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THE SECRET TO PROBLEM SOLVING ACCORDING TO THE MILITARY

While I’m not all that interested in military doctrine and tactics in and of themselves, I am interested in complex systems, how the weak win wars, and the lessons military leaders offer (for example, see the lessons of William McRaven and Stanley McChrystal).
This is how I found myself flipping through The U.S. Army / Marine Corps Counterinsurgency Field Manual, which was written to facilitate a common understanding of the problems inherent in counterinsurgency campaigns.
There was a fascinating section on the difference between designing and planning that caused me to pause and reflect.

While both activities seek to formulate ways to bring about preferable futures, they are cognitively different. Planning applies established procedures to solve a largely understood problem within an accepted framework. Design inquires into the nature of a problem to conceive a framework for solving that problem. In general, planning is problem solving, while design is problem setting. Where planning focuses on generating a plan—a series of executable actions—design focuses on learning about the nature of an unfamiliar problem.
When situations do not conform to established frames of reference — when the hardest part of the problem is figuring out what the problem is—planning alone is inadequate and design becomes essential. In these situations, absent a design process to engage the problem’s essential nature, planners default to doctrinal norms; they develop plans based on the familiar rather than an understanding of the real situation. Design provides a means to conceptualize and hypothesize about the underlying causes and dynamics that explain an unfamiliar problem. Design provides a means to gain understanding of a complex problem and insights towards achieving a workable solution.

To better understand the multifaceted problems many of us face today it helps to talk with people who have different perspectives. This helps achieve better situational understanding. At best this can point the way to solutions and at worst this should help with learning what to avoid.
Often we skip the information gathering phase because it’s a lot of work. A lot of conversations. However this process helps us become informed, rather than just opinionated.

The underlying premise is this: when participants achieve a level of understanding such that the situation no longer appears complex, they can exercise logic and intuition effectively. As a result, design focuses on framing the problem rather than developing courses of action.

Just as you can never step in the same river twice, design is not something you do once and walk away. It’s an ongoing inquiry into the nature of problems and the various factors and relationships to help improve understanding. Constantly assessing the situation from a design perspective, helps gauge the effectiveness of the planning and subsequent actions. If you don’t periodically reassess the situation, you might be solving a problem that no longer exists.

Article courtesy: Shane Parrish @farnamstreet Published in TIMES magazine on 06 Nov 2015

ARE VOTERS EULOGIZING CORRUPT & FRAUDULENT LEADERS?

The epoch from August 2004 to August 2009 can be termed as THE DARKEST AEON for the state of Andhra Pradesh in India. Andhra Pradesh was then governed by Congress chief minister Y.S. Rajasekhara Reddy, who indulged in big ticket spending programmes; some of them supposedly developmental and others populist. However, all the spending programmes were beset with massive corruption, with some large irrigation, infrastructure and Industrial projects just confining to the files.

Nevertheless, Y.S. Rajasekhara Reddy was a leader with a saviour face but with a sinister heart as CBI and the Enforcement Directorate (ED) investigations have revealed. He allegedly abused his official position to help his son build his business empire by bestowing favours on individuals and entities. Squarely and unfairly, his son Y.S. Jaganmohan Reddy amassed wealth by pressuring companies to "invest" in his businesses in return for various favours bestowed by the YSR Reddy government, an innovative and unconventional corruption.

 Image Source: http://indiatoday.intoday.in/

However, Y.S. Rajasekhara Reddy and his cronies excelled at marketing and popularising with the masses, many of the yet to take off projects and all exchequer draining "politically popular" social programmes which have reaped him immense political benefits after his first 5 year tenure as Chief Minister. Y.S. Rajasekhara Reddy, politically succeeded as voters unaware of the massive corruption underlying the big ticket spending re-elected him for a second term too. As the tentacles of corruption reached far too wide, the KARMA caught up with the father and he died in a Helicoptor crash in August 2009. Still unaware of any of their wrongdoings, people of Andhra Pradesh showered immense sympathy towards his son and other members of his family, post the crash. Seizing the opportunity, the wealth hungry son turned power hungry too and demanded the Congress leadership to anoint him as the successor in the state. However, Congress leadership, known for their unfathomable PRIDE, did not budge to the demands of Y.S. Jaganmohan Reddy, which resulted in the son walking out of Congress party and start his own outfit, which had the solid backing of colossal wealth amassed in just 5 years. In order to make his outfit a political force he eulogized his father as “MAHA NETA” (A great leader) through mass contact programmes and Print and electronic media owned by him. He succeeded to a great extent in his endeavour of eulogizing his father as a great leader, which made him a political force to reckon with. However, Congress leadership, seething in anger for defying their diktats, triggered investigations by CBI and ED, which saw Y.S. Jaganmohan Reddy being arrested. However, political alignments changed with in the state due to ugly rise of separatist demands, which facilitated a truce between Congress leadership and Y.S. Jaganmohan Reddy that set him free to pursue his political goal.

Alas, Y.S. Jaganmohan Reddy was able to create a formidable impression on

a   .      A segment of voters who seem to be fine with corruption so long as some of the money trickles down to them.

b   .      A segment of naive voters who still eulogized his father

c   .      A segment of voters who were beneficiaries of his father’s regime.

d   .      A segment of gullible voters with caste and/ or religious affinities.

To the dismay of many, Y.S. Jaganmohan Reddy has polled 12.8 million votes in the 2014 elections vis-a-vis 13.3 million votes polled for the party that is voted to power. It is spine chilling, when one thinks of, how democracy can be undermined with ill gotten wealth, eulogizing demised corrupt leaders and abusing caste and/ or religion for political gains.

Andhra Pradesh is NOT YET OUT OF DANGER OF RELAPSE OF THE DARKEST AEON, unless wisdom dawns upon half the voters of the state.

(Disclaimer: Corruption is rampant in India and it afflicts every ruling party. As per consensus among whistle blowers and corruption fighting activists, five to seven per cent is lost to corruption, but in Y.S. Rajasekhara Reddy's irrigation programmes that figure is more than 15 to 20 per cent. Although, I am disgruntled with most parties for their apathy to curb corruption, I believe in lesser evil being the best to take both state and country forward.)

ECONOMIC CHALLENGES FOR THE NEW INDIAN FEDERAL GOVERNMENT

Economic de-growth coupled with increasing unemployment, widening social and economic inequalities, high inflation, increasing corruption, low wages, etc., are generally the key factors that contribute to growing Social unrest in a society. Unfortunately, the country is gradually and steadily drawn to the brink of social and political unrest with some non economic issues as well with regional bandits and extortionists in the guise of politicians emptying public finances and resources through quid pro deals with shady business houses, demanding large protection moneys from business houses thereby poisoning business climate in the country, instigating social unrest for regional autonomy, injecting racial and seudo-secularistic venom among people, brazenly and overtly supporting (onion, pulses & sugar) hoarders, using autonomous government agencies to settle personal scores and so on.  The new Indian Federal government to be sworn in May or June 2014 inherits bountiful economic, political and social challenges from the inept & corrupt outgoing UPA2 government. Hence, contrary to the demands of investment and business communities for big bang reforms instantaneously after assuming office, the new federal government may not be in a great situation to prioritise the economic challenges ahead of existing political and social challenges.

The key economic challenges for the new government are reviving the economic growth cycle, Fiscal consolidation by boosting tax revenues coupled with sustained reduction of subsidies and non-revenue expenditure, sustaining the improvement in the current account deficit, complementing anti-inflation efforts, improve governance; infusing dynamism among bureaucrats, instil confidence in the government machinery, improving co-ordination among different ministries and government bodies, removing bottlenecks for foreign and domestic investments and credible measures to counter the much- feared impact of El Nino.

However, the new federal government may be in a piquant situation very often subsequent to assuming office, with state governments demanding higher share of revenues to subsidise their populist pre-poll promises as well they may oppose some key economic policy decisions (importantly, the Implementation of GST across the country) which may not auger very well for the revival of the economy. Moreover, if the government choose to expedite capital spending to orchestrate a cyclical turn in the Investment cycle and boost long-term growth, the short-term casualty will be the debt/Gross Domestic Product (GDP) ratio, which is a catch 22 situation for the Federal government.

It is widely speculated that most of the economic data furnished by the government agencies in the recent years is neither credible nor reliable due to possible sovereign rating (by rating agencies) down grading fears. Hence, in the highly optimistic scenario, India can achieve only a REAL growth rate of 4.6% in FY2014-15 and 5.4% in FY 2015-16, considering all the social, political, Economic and natures (El Nino) challenges.

EL NINO AND ITS IMPACT ON INDIAN ECONOMY

El Nino is a weather phenomenon arising from warming of sea-surface temperatures in the Pacific Ocean around the equator resulting in changes to wind patterns that can trigger floods and drought thereby curbing food supply. A majority of weather forecasting models indicate that chances of a strong El Nino developing around the middle of 2014 exceed 70 per cent.

A spike in Pacific Ocean sea temperatures in 2014 as compared to those seen in previous El Nino years and the rapid movement of warm water eastwards have increased concerns that an El Nino weather pattern this year could be one of the strongest in several decades, according to an Australian climate scientist Dr Wenju Cai. 

However, the UN World Meteorological Organization had indicated during mid April 2014, that it was too early to assess its likely strength. Meteorologists say the prospect of an El Nino will likely be firmed up in the next month or two, although forecasting the strength of such a weather event is hard to do.  Australia's weather bureau and Japan's meteorological agency are expected to issue their next El Nino outlook reports by mid May 2014. 

Incidentally, the worst El Nino on record in 1997-98 was blamed for massive flooding along China's Yangtze river that killed more than 1,500 people. A strong El Nino this year will increase fears that production of many key agricultural commodities in Asia and Australia will suffer. 

A good agricultural performance is a must for India to raise demand for services and industrial products. Also, about 30 per cent of the manufacturing sector is agriculture-based and a bumper crop ensures the supply of raw material for industry at relatively lower prices. About 60 per cent of net sown area of the country is rain-dependent. Hence, India is very much ill prepared to face a strong El Nino, especially when its gross domestic product (GDP) growth has hit the nadir of 5% in 2013 and every 1 percent deficiency in rainfall will result in reduction of India's GDP by 0.35 per cent.

However, Stanford scientists too have warned of a likelihood of a weak monsoon in India with significant changes in the patterns of extreme wet and dry spells during the monsoon which may increase the risk of drought and floods in central India, which is the core of the monsoon region and has extremely high population densities that depend on rain fed agriculture. According to Indian Meteorological Department, Wet and dry spells are defined as three or more consecutive days of extremely high or low rainfall, respectively and rainfall during the months of July and August, are considered as the peak of the South Asian summer monsoon. The South Asian summer monsoon is an annual wind-driven weather pattern that is responsible for 85 per cent of India's annual precipitation and is vital for the country's agricultural sector. Researchers, including two Indian origin-scientists, show that the intensity of extremely wet spells (short periods of very heavy rainfall can create humanitarian disasters) and the numbers of extremely dry spells during the South Asian Monsoon season (during critical crop growth stages, too many days without rain can reduce yields or lead to crop failure) have been increasing. Private weather forecaster Skymet expects 'below-normal' monsoon this year with a probability of 40 per cent. 

India is expected to see 'below-normal' monsoon this year with Met department (IMD) forecasting 95 per cent rainfall because of the El-Nino effect. According to an Assocham report, about five per cent deficit of rains due to possible El Nino factor could have a bearing on economic growth by 1.75 per cent in the 2014-15 fiscal (loss to the GDP of about 1.75 per cent is almost Rs 1,80,000 crores) affecting lakhs of unskilled jobs. Additionally, deficiency in rains and drought conditions could also increase food inflation, higher imports, widening of Current Account deficit, depreciation of Indian currency vis-a-vis other currencies thereby spooking up energy prices.

STEPS TO LIMIT EL NINO EFFECT:

  Assocham submitted a report to the Government highlighting the strategy to be implemented immediately to minimise the El Nino effect on Indian economy. The strategy is as follows:

1. The government must expand the farm insurance cover and advise financial institutions to settle crop insurance claims in drought-hit areas without delay.
2. High quality seeds of alternate crops should be distributed among farmers in the drought-affected areas.
3. The minimum support price (MSP) of alternative crops to be cultivated in drought-hit areas should be kept attractive.
4. The government should realistically assess the situation in order to estimate the shortfall of oilseeds and pulses and help the traders with market intelligence.
5. The government shall bring down the cereal inflation by liquidating the extra stock that the government is keeping over and above the buffer requirements.
6. Scrapping of the APMC Act
7. Free flow of agricultural goods across states to bridge demand- supply gap
8. Prevent hoarding
9. Create relief employment programmes
10. Prepare alternative cropping plan and fuel subsidy to farmers to protect standing crops.

PERILS OF UNITED STATES QUANTITATIVE EASING PROGRAMMES ON WORLD ECONOMIES

Since the fall of 2008, many of the sovereign economies across the world faced their worst economic crisis in 70 years due to the RECESSION triggered by collapse of massive financial institutions in US.

Federal Reserve (The US central bank) Chairman Ben Bernanke had to take some extraordinary steps to calm financial markets.  Easy fix, he adopted, was to print money and slash short-term interest rates to zero (termed Quantitative Easing or QE), as way out of trouble, which was then praised by the Economists as an aggressive response.

Ben Bernanke made his first step on the Quantitative Easing (QE) ladder in an effort to accelerate the economic activity (increase lending, create more jobs, lower the unemployment rate) and higher home prices. Hence, QE1 was initiated in November 2008 and ran until March 2010. During that time, the Federal Reserve snapped up $2.1 trillion worth of mortgage-backed securities and Treasury bills to push down interest rates, spur the economy, re-finance the cash strapped banks and calm financial markets.

However, contrary to expectations, mortgage rates tumbled and the economy never showed signs of expected recovery.

Hence, Bernanke enacted QE2 and the Federal Reserve printed an additional $600 billion between November 2010 and June 2011. Despite pumping in additional money, the US economy did not respond to these extraordinary steps.

Further, in September 2012, QE3 was announced, and this time, it’s open-ended, which was sarcastically named QE Eternity. Federal Reserve continues to hold interest rates near zero and print an additional $85.0 billion each month to prop up the U.S. economy, which includes $40.0 billion a month to purchase mortgage-backed securities and the rest for swapping short-term securities for longer-term securities.

The US dollar remained the dominant global currency despite its economic travails, thereby resulting in American exports getting costlier and thus further widening US fiscal deficit. The generosity of Federal Reserve’s easy monitory policy for American banks and financial institutions resulted in rally in stock, bond and commodity markets worldwide, stoking higher inflation at the expense of economic growth. At the same time, the easy money from US found its way in to other developed and emerging economies, as short term capital funds which can quickly turn around, thus creating higher interdependencies of the subject central banks with Federal Reserve’s monitory policies. Consequently, the probability of the end of quantitative easing by the Federal Reserve has recently resulted in huge outflows of dollars from stock and bond markets of “Twin deficit” economies (viz, India, Indonesia, Brazil, South Africa etc), thus weakening their currencies and destabilizing the structural stability of subject economies. However, “Surplus” economies like China are greatly unaffected by easy monitory policy stance of Federal Reserve. However, China being the energy and commodity starving country which imports majority of commodities will stand to gain if the commodity prices are normalized due to tightening of easy monitory policy by Federal Reserve (by raising interest rates and tapering Quantitative Easing program).

Hence, during the era of globalization, it became clear that the easy monitory policy of Federal Reserve was ineffective as it could not percolate and remedy the REAL economic health, but in effect, it has only created more structural and cyclical economic bubbles in its economy as well as other inter dependent economies.

 

IS ECONOMIC BUBBLE BURST IMPENDING?

Surprisingly, the financial markets, the central banks and Governments of many emerging and developing economies rejoiced on the outcome of Federal Reserve meeting held on September 17^th and 18^th for not tapering their Quantitative Easing Program, as widely anticipated.

Manish Chokani, CEO of Axis Capital, rightly says “what we are all celebrating is that someone is printing money at a trillion dollars a year in order to achieve a gross domestic product (GDP) growth of USD 300 billion a year. Because that GDP isn’t lifting off they continue to print 3 times the amount of money just to get that one unit of turnover. While financial markets and commodity celebrate that the trillion does not go into the real world and it spills over into commodities or into financial assets. We can’t be celebrating that until the world actually recovers. Therefore, how this whole thing ends is going to be quite ugly.”

Reserve Bank of India (RBI), the India’s Central bank, Governor Raghuram Rajan, summing up the perils of QE programmes, says “There is a danger of bubbles forming around the globe, due to easy monetary policy implemented to steer the world back into a more robust growth path. We seem to be in a situation where we are doomed to inflate bubbles elsewhere. We should wonder whether lower and lower interest rates are in fact part of the problem, I say I don't know. We need to think of the dangers of over stimulation. We need to think of the sustainability of growth created by stimulus measures."

IS FISCAL POLICY, THE RIGHT MANTRA?

According to Raghuram Rajan, right fiscal policy might work better than interest rates to get growth back to a sustainable path.

However, the mute point in question is finding and implementing the right fiscal policies in place could be very difficult, if not impossible, especially in countries like India, where populist measures are pursued by Governments for electoral gains, at the expense of long term growth and structural stability of the economy.

UNDERSTANDING THE CYPRUS CRISIS

Cyprus with a land mass of about 7,800 square miles, is located in the Eastern Mediterranean Sea, east of Greece and South of Turkey. Demographically, the country has a population of 1.1 million with 77% Greek, 18% Turkish and 5% other ethnicities with a median age of 35.
Cyprus economy with an alarmingly high fiscal deficit of 6.3% in 2003, was nurtured to good health by 2009 after it implemented a series of austerity measures that gave it a surplus of 1.2% in 2008. However, the Global economic crisis had hit Cyprus hard as it fell back on hard times because of its large exposure to Greek debt, thus contracting the country's GDP by 2.3% in 2012. Consequently, the country was downgraded numerous times in 2012 with agencies like Fitch giving it a BB- rating and warning of further downgrades, which resulted in Cyprus' borrowing costs higher. Cyprus needs 15.8 billion Euros to bail out of the current financial mess.
According to media reports, the Cypriot banking sector is about eight times the size of the economy with almost $19 billion, or one-third of all deposits, coming from Russian sources. The Russian elite use Cypriot banks to funnel ill gotten money to avoid political uncertainty and corruption in Russia, as Cyprus is known for its policy of turning a blind eye towards capital controls as well as the sources of all capital inflows. Dmitry Rybolovlev, the largest Russian investor, has almost a 10% stake in the Bank of Cyprus equalling $8 billion to $10 billion. However, Cyprus economy was systemically damaged due to its exposure to Greece since the onset of Global financial crisis. Similar to Greece and other EU countries, Cyprus was forced to ask the European Union (EU) for a bailout in the recent times, which was rejected by EU, with Germany (Internal politics dictating a hostile proposal in case of Cyprus, as Germany elections are few months away) taking the lead in suggesting that Cyprus should generate 5.8 billion Euros, a fraction of the 15.8 billion Euros from its internal resources as a front end source for the country's immediate financial bail out requirements.
The Cyprus government, with out much leeway, swung in to action by imposing surprisingly huge taxes on the Euro deposits in their country's banks. The taxes imposed were as high as 9.9% on deposits of more than 100,000 Euros and 6.75% on deposits of less than 100,000 Euros, thus targeting to raise 5.8 billion Euros. The main focus of the government was to generate income by taxing Russian elite who were using Cyprus as safe haven for their ill-gotton (illegally earned) wealth. However, country's ordinary citizens, who were already reeling under the burden of county's financial crisis, were also naturally in the line of fire. As it is anybody's guess, banks customers were queuing up to withdraw their deposits prior to the implementation of Government tax announcements. Sensing the mood of the customers, all the country's state run banks have declared extended bank holidays to permit lobbying by Government for a parliamentary vote to this proposal to convert in to a law. However, majority of the Cyprus parliamentarians were against the tax slab rates as proposed by the government and are lobbying strongly to make the tax proposals slightly sweeter by exempting the first 20,000 Euros from tax and suggesting a reduced tax rate of 3% for savings up to 100,000 Euros. Alternately, they also propose to nationalize Pension schemes as well as issue long term sovereign bonds to generate the required 5.8 billion Euros.
The Governments tax proposals and state run banks attitude towards the investors (Closing of banks abruptly) had eroded the confidence of investors and general public alike, across all countries, as they fear that this precedent could become a contagion to all economies.
Although the crisis in Cyprus may not have any direct bearing on the fiscal health of other economies, the Cyprus developments have certainly eroded the investor confidence across the world, thus making the world stock markets unstable despite huge monetary easing in US and better than expected macro economic data in US, China and Japan. Time to brace up for Volatility in stock, currency and commodity markets, across the world.

 

RELIEF FOR CYPRUS (Updated on 25.03.2013)

10 billion Euro bail out deal is reached between Cyprus and European Union just prior to the dead line. Cyprus has agreed to the following terms set by EU:

a. Holders of Cypriot bonds and people with deposits of more than 100,000 Euros in Cypriot banks will see significant losses in their books due to levy of taxes on those deposits. (Depositors with deposits less than 100,000 Euros are completely spared)

b. Cyprus has to shut down its second largest bank and restructure its other largest banks.

 

The bail out package may be positive for the stock markets in the short term, but structural economic issues still remain in majority of the countries of European unionapart from possible social unrest due to Governments' austerity measures and tax increases, which possibly can generate head winds for the markets.

MARCH 2013 CREDIT POLICY: A DOVISH STANCE BY RBI

RBI has cut REPO rate by 25 bps to 7.5% from 7.75% and left CRR (Cash Reserve Ratio) unchanged at 4% in its March 2013 Monetary policy review (19.03.2013), which clearly indicates a dovish stance to negate the external pressures on India’s Central Bank, especially when it’s front end macro-economic indicators like Current Account Deficit and Inflation are at alarming levels.
Appropriately, the RBI plans to infuse liquidity in to the system through OMO’s (open market operations) and obviate the necessity of a CRR cut, which is a step in the right direction, as liquidity crunch is expected to ease in April 2013.
RBI Governor has indicated that there is limited head room in future for monetary policy easing to spur growth due to hawkish economic environment, expected to last longer than anticipated by Government and some economists. Moreover, RBI must be sensing that the Current Account Deficit may not narrow, as expected, as Government may not be able to take firm steps in reducing subsidy burden as envisioned in the 2013 budget, due to current political compulsions and developments. Diesel price increase which was widely expected during mid March, 2013, was surprisingly with held raising doubts about Federal Governments commitment and firmness in implementation of tough policy measures to reduce the Current Account Deficit.
Many top bankers are comprehending that this rate cut is not going to percolate to end consumers through a reduction in bank loan rates since the quantum of bank deposits are precariously low and cost of funds for banks are getting higher and higher. Perhaps, this policy stance may be a step to boost the sentiments of stock market domestic and foreign investors rather than to actually prop up the growth of Indian economy.

RBI MONETARY POLICY EASING DEMANDS: ARE THEY JUSTIFIED?

Analysts at leading Indian and foreign brokerages and Stock market traders expect the Indian monetary authority, RBI (Reserve Bank of India) to slash the repo or short-term lending rate and CRR (cash reserve ratio) in its policy review on March 19, 2013. Similar sentiments are echoed by Indian Finance Minister Mr. P.Chidambaram, at a time when Annual CPI (Consumer Price Index) inflation is hovering around 11% month on month. Surprisingly, proponents of rate cuts point out that the inflationary pressure are due to supply side constraints. Contrarily, RBI governor admitted that the inflationary pressures are due to both supply side and demand constraints. Demand constraints are a result of excess liquidity and it generally increases commodity (crude & gold which is the case) imports, which further widens Current Account Deficit. 

Although, rate cuts were affected in Repo rate and CRR during 2012 and in January 2013, reluctantly at times by RBI governor Duvvuri Subba Rao, the outcome is far from the desired and anticipated path of fuelling India’s GDP growth, job creation and reducing trade deficit gap. Loose monetary policy was intended to reduce Industry and consumer borrowing costs, Capex of Industries, accelerate consumption and enhanced investments in infrastructure & revenue generating avenues, thus propelling GDP growth and new jobs creation. Instead, the excessive liquidity in the market, most of the FDI (Foreign Direct Investment) inflows and increased government borrowing was channelled in to non productive (increased gold imports and sky high stock markets which are otherwise in a fundamentally regressive phase with weak earnings) and non growth sectors (Subsidies, irrational social spending) thus spiralling inflation and increased fiscal deficit.  
Effectively, the earlier rate cuts has diminished the value of Indian middle class people’s savings in Fixed deposits, government securities and bonds as the yields are less than 9% pre-tax vis-a-vis CPI inflation of over 10%.

Let us take an example of a middle income person with a tax bracket of 33%:

Amount saved (say): Rs 100,000 in a Fixed deposit with 9% interest.

Returns after one year post tax on interest: 100,000+ 9000*(1-0.33) = Rs. 106,000 (Approximately)

Nett value of capital post inflation (Inflation @11%): 106,000*(1-0.11) = Rs.94,340

Hence the capital is getting depreciated by 5.66% due to high inflation, low yields on government backed securities and high tax rates on such returns.

Hence, the Indian middle class has become highly disillusioned with saving instruments which are subjected to higher taxes and found a refuge in GOLD and real estate which are a natural hedge against inflation.

The diversion of domestic investments in to non-productive and unaccountable areas is apparent from the increased Gold imports and sky rocketing property prices. Less public deposits have led to increased cost of funds for banks and hence, their inability to pass on the rate cut benefits to Industries and consumers. Also the increased Gold imports led to India’s increased trade deficit, thus further widening country’s Current Account deficit as well as Fiscal deficit. This led to devaluation of Indian currency, which is further escalating Indian macro economic weakness.

Let me admit that I have highest regard for hard working, highly focussed and growth centric Finance Minister Mr.Chidambaram. He rightfully acknowledged that "Indian promoters are RICH, but their promoted companies are POOR". This summarises where all the fiscal & monetary loosening is leading to. However, he appears to be deviating from addressing core issues of supply side constraints that are fuelling inflation, increasing effectiveness of savings in government securities, bonds and fixed deposits thus reducing demand for Gold, effective channelizing and implementation of government spending and programmes respectively. Instead he appears to be championing for further monetary policy easing, which may satisfy FII’s, brokerage houses and rating agencies but neither the Indian middle class citizen nor the macro health of the economy.

Considering the dichotomy of growth and CPI inflation, it is the CPI inflation which needs to be addressed immediately, as its reach and implications are vast and varied in the short term, especially during an election year when lots of unaccounted BLACK MONEY penetrates in to the Indian economic system, which can have detrimental effects on Inflation. Hence, considering the high current account deficit which stood at 4.65 in the first half of this fiscal, which will likely remain elevated in the near term along the CPI inflation, it is prudent for the central bank to overpower all the external pressures to not to affect rate cuts.

ADDENDUM: RBI Governor Duvvuri Subba Rao expressed his desire of seeing inflation between 4 to 6% and sees monetary stance as the front end tool to control inflation, which is a positive apolitical view. He also feels that the GDP growth can be accelerated through a string of logical economic & social reforms by federal government instead of relying on Monetary policy measures.  

EFFECT OF INDIA'S CENTRAL BANK RATES ON RETAIL INVESTORS

The Reserve Bank of India (RBI) raised benchmark rates thirteen times since March 2010, only to reduce them in April 2012. Consequently, speculation is rife among the economists that RBI may cut REPO rates (rate at which banks borrow from RBI) and Reverse REPO rates by 25bps in its monetary policy review meeting in January 2013.   

As a retail investor, let us broadly examine the repercussions of interest rate fluctuations. The interest rates prevailing in the economy have the following impacts on a retail investor:

a.     EMIs we pay, will be in direct proportion to the RBI’s bench mark rates.

b.     Returns that we generate on our small savings, will be in direct proportion to the RBI’s bench mark rates.

c.      Prices we pay for commodities (Demand & supply will have a major bearing) will be in inverse proportion to the RBI’s bench mark rates and

d.     The yields we generate on our fixed income portfolio, debt market and stock market performance. The chart below illustrates the bond yield and stock market dynamics surrounding changing interest rates.

Hence, the returns a retail investor generates out of his investment portfolio is a function of the prevailing interest rate and are well advised to be abreast with the interest rate fluctuations and monetary policy statements by RBI.

FITCH RATINGS: NEGATIVE OUTLOOK FOR MAJOR ECONOMIES IN 2013

There is a high probability of Major economies including US, UK and France to be downgraded in 2013, unless the twin deficits of their respective economies are narrowed.

 

Disclaimer: Shared this video, available in PUBLIC DOMAIN, in public interest.

NOURIEL ROUBINI: 'PERFECT STORM' COMING FOR GLOBAL ECONOMY IN 2013

Nouriel Roubini is an eminent economist, who predicted the 2007-2008 Recession that shook the world.



Definitely, the world is not in an economic comfort zone. Discretion in speculative investments and spending is paramount for individual investors, in 2013 & 2014.
Control of TWIN DEFICITS; Current Account & Fiscal deficits will be necessary for all developed and emerging economies, for the long term health of their economies, which translates to higher taxes and less spending by sovereign governments. The world economies are highly coupled than ever before and effects of isolated economic tectonics, will be felt by other economics.
This scenario can, in a way, dent the GDP growth prospects and elevate the unemployment levels for many world economies including India.

 Disclaimer: Shared this video, available in PUBLIC DOMAIN, in public interest.

WINSTON CHURCHILL'S PROPHECY ABOUT INDIA'S FUTURE!!!!!!

Way back in 1947, as the British left India, Winston Churchill predicted the following:

"Power will go to the hands of Rascals, Rogues, Free loaders & Charlatans...

All Indian Leaders will be of low calibre & men of straw...

They will have Sweet Tongues & Silly Hearts...

Giving false promises will be their game with the poor & stupid masses...

They will be Shameless & Unpatriotic in their ways while handling problems of the people...

They will fight amongst themselves for power & India will be lost in political squabbles...

Justice will be a joke...

A day will come when Air, Water & even Common Salt will be taxed in India..."

Current political and social trends indicate that he was spot on in his prophecy... Today, this is exactly what is happening in our Country...

LET’S ALL PRAY FOR WISDOM TO BE BESTOWED ON ALL INDIAN CITIZENS TO HAUL UP THE COUNTRY FROM THE MIRE OF THIS MURKINESS!!!

Disclaimer: Adapted as it is from one of the chain mails in circulation. This has been blogged for its partial reflection of the current political and social environment in India, though the blogger firmly believes that Winston Churchill’s name might have been deliberately used to spice up the interest among Netizens.