Premonitions of impending doom?

It appears that the storm that rocked the Indian economy for the last few months is past its crescendo. Looking back the force of the gust seems incredible.Massive current account deficits, bone-chilling falls in the stock market, an even rapidly receding rupee, gargantuan crude prices, and of course , outrageous rates of inflation : the turbulence even threatened to topple the hapless government in charge. Well you could argue that the government was facing a tornado which, quite possibly, was its own creation. But then, the chief harbinger of the crisis, stratospheric crude oil prices , is pretty much a global trend and the present order of globalisation allows minimal corrective action.Leading economists have been crying themselves hoarse for much needed changes in the present setup , but then that would be my material for a later post. Right now lets check out if the storm has really subsided, or is a more vicious wave lurking round the corner.

One of the features of the recent economic slide had been a steadily climbing rate of inflation . Supply -demand gap, global trends of high food grain costs, rising crude; whatever be the reason for the surge, it did catch consumer attention (as it should) big time. Last weeks figures might have shown a marginal dip :from 11.92% to 11.8%. But there are reasons galore for the hiatus to be brief. Some of them are traced here:

1) Inflation figures are calculated relative to last year's figures. Things had been quite calm last year with the inflation figure being a agreeable and manageable 4%. This will artificially tarnish the figures this year, and cause somewhat unnecessary panic to set in .

2)Now coming on to the factors that are real and sure to impact the figures in a big way. India has witnessed one of the worst seasons of monsoon. Already there are worries of huge shortage of crop in pulses, amongst other foodgrains , and this is sure to impact the numbers adversely in the coming months.

3) The moratorium on the steel prices is making the steel companies literally bleed crores of rupees as daily losses. With the national prices being 20% shorn of the international prices , the competitiveness of the national steel majors has come under threat. The artificial price cap imposed by the government ceases next month . This would lead to an inevitable , and necessary, rise in the steel prices. The effect this would have on the inflation numbers is needless to say.

4) The critical reason for inflation spurt has been grossly overpriced crude. An interesting explanation for this upholds increased futures trading of crude as the chief reason for the high prices . General downtrend in the US housing and banking sector is being held responsible for increased investments in the oil futures. This artificially increases the crude prices . Recent fall in the crude prices from $140 per gallon to $130 due to decreased spending in the oil futures and revitalised interest in the banking sector, could be an evidence to this theory.
But some of the happenings of the past week impart a sinister touch to this theory. The fall of Freddie and Fannie, the largest mortgagers in the US , could take the troubled sector back to square one, and turn the investors back to buying oil futures . This raises the chances of further rise in the crude prices. And up go the inflation figures!

The tide might have subsided for the moment , but there are enough reasons to suggest that it might hit back with vengeance. I sincerely hope the ever-vigilant custodians at the RBI take premeditated actions and effectively wield its weapons to thwart the rising hood of inflation.
A 12%inflation by september,anyone?

The genius of creative capitalism

"Philanthropy is the refuge of the rich who wish to annoy their fellow creatures" : Oscar Wilde

One wonders what Mr. Wilde's reaction would have been , had he been present at the World Economic Forum, held earlier this year, in Davos ,Switzerland. Of all the momentous developments that the Forum witnessed, none was as novel as the presentation on 'Creative Capitalism' by Bill Gates.

To quote the words of the world's richest man himself:"creative capitalism is an approach where governments, businesses, and nonprofits work together to stretch the reach of
market forces so that more people can make a profit, or gain recognition, doing work that eases the world’s inequities.” Or in other words, it is an approach to reduce the world's social inequities by streamlining personal benefits with the larger social good.

Capitalism is driven solely by the motive of profit. Or how else could it be explained that more research goes into the cure of baldness ,than in alleviating malaria, which kills around 3 million people every year? To expect the corporates to veer from the relentless pursuit of mammon, and foray big-time into addressing the problems ailing the teeming unfed millions, is foolish. What is required is an adequate incentive to lure them into doing some social uplifting ,even inadvertently.

This is where Mr.Gates earnest stentorian enters the realm of naive wishfulness. Mr.Gates opines that showering recognition on any corporate philanthropy, and backing it up with some sweetheart deals from the government would prove pivotal in clinching corporate support. The premise that just recognition is sufficient to ensure corporate involvement in social welfare works is flimsy, to say the least.If recognition had truly been such a powerful motivating force for the market-savvy business houses, the present dearth of capital investment in fighting the problems would have never surfaced. Rather , capitalism needs to reinvent itself in a way that investing in the welfare of the poor not just pays these corporates in terms of the good name earned, but also enables them to develop and tap the $5 trillion market of the poor.After all, money is the name of the game.

What needs to be done is to use the forces of capitalism to empower the poor: don't donate them the dollars, but give them the power to generate the dollars. Capitalism needs to aim at using the technological advancements to compound the efficiency of the low-skilled workers: this increases the purchasing power of the poor , which is a more substantial motive for the corporates. Take the example of cell-phones. A road-side signboard painter can multiply his profits manifold, just by mentioning his cell no. on each hoarding. The use of technology helps him become more efficient in his business, apart from his adding to the revenues of the mobile service provider.

Hence all efforts aimed at increasing the earning ability of the poor, which in turn increases their purchasing power, shall draw the attention of the corporates into making any consequential contribution.
Only this, can truly be termed as creative capitalism.

Romancing Rupee Appreciation !

The cacophony of the written word on the phenomenon of rupee appreciation (it’s not a one-off incident), which dictates many of the economic policies, has somewhat obscured the critical issues, owing to the embellishments of variegated theorists. This piece intends view the causes and effects of the phenomenon from a novel perspective: through love, something that, quite ironically, money can never buy.

In love, absence makes the heart grow fonder: what makes the rupee appreciate?

Large inflows of any foreign currency (for instance, dollar), in the form of foreign investments by the FIIs and the FDIs , enters the market by buying out the rupee, leaving the market flooded with the dollar. The demand-supply law of economics proselytizes that the price of a product rises with an increase in its demand. So with the increase in the demand for the rupee, its supply in the market decreases, and hence there is an upswing in its price (remember this whenever your girlfriend acts pricy!). Hence, surge in capital inflow, leading to an increased demand for the rupee, is the chief harbinger of the rupee appreciation.

Who looses sleep over it? : The affected parties

The recent rupee rise against the dollar has occurred amidst squeals of protest by exporters of textiles and other manufactured goods, besides services. Software services have, particularly, seen their competitiveness suffer. In an environment where a sizeable portion of their income comes from export, the software behemoths are especially wary of an unbridled rupee rise washing out a chunk of their profits.

The reason for this hoopla is simple: the exporters get paid in dollars. While the number of dollars received for the goods/services exported remains the same, the subsequent conversion into rupee yields lesser than erstwhile used to. An item which would earlier fetch Rs 45/ dollar, now garners Rs 40 only. A simple solution would be to start charging in the currency (like euro or yen) that dominates the rupee. But obsequity on the part of the policy makers rules it out.

While for importers rupee appreciation is a delectable proposition, as it makes imports cheaper. Yet in stark contrast the domestic manufacturers go up in arms, fretful of their inability to compete with the higher quality imported products.

Undoubtedly the most flustered of the whole lot is the RBI, which is the pivot upon which the whole economy rotates. The RBI has to constantly intervene in the market, with rapt cogitation, to ensure balance between the capital inflows and the rupee flow (liquidity). One wrong move could snowball into a vicious capital inflow-rupee appreciation-liquidity-inflation-higher interest rates cycle.

“How to get her out of your head?” : government’s riposte to the effects of rupee appreciation

Numerous expedient measures have been tried in the past to tackle this conundrum.
A comprehensive package of Rs 1400-crore was doled out by the Central Government in July this year, as a palliative to the exporters. The package included: increased rates of tax refunds through the duty drawback scheme, and availability of pre and post-shipment bank credit at far easier terms. Alongside this another package of rs 600-crore was given to the SMEs(Small and Medium Enterprises).But these are short-term solutions . In the wake of a nearly twelve percent appreciation of the rupee against the greenback, only an increase in productivity and efficiency can truly make the Indian exports competitive at the global stage.

The software firms, which already enjoy a tax exemption, weathered the storm with minimal governmental assistance. A deliberate effort was made to diversify from the US (which takes up around two-thirds of the total Indian software export) to the developed markets of western Europe and Japan, and the developing markets in South America and eastern Europe. Also many of the software companies hedged their dollar income against the rising rupee by converting into the latter(a ruse offered by the government). Still, what will pinch the software firms is the fact that the lobbying in budget 2008 to extend the tax sop has come a cropper. Come 2009, and the net taxes for them would increase to 22% from the present subsidized rate of 15%, further cutting their profits( what role would that play in the placements this year?).

Hail the cupid: the RBI

In the theatre of the Indian economy, the RBI plays the protagonist. To control rupee appreciation, it primarily buys out the inflowing dollars . These then become our forex reserves. What the RBI effectively does is : increase the supply of rupee back into the market , and increase the demand of dollars by buying them out. Thus the value of rupee automatically decreases against the dollar, which is forced to rise.

But like any love story, this one too has its twists. Increasing the supply of rupee in the market could lead to floods(also termed as ‘liquidity’) .Though this boosts the purchasing power of the people, it also increases the demand of goods, leading to an increase in their prices. This simple phenomenon is complexly termed as ‘inflation’.

To counter this, the RBI must mop up the excess rupee from the market by selling government securities. This is termed as ‘sterilisation’. Yet even this method has limitations whose articulation is beyond the scope of this article.

Arguably, the best solution has been demarcated in the budget 2008. Heralding a distinct policy change, the RBI now plans to work in close tandem with the Central Government, and will restrict or/and direct the capital inflows itself.

But will the story have a happy ending? Just wait and watch...

Sudipta Mukherjee

Some Machination This!

The spectacular shot from the sci-fi flick “Transformers”, which juxtaposes a gigantic robot with a five year old child , not only makes the hideous assortment of metal look adorable, but also raises an esoteric question to one’s mind. Isn’t the exact antithesis of this fantasy slowly enveloping our conscience? The craving for sophisticated gadgets and the endeavour to make them identify more with our emotional states pose the grim threat of heralding a new generation of anthropoids who are virtuoso at handling wired metal but are naïve at nurturing fundamental human relationships.

Social animal , as a human is called, his whole existence fosters on the affectionate relationships that he creates around himself. Hence anything that enables us to increase this circle of joy is extremely attractive to us . Thus, the proliferation of networking sites, innovative means of communication and the whole gamut of technological progress centered around helping us connect with more people. Yet all the hullabaloo comes a cropper because in the effort to simplify the premise of human relationships, the basic recipe is overlooked: mutual affection.

The e-relationships are based on the intrigue of satisfying one’s craving for companionship without much cogitation for the source of our fulfillment(maybe owing to their multiplicity). The bonhomie shared is hopelessly shallow owing to acute lack of the main ingredient of a happy relationship: spending quality time with your beloved.

And the foible that e-relationships are very rarely built on the pedestal of core human values like commitment, sacrifice , understanding , to name a few, only render them derelict and unfulfilling.

Yet the irony exists. Though in the course of time , we do begin to suffer the problem of plenty , yet these pseudo-friendships remain popular. Probably because the e-relationships we make on the web grant us the facility to walk out on people once the initial zing is over. A click is all it takes to shut the door out on someone’s face in the virtual world : an act whose execution in the real world demands a lot more cold enterprise and involves a lot more acrimony.

Hence a large populace spends more time socialising on the web via the social-networking sites like orkut, than with the peers of the same school or college or with colleagues at the workplace . The number of ‘friends’ we have on our account serves as an index of our acceptance in the world we live in. While one might imagine this to be the real world where we breathe, but in actuality these friends that we artificially garner belong only to the virtual world. Where the whole edifice loses its credibility and enters the realm of dubiousness is when the dichotomy between the two worlds is obliviated . The unfortunate individual who mistakes his e-acquaintances as his invaluable friends is engulfed in a quagmire of sullen discontent and melancholy.

Is this an indicator of the things to come, a premonition of an impending doom; a doom which inters the very soul, suffocating its

craving to be understood. If one were to turn back the pages of history , heuristics would show us that in the US,it was the consumerism of the 70s that abetted the emotional insecurities of the 90s. Some psychologists deem the latter as a spin-off of the former: disillusionment arising due to the semblance of independence granted by the cornucopia of goods eventually spiraling into

an abject disdain for commitment in a relationship. The glut of products inducing the individual to treat the people around him as commodities : a peril we must guard ourselves against.

The spanking pace at which technology is changing the core values which one abides by must be veered before we morph into a species which loves to speak and possess from the species for which

to listen and to sacrifice spell joy.

The funny part is : technology can send radio-waves from the moon to the earth but

can’t decipher the eloquence of the silent gaze that two soul-mates share. Brain-waves , anyone?

Food for thought!

Shravan doesn't like the cold winter mornings much. Not that he has a special liking for any season: he finds them all empty; he finds the frigid sunrises particularly exasperating. It requires him to wake up a bit earlier than usual to brew some hot tea for his "masters", ensconced in the warmth of blankets, desiring to wake up to a cup of the delectable liquid. The 12 year old, working in a hostel mess for the past three excruciatingly long years, has got quite used to the chore. Such abject has been his acceptance of the retribution that he no longer seeks a normal childhood: a childhood we cherish in our memories for the loving indemnity bestowed on upon us. While the more fortunate of us have the luxury of malingering to avoid school on such dreary mornings, school itself is a luxury to the 57 young mess workers serving their sentence in the nine hostels of the Institute of Technology, Benares Hindu University. Their crime is poverty.

Born in penniless families destroyed by some social stigma, each of these lads, aged between eight and sixteen, has a poignant tale to recollect. Rahul, a sixteen year old, banished by his step-mother after the "accidental" death of his mother, says,” Though I don’t have any qualms against destiny, at least not anymore, but I still do wonder what it feels like to ask for something from one’s parents and to get that. Destiny didn’t even let me hear a ‘no’ ".

Acute necessity at home abetted their move into Varanasi from the nearby villages. On stepping inside the holy abode of Lord Shiva, the temple of learning was their obvious choice for shelter. The university, being in constant requirement for hands to cater to the needs of the bustling and burgeoning student community, employs scores of such youth who are on the lookout for some money to send home and bail-out their failing families. The money that they send, in many cases, is what sustains their families. Not only is this a responsibility that they have had to shoulder at a tender age, but it also is a responsibility that is fulfilled only by their toiling in some extremely taxing conditions.

A normal day, as Satyendra, a 9 year old, recounts, involves waking up as early as five in the morning and getting to work immediately to assist in preparing breakfast for the hostel inmates. Following the breakfast serving, which continues up to 10am (11am in some hostels), the lads are required to help in the preparation of lunch. Lunch serving starts at 12noon and continues in numerous batches for the next three hours. Free of the exigencies(dish washing and cleaning the tables after each batch eats) by around 4 pm, the lads literally collapse for a well earned rest, only to be awakened at 5pm to do the customary cooking utensils washing and serving the evening snack to the inmates. The same tiring banality has to be repeated for dinner, which starts at 8pm, and finishes around 10pm (unless some venerable inmate arrives late after booze). The final service of the day is the distribution of hot milk, served at ten-thirty in the night. Actually this isn’t exactly the last service, cleaning of the mess before going to sleep is. Add to this the hourly “personalized” services, the daily purchasing and the weekly venture of acquiring gas-cylinder (for which one has to report at the counter at 2am!),and what you have is rigorous torture that is as body-breaking as it is hope-shattering.

In fact, the boys don’t even have the luxury of hoping for a brighter future, like the rest of us have. Only few amongst the present bunch has had any formal education beyond std.5. Only one has attended school after matriculation! Stripped of the resources, time and energy to attend any formal schooling, the boys have to set their sights at taking up petty jobs. This only augments their hand to mouth existence. After all they aren’t the hapless elves described with such pathos in the Harry Potter books: they are fine, industrious human beings having equal rights to dream, even if we cynically dispose that as chasing rainbows in the sky. Education is undoubtedly the greatest empowerment that we could give to these young boys: education that these boys can apply , not just some shallow school certificates that only suffice the more privileged.

A notable effort in this direction has been made by a truly remarkable lady with assiduous gusto, wife of prof. A.K.Mukherjee of app.chem deptt., lovingly called as ‘mousi’. Her undaunted endeavours to teach these boys has been a revelation . She personally conducts daily classes for the mess workers at 3pm. Besides gaining a basic understanding of maths and languages, the boys have developed a deep affection for her, owing to her loving demeanour. Madhusudan, a seven year old says it all:”she is the only one here, who cares for me ”. But even this glimmer of hope is flickering due to the unwillingness of the mess heads(referred to as the ‘maharajas’) to let the boys attend these classes. They deem it as a waste of time and view these classes with the apprehension that they may one day take away their cheap labour. So only a few fortunate are able to avail of this privilege.

Having gained the basics, what remains elusive for these boys, is vocational training .A carefully thought out syllabus needs to be prepared, taking into account the types of industries that Varanasi houses. The men of voyeur ,amongst the boys who have come here to become engineers, can become the instructors and managers of this project. Only this , as prof.Pankaj Chandra,director of IIM Bangalore, elucidated in his brilliant address on 18jan in ITBHU, is inclusive growth for our country.

Though vocational training is as difficult to arrange as attractive it sounds; it might be the only light at the tunnel for these friends of ours. At the moment, they clamour for our help .But the eloquence of their silent plea is palpable only to those who can read it in their forlorn eyes.

To quote Oscar Wilde:” Who,being loved, is poor?”

Sudipta Mukherjee

The saga of the subprime mortgage muddle

“Derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal,” so said Warren Buffett, reportedly the third richest person in the world, in 2002. His prophetic words are becoming true with the unravelling of the financial mess created by the sub-prime lending spree in the U.S. The developments will also affect emerging market countries such as India. The developments that led to the explosive situation are traced here.

What are these sub-prime loans? Philanthropy or usurpation?

Sub-prime loans are those given to borrowers whose creditworthiness is below prime and hence are of low quality. Sub-prime or low quality loans are mainly of three kinds: car loans, credit card loans and house mortgage loans. The sub-prime loans were given to borrowers who did not have the capacity to service them (pay interest and repay principal). At the height of such lending, it was said, the borrowers were in the NINJA (no income, no jobs also) category. To lure such borrowers, some lenders adopted ‘predatory’ practices. They lent deliberately knowing that there will be default (surrender of the mortgaged commodity by the borrower) and, when it occurred, seized the houses mortgaged and sold them off to make a profit.

The basic question is why would any lender (apart from the predatory ones) give loans that carried the highest risk. One reason is that these carried higher interest rates. But, the main reasons seem to be two: large surplus funds with banks and the introduction of esoteric financial instruments that passed on the risk to unsuspecting investors.

Soon after the dotcom bubble burst in 2002, the Federal Reserve (central bank) of the U.S. pumped in money into the system. Too much money in the system led inevitably to lower quality of lending. The availability of credit derivative instruments, which basically transferred the risk to another party, accelerated the pace of sub-prime lending.

The birth of the monster

The lender hoped that even if the borrower could not service the loan after two years, he/she could always take refinance (raise a fresh loan against the same house) for a larger amount. Implicit in this was the assumption that house prices will go on increasing. This premise got a jolt when house prices started climbing down after peaking in 2005-06. The primary lenders (originators) of the sub - prime loans wanted to sell the loans to investors. To make them attractive, they pooled such loans into baskets and created what are known as CDOs (collateralized debt obligations). The baskets were sliced and spliced to make layers of CDOs (derivatives) carrying different risks. The underlying assumption was that all borrowers would not default at the same time and a percentage of them would be prompt in payment. The ‘safe’ portion was sold to investors averse to high risk and the balance to others. The credit rating agencies put in their might behind the manoeuvre by giving the best rating to the portion deemed low risk. Some even alleged that the agencies helped in the splicing game. The whole arrangement crumbled when things turned adverse with falling home prices and rising interest rates , leading to a spate of defaults.

The potential danger

The estimates of the sub-prime market vary between $500 and $750 billion. It makes up 20-22% of the US home loan market! Even a small number of bankruptcies could be devastating. In early 2007, New Century Financial, a large sub-prime lender, collapsed. In February, HSBC, reported steep losses in sub-prime lending in the U.S. Many Canadian, German and French banks followed suit. Many of the big investment banks in the U.S. also reported large losses.

As a result, confidence in the banking system was rudely shaken. And, no bank could be sure of the solvency of another bank and the inter bank money market, where short term lending was common, almost dried up. With the sub - prime loans taking different avatars and changing hands frequently, no one knows how widespread the contagion is.

As pandemonium raged in the US stock market, with stocks plummeting and many investment banks and hedge funds throwing in the towel, a grave apprehension of the crisis infecting the emerging markets loomed large in august,2007. Following the dotcom bubble bust in 2002, a majority of the investors shifted their focus to markets like India and China, which were relatively more immune than the European Union. This led to a surfeit of rakish funds in these markets. But this time, the Central Banks of these countries have quite nimbly prohibited the entry of such doubtable investors , by curbing their investments through P-notes and by making them register as FIIs. So the emerging markets might have averted the disaster ,probably, to die another day. Still what cant be ruled out are such vicissitudes in the stock markets , that could be surpassed only by the anticipating heart of an ardent lover.

Evading the inevitable: Recession

With each of the past US recessions originating from a collapse in the housing market, the Federal Reserve has cut down its lending rates to banks, thereby, pumping fresh money into the market and avoiding a liquidity crunch(in the process ,perhaps creating another bubble). It has also bailed out several ill-fated lending institutions: to revive the confidence in the banking system. Even a division between the normal bank and the investment bank could auger well for the troubled sector. Ultimately, bankers will have to return to the time tested practice of prudence in lending if problems witnessed in sub - prime loans are not to recur.

Sudipta Mukherjee

Beyond the realm of failure and success

Failure might be exasperating, yet , sorrow is beautiful !
Success might be unfulfilling , yet, joy is so complete !

The torture of a parched desire pales against the bliss of a granted wish, leave alone the happiness of a realized dream. Yet why do we waste aeons in the vice of a damning mirage , when moments of joy clamour for our heed. Is it the choice that maketh the happy man: as poet Frost elucidates. Or is it the cruel fate that wrangles every drop of hope from us : baring us to the pangs of loneliness instead of blessing us with solitude.

Is it peace that my heart longs for, or is it the sweet joy of platonic love for what it weeps . I even doubt I would be happy if my heart were elated , I am unsure I am it. I even doubt my being the mind , sometimes the very whirlpool of disturbing images , sometimes the peaceful lake of serene thoughts. Am I this body? I doubt it. In fact does it matter who am I, for my search is for happiness.But then can I make myself happy, unless I find myself.

So does the path to happiness pass through the dense woods where we find our true selves.Or as George Bernard Shaw proclaims, life is about making oneself , and not finding oneself : life is all about setting goals and achieving them at all costs, for life is a race where the winner takes all. But does he also take happiness, or , in the din of success, the music of happiness becomes inaudible.

This blog is dedicated , for some , to unravel the mystery of happiness, for some , to scale the glorious peak of happiness, for some, to enunciate the silence of happiness , and for some ,to realize the dream called happiness.