"I was a pretty good
fighter. But it was the writers who made me great."
— Jack Dempsey (American,
1895-1983)
Word for the day
Nonpareil (n)
A person or thing having no
equal.
Malice towards none
It will be really unfortunate
if SC now decide to lift ban on registration of larger diesel cars in Delhi.
This will reflect how
morality is often shadowing legality these days.
First random thought this morning
The announcement regarding implementation of 7th pay commission
recommendations has met with varied reactions, expectedly.
Employees are dissatisfied and want more. Economist feel the
massive cash payout could be inflationary and result in undesirable fiscal
pressure, especially on State Government which are likely to miss fiscal
targets due to signing the UDAY deal. It is feared that it may also worsen the
already poor health of many PSUs.
The industry is happy, expecting the beneficiary employees to
indulge in shopping spree. Equity market shares their optimism. Bond traders
are uncertain.
Blind Men and the Elephant-4
In the aftermath of UK referendum vote to leave EU, numerous
pessimistic forecasts have been made. The voices of optimism have been few and
feeble.
Based on assumptions that post separation from EU, UK government
will shut out all multinational businesses, fence all its borders, impose heavy
taxes on immigrant workers and foreign businesses; and EU will erect strong
barriers for trade and labor movement to & from UK, both GBP & EUR will
decline materially - various forecasters have portended 0.5-0.75% decline in UK
GDP, exodus of businesses from London, material in rise in cost of doing
business and hence lower margins for businesses selling goods and services in
Europe (including UK).
Instinctively, I find these assumptions contrary to the
conventional wisdom. I believe, post break-up, British government will be more
open, receptive, and congenial towards foreign businesses and skilled immigrant
labor, for two simple reasons—
(a) The fear of recession,
should economic activity slow down any further; and
(b) A point to prove that
UK is better off outside EU.
Remember we are talking about a country deeply divided on
political ground, with almost one fourth of the population riding guilt of
having voted "Leave" for fun. Good economics is the only thing that
could keep people together there.
Talking specifically about impact on Indian businesses, a lot has
been said about Tata Motors and IT companies. The arguments of analysts based
on simulations on Excel Sheets look impressive. But being a small investor, I
can certainly afford to ignore deep analysis and apply my innocent logic.
I fathom that the separation of UK from EU will entail humongous
IT work - modifying systems throughout EU, and other parts of the world also.
Dislocation of some businesses both from UK and EU would also entail IT fix.
Banks, airlines, insurers, VISA offices, et. al. would need to modify their IT
systems and infrastructure. Besides, UK may enter a number of new treaties and
arrangement, new alliances may develop, which would need IT services to
implement. This could generate billions of dollars of new business for Indian
IT companies. The cost of opening a new EU headquarter in Vilnius, Warsaw,
Budapest, etc. may not be prohibitive in comparison, especially if you could
borrow at rate close to zero and pay costs in a cheaper EUR. No need to open
shop in Paris or Frankfurt.
Similarly, I am yet to find a JLR buyer who would be exactly
bothered about the duty element of cost. On the contrary, there could be some
buyers who may precipitate their buying, to a date before effective date of
divorce, for the sake of convenience. The price of JLR may be lower due to
cheaper GBP, but so would be costs and value of debt. JLR may be more
competitive than its German competitors if GBP falls more relative to EUR.
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