Economic devaluation hurts

Government plans and economic reality have as much in common as the dinosaur and the donkey. Last year’s Union budget was a complete whitewash. All budget estimates were revised and fell below expectations. . The 7th budget 2012-13 presented to Parliament by MrPrnab Mukherjee, seems far from reality. Some mathematics here, some jugglery there, and some demograph to fill the missing links. The Government seems have lost its reality as a result concise road mapping seems to be missing. Government is unaware of the economy. Growth. World Trade. Policy. When all these ingredients of a budget are absent, it is a paper of calculations. Nobody knows what will happen over the next one year. . As a fall-out, we do not have a 12th Plan (2012-17) ready? There is no document ready, even though some figures are allotted for different sectors. The mechanism to run these Schemes has not been perfected. No Plan document. At the start of every five year Plan, the plan status begins. Consultations with various ministries begin. Finance Ministry holds Expenditure Finance Committee in case the threshold of the outlay is above Rs 100 Cr. Then, at the fag end of the year, Cabinet Committee on Economic Affairs chaired by Indian Prime Minister give their approval. Only then, new Schemes sanctioned for the 12th Plan period gets budgetary approval. If the amount is released on 29th March, you can very well imagine what type of implementation will result. One year of the Plan period would have ended. Regarding approval for existing Schemes, adhoc approval basis, Scheme money will be released. Even during the X, XI Plan period, the first year of the Plan was not in operation reducing the Plan periodicity to Four Years.

Our pundits in the Planning Commission faithfully will tell you that the average economic growth of the XII Plan will be around 9%. Forget, during 2011-12, the growth was 6.1%. Based on these figures, the budget of the Finance Minister for 2012-13 predicts an economic growth of 7.6%. The Economic Survey has forecasted a growth rate of 8.6% for FY 14. If these statistics were to be proved right, the last three years of the XII Plan should post a definite growth of over 9.5%. Growth rates are predicted, fiscal deficit are targeted, but like the uncertain monsoon, they are never the conjuncture of the Finance Ministry. Who bothers? Given the world draught in economic growth and political paralysis in India, resistance to reforms, it is doubtful if our growth pace can outpace the predictions of the Government.

India needs Foreign Direct Investment to fund infrastructure projects. With our craze for social sector schemes, there is hardly any money to build capital assets. With hardly any policy that suit foreign investors on vexed issues like Policy and promotion, why would any investor be willing to invest in India, where continuity in Policy, in Tax Laws, Company Law, change even with retrospective effect. Vadafone is a classic example of this. Political high handedness which drove industry out of West Bengal made bad publicity. Odisha’s Posco project which would produce steel which is in short supply has been outliving the long delay of Envoironmental Ministry to give its approval, only to find it quashed by the National Green Tribunal. As it is, industrial development is concentrated in a few States of the Country. Social and economic inequality will come to the fore in these states where political reasons outweigh developmental needs. China has grown and is growing, because it is easy to get a permit there than in India to get a project on stream.

In case, political indecisiveness continue, we may see a vacuum in FDI inflows!

Impregnable and imponderable Malayali mind-set?

Kerala is nature’s paradise with greenery, enchanting flowery plants with coloured flowers, mystic , cosmopolitan, with age old traditions, culture, and with temples, churches, mosques, synagogues, built during pre-dated historical times. It is god’s Own Country. From time in memorial, travllers and merchants came to this tiny land with their wares and took back spices, ivory, herbs. Christianity was established here even before Europe was aware of it; the most mosques were built here, way back in the 7th century. Vasco-da-Gama, landed on her shores, which led way to other European settlements.

Today, Kerala can boast of human indices which have no par with amongst other states of India. It has 100% literacy, and the highest newspaper readership, women overtaking men in Census, expatriates around 1 million who remit money back to their homes which accounts for around 8% of the Foreign Exchange Reserves which is equivalent to 80% of the foreign institutional investment in India. The private sector which provides higher educational courses provides a strong climate for bringing out high professionals in medicine and engineering. Kerala has the highest suicide rate in India. The Banks do not recycle money to productive activities so that production units can manufacture goods getting income to distinct people at different stages making money circulate. Instead of putting money into commodities, the Banks do not circulate the money in Kerala which would have caused manufacturing expansion, capital money circulating brings about employment, realize itself in an expanded value. Money does not circulate in the state but is siphoned off to nearby states for disbursal as credit and creation of capital there. Capital and Labour are mobile. That is what is happening in Kerala. Those sectors which have production facilities like Coir, banks heavily on raw materials from Tamilnadu- coconut fibre has to be transported from Tamilnadu while manufacturing units are in Kerala. Kerala produces 93% of natural rubber, to feed manufacturing units mostly concentrated in North India.

Absence of industrial landscape makes Kerala, a consumer state. Its production base being zero, whether in vegetables, or others, it banks on import from other states. Kerala has plenty of abundant water with 41 rivers flowing west and three flowing east, crisscrossing the state. Yet, in terms of per capita consumption, the state is next to Rajasthan, in the 20th place amongst the States.

Kerala’s economy is imponderable. It has sky rappers like any metropolitan city. The fleet of cars imported with flashy bodies, colours, engines, worth Crores is seen on the roads. Even National Highways and Street Highways which may look like Village Roads do not have the capacity to hold the traffic. Investment in concrete jungles, highest pollution, has made people here susceptible to diseases. In this State Build, Operate and Transfer won’t work. First, people may not surrender their land. Secondly, they won’t pay any toll.

Another reason why there is no economic activity is on account of heavy spending of household on Gold. India’s 10% of gold sold is in Kerala with an annual growth of 20%. Liquor is another industry that thrives. Tourism brings in foreign exchange but the visitor is the medium end traveler whose spending capacity is narrow.

One of Kerala’s best natural Ports, Kochi, seem to await cargo. It deals more with import cargo, rather than export cargo. It lags behind the latest Ports like Tuticorin and Vishakapatanam. It can at best be a transshipment port. Export cargo should come from different places. There is a need to amend the Cabbotage Law.

Kerala has wealthy temples- Lord Padmanabha at Thiruvanathapuram, Sri Guruvayoorappan at Guruvayoor, Shri Ayyappan at Sabarimala. These temples are worth billions.

Kerala has many political leaders, who had held very important portfolios at Delhi. Unlike other state ministers, they seldom use their position to bring giant projects to India. Textiles units and telecommunications, Software units are all over the state of Tamilnadu. Railway connectivity is 100%. Kerala is no where in the picture. Kerala’s bureaucracy is apolitical with a few with definite leanings, but none of them are development oriented. Kerala’s communism has made the state liberal in outlook. That was why Kerala executed the Mullaperiyar agreement in 1970 revising the original agreement signed on 29 Oct 1886. If Tamilnadu was in Kerala’s shoes, would they have signed this agreement?

It was during Pandit Jawaharlal Nehru’s time, Kerala came into being in 1956. It was PM Shri Nehru, who dismissed the first Communist Government which was elected to power in Kerala in 1960. Pt Nehru seemed to find in Kerala’s intellectual traditions exactly what he needed in order to understand the troubled mind of India. He attributed Adi Sankara’s intellect to be the reason for his Advita thoughts (Glimpses of World History). However, in his Discovery of India, while praising Sankara’s striving to synthesize the diverse currents that were troubling the mind of India of that day, Pdt Nehru had mistakenly stated that Adi Sankara was born in Malabar, while he was actually born in Kaladi, the present day Angamali. Distorted history and impregnable virtues of a Malayli makes Kerala look for greener pastures.

Kerala gets handful, but it deserves more than it gets. But it does not yearn!

Unconventional Economics,Unpredictable Growth

Indian Economic symphony

With the Rupee depreciating by over 20% against the US dollar over a period of 15 months, Indian Corporates who had gone for Foreign Currency Convertible Bonds, will opt for redemption rather than exercising the option of conversion, for which they have to raise funds thro’ External Commercial Borrowings. According to Cricil, Nifty companies suffered a nett loss of Rs 48 billion between July-September 2011, wiping out 8% of the profits (total of Rs 572 billion) before tax. One of the highest aggregate losses, due to 3 fold rise in foreign debt of these companies in the last 8 years. In the next quarter (Oct-Dec), these losses would be around Rs 35-40 billion. High level exposure to foreign currency debt, which is calculated on the closing exchange rate (around $ 1.5 trillion)(24% of their total outstanding debt of Nifty companies). The hedging of funds will enhance the foreign exchange losses, as the derivative instruments are market to market. With rupee shedding another 31 paisa, the Rupee was Rs 53.03 against the dollar on Dec 27, 2011.

With increased cost of Credit, 13 interest rate increases in the last 1 ½ years, the Industrial growth showing wide disparity even touching negative growth in recent months, dwindling exports, increased expenditure putting pressure on funds, do we need to be cautious as the cloud overhead is a couple of shades darker.

However, the silver lining in the dark clouds was the downward journey of food inflation to 1.8%, savings rate going up, and the core sector growth steadying at 6.8%(November 2011) with infrastructure showing positive growth coal products(4.9%), cement(16.6%), power production (14.1%), IIP turning positive with 4.6% growth against 5.6% (between April-November of current year and past year).

Government, taking into consideration the pathetic economic growth has forecast 7.5% growth in the GDP in 2011-12 against the earlier anticipated 9%.

Will the New Year continue with the economic slowdown or persist with economic recession. Will the fury of recessionary trend be “v’ shaped curve or would the curve be scary elongated “u” shaped and can India stay immune from the euro zone crisis? If so, how long?

But economic growth or conditions pertaining to economic growth, creating scare, etc we need to be cautious. The way TV channels are airing expert opinions which seems to be very many, or dozens worth of truck loads, seem to shake the confidence or lead astray your optimism, then the broadcasters could do a world of good by stopping their expert commentaries. If they were so expert, why do they not invest or follow their own suggestions and make themselves richer. These TV channels who claim they are the fourth pillar of the Constitution and mirror the view of the Society should remember not to stand depending upon where they sit!

KERALA's economic buffet

If the World economy sneezes, Kerala will catch pneumonia. Because, bulk of the States economy with 3.4 cr people depend upon the remittance of Kerala’s labourers who make their income with the sweat of their brow. The Free trade Agreement signed between India and ASEAN has made Kerala’s trade literarily free, as the state is vulnerable to the dumping indiscrimination of the products from ASEAN countries which are Kerala’s domestic products which made Kerala’s GDP growth touch 6.89% in 2008-9 against the country’s 6.7%. The import with its knitty gritty of tariff declared levies would leave the state products unsold as they would be priced higher than the imported stuff. Coconut Oil is no more consumed even by Keralities while indiscriminate Palm oil is reaching the state at cheap prices due to government’s subsidizing of the Product to low value edible oil. Coconuts are growing in prices which have made its place redundant as it would also be exposed to exodus import. Secondly, the Policy of Mr Obama, who has sleeved up his shirt which would indicate that the subsidies provided by the Federal Government would be withdrawn, with India’s largest bi-lateral partner suffering from economic crisis ceasing the imports. Also employment opportunities in the Heaven’s Gateway that is America would come down drastically. These new turn in the world crisis will hit Kerala like a tsunami, an economic tsunami. Once upon a time, Kerala’s per capita income stood at Rs 14,629 highest in South India (in 2007). Now crisis looms large on the economy of Kerala.

Kerala faces a cloudy economic forecast with State Domestic Product touching Rs 1, 57,144 Cr (2009-10). But 75% of the proceeds are accounted for paying interest, salaries and pensions, with only 24.17% available for spending by the state towards Schemes benefiting the People. Presently, state’s debt is put at Rs 78,329 Cr (2010-11).

When the state is reeling under such dire straits, Lord Padmanabha to whom the King of Travancore Marthanda Varma pledged his country is proving to be rich. That Raja after Raja surrendered their offering in valuables, made the Temple, one among the richest in the world. When an inventory of the various treasure groves were taken, it was found, after 80% of the search, the Lord had around Rs 60,000 Cr in gold, silver, other precious stones. A treasure trove of gold, diamonds and precious stones —was unearthed from an ante-chamber to one of the six vaults in Sree Padmanabhaswamy Temple.

More than 1200 ‘Sarappalli' golden chains (some sporting ‘navaratnas'), three golden crowns, numerous golden staffs, golden plates, a chain of golden coins of 1732 vintage, diamonds, including Belgium diamonds, and precious stones, including ‘cat's eye', rubies and emeralds, were among the articles found inside vault A located on the southern side of the ‘Nalambalam' inside the Chandanamandapam. One gold chain was found to weigh more than three kg. Hundreds of kilos of coins issued by the government of erstwhile Travancore (raasi) and those from the time of Napoleon and the British East India Company were among the articles that were found. The Travancore-era coins include more than 14 kg of half-sovereigns believed to have been offered during ‘thulabharams' made over the centuries. More than 70 kg of Venetian coins were also reportedly found along with many kilos of East India company coins minted at (then) Madras. Coins of Australian origin and those from Mysore were among the inventories.
A temple treasure grove, yielding more than Rs 60,000 Crores in precious jewels, coins, gold, silver, platinum, rare antiquary, show the sincerity and honesty of the Rulers of Travancore of pre-independent India. There are 2 other valuts to be opened. Today rulers, that too in a democracy who are accountable to the People behave as if they are accountablable to nobody. Scams, looting, plundering, of Public money in the name of democracy have made the People compare the pre-independent India with the Republican Rule through a Constitution, we have given to ourselves.

Practice what is preached?

In UPA’s second avatar, our well learned Economic Professor, who is presently India’s Prime Minister, seldom speaks. When he speaks on rare occasion, like the one he did before the Chief Secretaries of States recently, it was pearls of economic wisdom, erudite scholar’s thoughts, which flew like the Ganges which carries all the filth, mud, dead humans, unconcerned.

His cure to the dreaded scarcity of essential commodities was, waiving mandi taxes, octoroi and local taxes which impede the smooth movement of essential commodities.

His Second doctrine which “demeans us against our own people” is the Corruption strike at the roots of good governance and denting country’s international image.

His third prescription was that the economy was on a high growth trajectory for the past few years, but it was ‘inflation’ that posed threat to the growth.

He felt that there was a need for paradigm shift in institutional arrangements for improving the availability of various commodities to meet the higher levels of consumption.

There were times in independent India, when he adhered to “Mixed economy” philosophy. But down the line, we were comfortable transforming ourselves to the “Business economy”, when economic institutions preached liberalization and globalization, reverse foreign investment by Indian mega companies. In order to grow, sub prime lending rate allowed mega companies to become mammoth companies, car lending, funds for housing, higher purchasing power amongst the middle class put India to growthtrajectory, etc. Then, the coalition Politics unwound the “economic economy” , where priorities were accorded to Social causes like 100 days Compulsory work, writing off agricultural loans worth Rs 70,000 Cr, BPL subsidy under PDS, and many such freebies.

Taxation by the Central Government through budgetary exercise, direct, indirect, scaled new heights. Service tax, which was Rs 500 Cr in 1991 budget skyrocketed to Rs 50,000 Cr in 2010 budget, Petrol prices were de-linked from Government control and vested in the oil companies which raised the same periodically. Let us thank RBI which has said that 25 paise and less than 25 paise will cease to exist , so from now on, the increase will be minimum 50 paise, but concurrent increase over the last six months’ was Rs 10/- over the previous price. The diesel prices were vested with the Government, and its alterations not under the purview of Oil companies, because Diesel constituted a major use of big businesses and government! Oil Seed cultivation is in chaos, do to excessive import of edible oils. While the proportion of domestic supply:: Foreign import was 50::50, some livid mind thought it should be changed to 50:50, but the imported oil exceeded the demand by 30%. Added to that, in the name of inflation, the customs duty was made “zero”. Countries, in order to up the import c.i.f price resorted to taxation, “export tax” so the price looked higher than that was the domestic price; hence WTO penal clause was avoided. Import has been going on indiscriminately, thereby, the indigenous edible oil industry has produced lower and lower growth figures, which may ultimately result in 100% import of edible Oils. Again using the ‘inflation’ doctrine, Government is contemplating banning exports.

RBI has no grip over the economy. They reduce interest rates and say that the monetary ends are stable. There is a multiplier effect in the interest Policy. If credit interest rate becomes lower, the savings rate will also become lower. According to RBI, saving money and lodging it in Banks instead of recklessly spending it, will fuel ‘inflation’. When the Opposite happens, the RBI tightens the policy, allows increase in interest rate not through raising interest rates, a power now transferred to Banks as “base rate”, but by fiddling with REP rate, reverse REPO rate, CRR, etc. In India, demand is over-estimated, supply under-estimated. When inflation creeps in, Government reverses its Policy, demand under-estimated and supply over-estimated.

When the economy is between the devil and the deep Sea, major scams worth lakh Crores of Rupees have been detected proving to the world, that Deviant Globalization (Nils Gilman) is a part and parcel of Indian economy. Instead of Indian money stalked in the Indian Banks, the money finds its way to tax heavens, with Government doing nothing about it to bring back the money.

Prime Minister should act, instead of theorizing the well-known economic theories which mean nothing to the Common Country man or tax payer.

World's wealthiest Men

Often we talk about the disparity between the ‘haves’ and have-nots’. World’s devastating economy continues to be morbid. It does not get shaken by the Sheiks and other world class wealthy people whose rankings are announced by a magazine called ‘Forbes’. It is ambitious for the rich and the mighty to get a ranking in it. It proclaims one’s status as a rich man in the World.

The billionaire Club has been decreasing like Law of Diminishing Returns. Yesterday’s billionaire is today’s ‘ex-billionaire’. This Club has taken the severest hit in the past 15 months more than any other year since the Magazine started grading the richest to the rich. The total number of Billionaires around the globe plunged to a new low from a record number of 1125 in the beginning of 2008 to around 793 in March 2009. This decline of 332 billionaires in a year worked to 29.5%. The Net Present Worth of world’s billionaires dropped from $ 4.4 trillion (in 2008) to $ 2.4 trillion, the percentage of rate of decline @ 45.4%. This translates to a per capita wealth per billionaire @ $ 3 billion, a steep decline of 23% or a per capita drop of $ 910 million (against 2008 figures)

At least 373 people joined the ranks of "ex-billionaires" (355 as a result of business misadventures or declining asset values and 18 who died), while only 41 climbed onto the billionaire band wagon which included 38 newcomers and three who regained spots on the 10-figure list they'd lost earlier..
Indeed, the analysis carried out by Forbes clearly indicates real estate as the villain of the piece in reducing the ranks of billionaires, with more than 250 of the "2008 billionaires " registering substantial losses due to shrinking property values, which also accounted for drop in net worth among many of those who stayed on the list. When the property market crashed Ramesh Chandra's NPW (Net Present worth) plunged from $9.6 billion to just $600 million. Real Estate also played a crucial role in the depletion of wealth of India’s biggest loser Anil Ambani who was ranked No 6 in the 2008 list with a NPW of $ 42 billion. Real estate massive losses, which accounted for 76% of his fortune, left him with $ 10.1 billion and a ranking of 34 in the 2009 list.

29 of the Indian billionaires who figured in the list during 2008 lost their ranking while the remaining 23 of the 24 still on the list had diminished NPW. Russian billionaires figured in the hit-list with 55 of the 74 knocked out of the list while the remaining 19 with decreased wealth stood in the list due to inclined and depressed markets in metals, minerals, and other natural resources including gas. Mikhail Prokhorov, the richest Russian who still figures on the current list was ranked 40 with a fortune of $ 9.5 billion. The other six Russians who were in the top fifty dropped out of the list as their wealth depleted to below $ 1 billion.

United States became the greatest causality with 110 billionaires losing their rankings.

New York City alone lost 16 billionaires while media driven fortune of Micheal Bloomberg notched up $ 16 billion (from $ 11.5 billion 2008) to get listed at number 17 from his previous 65. Twenty-eight of the Manhattan billionaires who dealt in hedging funds lost their rankings while 11 managed to hold on to the list.
Among the celebrities, television giant Oprah Winfrey with a present worth of $ 2.7 billion. Designer Ralph Lauren with 4 2.8 billion and jetsetter Richard Branson with $ 2.6 billion managed to stay on the list. Dallas Mavericks (Mark Cuban) recorded his wealth at $ 2.3 billion while jerry Jones net worth came down to $ 1.3 billion as he ended up at the 559th spot in the Forbes List of Billionaires. Wang Chuanfu of China’s was a fresh entry (seller of electric cars in China) with a recorded wealth of $ 1.4 billion. He joins the illustrious band of 23 Chinese billionaires. . Germany’s Aloys Wobben (windmill manufacturing) found his way into the list with a record net worth of $ 3.5 billion. The top ten honours went to Bill gates ($ $ 40 billion), Warren Buffet ($37 billion), Carlos Slim Helu (Mexico)($35 b), Lawrance Ellison(422.56), Ingvar Kamprad(Sweden)($ 22.6 b), Karl Albrecht(Germany)($21.5 b), Mukesh Ambani (Ind)($19.5b), Lakshmi Mittal(Ind)($19.3b), Theo Albrecht(Ger)($18.8 b), Amanico Ortega(Spain) ($18.3 billion) [Courtesy: Forbes Magazine] Even though the list made surprising ups and downs for some, elimination for some others, the addition of 38 new billionaires to the diminutive group of billionaires may send comforting signals. 2008-9 will go down in history as the Year of Economic disaster. Will hope gather momentum in 2010? We will wait and watch.