Friday, December 26, 2008

The current economic scenario and its impact on the services sector

This is an article, that I intended to publish in a magazine, but simultaneously putting it in my blog. it contains the list of all industries that constitute the services sector and the impact of the economic recession on them


Layoffs, Deflation, Unemployment, Reduced Growth rates, Poverty and the list go on. Needless to say, the current economic scenario is a tough time for all the players involved in the system. Services sector contributes close to 60% of our annual GDP and hence the impact on this could mark a death knell to the high growth rates of our country. Impact assessment of service sector includes the assessment on all of its disparate activities; a macro level analysis is done on the same with emphasis on some of the major ones.

1.Trade: Need less to say, with the burgeoning crisis is because of the decreased trade amongst the various business entities. The recession in the developed world has reduced the exports. Companies and banks are not willing to extend credit to each other making trade much tougher. Though the crude prices have gone down, the domestic consumer hasn’t yet received those benefits, but the government is able to take a breather due to the reduction in the overall subsidy bill. The continued escalations with neighbouring countries, the lurking pirates in the international waters and the reduction in the commodity prices across the globe have lead to the decline in trade in multiple forms. Only a concerted effort by government to boost the infrastructure can boost to the services sector.
Domestic trade has also taken a hit because of the reduced consumption by people. The customers are benefited because of the reduction in the commodity prices, but the other players in the value chain had to bear the brunt of the sudden decline in prices because of the various hedging activities performed in Commodity market.
Hawkers can see an increase in their trade since the major retail chains which operate in massive scales and credit patterns are severely affected due to the unavailability of credit.
India is in a better position when compared to the other countries because of the heavy domestic consumption. But slowly the recession is trickling down into the economy and this may lead to a decrease in the domestic consumption as well, unless Government takes active steps to boost the confidence of the consumer and the industry.

2.Hotels and restaurants: The Mumbai blasts have done anything but good to the already suffering Hotels and restaurants industry. Frequent travellers including businessmen and tourists form a major chunk of hotel industry, and the reduction in trade has reduced the travel amongst the businessmen and hence reduced occupancy rates in hotels. The increased terrorist activities have ensured that the number of tourists to India have reduced and hence further reduction in the business to hotels.
In the past couple of years, there has been an increase in the domestic tourism activities, but the uncertainties in the job opportunities have also reduced the domestic tourism and hence a loss to the hotel and restaurant industry. With people spending lesser money, restaurants are facing a huge reduction in the number of people/families opting for dining outside their home.
The impact on the restaurants is going to be felt much more for the premium ones due to the above mentioned reasons. The restaurants that offer non-premium services may have more business with more people opting for less costlier services. As long as the quality of the good is maintained the non-premium hotels can have a business that can take them through the recessionary times.

3.Transport including tourist assistance activities as well as activities of travel agencies and tour operators: The recession has lead the airlines to huge cost cutting measures including drastic pay cuts, lay offs, lesser routes and fleet size just to stay afloat and the expansion plans of almost all the airlines are frozen. Though the decline in ATF prices has reduced the burden, the decrease in consumer expenditure has thwarted any hopes of revival.
Airline agents are going to see huge lay offs, since airlines have stopped giving commissions to their agents and hence the fares have to be extended to the passengers and the consumers are not willing to pay an extra dime for no additional value that they can foresee.
During this recession Railways can see a huge increase in the passenger traffic and reduction in the freight traffic and hence one can witness a pause in their high growth periods. The huge cash reserves that Railways have accumulated over the past 4-5 years can help them meet all their operational expenses and flourish even during these turbulent times. Further investment in the dedicated freight corridors and other activities by Railways can boost the employment and increase consumption of people.
Roadways can also witness an increase in the traffic, but better governance and regulation can alone ease the woes of the. People will prefer public transport and hence more options need to be provided to them to ensure that the business activities do not lose a great momentum.
With a majority of population in India willing to pursue the religious tourism, tour operators performing that business can remain profitable. But there can be a drastic decrease in the operators concentrating on international passengers and destinations. The focus during these times needs to be inwards and tap the potential of domestic tourism to identify more revenue opportunities.

4.Storage and communication: The telecom penetration in India is still low and hence there will be continued demand for communication channels though at a decreased growth rate. Focus will be on providing more value added, low cost and low priced services. The incentive for telecom operators to aggressively pursue the high-end applications may decrease and hence there can be a decline in the investment strategies of these companies. So far the telecom industry hasn’t seen the brunt and with caution they can continue their growth momentum.
Internet penetration will provide further services and at the same time traditional communication channels like radio, news paper and television which cater to mass audience will continue to grow since they offer services at a very low price.
Online services which also include storage and other forms of communication will have more demand, but people will not be ready to pay the premium. Hence companies will be forced to provide more services at a lesser price to sustain the times.

5.Banking and insurance: These services had to face the worst impact. Most of the jobs in this domain are on doldrums and huge reduction in pay packets, lay offs and a cease in fresh recruitments have become the norms to avoid extinction. Nevertheless, government has been to improve the situation through stimulus packages, because any activity which needs capital disbursement can only be initiated by reviving these two sectors. Though the US recession is going to take its toll, major government initiatives can bail out these sectors from further collapse.

6.Real estate and ownership of dwellings: One of the worst affected areas and it will be a Herculean task to revive this sector. There is almost a freeze on new construction and the realty prices have come down drastically and hence there is also a decrease in the employment opportunities. Though the decline in steel, cement & demand prices have reduced the price of new apartments, the reluctance of the consumer to purchase apartments is not helping the situation. Interestingly the rental values of houses have increased in metros like Mumbai because people are willing to pay rent than purchase. The further decline in interest rates can probably help this sector but more growth rates can be achieved only when the global meltdown eases out.

7.Business services including accounting; software development; data processing services; business and management consultancy; architectural, engineering and other technical consultancy; advertisement and other business services: These were the major contributors to the employment creation for the past decade and are affected by the global phenomenon. Many of the services which started as back office operations are slowly grabbing the attention of their clients for providing the complete solutions. Though these services are going to take a hit in the short run, this is a major opportunity for them to grab the contracts and expand their operation base.

8.Public administration and defence: The expenditure in this area keeps increasing during all eras, and it remains a priority sector for India and hence will not be affected. In the wake of terrorist activities, one can expect further increase in defence and hence reduction in the budget allocation for other sectors including public administration.

9.Other services including education, medical and health, religious and other community services, legal services, recreation and entertainment services, personal services and activities of extra-territorial organizations and bodies: Because of lack of funds the growth targets for these basic services may not be achieved, but government intervention is going to play a crucial role in ensuring that some of these basic amenities are provided to the general population.

References
http://mospi.nic.in/nscr/sss.htm

Monday, December 01, 2008

Neighbour's envy owner's pride

Suddenly the transformation in the Pakistan military and the militants in its country is quite unexpected and a welcome news for that country.

Post Mumbai blasts, the major militant groups in the western and the southern provinces of Pakistan have offered a cease fire to Pakistan Military. And guess what, Pakistan Military seems to be inclined towards it, and hailed some of the most wanted of those "militants" as Patriots.

Before the blasts all these people remained the main accused in the assassination of the Benajir Bhutto, x-prime minister of Pakistan. And all the militants who were accusing Pakistan military for their alliance with USA have suddenly extended their solidarity to the same military and also are shovering the military with praises saying that it is very patriotic.

The sudden act of comradery can be perceived as an indication that one of the parties played a major role in the Mumbai blasts and the other party is appreciative of that effort.

These are interesting developments and can certainly give some stability into the chaotic systems surrounding the western borders of Pakistan. Unless India acts in a quick and concrete manner, the future of the India-Pakistan relations seem quite bleak and are in for heavy winds going forward.

Friday, November 28, 2008

Where does it lead to

Next what??

The militants will be killed...Most of the hostages will be rescued, and we will forget the fact that Shivraj patil is useless until the next incident happens...

And we will also ignore Mr. Raj Thackeray's lack of leadership qualities during this time of crisis. And we will continue to remain the same.

Same??

Oops..It is not Same...It is SHAME

What is the course of action for the country? The PM has already blamed the neighbour, though our own people in the form of militants within the country are going to be eventual culprits.

War on the neighbour...No, pleeaaaaaaaaaaase? Yes, I will be consindered as a weak hearted person, but an outright war on a sovereign nation where the people do not hate, but only are under the mask of perceived hatred is not the solution.

Infact, we should go out on war against the militants.. Even Pakistan is not in a poistion to take away the Taliban and the AL-Qaeda from its hideouts.

Prepare a joint force and eliminate every islamic militant from the book and corners of both the countries. We can combat better by being together than holding each other necks.

In spite of all this, We will continue to ignore and remain oblivious to the events happening to the other people around us, and remain aloof of anyone's sorrows.

We will continue to blame the government and still elect the similar people in the next elections. We will stop questioning the government using the RTI.

No wonder can couple of militants with couple of handguns can scare 10 million people to make them stay indoors.

Even I am a fish in the same pool, just worried about my future and not willing to make any sacrifices, not willing to take any bold action.

All that I am doing right now, is blaming the authorities and trying to force myself to remain calm.

Only future can tell, where will this inaction lead to.

Thursday, November 13, 2008

Single digit inflation…good news or bad news??

In the amidst of all the good news, there is a silver lightning in the form of the news that the inflation has finally reached single digits. For the last week, the inflation came down to around 8.5% from around 10% in the previous week.

But is it really a good news? I think this is more of a warning of the forthcoming.

With a drastic decline in the IIP growth rates, and the average money available to people it was but pertinent that the inflation would come down.

But I think this is eventually leading to a deflationary trend. If things happen at the same pace as they have been happening, there is every chance that deflationary periods will be looming around in no time.

Consider this in the upcoming months:
a) Production decreases
b) Exports go down
c) Affordability of people go down
d) Fuel prices go down
e) Money available to people goes down
f) Negative perceptions towards the economy increases
g) Will not speak much about the exchange rate. It may remain the same or depreciate further, let's assume it hovers around the 50 mark for some time.

With all these events happening, the rates are going to come down quite drastically and eventually there will be a negative inflation observed, which is called as deflation.

Isn't it good to me if there is deflation? Obviously no, because:
1) The future value of the money becomes more than the present value and hence no investment will happen.
2) Banks will be flooded with deposits and the incentive to run business decreases
3) Salaries, which are ideally pegged to inflations, will tend to decrease and hence the per capita income of the people decrease and hence the eventual decline in consumption.

I am not sounding pessimistic, but I certainly would not want a deflation at this point of time because there will hardly be anything left with the government to bring back the economy from recession.

I hope I've exaggerated and that Iam wrong.

Friday, June 27, 2008

Extreme Currency

The first thing that one can observe after a series of very high inflationary periods is, higher denominition notes.
Recently Zimbabwe launched 100 million zimbabwean dollar bills owing to the very high inflation which is hovering around 165000%.

Imagine the situation, where each loaf of bread costs around 16 million zimbabwean dollars. The currency depreciation made the currency trade at around $1 = 200 million zimbabwean dollars.

This lead me to a search for the world's largest denominition bills:
To begin with,
a) The largest denomination banknote ever officially issued for circulation was in 1946 by the Hungarian National Bank for the amount of 100 quintillion pengo, (100,000,000,000,000,000,000, or 10 to the power of 20).

The Post-WWII hyperinflation of Hungary holds the record for the most extreme monthly inflation rate ever — 41,900,000,000,000,000% (4.19 × 1016%) for July, 1946, amounting to prices doubling every fifteen hours!!

b) Largest bank note with zeroes was in Yugoslavia (1993) 500 Billion Dinara

The above figure is of a 500,000,000,000 (500 billion) Yugoslav dinar banknote circa 1993, the largest nominal value ever officially printed in Yugoslavia, the final result of hyperinflation. Yugoslavia suffered 5 × 1015 % inflation between 1 October 1993 and 24 January 1994.

China which is perceived as having one of the most undervalued currencies as of now, had to go through tremendous hyperinflationary periods during late 1940s owing to which their currency was depreciated to order of a million.

The existing high inflations are no where close to the hyperinflation trends.
All the devaluations of currencies are obviously due to the hyperinflationary trends present in those countries. The details of all the hyperinflationary trends can be obtained from http://en.wikipedia.org/wiki/Hyperinflation

I hope the existing turbulent conditions will not lead us to any such situation, which will force people back to nomadic times.

Monday, June 23, 2008

Only god can remove me from the power, not britain or any one else

Couple of weeks ago I said these statements in a rally.

Guess who am I?

Iam running the country for the past 28 years, after some heroic efforts.

In all these years of rule I hardly did anything for the economy, but I've ensured that I had all the luxuries.

Now Iam 84 years old, but still Iam eager about power.

Because of lot of international pressure I agree to conduct elections...My main opponent is a trade union leader and has been the strongest critic of mine for a long time...looking at the situation I predicted that it might be a landslide win for the opponent, so I went ahead and started annihilating all the supporters of the opponent party.

I even scared the people who were willing to vote to the opponent member.

In order to act as a mediator I invited the prime minister of the powerful country in the continent, who is the only supporter of mine and ensured that any troubles are overcome.

In spite of all the efforts, in the elections held in March' 08 I lost the elections. I could somehow manipulate and show that I secured 43% of votes and the opponent got 48%.

But because the government is in my hand and I could frame the rules, I said that the opponent did not get a great majority and hence there has to be a by-election because I knew that the opposition did not have enough strength left to contest in the by-elections.

Now, I went on a rampage and did not spare anybody. I threw the people who might have voted for the opposition from their homes. I killed the other party supporters. I ensured that the rallies of the opposition party are boycotted.

I arrested the main strategy maker of the opposition party on the pretence of a treason. I publicly declare that god has given me the power and only god can take me out of this throne. No one else can do that.

Finally the opposition party leader could not bear all this and said that because of the increased violence he is not going to contest in the by-elections.

Once, this was declared there was no stopping of mine. I attacked the headquarters of the opposition party and the party leader fled into the Dutch Embassy and took refuge over there.

So much for the fights. I dare any one who wants to contest with me.

Guess who am I?

The opposition party leader is: Morgan Tsavangirai
The prime minister of the strongest country in the continent is: Mr. Mbeki of South Africa
The Dutch Embassy is in Harare, the capital of Zimbabwe.

You should have guessed it by now...

Iam Robert Mugabe, the self proclaimed ruler of Zimbabwe.

Thursday, June 05, 2008

Petrol price hike: Increased arbitrage for committing crime

"Lets not burden our children.." these are the quotes of Mr. Manmohan singh after the fuel price hike declared yesterday. It is a basic common sense that all the oil companies will be dead without these price hikes. Not that these price hikes will lift them from the deep losses, the amount of direct subsidies atleast will come down.

The imminent affect of the fuel price hike will be felt by the normal consumer is two ways:
a) The increased price per litre
b) The quality of the fuel

One may wonder, how does increasing the fuel price hike affect the quality of the fuel. Because, the increase in the fuel price hike occurred on Petrol & Diesel but the prices of Kerosene remain UNTOUCHED. The arbitrage value can be understood from the below graph.



This will provide more impetus to the petrol aduleteration whose victims are the millions of vehicles, the environmental pollution and the famous Mr. Manjunath of IIML who was brutally murdered because he suspended the license of petrol pump involved in petrol adulteration.

I guess to ensure that Kerosene is properly used, the sale of Kerosene is stopped in the open market and is only distributed to the needy through public distribution schemes. But, alas, it is estimated that close to 40% of the Kerosene distributed in PDS is used for petrol adulteration.

Even if we estimate that in a litre of Petrol, it is adulterated in the proportion of 25%, then the margins for the petrol pump owners who are involved in adulteration would be around rs.10 per litre of petrol and on the similar lines for Diesel.

So, if the petrol pump sells around 2k liters of petrol/diesel per day, the margins for the petrol owners would be more than 20k per day. These numbers may not sound astounding but these are very conservative figures.

India consumes around 4 million barrels per day of petrol. If 25-30% of that is adulterated, then we are looking at a margin of more than 1 crore per day for the owners. With the increased petrol/diesel prices and the constant kerosene prices and with minimal check points on PDS, the owners of the petrol pumps will find petrol adulteration more lucrative and hence the nexus would become more stronger.

So, even if one more Manjunath gets in, the chances that he will make any dent into the existing system have already reduced with these price hikes.

Tuesday, May 13, 2008

Water: Tibet and China

This title has got no relation with the movie Water :)
I guess one would have already guessed what I intend to speak...It is about China's strategic interest in Tibet....WATER
There is already a saying that the future wars are not likely about oil but about the basic requirements of food and water.
I was trying to understand the reasons China would be so interested in Tibet...Agreed all the countries are bent upon acquiring as much geographical area and hence as many natural resources as possible, but Tibet especially stands in a very strategic location.
1/3rd of the World's population directly or indirectly depends on Tibet..Guess how?
Almost all the big rivers in Asia originate from Tibet, be it the Yangtze or the Yellow River or the Brahmaputra or the Indus or the origins of the Ganges all take its roots from Tibet.
This is the image showcasing the rivers around Tibet:

The Yangtze river alone is such big and has such huge potential that the world's biggest dam is on the river and there are plans to make another huge dam on the same river and together they are pumping 18 GW of power and have plans to increase it to around 30 GW.
So, imagine what powers would a country have if it possesses the lifeline of 2 billion people living under the shadow of these rivers.
Even if China doesn't want to hurt the flow of these resources to other countries, the country in itself is in a dire condition in terms of water availability. China reels under severe water scarcity owing to the ill use of its resources. Statistics show that:
18% of Yangtze river is not longer suitable for drinking purposes
30% of Yellow river
and close to 50% of some other rivers that do not come from the Tibetan region...
China's developed areas are in the water scare zones and Tibet is on the other side, so China is struggling to pump the water from the water rich zones into the water scarce areas..It is expected that by 2025 and beyond 450 million people in China will be starving for water, and to supply water to all these people China has no option but to acquire resources of water and what better way than to take control of one of the largest sources of water, Tibet.
So, the people who should be asking for freedom of Tibet should not be Tibetans alone, but the countries like India, China, Bangladesh, Vietnam, Thailand etc. who would otherwise die without their precious rivers being cut by China.

Wednesday, May 07, 2008

The democratic recession, Friedman

There was an interesting artcile by Thomas.L.Friedman, The World is Flat guy.... He quoted that one of the other depressions that the world is facing is democratic depression. He quotes that the economic freedom decreases with the increasing oil prices.
It is certainly vis-a-vis the countries like Russia, Venezuela etc. who are oil exporting nations but are not under democracy.
The article arose certain questions...
But is democracy a matter of concern now? Is china a democracy with hardly any press freedom or verbal freedom? In the countries who boast about their democractic standards what are the achievements received?
I may sound a communist, but Cuba has acheived somethings like near 100% child nutrition, education for every child etc. that most democratic biggies could not acheive?
So, what is so significant about democratic recession?
There are countries which are certainly sending grotesque examples like the Zimbabwean president, who has ensured that the elections become void..sounds like an extreme Musharraf :). But Mr. Musharraf, though he has lost his way during the fag end of his reign, has actually helped Pakistan regain some of its might. Also the countries like Saudi Arabia though have ensured great developments are rated quite low on some of the humanitarian metrics.
Agreed that Democracy has many advantages, but it is the timing of the implementation of democracy which is crucial.
So, instead of democratic recession, may be a leadership recession sounds better to me. We need leaders who are visionaries and can help the globe sustain the basic needs and can ensure that no child gets killed in a missile attack and the ones who do not lead us into the likes of sub prime crisis..
Amen!!

PS: The article by Thomas.L.Friedman is available on http://www.nytimes.com/2008/05/07/opinion/07friedman.html?em&ex=1210305600&en=56fd0b63fd541e7a&ei=5087%0A

Thursday, April 10, 2008

One more on housing crisis in US

The genesis of sub prime-crisis is the riskier credit policies provided for the housing sector in US. Considering the existing situation, I wanted to know what is the situation prevailing in US regarding the housing scenarios

As can be seen from the above image, the housing prices in US have been steadily increasing until 2005. It took almost 3 decades for the prices to reach the 1975 level. But since 2005 the decline has been so steep that in less than 3 years the prices have reached levels below the 1970 prices. In the fiscal year 2007-08 alone the prices have declined by more than 15%.


With this steep decline, the amount of investment that goes into the housing sector has obviously reduced a lot. This is reflected in the graph below:


As can be seen above the decline in the investment in the housing sector has decreased by around 25% and that the contribution of the housing sector to the GDP has also declined drastically.

This in turn means that the employment in that sector has decreased sharply which adds to the woes of the economy.

The decrease in prices has been so drastic that the affordability of the houses has actually increased.


But this certainly hasn’t increased the sales because the income levels have also declined a lot.


In fact the inventory levels of the housing i.e. the number of unsold houses has increased tremendously because of decrease in the sale of those new homes.


The above indicators are certainly a proof that US is no longer distant from a recession rather as some economists believe is already in recession.
(Source, IMF report 9th April 2008)

Thursday, April 03, 2008

Missile shield

There is a saying at our place that one is not able to take care of himself, but has started to protect the neighborhood. But it would be ironical if the neighborhood agrees that he can take care of them.

Similar situation happened with European Union and US. Rather, I should say, US is pushed into this deal by Mr. Bush who has had a terrible 8 years of near deplorable foreign relations. US wants to keep a missile shield over All the NATO countries as a protection to any future attacks. Earlier the EU wasn't convinced about it, but under the existing circumstances, where US makes everyone believe that Iran may attack, eventually EU fell for the trap and approved the defense shield.

I bet that most of the contracts for the defense shield will be awarded to US companies, and since US is heavily dependent on the performance of their military, this will certainly prove to be beneficial to their economy which otherwise is in doldrums.

It would be interesting to see how Russia and especially Mr. Putin would react to this situation, considering that he is going to attend the NATO meeting within this week. Russia has already raised objections about this anti missile shield program. So, the relations between US&Eu and Russia will not benefit from this program.

But the point to consider this, how many attacks of late have been because of huge missiles. Since most of the countries understand the devastation caused by huge missiles ( Except US ;) ) in the past decade the raising violence hasn't been because of the increased missile threat, but small small booby traps and militant attacks, which hardly use any of these missiles. So, the benefits that EU would have because of this missile shield are hardly convincing?

All the benefits that I can see would go to Mr. US Inc.

If the same amount can be invested on other programs like food security and other contemporary issues, I guess it would serve as a better shield rather than a missile shield.

Thursday, March 27, 2008

Two INs

The Two INs stand for INflation in INdia

The article was an attempt to answer how does India calculate inflation? And how is it calculated in developed countries?

India uses the Wholesale Price Index (WPI) to calculate and then decide the inflation rate in the economy.
Most developed countries use the Consumer Price Index (CPI) to calculate inflation.

Wholesale Price Index (WPI)

WPI was first published in 1902, and was one of the more economic indicators available to policy makers until it was replaced by most developed countries by the Consumer Price Index in the 1970s.

WPI is the index that is used to measure the change in the average price level of goods traded in wholesale market. In India, a total of 435 commodities data on price level is tracked through WPI which is an indicator of movement in prices of commodities in all trade and transactions. It is also the price index which is available on a weekly basis with the shortest possible time lag only two weeks. The Indian government has taken WPI as an indicator of the rate of inflation in the economy.

Consumer Price Index (CPI)

CPI is a statistical time-series measure of a weighted average of prices of a specified set of goods and services purchased by consumers. It is a price index that tracks the prices of a specified basket of consumer goods and services, providing a measure of inflation.

CPI is a fixed quantity price index and considered by some a cost of living index. Under CPI, an index is scaled so that it is equal to 100 at a chosen point in time, so that all other values of the index are a percentage relative to this one.

Some economists say that CPI is a better measure than WPI. It may be because 100 out of the 435 commodities included in the Index have ceased to be important from the consumption point of view.

Take, for example, a commodity like coarse grains that go into making of livestock feed. This commodity is insignificant, but continues to be considered while measuring inflation. Similarly many commodities which are hardly used by the consumer seem to have their mark on the inflation. Most importantly services, which constitute a large chunk of the prices paid by the consumer are not included in WPI.

India constituted the last WPI series of commodities in 1993-94; but has not updated it till now that economists argue the Index has lost relevance and can not be the barometer to calculate inflation.

But why is India not switching over to the CPI method of calculating inflation?

Finance ministry officials point out that there are many intricate problems from shifting from WPI to CPI model.

First of all, they say, in India, there are four different types of CPI indices, and that makes switching over to the Index from WPI fairly 'risky and unwieldy.' The four CPI series are: CPI Industrial Workers; CPI Urban Non-Manual Employees; CPI Agricultural labourers; and CPI Rural labour.

Secondly, officials say the CPI cannot be used in India because there is too much of a lag in reporting CPI numbers. In fact, as of May 21, the latest CPI number reported is for March 2006.

While ending this note, for a change let me try to end it in a positive tone.

One of the most important observation is that while calculating inflation, government doesn't take into consideration the effect of petrol prices. It was there in the previous set of commodities, but no longer is that included in the inflation for the past 1.5 decade. And this is the era when the petrol prices have been zooming high.

If that's the case, then our real GDP growth would have been quite higher considering the increase in fuel prices, which already factor in our increasing prices, but are not factored into the official inflation figures.

So, India may have already clocked close to 15% growth rates :)

Sunday, March 23, 2008

Miscellaneous-the first of many more

Three months, exactly after which I came back to my homeplace...Big deal again:)..
It doesn't get nostalgic for me, but still the feeling back of coming back to home makes you feel happy.
On my way back iam presently going through this region called as Telangana the dry area of my state. It has many fields, but the interesting part is many of the fields are cotton fields.

Iam within 100 kms from Hyderabad, the capital city of my state and one of the most happening cities in India, but the villages still donot seem to have any effect of the development happening around the cities.

it is close to 6:30 am now and even the dry parts of the region look pleasant and liveable. 2-3 more hours will bring the scorching sun to its peak and the pleasant environment will turn into a very hot, dry place with no water and power. The farmers are supplied power during the wee hours of morning and for couple of hours in the evening.

I guess those few hours are enough for those farmers, nevertheless it would mean that during the other hours they have to work on non agricultural activities to get their stomach full. What will happen to all these farmers if these cash crops fail or worse, what will happen if the prices of cotton crash down that the farmer can barely get back his returns. yesterday, I was reading an article in which it is mentioned that the following crops give these returns for every rupee expended:
Rice - 0.47
Wheat - 0.5
Cotton - 0.7
SUgarcane - 0.87

With these being the returns, the poor farmer would be inclined towards the cash crops at any given day. But, cotton and sugarcane are not going to suffice the hunger of the population. Hence money has to be poured into agriculture every time, and subsidies have to be continued.

India which is an agriculture based country, still has meagre food exports, whereas USA has clocked agricultural exports of worth $103 billion in FY 2007 close to 4 fold growth in the past 4 years alone. I guess with the developing countries cutting down their import duties, and the western ones continuing their huge subsidies for farmers, one can expect more exports from these countries and therby crushing the back bond of many developing ones.

THe article itself may sound to have had no specific basis, but it is the flow of thoughts during my travel back home, which I did not want to miss and hence the article:)

My lai..one more witness of war crime

On 16th march 1967, during the vietnamese war American soldiers demolished one of the villages in vietname "My lai".
My lai massacre has been one of the most gruesome incidents of the Vietnamese era.
Hundreds of villagers including women and children were brutally raped/murdered.
Before the attack on the village the instructions to the American troops was that any moving being to be considered as enemy and to be shot dead without any discrimination.
The justification given by the commander in charge of the troops was that he was following the orders from the top and that he wasn't guilty of the murders committed.

The incident itself came to light a year later because of the bold inspection by one of the American soldier himself who heard it across from the mouth of one of the other soldiers who boasted about the incident.

16th March earmarked the 40th anniversary of the massacre. The survivors still remember every moment that happened. One of them could survive because she was under the debris of dead bodies.

This is one more evidence of what war can do...and that the same is being witnessed in Iraq and Afghanistan.

Who will bear the social costs of the trauma that the people go through? In what way is war justified?

A recent study came up with the result that at 1/6th of the cost of Iraq war, US could have revamped its social security system and get rid of all the flaws in it.

Similar situation is about to happen in our immediate neighbourhood, Tibet. For whatever be the reasons, the amount of trauma that the people in both the countries have to go through is tremendous and in no way a justification for the costs incurred on the war. Restriction of access to tourists and media proves the point that there is an unprecedented use of force and violation of human rights to make sure that the ego of one nation is satisfied.

Probably the same can be said about India's denial for UN resolution on the issue of Kashmir. The other states in India feel that Kashmir is their right and that kashmiri's also believe the same. Of course I as an Indian want my Kashmir's brethren to remain with me, but it is my preference which I cannot enforce upon. My arms are open for them any given day and my forces are present to ensure its safety if asked upon. But they have a right to say their point and if UN resolution gives them a chance to entertain that option, let them use it.

Let us not be insecure of ourselves. If not as an outsider, let us at least act in the sane manner of making people believe in their rights.

Wednesday, March 12, 2008

China..reason for inflation in US :)

Looks like the new year has proven to be a nightmare to the rulers of china.
It all began with the severe snow, the worst in half a century which literally brought the whole country to a standstill...More than 3 million passengers were stranded in a railway station...

After the storm settled down, another storm has hit the ruling party....

the storm of inflation...It rose to close to 8.7% the highest in the past 12 years.



All these in the year of the olympics where China wants to showcase its prowess in all aspects.

The country which was defying all the laws with its continued double digit growth rate for more than a decade seems to be faltering on the front of ensuring the survival of many of its citizens who are starving to death due to the roaring prices.

No longer is one country's inflation its own problem. When it comes to the likees of the exports that China does it becomes a global problem, because the chinese products would no longer remain cheap causing the ripples across the globe.

It would be interesting to see how Federal bank of America tackles this situation. It is pumping huge amounts of money into the markets, of the order of $200 billion to ease the liquidity crunch and reducing the inflation rate to boost the consumption. The interest rates in US are already at very low rates and Fed is still reducing them


If at all Fed would have wanted to something not to happen, then it was the increase in prices of Chinese goods, but the nightmare has become reality.

All the factors which should act as stabilizers seem to be adding more chaos to the existing situations.

Last term we studied that it is vey difficult for US to get into recession because every week US monitors close to 25 variables to understand the economic situation and accordingly action plan is framed. But, nowadays nothing seems to work the US way on the economic front.

Interest rate alone is one of the very few factors which the federal banks of any country can control. With the spiralling costs Fed would be tempted to increase the rates but to boost the economy it has to cut the interest rates.

I pity the chairman of FED who is caught in this nightmare. I hope US comes out of this recession so that all the students pursuing managemenet studies are not affected :)