"Nothing can be
beautiful which is not true."
—John Ruskin (English,
1819-1900)
Word for the day
Ostentatious (Adj)
Characterized by or given to
pretentious or conspicuous show in an attempt to impress others
(Source: Dictionary.com)
Malice towards none
One of the accused in
infamous Sheena Bora murder case - Peter Mukerjea is reportedly selling his
house to pay for his legal fees.
This is certainly not an
isolated instance. There are hundreds of litigants who have to sell their
house, land, organs and even family members to pay for legal fees.
Unfortunately, many of them still do not get justice!
First random thought this morning
I could not help noticing that after rattling that world markets for
better part of past 12months, "China" is gradually disappearing from
front pages and top headlines.
I am unable to decide whether "China" has cease to be a
concern for global economy; or it's a strategy of Chinese authorities to keep
low profile and carry out necessary corrections; or the global markets are just
playing ostrich to the Chinese threat; or it's just a temporary pause before
Chinese concerns again start dominating the headlines!
A detour to economic recovery
In a classical economic recovery (a) consumption rises, usually
led by rise in wages and/or lower interest; (b) prices rise as demand growth
outpaces supply; (c) demand for investment rises as producers rush to create
additional capacities; and eventually (d) employment rises leading to further
rise in consumption.
Whereas in a pump primed recovery driven by government stimuli,
rise in employment leads the cycle. To begin with usually the rise in
employment is at the cost of productivity. Hence, if the rise in employment
induced by fiscal incentives fails to kick start the virtuous cycle of
income—consumption—investment—income, there is a risk of economy getting pushed
even deeper into slowdown. In past one decade we have seen beginning of the
pump primed virtuous cycle, albeit at a lower trajectory. But the effort has so
far been futile in Europe and Japan.
Now coming to Indian economy. Arguably an economic turnaround is
taking shape here. Though these are still early days, but I strongly feel that
the recovery is not taking the Classical path. More importantly, severe fiscal
constraints and unsupportive external environment may not allow the recovery to
be materially pump primed.
In my view, the economic recovery in India is taking a detour to
the Classical path. Some of the key highlights of the recovery, as I see it,
are as follows:
(a) The consumption level
in the economy is rising, but it is not rising in the classical Maslow's evolutionary style. The consumption rise is more aspirational in nature.
Accordingly, the demand for services is rising much faster than the demand of
products. The capacity addition therefore is more likely in "seats"
rather than "machines".
(b) Productivity gains are
likely to play major role in the growth. The recovery may therefore not result
in creation of much real assets.
(c) Faster and wider
redistribution of wealth is the key underlying theme of the growth strategy.
Higher taxation, exploitation of high savers through low or negative real
rates, elimination of middlemen, and higher social sector spending will be
amongst the key features of the growth cycle.
The good part is that efficient social sector spending (minimum
leakages in subsidy distribution, emphasis on building quality human capital
through better education, health and training) shall add to productivity gains achieved
through better use of technology and management of redundancies.
The flight of capital is a real risk in the short term as the rich
try to protect their wealth from being snatched by an aggressive regime. But I
am not worried on that count. I feel that the new businesses will generate
enough resources to compensate for the withdraal by traditional businessmen.
Besides, foreign capital will also be encouraged by an open, transparent and
receptive regime.
I shall discuss the investment strategy implication of this
scenario in coming days.
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