Fiscal Policy : Are we planning to go into a recession?

I want you guys  to read the article Wrong Doctor, wrong treatment from the editorial of the Business Line and give it a serious thought. 

But i must caution that if you are not a keen follower of economic policies happening in India and across the world then you will not be able to grasp the real concept behind what the author is trying to convey in the article. Written in clear and simple words the author of the article is wondering if tthe Govt going dangerously wrong in itr fiscal and monetary policy. 

I personally think there is a element of  merit in the arguments put forth in the article. 

Are we trying to spend the money which we dont have ? Is it not similar to what happened in America in between 1993 and 2007 , the effect of which is now seen as the economic recession now. So, are we getting the wrong economics right in the wrong propotions? 

Are we spending more than what we should be spending ? Are we taking the fiscal problem in a lighter sense ? 

I dont care what economist you believe in . I personally go for Keynesian . Always have. But you may be a Friedman fan for all I care.

But today’s economic situation is so differenent in its scale and scope that I am willing to let go of Keynesian theories and embrace which will work and sound logic from an development prespective. 

I implore you guys to read the article . 

Please drop in your queries, doubts, ideas, thoughts so we can have a sensible discussion this and take it forward.

Also read my post on Is India still in recession to understand what is happeining to our economy.

Insipring article on rural bpo in india

yesterday’s editorial by Rasheeda Bhagat – Where money has new meaning , which appeared in Business Line has become one of most inspiring and important article in my life.  it practically changed the way i treat a BPO/Call Centre employee and more importantly it once again showcased  the power rural Indians have in shapping our country.

i request anyone …nay .. everyone who reads this post to follow the article link and the read it. that is not enough.  Pass on the post/link to your friends , relatives, managers where you are working and let them know the potential of rural India.

why is the post important to me ? you need to know my insignificant story first .

the story :

on the first week of Nov 2008 i quit my job at the advertising firm where i was working. i quit suddenly .. just like that ! one reason was due to a pressing  family emergency which i cant write it here for obvious reasons. the other was because i started hating the job. it wast not like that before, though!

i used to love the advertising field. i used to dream of working for an agency  for couple of years, finish a MBA degree . then join main stream marketing , enter Brand Management field with specialization in digital media communications. I was clear in what I wanted to do . But working in the company for close to 5 months I just got too stressed out. I dint have time for my family and friends . Even more alarming was that I dint have time for myself. working Monday to Saturday from 9 am to 9pm drained me out so completely that I was too exhausted on Sundays to do anything. I couldn’t read a book , felt lazy to go out and meet friends, dint have time to visit British Council library ( i used to go there every Saturday for 3 hours from 4 pm to 7 pm ).  i was tired to get up early morning to go out for a run/gym/yoga/meditation etc .. i just couldn’t .. so i quit! Call me a wuss but hey .. I have no regrets .

Today I believe that core marketing and PR has better chances revolutionizing brand management theories than advertising can ever do. I am looking to enter the Afro mentioned fields.

3 months hence I  still havent joined a new company yet. worse ! i dont have money to pay my credit card bills. now comes the call from bank bpo employees cordially asking me to pay my minimum due amount. i tell them i cant pay because i am out of work . i will pay it later with the interest .  but when they keep calling , i get irritated and blast them. i forget for a minute that they are just doing their jobs. they are collection agents and they have to collect and close accounts every month  which are due on late payments.

I forget that they could have been Shahida!

after reading the article yesterday, i realized i could have blasted Shahida or some one like her and now i am reeked with shame.

so .. who is Shahida ?

you will meet her when you read the artcile . here is a snap preview of her …

name : Shahida – age: 25 – location : Tirupathi (A.P) – education : B.A Economics , Telugu medium – occupation: bpo employee at Atlas Documentry Facilities Company Pvt Ltd started by HDFC bank – job profile : backroom processing of banks data’s in fuctions as opening of new accounts,credit card related information,foreclosure of loans ,etc.

pay : rs3,700/month – expense : Rs2000 sent to parents,rs 1,500 for hostel and lodging – for personal expense : rs 200 ( balance amount) – other income : after work shift , she makes 3oo rupees from weaving embroidery sarees.

Total amount on hand : Rs 500/per month.

Money sent to parents which helps in paying for her 2 brother’s college fees – rs 2000

her father earns – rs 60-70 a day .

Compare that with mine :

2-4 movies per month at Satyam Cinemas ( when i go with a friend or with my girl friend ) : rs 500 ( tickets alone)

a meal for 2 at Subway – veg patty sandwhich – rs 201- includes coke under “special offer” scheme . I go there almost every week.

other expenses – very very studpid unnecessary expenses – rs “more than 3000” .

Does that mean, I could /can help educating 2 young guys every month by paying their college fees ? does that mean i can uplift India in my own way in providing education to these students ? Does that mean, if I sacrifice a bit ( do i really have to watch 2 movies every month and eat at subway every week ?) i can make differece to a fellow citizen ?

Do the math and find out how much you are wasting …

And if HDFC or other bank’s marketing people are reading this post. I would like to ask  – why dont you take initatives and reach out to people like me directly to fund education of students – like that of Shahida’s brothers?  I am ready ..

As a customer/client I am ready . The question is whether the people from the bank/govt of india core management team ready to bring out innovative policies to tap working class people like me from urban india to educate the rural india.  I will never call them poor. They are more hardworking, more resourceful, more dedicated than most of us ( including me). They may not have money but I dont give a rat’s ass to money if you have diginity .

This is my clarion call to all the banks in India.

Here is an important line from the article which shook me to the core and changed me as a person.

” They have to fight for what most of us take for granted- a college education,a secure home loan, enough food on the table and a job in an air conditioned office…”

My Salutations :

to Shahida and her coleagues in that bank : My humble pranam to you . you inspire me in a way like no other other “self help” books or the monks who sold their ferraris. from you i realize the value of hard work , money and pride. if you ever read this post i want you to know that you have my sincere admiration and respect . you rock !

to HDFC bank : I am not your customer . I dont know how good is your service to your customer. I won’t comment on that. But this initiative you have undertaken – Kudos to you!  Great work and i wish you guys will go ahead and replicate this kind of work all over India.

I second what Mr.M Durgaprasd ,Assistant Vice-President and Head Operations (BPO), “……. I find them sincere,disciplined and hardworking”.

to govt of india :  most of the policies introduced is rampant with corruption. consider : the amount of money politicians would have pocketed set aside for NREGA.  But the EGMM ( Employee Generation Marketing Mission) initiative is something you will have my complete support.

most corporate look at rural india from a CSR perspective. it is nothing but one form or sympathy and empathy. people from rural india are not looked as someone who can bring in money for the growth of the company and earn a livelihood for themselves . Instead , companies open such initiatives and give it a CSR tag. I think that is stupid. given their dedication to work,opportunity for self empowerment and at the same time contribute to the growth of the company in terms of good service and revenue generation , corporate india should consider them at par with other employees from urban india.

that is why i always consider c.k prahald’s book – fortune at the bottom of the pyramid very important in its concept and execution to change  India.

I have earlier 2 articles on this :

About time we looked at rural india

Is india still in recession

Spread the good word !

Top 5 business news about India which you should have read but dint anyway…

I am a sucker for The Hindu and Business Line.

I believe that they give us some of the finest and incisive writings/articles on news, politics, business and economics related to India.

Here is a list of 5 news articles which you should have read today but dint because you aint bothered and thought it is too cumbersome. Still, you should know what is happening around you, right ?

From The Hindu :

Article 1 :From U.S. sub-prime to global economic crisis

Reason you should read :

• It is the extension of my previous post “Is India still in recession?” .
• You get to read about the global financial outlook.
• You will get to know about news terms : Decoupling theory in economics and  Current Account Surplus. In case you dint  know what Decoupling theory is then allow me to oblige :

Decoupling theory( courtesy : world wide web)  – “decoupling refers to the ability of an economy to grow without corresponding increases in environmental pressure. In many economies increasing production (GDP) would involve increased pressure on the environment. An economy that is able to sustain GDP growth, without also experiencing a worsening of environmental conditions, is said to be decoupled”

From Business Line :

Article 2 : RBI sells $20.6b in Oct

Reason to read :

You will know what is the funda behind Forex Reserves and why RBI buys dollars to curb inflation in the country.

Article 3: Textile cos top distressed list for corporate debt recast

Reason to read :

• You will read about orgin and functions of  Corporate Debt Restructuring (CDR) cell of India.

• Also try to infer from the article why Textile is most hit sector in the country today. You don’t have to be an economist ..just use your logic.

Article 4 : Foreign Investors cannot afford to avoid India,says analysts.

Reason to read :

• The article’s headline says for itself..  India growth story is still on track and things will turn positive soon.

• Also read to know why India cannot escape from the global economic crisis and yet stand firm without any major hiccups because India’s low dependency on U.S for business and exports.

Article 5 : Welcome moves but room for more

Reason to read :

An good editorial on the Fiscal Stimulus Package

Did you know ?

• All countries put together have provided fiscal and monetary worth around $6 trillion (3 lac crore) – six times the size of India;s GDP ( you will read it in one of the article here).

• 25 US banks have gone bankrupt since the start of the year ?

So can you tell me how Indian banks have filed for bankruptcy? or even close to it? In fact, pvt and public sector banks like HDFC,  Bank of India, Axis Bank, LIC are getting to go in for a hiring spree.. ( check yesterdays : Times of India)

You know what i would say at the end of this article … India is not going into recession . India has very strong economic fundamentals , though it is reeked with corruption and problems with implementations.

Is India still in recession ?

If you Google this topic you are going to get numerous answers with some mind boggling stats to tell you that India is into recession or slowly moving into it.

I am going to give you a different opinion altogether! I don’t believe even for one second that India is into recession. In fact I will take the “audacity of hope” as my tool to declare that India wont even go close to recession.
You may argue back saying , “dude! don’t you read newspapers or watch news ? did you not check the IIP stats? The numbers are negative man! Our sensex has taken a complete nose-dive. People are loosing their jobs left-right and center. and you still think India is not into recession or moving into it?” ..

I stick by what I just said .You see, India is having a spill over effect of a global recession. And it is that spill over effect that is causing these job loss spree. But compared to our western counterparts Indian companies are not giving out the pink slips in droves. No Sir!

Tell you why …

First , India is not a globalized economy. That is , India is not completely globalized like European countries, Japan and China.

Second , India was already facing a huge inflation problem when the sub-prime crisis (which triggered the global meltdown) started . By the way, Indian lending laws are so stringent and fundamentally strong that , our country cannot just go into sub-prime like crisis at all. We Indians are firm believers in saving money and spending in thrift. So dont worry.. India wont go into a sub prime crisis.

Finally, India’s growth story is not due to any external factors . nay.. India’s growth story is completely domestic driven. The so called middle class income expansion is not just coming from IT and ITES services (which is prone to global imbalances) alone. India is a huge growth engine moving forward in all factors. Our business honchos, policy makers made sure that India and its currency stays as much immune from global currencies as possible.That is why , India is not seeing an companies going bankrupt. How else would you explain ICICI, HDFC and other banks flourishing so well when banks from other parts of the global are going bankrupt? come on .. tell me .. why ?

So how can we explain the negative stats of IIP . Just for the perspective. Our numbers are like  -0.4% as compared to 12.2% last year. This is primary because of decline in exports and fear factor among Indians.Did you know that in theory a recession in the rich world should hurt India less than other emerging markets: exports amount to only about 22% of India’s GDP, against 37% of China’s.

Read the real story of numbers here : Negative show: Industrial output contracts in October.  Read the complete article please.

China is making massive money from it exports like hell because they make goods a rock bottom prices due to availability of cheap labour.

Allow me to explain…

Let us take the example of a manufacturing firm of foreign origin/ or even Indian origin which produces 2000units of its products. 100o units for exports and the other 1000 units for domestic consumption. The company shall be termed X. Let us focus on export units – 1000 nos . Due to the global financial problem people in the other side of the globe don’t have enough money to buy the  products of the company X which they usually do.This would mean the products earmarked for shipments remain unsold in warehouses thereby increasing the inventory. Now, the companies get money only after the products are shipped to the other side and bought by consumers. The money/income thus received is then used to pay for the labour involved, raw materials, profits taken and then a huge chunk is put back into the company to produce more of such products for exports again.

Are you with me ?

Good.. So , when there is no money to re invest , obviously the company wont be able to produce any more goods. Also, the manufacturers will be cautious to use the reserve surplus to manufacture more goods because the economic outlook is bleak.  Eventually and in the long run when there is no enough money to pay, people are shown the door.

Meanwhile, even if we Indians have enough money to spend , we will suddenly check the global scenario and a friend will advice to his colleague , “damn, see US and Europe is into recessions, people are losing jobs.. and that India guy who studied in IIT and such a rich fellow . He killed his family and committed suicide cos of bad debts. Maybe we should be careful now . If  such big big countries can have problems ..how soon do you think we will get into trouble like that . Let us be careful now, yaar! Who knows when we will lose our jobs? Let us save now . We can spend when time are good . ”

Wife will advice her husband , ” listen, don’t buy too much from the stores , ok? We will manage . I saw TV news about the finance problem. And i heard from my mom that her friend’s son lost his job . Did you check the share market points today ? It was down and in red for the whole day , yesterday. We have enough for next 2 days . Just buy little “, and for the first time she will use the word budget … ” Let us have a budget from next month, ok ? ” … Sensex, Budget are words which are new to her dictionary..

Mom will catuion her son/daughter ( who  just joined a firm fresh out of college) , ” Listen, don’t go out too much with friends and waste your salary on movies , clothes or jewellery. Manage with what you have. and beta .. don’t resign or jump jobs. When you get the first salary. Give half to me, I will put in your savings. Don’t buy that bike now. Intrest rates are high . Buy it after 6 months “…

The panic button is on and the story goes on …

Media will use the panic to give you more sensational news from abroad and get you more worried.. It is cyclic..

We start saving a lot more than we should. Hence,money gets stagnated .

When you don’t buy stuff how are you going to give money back to the manufactures to produce more? If they dont have enough to produce, how are they going to pay your salary? When they don’t have enough money to pay your salary ,cos of no work getting done , why do you expect them to pay you for nothing and not ask you to leave?

Simple right?

So, as you see .. the story is we get sentimental and extra cautious when we hear the news around us .

Don’t do that ..!

Check not the news .. check the real facts . Check real information released by the government and listen to well known business industry leaders.

The India Finance Ministry with RBI under the leadership of Dr Manmohan Singh and Deputy Planning Commissioner Montek singh Ahluwalia is doing a good job. The steps taken as of now ( with two stimulus package and petrol price reduction) is showing signs . Inflation has come down. The full impact is yet to be seen. A third stimulus package is on the cards. So relax.. Our policy makers are much better than our counterparts in other parts of the world.

India is having spill over effect. Not a recession. True , our economy has slowed down. From an extremely robust GDP growth of 8-9% we now predict 6% . But that would still make our country one of the fastest growing economy in the world. Only India from the so called BRIC (Brazil,Russia,India,China) nations is faring well compared to others.

But remember in economics and finance, as in other aspects of life the rule still holds water – What goes down should come up. And what comes up , should definitely go down” . Be it Sensex, economy, failure, success, happiness, sadness, love, hatred ..  You can just play the game of the gods..

As one great poet cum dramatist so aptly put ” the world is stage …. ”

I realize this is a very long post. Might be boring for some. But I have tried to put facts and my thoughts in a very simple way. I am no economist and will gladly accpet that I am wrong if proved so ..

I welcome your suggestions and ask those who read to spread the word around if you see merit in my opinions.

Also, check this article,China and India : Suddenly vulnerable , from Economist on what they think about the effects of global recession on India and China.