Vijay Kumar Gaba

Friday, August 15, 2014

The Big Bang Theory

A quick post PM's independence speech telephonic survey of some market participants finds a large majority confused.

All of them are deeply impressed by the high emotional quotient, commitment and nationalistic fervor of the speech. However, many of them sounded disappointed by lack of specific project and scheme announcements that can boost the market Monday morning.

We, for the record, are deeply impressed by the tone, tenor and contents of the PM's speech. The speech encourages us to increase our bets on Indian economy.

We heard many Big Bang announcements in the speech, which many market participants perhaps would notice in the months to come. Specifically, we would like to highlights the following:

(a) For the first time since Lal Bahadur Shastri, a PM has underplayed the role of the government and highlighted the role and responsibilities of citizens in building a progressive society. PM rightly pointed out that all 1.25bn Indians need to contribute in nation building and the government will only play the role of a constructive facilitator and coordinator with compassion.

(b) The PM emphasized the importance of quality and sustainability in the process of growth and development.

(c) Emphasis on building strong national character through commitment to cleanliness, social harmony, peace, socio-economic equality is also first.

(d) Commitment to restoration of true federal structure of government, that got lost in the personal ambition and insecurities of Mrs. Indira Gandhi, may pave way for the balanced, equitable and sustainable growth of the country.

(e) Emphasis on protection of personal dignity of all citizens as guaranteed by the constitution may help restoring the faith in Nation State and thus enhance the compliance level.

(f) Engaging all elected representatives in the nation building process will help ease the power struggle, corruption, and encourage healthy competition amongst legislatures and local communities. Through model village schemes (Smart villages with urban civic amenities) all elected representatives will have an opportunity to demonstrate their organizing, project management and development capabilities and will be able to rise in national hierarchy. Each of them will have a project named after them as legacy to show case (so far domain of a few families).

Insofar as financial markets are concerned, we believe that the PM has just announced seriously big bang structural changes in the whole economic paradigm. For example,

(1) In our view, the new manufacturing policy is on the anvil that would enable India become an important international manufacturing hub. "Make in India" mission shall see far reaching changes in SEZ policy, FDI rules, taxation policy, land acquisition policy, and sustainability rules.

(2) The disbanding of central planning commission shall strengthen the federal structure. Deeper center-state cooperation will improve execution and bridge the trust deficit. Estimates suggest huge savings could be achieved by removing redundancies through combining state and center welfare schemes.

(3) A common SAARC trade area could bring serious benefits to many industries.

(4) Development of MSMEs with focus on quality, sustainability and import substitution is a noble thought.

(5) Massive financial inclusion scheme is aimed at eliminating exploitation of poor and leakages in delivery of government assistance.

The last but not the least, by not referring to the menace of corruption even once in his 64min speech, PM has highlighted total confidence in his team and his ability in making it a non-issue sooner than later.

It is also a matter of comfort and delight for us that many of our suggestions have found place in PM's speech. In particular the following:

8 things I wish to hear from PM tomorrow

Raise the Bar

Regards a very Happy Independence Day to all our readers.

Thursday, August 14, 2014

8 things I wish to hear from PM tomorrow

Thought for the day

”Life does not agree with philosophy: There is no happiness that is not idleness, and only what is useless is pleasurable.”

- Anton Chekhov (Russian, 1860-1904)

Word for the day

Brusque (n)

Abrupt in manner; blunt;

(Source: Dictionary.com)

Teaser for the day

All those who believed in Modi's magic wand are already busy doing a reality check.

8 things I wish to hear from PM tomorrow

Many media reports are suggesting that the participants in the financial markets are already disappointed with the performance of Modi government. Most of them are keenly looking forward to PM's ceremonial independence speech to find a straw to which they can cling on for some more time. I feel they will be even more disappointed by the noon of Friday.

I appreciate that this ceremonial speech is not an occasion to please the financial markets. This should rather be used to bolster the morale of the common citizen and reignite their faith in the country and her democratic traditions.

I believe that in today's context a stronger economy is more a function of healthy, competent, committed and aware citizenry than a function of other economic resources.

I therefore wish to hear the following announcement from Red Fort.

1. National Cleanliness Mission - to make the country clean, health and beautiful

If necessary legally mandate people to keep their surroundings clean.

2. National Quality Mission - to make Quality a mindset.

‘Jugaad’ in economic field is as dangerous as in personal (like self medication) and political (caste and religion based politics, adhocism in key socio-economic policies etc.) The ‘jugaad’ mindset has perennially pushed back India and Indians tenaciously into survival mode, preventing development of a strong foundation for economic growth and prosperity.

3. Right to Uniform Education - Make it the basis of Constitutional guarantee of right to equality.

4. 100% tolerance to right to freedom of expression.

PM should tell the nation that in view of the government and law - the God, all deities, languages, and national symbols like flag and anthem are supreme and beyond respect, insult or belittlement by any individuals. These could only be voluntarily revered. There should not be any objection from anyone if someone chooses not to revere these.

5. Zero tolerance to crimes like adulteration, ponzi schemes, money laundering, crime against women and economic and social exploitation of underprivileged.

6. National Owner-Entrepreneur Cooperative Movement

Grant beneficial ownership of the land & minerals to local people and encourage a cooperative movement in industry and land development.

7. National Police Reform Mission

8. National pay-back policy

All those using national resources like natural resources and subsidies, etc. for commercial purposes need to pay back in equal measures.

If to someone I am sounding Maoist, let me clarify "I am not".

Wednesday, August 13, 2014

Declare 15th August 2014 as Swaraj Day

Thought for the day

”People don't notice whether it's winter or summer when they're happy.”

- Anton Chekhov (Russian, 1860-1904)

Word for the day

Cat's-paw (n)

Person used to serve the purposes of another; tool.

(Source: Dictionary.com)

Teaser for the day

Does Congress realizes that if it losses Haryana, J&K, Kerala, Assam, and Maharashtra in next couple of years, by 2017 it may be a small minority in Rajya Sabha too?

Wonder, what's plan!

Declare 15th August 2014 as Swaraj Day

I have been highlighting since ever that one of the best things India has got in past 150years is Mahatma Gandhi. And the most unfortunate thing to occur since independence from British rule in 1947 is brazen desertion of Mahatma Gandhi by Indian politicians. To my mind hanging his pictures in government offices or currency notes and naming roads after him is even more contemptuous given the complete ignominy for his principles and ideas.

I would like PM Narendra Modi to undo this blunder on this independence day. I could dare hope so because PM has shown strong commitment to many Gandhian ideals, e.g., Swaraj, Antodaya (elevation of the poorest amongst poor), self-reliance, cleanliness, etc.

Mahatma Gandhi had once said “Independence begins at the bottom. A society must be built in which every village has to be self sustained and capable of managing its own affairs. It will be trained and prepared to perish in the attempt to defend itself against any onslaught from without. This does not exclude dependence on and willing help from neighbours or from the world. It will be a free and voluntary play of mutual forces. In this structure composed of innumerable villages, there will be ever widening, never ascending circles.

Growth will not be a pyramid with the apex sustained by the bottom. But it will be an oceanic circle whose center will be the individual. Therefore the outermost circumference will not wield power to crush the inner circle but will give strength to all within and derive its own strength from it.”

Thus, the individual is the sole basis of Swaraj. Swaraj is unfathomable without dispassionate self-assessment, ceaseless self-purification and growing self-reliance at individual level; and sovereignty of moral authority, as against the political authority.

Swaraj encompasses fiercely competitive free market, moral duty to be free, fearless, truthful, fair, just, self reliant, nationalist, and religious.

In my view, religious fundamentalism, usually referred to as “communalism” in Indian context, is mostly a political problem in India. A secular political system, as envisaged by Mahatma Gandhi and incorporated in the soul of our Constitution, would automatically weaken these miniscule elements leading to their eventual extinction.

To end this political farce that has indubitably harmed Indian economy and society more than anything else, Narendra Modi should declare, in as many words without any ambiguity, from the ramparts of Red Fort, his allegiance to the idea of secularism as enshrined in the Constitution of India.

Despite several movements and legislations, women in India continue to suffer serious injustice and disparities. The feudal mindset towards women need to transform, if we want India to become a world power. This would require a mass movement. Mere legislations would not do.

...to continue tomorrow

Tuesday, August 12, 2014

Expect little economics at Red Fort

Thought for the day

”Let us learn to appreciate there will be times when the trees will be bare, and look forward to the time when we may pick the fruit.”

- Anton Chekhov (Russian, 1860-1904)

Word for the day

Equanimity (n)

Mental or emotional stability or composure, especially under tension or strain.

(Source: Dictionary.com)

Teaser for the day

Who do we honor by coffering Bharat Ratna, Padma Awards, and gallantry awards -

(a) The country - for having great/brave people; or

(b) The person - for being great/brave; or

(c) The award itself for embracing a great/brave person; or

(d) All of the above?

Expect little economics at Red Fort

If my memory is not failing me, in past two decades the Prime Minister's independence day speech has never been awaited in Mumbai with so much anticipation.

The underprivileged from the relatively less developed parts of the country have always looked forward to the occasion in hope of some new welfare schemes and extension of reservation quota to cover more areas/people.

However, middle classes mostly lost interest in the event from the beginning of the Mandal Era in late 1980s'. Businessmen, industrialist and the participants in financial markets have mostly heard the speech to fish out negatives in terms of rising pressure on fiscal deficit and rhetoric towards neighboring countries creating avoidable tension.

This time however it is different. All are keenly anticipating a historic speech from the ramparts of the historic Red Fort. The reasons are many and varied.

The most common being, Narendra Modi led BJP's election campaign had raised the vertical limits of people's expectations by a good measure. The boring long budget speech of Arun Jaitley mostly failed to match the elevated expectation level. People are now expecting the independence speech to supplement the void left in the budget provisions.

On a lighter note, after a decade we will have a proven good orator delivering a speech against reading a speech.

Narendra Modi unambiguously reiterated at BJP's national council meet last week that the primary focus of his government is the poorest amongst the poor. It is of utmost interest to economists and financial experts how his government would achieve the elusive equilibrium between often conflicting goals of fiscal discipline, higher headline economic growth, large scale job creation, price stabilization, social justice, etc.

The government's likely Rajya Sabha strategy has also assumed significance in view of the opposition to the Insurance Bill. People are also expecting some hints on the solution to this issue also.

So far, BJP leaders have avoided references to the traditional cultural nationalism agenda in their public utterances. Modi's opponents, within and outside NDA are frustratingly looking for some hints of this to hit back at Modi, who has emerged as a rather exacting leader of the government.

A section of media, especially English print and electronic media, appears suffering from serious sense of guilt post elections. This section of media had chastised Narendra Modi since 2002 and strongly ruled out chances of his becoming prime minister. Post election results this section of media (whom Modi likes to call "News Traders") has been frequently raking up trivial issues to show their displeasure. They will be keen to find some holes PM's speech.

I will also be turning on my TV set early in the morning to hear Mr. Modi. I am not expecting to hear much on the economic agenda of the government. I would hate to hear Congress bashing or customary warning to neighbors.

Tomorrow I would list what I would like to hear from Mr. Modi on this independence day.

Monday, August 11, 2014

Tighten your belts

Thought for the day

” Any idiot can face a crisis - it's day to day living that wears you out.”

- Anton Chekhov (Russian, 1860-1904)

Word for the day

Celerity (n)

Rapidity of motion or action; quickness; swiftness

(Source: Dictionary.com)

Teaser for the day

The next global liquidity shot is now due.

German yields at all time low. Peripheral Europe Stuttering again. Japan and China not going anywhere. Commodity world jittery. US bomber jets ready to raid Iraq.

If you enjoy roller-coaster ride, get set to go. If you do not - take a good seat in the arena and cheer the braves.

Tighten your belts

The commentary on global financial markets has conspicuously turned cautious to negative in past couple of weeks. Many seasoned investors and analysts have warned about an imminent correction in prices.

Recently, Marc Faber was widely quoted as saying "By printing money, [The Fed] has delayed the cleaning process," as mal-invested capital (and self-referential buybacks) have sustained (and even encouraged) the worst quality companies. As corporate defaults pick up (and The Fed's free money dries up), perhaps that cleaning process will be allowed into the free-market producing 'the big sell-off'."

A large part of this caution could be emanating from the confounding behavior of bond markets in past few months. The consensus in the bond market over the last several years has been that yields will inevitably rise. However, the realty has been quite opposite.

The 10-year Treasury note fell as low as 2.35 percent, its nadir since June 20, 2013. As per a Bloomberg report "Yields have been falling with embarrassing consistency in 2014 despite forecasts to the contrary from most Wall Street analysts at the beginning of the year."

The global economy remains sluggish; central banks continue to push down interest rates in hopes of stimulating their countries’ economies; and, perhaps most important, geopolitical tensions have been rising. President Obama’s decision to resume bombing in Iraq, the violence in Gaza and the threat of a wider war in Ukraine are the start of a long and worrisome list.

In response, investors worldwide have been curbing the risk in their portfolios and moving money into safer holdings. United States Treasuries remain high on the list of global safe havens. Demand for Treasuries has driven prices higher and pushed down yields.

The yields on a range of other bonds have been extraordinarily low, too. For example, the yield on 10-year German sovereign debt has fallen to 1.05 percent. And Japanese interest rates have gone even lower, with the yield on 10-year sovereign debt hovering at 0.495 percent.

What does it all imply for our economy and markets?

I feel it is a good and a bad news. Good in the sense that it provides a much needed respite window to the new government. May be 4-8 quarters.

With yields staying at lower level, the global investors are more likely to continue chasing higher yielding making it easier for Indian companies to raise capital at favorable terms. This also keep global inflation in check and USD relatively cheaper.

However, the uncertainty and fear of yet another still fresh in memory 2008 like collapse keeps the investors in edge, prompting frequent panic reactions. The volatility may therefore rise materially, inhibiting any material improvement in domestic investor's participation in the market.

Insofar as recent geopolitical events are concerned, I find no chance of it escalating into any full-fledged war. I therefore do not see any need to change my investment strategy as yet.

Friday, August 8, 2014

If you are scared, say so

Thought for the day

”Imperfection clings to a person, and if they wait till they are brushed off entirely, they would spin for ever on their axis, advancing nowhere.”

- Thomas Carlyle (Scottish, 1795-1881)

Word for the day

Taradiddle (n)

A small lie.

(Source: Dictionary.com)

Teaser for the day

Could Congnizant's loss be gain of other Indian IT companies?

Cognizant's poor guidance is sacrosanct for the entire sector?

If you are scared, say so

A couple of days back I expressed some doubt about the RBI governor's comfort level in the current states of financial markets in particular and state of global economy in general. This I thought was not explicitly stated in the the periodic policy statement made on Tuesday.

A day later, on Wednesday, the governor not only confirmed my doubts, but went much further in expressing his discomfort, in an interview to the London based Central Banking Journal.

The below are the key concerns and doubts raised by the governor, as reported by Wall Street Journal.

(a) The global economy bears an increasing resemblance to its condition in the 1930s, with advanced economies trying to pull out of the Great Recession at each other’s expense. The difference: competitive monetary policy easing has now taken the place of competitive currency devaluations as the favored tool for playing a zero-sum game that is bound to end in disaster. Now, as then, “demand shifting” has taken the place of “demand creation”.

(b) As was the case in the 1930s, the lack of coordination between policymakers is producing spillovers that may be difficult to control, and the world’s financial system may soon face fresh turbulence at a time when central banks have yet to repair the damage that the 2008 financial crisis caused to developed economies. “We are taking a greater chance of having another crash at a time when the world is less capable of bearing the cost,” said Mr. Rajan.

(c) A sudden shift in asset prices could happen in a variety of ways. The most obvious route would be as a result of investors chasing higher yields at a time when they believe central bank policies will protect them against a fall in prices. “They put the trades on even though they know what will happen as everyone attempt to exit positions at the same time – there will be major market volatility,” said Mr. Rajan.

(d) A clear symptom of the major imbalances crippling the world’s financial market is the over valuation of the euro, Mr. Rajan said. The euro-zone economy faces problems similar to those faced by developing economies, with the European Central Bank’s “very, very accommodative stance” having a reduced impact due to the ultra-loose monetary policies being pursued by other central banks, including the Federal Reserve, the Bank of Japan and the Bank of England. “The exchange rate is too strong given the euro area’s economic standing,” said Mr. Rajan.

(e) Mr. Rajan said economists still disregard the central role of financial systems in the economy and believe they can predict upcoming disruptions. “They still do not pay enough attention–en passant–to the financial sector,” Mr. Rajan said. “Financial sector crises are not as predictable. The risks build up until, wham, it hits you.”

Well this adequately explains the hawkish stance of the governor. Though I still believe that his official policy statement need not be guarded if he is scared.

Thursday, August 7, 2014

Three short stories

Thought for the day

”The world is a republic of mediocrities, and always was.”

- Thomas Carlyle (Scottish, 1795-1881)

Word for the day

Bugbear (n)

Any source, real or imaginary, of needless fright or fear.

A persistent problem or source of annoyance.

(Source: Dictionary.com)

Teaser for the day

A 129 year old organization, which in past had been led by great leaders like Mahatma Gandhi and Subhash Chandra Bose, is genuflecting before a reluctant novice to assume its leadership.

It reflects on whom - the party; the country; our political system; our understanding of democracy or just Gandhi family?

Three short stories

A dilapidated building needing urgent reconstruction

Three years ago I had chance to visit a dilapidated residential building in Mumbai. The palatial building which once housed officers of the crown, was abode of mostly lower middle class families engaged in sundry professions. The civic authorities had declared the building dangerous both for its occupants as well as the neighborhood. It therefore needed to be urgently demolished and reconstructed.

Many occupants had already made the alternative arrangements and moved on. But a few were still clinging on. When enquired, I was told that these are either retired/unemployed people who cannot afford an alternative accommodation, or the brave ones who do not mind risking their life for a few extra bucks in compensation. I am sure there would be a few who would be staying on for emotional reasons.

The current state of the Congress Party reminds me of that building.

No one seeking freedom

Once the home minister of a state visited the Jail on the Independence Day. After finishing his speech, he asked the inmates about their problems and what he could do for them. Most complained about mosquitoes and quality of food. Few wanted new blankets. Some daring one asked for a TV in the library. No convict asked for freedom. No under-trial requested that his/her trial may be speeded up, or he/she be released on bail as the trail proceedings had procrastinated beyond the maximum sentence they would face if convicted. The minister granted their wishes and won their adulation.

The latest controversy over UPSC civil services exams is a similar instance.

Is India already corruption free?

The politicians who campaigned aggressively for a corruption free India, especially Rahul Gandhi and Arvind Kejriwal, during last general election have not uttered a word on corruption in past three months.

Rahul Gandhi who made a passionate pitch for the famous "SIX" anti corruption legislations to be passed by the Parliament chose not to use the opportunity of bargaining with the government on any of the legislations proposed by his party in last six months of UPA-II regime. Narendra Modi would have been happy to support some of these legislations in lieu of Congress' support on Insurance (Amendment) Bill.

Arvind Kejriwal, or for that matter any AAP leader, has not publically mentioned the phrase "Jan Lokpal" in past three months.

P. Chidambaram and Manmohan Singh, who had passionately advocated higher FDI limits in insurance sector, have not uttered a word on Congress' opposition to the Bill.

What the action of these people and parties imply?

To me it implies nothing. I always believed that these are normal politicians who are selfish and care about common man issues only and to the extent it serves their vested interests.