Some food for thought
"'Tis one thing to be tempted, another thing to fall.
"
—William Shakespeare (English writer 1564-1616)
Word for the day
Peccable (adj)
Liable to sin or error.
First thought this morning
Sunday, the 14th July 2019, was a day that will be remembered
for long. Two brilliant games of sports were played on this day.
In the first game, ICC Cricket World Cup New Zealand played
England in the finals, first ever for both the teams. The match ended in a tie
and even the super over could not break the tie. The match was given to England
on the basis of more boundaries scored.
Besides the thrill of a brilliant battle of bat and bowl, two
key take away from the match. First, India lost just two games in their pursuit
in this championship. Both the teams which defeated India proceeded to finals
and produced some amazing cricket. So instead of blaming some players and
tactics, we just need to accept that both finalist played better than India and
won. Second, the ICC rule book was there for everyone to read even before the
tournament had started. Obviously no one bothered about the rule "team
with highest boundaries wins", because no one believed that this kind of
situation is even possible. But here we are. Now blaming ICC for framing absurd
rules is meaningless and inappropriate. The debate on this rule must have
happened when it was first drafted.
This is true with many of our public policies, laws (especially
tax laws) and inadequacies. Till the time something does not hit us, we don't
bother. For example, how many of us have bothered to complain to the
authorities that in case of a fire, it would be difficult for the fire tenders
to reach our building/house because there is some obstruction 1 mile away!
In the second game the top ranked Serbian Novak Djokovic beat
the 3rd ranked Swiss Roger Federer in the longest running final match of
Wimbledon Tennis championship to lift the coveted trophy for the third time.
USA which ruled the lush grass courts at Wimbledon in 1990s, winning 8/10 Men's
singles titles during 1991-2000 has not won any title since Pete Sampras
defeated Australian Patrick Rafter in 2000. Since 2009 defeat of Andy Roddick
in finals, no American Man has even reached the finals. In Ladies category,
William sisters (Serena and Venus) are holding fort for USA since 2000, winning
12/19 singles titles amongst themselves. But in last three years they have lost
in finals, each time. There are many economic theorists who have found decline
in tennis dominance to be a lead indicator of decline in economic stature of a
country and vice versa. Would be intersecting to find, if it comes true for USA
in next couple of decades!
Chart of the day
Are we ready for a recession?
I attended a get
together of some professionals and businessmen (mostly wholesale traders of a
variety of goods) over the last weekend. Occasion was to discuss the Union
Budget for FY20. Discussion on budget ended with 2 small formal presentations
of 15 minute each. Mood of participants was generally despondent. Almost all
participants indicated that their sphere of activity is facing recession
like conditions. Level of activity is low and revenue is down for second
consecutive year.
This was a small
group, but quite representative as it included traders of auto parts, textile,
fruit & vegetables, and food grains; importers of electronic items and
toys, clothes, furniture & other home decor items; chartered accountants
servicing a wide range of MSMEs, Bankruptcy professionals and ERP consultants.
These people interact with businesses across the country and abroad on day to
day basis and are fully aware of conditions of the ground, which in their view is
grim.
Feedback
completely corroborated the feeling I have got during my recent travels to
hinterland. On my back I took a cycle rickshaw to nearest metro station. The
rickshaw puller complained that he is running rickshaw on this same route for
past 8years for same charge, i.e., Rs20 per one way trip. His inflation
adjusted revenue per trip has more than halved in past 8years, and so have the
number of trips due to competition with E-Rickshaws. He and thousands of his
peers are certainly living in recessionary environment. Many farmers have
complained the same. Beside a few cash crops, the rise in MSP of crops has been
generally less than the rise in input cost and their household inflation.
Consequently, in their view, their condition has not improved at all in past
decade.
A large number of
MSME have also reported total lack of pricing power resulting in lower margins
and stress.
Two questions
have been agitating my mind since past 3 days, ever since I got out of that
meeting.
(1) Is the dichotomy in our stock market
performance in past 1 year, as highlighted by many experts, in fact the true
picture of our economy?
In past one year
or so, a few stocks at the top of the stock market have performed well, while
more than 80% of the listed universe has performed poorly. Consequently, though
we see the benchmark indices at healthy levels, the investors in general are
disillusioned and despondent. Similarly, while we see a handful of new economy
companies and some large enterprises reporting decent growth and/or capital
flows, a large majority of enterprises appear stressed and skeptical. This in
fact may be true for many other economies and stock markets also.
(2) Officially Indian economy has not experienced
a recession since FY1980. In fact, since independence only on four occasions
India's GDP has contracted, i.e., FY58 (-0.5%); FY66 (-2.7%); FY73 (-0.5%) and
FY80 (-5.1%).
- FY58 recession was led by BoP crisis that forced our government to seek US and IMF help for the first time.
- FY66 was consequence of war with China and a very poor monsoon.
- FY73 was a mix of 1971 war with Pakistan, Oil price jumping by 400% after Iran crisis.
- FY80 was again an energy shock (crude prices rising by 100%).
- The BoP crisis, Iraq war and subsequent energy shock, and a massive securities scam brough the GDP growth rate down to just 1% in FY92, but we avoided slipping into negative territory.Since 1992 we have seen multiple stock market crashes (1994-95, 1998, 2000-01, 2008-09 etc) droughts, energy shocks, global crisis (dotcom, subprime), phases of extreme political uncertainty (1996-1998 three elections in three years), Kargil war (1999), economic sanctions post Pokhran nuclear test in 1998), episodes of extreme corruption allegations leading to policy paralysis (2010-2013) etc. However, our economy has been reported to have managed to stay afloat with decent rate of growth.Totally ignoring the suspicions raised over the authenticity of the economic data; I find that Indian economy has developed strong resilience to withstand cyclical global shocks and domestic events like drought, political uncertainty and large scams.Regardless, it also raises a pertinent concern. Post Maruti generation has never experienced how a broad based economic recession looks like. Most of the senior analysts, bankers, administrators and politicians might also have forgotten since 38yrs is a really long period. The question whether there is a need for a mock recession drill to assess our preparedness for a recession. This may include stress testing businesses for a sharp fall in revenue and profits; banks for sudden rise in NPAs; fiscal system for a impromptu significant stimulus and monetary system for massive easing.Remember, each episode of recession in past has been followed by massive jump in inflation as highlighted by widening divergence between real and nominal growth, besides material INR depreciation.
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