Tag Archives: economy

Inflation down to 3.36% : Nothing to be happy about.

27 Feb

In month of August – September 2008 our Inflation stood at 12 % .  The whole media industry went hay wire crying that India is a gonner. That Indian economy is dead and that the government did everything wrong with its monetary policies. Little did they realise that increase inflation was simply cos of the global problems affecting India. The primary reason being that crude oil was almost hitting $ 150 per barrel. 

Now, we have an inflation dip . In the today’s Economic Times article Inflation dips to 14 month low , there is a line which says – and i quote – 

With inflation ceasing to be a major concern, aggressive rate cuts are expected from the Reserve Bank to stimulate the economy.

 

This got me thinking… Are we safe in the inflation front? 

Now, let us visit the fundamental of economics  in a simple way 

Inflation is lots of money chasing very limited goods available in the market. Happens when the shop keepers and distributors and dealers increase the cost of the goods . This an offset of very vibrant, positive and booming economy. Inflation is good to a certain extent but when it crosses a benchmark percentage then it is a problem because it will inevitable affect the common man. 

A deflation is when the reverse happens. When the cost of the goods nosedives to unexpected lows. A clear sign of the economy slowing down and leading to a recession. 

Now that we have checked the economic theories , let get out with the analysis. 

 

When the Economic Times claims that there is nothing to worry about, I will have to disagree on their claims. 

Why ? 

Fear Factor 

Let me explain…

People like you and me are worried about tomorrow. We have a fear that we may not have a job tomorrow when we go to office. So we are saving the money which we earn so that even if we lose job tomorrow  we have enough money to sustain for couple of months till we find a new job. Last year we had dozens of HR people chasing us offering jobs everyday .Today it is the opposite. Even IIM- C Day Zero placements results are dismal by its high standards.

What we dont realize is that when we dont spend money to buy goods , there is no liquidity in the market. When there is no money circulating in the market , the goods remain unsold and hence productions slow down and comes to a grinding halt. This in turn on a macro scale slows down the entire economy. 

This is not a good thing to happen. Because this 3.36% on dip in inflation takes a much worrying scenario of –  Will we go into a deflation? Which is an even more serious issue. 

Had this 3.36% of dip inflation come down in a gradual way , then we may not be so alarmed. Because inflation numbers are always fluctuating in a good economy. It shows movement. It shows dynamism. It is kinetic energy of the economy in play. 

But this is not usual circumstances because of global economic crisis

 India cannot go into a recession. Our economic fundamentals are not build that way. But we can go into a stagnation. NO growth and No Fall . The economy will stagnate . People will keep buying the basic commodities for they day to day living. But they will buy it in lesser quantities at not so regular intervals. 

So you will have your mom will buy 2 apples less than when she usually buys. Your wife will buy spinach once a week. Fish and meat on occasions. Wont renew your gym, magazine subscriptions. Cut back on all spending, basically. So you have buying at a slower pace. Neither here nor there. 

The US economy is no where near on a comeback trail. 40% of US treassuries is with China and Japan and even they are having a major economy problem. So , the fear of job loss, the fear of unstability is going to be there for a long time. 

Hence dont be surprised when inflation further dips to 2 % and 1 % . But I hope at least then news media like Economic Times and Business Line wont take things lightly. 

What is the cure?

3.36% is something to be worried about.

Therefore banks should take cue from the govt stimulus policies and start lending more to consumers. For that to happen RBI should crack the whip with more stern actions on the banks which don’t take advantage of the stimulus packages and other monetary policies regulated recently. ICICI bank did a good job on fixing the 10% interest rate on lending last week. More such steps should be taken by  other banks as well.

Citizens should start spending more and try to buy more of  Indian products. This will in turn increase domestic demand and breath life in to Indian industries and reduce dependency on exports. Will help in the fiscal scenario as well! 

And the government can also take measures to increase the consumer confidence by releasing ads in print , tv and radio . A kind of awareness program.

Hope this post helps in sorting out issues on the inflation worries.

Drop in your comment if you agree of disagree on this.

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Big Retail Store Vs Mom-Pop store – who wins?

27 Dec

Here is a reason why mom and pop stores are gonna to stay for a long time to come in India.

Was getting back home around 10 pm today.

There is a Heritage Fresh retail store near to my house. I always stop by to pick a Tropicana juice pack before i head home . Usually i get there before or by 10 pm . Today, I got late and reached there around 10.10 pm. The shop was not yet closed. But they were putting out the lights. I stop there and explain , ” Sorry I got late. Can i just pick up the juice ?” .

The guy at the store says , ” Sorry we are closed. Billing is closed” .

I was like , ” what the hell are you talking about ? the shop is not yet closed. the shutters are not down( The bugger  knows that i am aregular customer to his shop. I have been coming here everyday for the past 6-8 months to pick up juice pack) Why cant you just  go in there and get me the Rs 18 juice pack .”

But he wouldn’t budge. He put his foot down and refused to get me the juice pack.

I was determined to get my juice today. I went in search of another retail store. I found most the big retail stores closed. Spencer Daily was closed. Daily Life was closed. But …

But, the small shops were open. I zeroed in on a shop named ” Anna Stores” . Not a sophisticated  shop at all. He sells stuff across the counter. And guess what ? He  has almost everything you would need for day to day household purposes.

He was about to shut the store. It was already close to 10.25 pm. The shutters were  down halfway and he was checking if lights were all switched off.

He saw me approaching his shop, gave me a nice smile and asked , ” enna vennum , sir?” ( what do you want sir?)

I dint get my tropicana juice pack. He dint have stock. I got Appy Fizz drink instead. Not exactly the  juice I would like to drink before I hit bet. It cost me Rs 25. Why did I buy it ? Because , this guy took the time out to re open the shop , just for me, and offered to sell the stuff I wanted. Even before he re opened the shop I told him that I needed the Tropicana. He knew he dint have stock and yet he said , ” I will check and see if I can give you something else” .

He apologetically added , ” I usually keep 2-4 juice packs for my regular customers. But today i dont have stock. Come tomorrow I will keep one extra for you.”

I beamed …..

See ..  The Big Deal is – I was not his regular customer. Rs 25 was not going to set his cash register ringing to a bounty. He could have as well said no to my face and got back home to see his family after a hard day at work. Instead, he knew more about customer service than a professionally managed “hi-funda” retail store like – Fresh.

Now, why did that mom and pop shop owner go about his way to help me out ?

Where do you think I would go tomorrow to get my juice pack, my next soap,Gillette,Maggi noodle purchase?

Is India still in recession ?

14 Dec

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.