Some food for thought
"Who are you to condemn another's sin? He who condemns sin
becomes part of it, espouses it."
—Georges Bernanos (French Author, 1888-1948)
Word for the day
Tabula rasa (n)
A mind not yet affected by experiences, impressions, etc.
First thought this morning
Till a few years back, "Kameti" (A kitty of
businessmen) used to be one of the most popular source of financing for traders,
cottage and micro industry in unorganized sector in many parts of the country.
This very friendly source of funding was widely used for working capital,
capacity building & expansion, and even meeting expenses of family events
like marriage etc. In past few years, especially after demonetization, this
source of funding has almost dried up.
The modus operandi of "Kameti" is very simple. 25-50
businessmen working in a micro markets would come together and commit a fixed
monthly amount (say Rs50,000 and 40 people) to be a put in a pool. Every month
there would be a meeting of all the participants. The participant(s) who need
money for their business or personal purpose, would bid for the pooled money of
Rs20lacs (Rs50000*40). The participant bidding the highest discount would take
the entire pool less discount. The amount of discount is distributed equally
amongst all the participants as "interest income". All the
transactions are usually in "cash", and all the participants would generally
know each other well.
The amount of discount (or interest) dynamically varied as per
business cycle, and was determined in very transparent manner. In case there is
no bidder in a month, the winner will be chosen by lot of draw and a pre agreed
nominal discount would be applied (usually 1-2%).
In rare cases of a successful bidder failing in making
successive monthly contributions, the rest of the participants would bear the
loss in equal proportion. There were no willful defaults.
Like most other indigenous systems and traditions, I found this
system also very effective and useful. From anecdotal evidence, I find this
system to be the best example of Self Help Group - totally self regulated,
based on mutual trust & empathy, transparent, flexible and dynamic. It involved
no need for regulatory oversight and entailed no systemic risk.
First demonetization and now the new law on unregulated
deposits, has virtually destroyed this very useful source of financing for
small businessmen.
The only regulatory drawback of this system was that the
"interest income" earned by the participants remained outside the tax
net. But a pragmatic review of the system would have allowed tax exemption for
the interest income from Kameti participation, as an incentive to MSME, provided
such Kameti was approved by the local trade or market association. This
interest is nothing but the compensation for the risk. If equity investors can
get tax concessions for investing in "risky assets", why not these.
To those who believe that all cash is "black", I have
all my sympathies with them. Nonetheless, businessmen could be motivated to
gradually operate Kameti via an escrow account. All participants could
contribute to this escrow account through digital transfers and the pooled
money could be transferred to successful bidder's account, so on and so forth.
I am not naive enough to assume that this "escrow"
account method would be equally useful and immediately acceptable to
businessmen who still like to deal in cash. But the lure of tax exempted
interest income will surely draw many people to this mode over a period of
time, lessening the work load and risk for formal lenders, and lowering cost
and inconvenience for small businessmen.
Do we mind a war?
Indian financial markets have totally ignored the war
shenanigans and not reacted at all to—
(a) Massive troop
movement: Reportedly over 10,000 additional troops are being moved to J&K).
(b) Pakistan
preparing for war: Pakistan has reportedly declared war preparedness, vacating
border villages, cancelling leave of forces etc. There are some unconfirmed
reports of artillery mobilization also.
(c) US President has
cautioned the world that a "Big" action is imminent in the current
Indo-Pak dispute.
(d) Many friendly
nations have extended explicit support in case a war does erupt. Israel in
particular has been quite vocal.
(e) Prime Minister
is threatening an adequate response to Pulwama attacks, at least thrice a day.
(f) Trade blockage
has already started with withdrawal of MFN status, imposition of 200% duty; and
"voluntary" refusal of merchants to export goods to Pakistan;
boycotting of all Pakistani artists and sportspersons, etc.
This is not at all surprising. Similar escalations were seen in
the aftermath of Kargil War (May-July 1999), attacks on the Parliament
(December 2001) and Mumbai attacks (November 2008) and attack on Army base in
URI (September 2016). On each of these periods of escalations, the market did
not make any panic or unusual move.
What does this imply?
Does the collective wisdom of market not believe in any
probability of even a limited war between two neighbors? If that be the case,
what this all brouhaha is that we are witnessing in media, both mainstream and
social?
Is it safe to assume that we do not mind a war insofar it has no
significant economic cost?
Is it also safe to assume, even a small engagement at border may
surprise markets hugely?
