Gold reserves (= 30,000 tones). Hence all the Gold in the world can back up for ONLY 5% of the World’s Sovereign Debt. This means that all the gold in the world (mined) can only back 5% of the currency in circulation. Now it is plain to see that if a government goes bankrupt then the currency will also go kaput since there is not enough gold with their Central bank to back it.
Now my theory is
1. All Asian economies should start a currency called ASIAN akin to the Euro.
2. All Asian economies should start shoring up their Gold reserves by buying Gold and Selling Dollar/Euro denominated currency/securities. This should back the ASIAN. We can do this since 70% of the currency reserves are in Asia.
Similarly since Gold is held by private enterprises and individuals, Asian governments can mandate that individuals keep their gold with banks thereby again shoring up their gold reserves. They can do this since each and every value of currency will be backed by gold instead of a margin in Gold.
3. This will soon throw the dollar and Euro into a downward tailspin and any currency that is guaranteed for redeem ability against gold will become the world’s reserve currency making it even stronger.
4. The downward spiral will ensure that Asian economies stop funding the US fiscal deficit by diverting investment with the huge Asian economies instead of the US (since the US has a strong dollar).
4. However it will also ensure that the ASIAN currency is much too strong against Dollar/Euro to ensure that Asian Exports remain competitive. However we need not rely on Exports to Industrialized Economies then to fuel the economy. Most of the demand in the future will come within from the Asian economies due to the huge latent demand. Since the ASIAN is one the strongest currency, we will need to ensure that velocity of money is higher to fuel a high-growth economy. We can the ensure that velocity of money is much faster since it is fuelling an economy that is at least 100 times bigger than the individual economies of each smaller Asian country.
The classical Economics formula is been used here to explain this….
Supply of money * Velocity of Money = Output * Price level.
This should ensure a growth in output levels bringing up our gdp growth rates to double digits.
There are lots of loopholes within this theory that will need fine-tuning and deliberating on related issues. However the basic idea is to ensure that we are able to harness the huge population and thereby the demand in ensuring that most of the benefits of development/progress accrue to Asian countries rather than the industrialized nations. Another theory that is been utilized is the value of pegging a currency against gold thereby going against the expansionary monetary policy.
One objection to this theory is that Asian economies possess extremely high savings rate as compared to their counterparts in the industrialized countries thereby neutralizing any increase in consumption through a stronger currency. How can this be countered?
While I agree that savings rate of an Indian or Chinese is much higher than his western counterparts, I am looking at increase in GDP through a higher valuation of the ASIAN. If this can be achieved then we should actually be happy with the high savings rate
It is a given that high consumption leads to a more vibrant economy and higher GDP through increased production. However this needs to be supplemented with a high savings rate to ensure that we also invest in better infrastructure. And this will be needed if Asia is to become a world leader in most of its industries.
1. Even if savings rate remains the same, consumption at current levels but with a currency that is 10 times more powerful, will grow ten-fold.
2. Trading within the Asia block with a common currency will eliminate a lot of inefficiencies not to mention the increased cost of providing these same goods to countries much farther away and coupled with higher costs to comply with higher restrictions to prevent against so-called dumping (again a level for the industrialized countries to protect their domestic industry)
3. An increased level of savings in banks and other forms of investments will lead to investment in infrastructure and other capital goods industry. This can only help Asia to improve the quality of life and goods of its industries.
I am enclosing a quote from an article (http://ablog.typepad.com/key_trends_in_the_world_e/) on the internet that states that it has been high rate of investment (driven by high savings rate) that leads to high levels of growth.
It may be seen that no cases at all of rapid sustained economic growth without such a high rate of investment are to be found in such high growth economies. It is therefore evident that the economic evidence demonstrates that a high percentage of gross domestic fixed capital formation is a precondition for rapid economic growth. It is a high proportion of investment in GDP, not a high proportion of consumption that forms the precondition for rapid economic growth.
Furthermore detailed examination makes clear that in those countries in which investment declined as a proportion of GDP – Japan, Hong Kong, South Korea and Singapore – this led to a marked decline in economic growth. On the contrary in those economies in which investment rose as a percentage of GDP, China and India, economic growth accelerated. The correlation between a high rate of growth and a high rate of investment is therefore evident.
I am quoting certain statistics to support that consumption along with investments (borne out of savings) are necessary to support a strong and growing economy. Current GNP per capita (in PPP dollars) for the major countries is as follows (Source: World Bank Report 2000-01)
Rank Country GNP (per capita in PPP $)
1 US $8351
2 China $4114
3 Japan $3043
4 India $2144
5 Germany $1838
What I am pointing out is that Consumption + Investment (a rough indicator of which is GNP) is already very high for Asian countries and it can rise 10-fold if we have a much stronger currency. Hence we should not be worried if savings rate is high.
(Pranab Panda works for a private bank in the credit card department, managing new accounts, retention and reactivation of existing accounts. He is an audiophile, a cricketer, a traveler, a reader…list goes on…and most importantly a self made analyst – be in economy, financial world, sports world…list goes again…Pranab is an MBA graduate and a computer science engineer – P&B)
Lateral Thinking: Good, Bad or Ugly!!!
I must confess at the outset that I am a misfit on this blog for this space belongs to Lateral thinkers!
I can hardly think, leave alone do lateral thinking and -writing –well, is restricted to the documentation that one has to do to make a living. So, one could well understand my plight when P&B wanted me to write something. I had no inkling that grafitti on Boi’s article could land me in this trouble….. Nevertheless, I banish these thoughts and look for subjects to write and……. then enlightenment strikes-One is yet to see something on Lateral Thinkers in this space. Now, absolutely, it would be immodest for a Lateral Thinker to write on himself or on the community or their contributions. No wonder then, this daunting task was left to a Guest faculty (and hence this invitation to a “Buddhu” in the desperate hope that he would take the hint).
The party has ended-as it had to! I remember having a problem of too many job offers in hand when I was out of college (2006). Today, there are hardly any! (2008-09).Various theories have been proposed to explain this, but none have truly gone into the depth or so, I feel. With due respects to Edward De Bono and P&B, I blame lateral thinking for this downfall…
Before pouncing on me, give me an audience. Banking was boring till the 1980s, till a (some) Lateral Thinker(s) realized the true potential of the concept of securitization which helped them convert their debts into tradeable papers which were then traded in the market. Most of these remained off balance sheet exposure so banks were not manadated to make provisioning for them. This enabled banks to lend to the poor and not credit-worthy (the term coined was sub-prime). This financial innovation (a product of lateral thinking) is now responsible for $ 4 trillion dollars of bad debts in debt which is 4 times the size of Indian economy- and bringing the entire world growth into negative zone. Everyone, other than possibly those Lateral Thinkers, who have pocketed huge Bonuses and must be living comfortable retired lives, and we are now suffering.
This is not the first time that the world has seen the perils of Lateral Thinking, though. The history of every bubble would reveal a lateral thinker/thinking that would open a Pandora’s Box of wounds. French economy in the 18th century was one of the first to suffer these early wounds. Enron discovered it through the energy trade and accounting misrepresentation. Back home, who can’t forget the great Harshad Mehta whose ingenuity had dealt a blow to the the country’s financial market for over 5 years and cost the the Finance Minister (and present PM) his job.
Nor are these effects retricted to realms of economics… A lateral thinker in the 1940s, in the midst of a war got a brainwave. He decided to avenge Pearl Harbour with Hiroshima and since then, the survival of this planet itself has become a question. Another, in Germany, decided that his was the best race on earth and on the world was thus thrust the Second World War. Another such Lateral thinker in the US a while ago saw nuclear weapons in Iraq – the world suffered the insane volatility in energy prices (mostly irrational).
KKR (SRKs team) also did some lateral thinking and the less one talked of those consequences the better. Ramgopal Verma has been doing a lateral thinking for over a decade so much so that he has only politicans left as his audience.
Now that this new blog of lateral thinkers has come, there are two possibilities
a) The blogosphere would cease to exist (note all lateral thinkers have ensured the ultimate demise of their innovation/s)
b) The world would be a much safer place- for all lateral thinkers would be using their energy reading/writing on this blog. For better or worse, P&B through this blog, is out to change the world.(President Obama, you have a competition).
Keep an eye on this space for more!
(Sandeep Mallik works for a private bank. After harvesting tons and tons of dormant customers from east, now he is trying to sprout those dormant customers from Mumbai. He is not a Lateral Thinker but sure a Different Thinker. He is a MBA and economics graduate – P&B)
Indian Economy Will Revive soon…Is it Prognosis negative?
Kamal Nath, Minister of Commerce and Industry in Davos said“Strong Fundamentals of the Indian economy coupled with strong sentiment, will see Indian achieve an annual growth of 7-7.5 % for the year ending 2008-2009, despite the global slowdown. This is mainly due to the fact that the Indian economy is domestic demand driven”
Newly appointed MD of ICICI Bank, Ms Chanda Kochhar told IANS “India is in a much better economic position than many countries. We have a very strong domestic market, driven by strong consumer base. So the outlook is very positive,”
P Chidambaram, Ex Finance Minister said “As far as India is concerned, the fundamentals of our economy are strong”
PM said if voted back to power, he would roll out a 100-day action plan to revive the economy by adding greater zip to the stimulus packages and by tackling job losses.
Are we saying that our domestic fundamentals will bring us back to normalcy by this fall?
My view is that while there might be some revival of economy in the coming few months, it will purely be on the basis of increasing global optimism and not because of factors which are particular to India. And we might have to wait till 2011-12 to bring us back to 2005-08 level of growth.
Am I shooting in the dark?
You might rightfully agree or disagree in my phrophecy. Maybe I might be wrong or maybe I might be right, which time will only tell, but I’m certain that my shots are not from the dark.
The Indian economy has shown impressive growth 2003-04 onwards with real GDP growth over 9 % for three consecutive years starting 2005-06.
Many economists consider that growth of economies is range bound depending on the institutional strength and capital base of the economy. That’s why it was so difficult for India to get out of the ‘Hindu rate of growth’ of 1970s. Institutional reforms in 1990s have allowed India to grow at such a rate as shown in figure above. However, post 2007-08, Indian economy had seen a series of external factors which have adversely affected its economic prospects in near term. The rise in commodity and food prices coupled with high oil prices were the first setbacks to the high flying Indian economy. The financial crisis since September 2008 also has had an adverse impact on the Indian economy in terms of growth prospects and the fiscal situation as the growth of GDP in the third quarter of 2008-09 dipped to 5.3%, the lowest in nearly six years. IMF projects that 2009-10 GDP growth will be 4.5% and 5.6% in 2010-11. While the story in these numbers is bad, the story inside these numbers makes it worse.
The high growth rate in India over the last few years is primarily driven by Investment. Lets look at the graph below.
Since private investment is driven by confidence, expectations and profit levels, we may see this decline sharply in the coming year. As can be seen by the figure, private consumption has shown a declining trend over years and the decline has accelerated over the last few years. This decline in consumption of course has been more than made up by the investment growth as % of GDP. This makes the case for sustaining investment in recession years much more important which is a much harder thing to achieve than sustaining consumption. There may be a decline in investment which the government normally has to step in. However, this brings us to the fact that Government of India failed to improve its fiscal situation in the good years so that it can play a countercyclical role in recession years.
As the Economist chart shows, among the G20 countries, India is the most ill placed to fight the recession as it already has a large fiscal deficit even though as a % of GDP, the stimulus package in India has been the least.
From a GDP growth projection of about 8.5% in July 2008 for FY 08-09, RBI has reassesed the growth rate for FY 08-09 to be at around of 6.5-6.7%.
We have already seen the evidence of low growth which we think will be worse as investment driven growth of last few years seems unsustainable and the government of India’s bad finances mean it is not in a position to effectively intervene and rescue the economy.
One of the ways we can escape downturn is increased investment. Since the government of India does not have sufficient fiscal space, we might have to wait till 2011-12 to bring us back to 2005-08 level of growth.
”The 2008-09 will be a difficult year, and 2009-10 will also be a difficult year, perhaps more difficult,” Mr Subbarao predicted. He also said that the fundamentals of the Indian economy continue to be strong and it will likely revive faster than other countries though it is difficult to predict WHEN…
Lets wait and watch!!!