EURO, EUROPE, EUPHORIA

                                     

When economic union of Europe became monetary union, there were lot of euphoria around, almost everyone barring few exception saw the underlying dangers as well, there is classic rule which is as true in economics as it is in life, the rule is, bigger the gain , bigger the risk.

There were lot of gains to be realised and it was realised as well, Europe saw one of the biggest peace time expansion in recent time, adopting single currency reduced the transaction cost considerably, the risk and cost of exchange within the countries were almost disappeared, the flow of resources fastened, the public spending for welfare also called transfer payments scaled up across the Europe, 2000s were the best period, post war.

Literally speaking, this arrangement created the problem of moral hazard, which means, that smaller countries started overlooking the rules of game because they knew that bigger and powerful countries like Germany and France would never let the system fail, as they have bigger interest in the stability than others. So the unmindful expansion of public welfare expenditure to win votes led them to a situation where there debts were higher than their incomes, credit rating agencies quite falsely believed that wrongs of weaker can be masked by rights of stronger, they stopped looking them as individual nations, need to follow the rules, and rather there were seen as a block called European union.

Problem aggravated not only because their imprudent fiscal behaviour but thanks to financial crisis, their sources of fund flow, the banks, suddenly found themselves starving out of cash, and started looking for different avenues. To correct the problem these countries sought the debt restructuring (means changing the maturity, payment option and interest on borrowings) , support from multilateral agencies, and some of them went for expenditure cut that resulted in political chaos, all the four countries of pigs group saw their top political leaders leaving their post .

If a country has its own currency than most of the economic problems can be solved, for ex. Huge debt may lead to reduction in sovereign ratings that result into less inflow and more outflow of foreign exchange that again lead to depreciation of currency, making its exportable cheaper and importable costlier thus increasing countries competitiveness in world market further leading to generation of employment and income, but in this case of euro crisis, countries had common currency and they have no power over its adjustment, thus correction became all the more difficult.The fear of euro break or the great collapse became stronger, but now at this stage collapse of euro will have disastrous results both politically and economically, a silver lining has appeared in form of ESM the European stability mechanism, which guarantee to buy unlimited bonds or in other words guarantee to give unlimited loans to crisis countries, it might save them from fall, but real problem is not only of fund rather it’s about the way they conduct their economies. And at the end of the day these panic measures by strong countries in the block only confirm their cynical fiscal behavior and our worst fear, that stronger will not let weaker fall.

BOOK REVIEW OF ‘THA LAST LECTURE’ WRITTEN BY ‘RANDY PAUSCH’

                       First of all, it should be clear that Randy paush is not a professional writer, so this book could not be compared with any previous book, nor it can be judged on strict literature terms.

                    Randy pausch was a professor at Carnegie Mellon University specialising in computer science, human computer interaction and designing. He had a rare pancreatic cancer, but he lost his battle to this disease in mid of 2008.

                  Randy had been a great mentor to his students and the name of book is specially chosen to serve a specific purpose. In fact, last lecture is a convention in universities, whenever any professor retires from his academic life he is supposed to say the final words or he is supposed to deliver his entire wisdom of academic life to his students, as Randy’s journey of life and academics was coming to an end, he wanted to reach to a larger audience, thus he chose the name ‘the last lecture’.

        The book has been divided in six parts the last lecture, achieving your childhood dreams, adventures and lessons, enabling the dreams of others, it’s about how to live life and finally the final remarks.

In the first part, he explains how he got motivated to deliver the last lecture at Carnegie Mellon University, how difficult and strange it was, to sum up all life experiences in just one presentation for a person whose life had been so eventful. Finally he leaves the massage in this section, what if you ought to fight something you fear most in life, he called it ’elephant in the room’. That way giving a massage that ‘be prepared for the worst at any moment in life’.

In the second part ‘ achieving your childhood dreams’ he narrates life experiences and wishes of a child whom he was, which eventually came true in one form or another form, just by sustained persistence. If one keeps that attitude of not letting the thrust die then literally ‘wall will walk to the thirsty.

 The third part deals with ‘adventures and lesson learned’ in this section he shares his life adventures and how each time he drew lessons from them,  romancing with brick wall and pouring soda on backseat are ultimate heir raising chapters to read on.

Enabling dreams of other is yet another chapter; it shows how individual capacity can be used as fuel for empowering other’s dream, and that, to my mind is the real massage. The purpose of being born is not entirely serving the self or self indulgence, it is much larger, you may not physically or tangibly help others but surely, one can be partner in the realisation of other’s dream. ‘You cannot pay back for good thing done to you by others, so you got to pay it forward, sums up this chapter.

In the last two parts, with the help of personal life events, very small and tiny things that happen daily to us has been explained in very effective way, $ 1,00,000 salt and pepper shaker, no job is beneath you, dream of my children are the most touching chapters of these part.

At one level, some might say that the book is written by one’s life personal experiences that has been generalised for mankind, these experiences may be too subjective to be used for others. But in defence, it can be said that happenings may be subjective but massages are surely not. Almost every part of human behaviour has been touched in very unique way in this book, Randy has written this book not to prove his literal skills but the sheer urge to leave a meaning legacy, after his death.

 The audience of this book is universal, but, specially, it has been designed for those who are about to begin their life after the college. If number of copies sold is any way to judge the popularity and impact then this book has huge fan following and deeper impact as it has already sold more than 6 million copies worldwide.

This book is not only a book but a complete chronicle; it is something that should be made compulsory in academics, least of all in training institute. Do not read this book because a dying person has written this, but read this book because we all have to die someday!

DECODING P.D.S.

Nearly 56000 crore was spend on food subsidies in 2011-12, the objective is surely to provide the most intensive food security network across the country, we must understand that the procurement, storage, transportation expenses are paid by the central government, while identification of poor (BPL,APL) and distribution through fair price shop is done by the state government.

Generally a bar coded coupon is given to the beneficiary, over which quantity of food grain (rice and wheat, 10 and 15 kg) and subsidised price that has to be paid by the beneficiary , is also written on the coupon. Technically, dealer should charge that written amount and supply written quantity of food grain but it never happens anywhere in India, and that is a bitter fact.

How does it starts, let me begin it from bottom to top, when a beneficiary goes to the shop he is being supplied only 80% of the printed quantity but he is charged the full printed amount on the coupon, and if dealer is honest then only he will get this supply regularly every month, then why doesn’t he revolt, because dealer is a muscleman he can simply deny any one to supply the grain. Dealer’s excuse for this act------ he gets less quantity from the SFC (state food corp. Warehouse from where he lifts the supply), what actually happens is that in SFC the gunny bags is also weighted along with the food grains, and every bag does not necessarily contain the standard 50 k.g. in the best possible case the average is 45 kg per bag while dealer has to assume and pay for 50 k.g in each bag.

Dealer is given lifting order for the same quantity which he has distributed last month, now dealer creates the fake records and secure more supply, out of this secured supply some 25% is never actually lifted by dealer from the SFC rather he sells there itself on little less than market price, this is the same 25% that he makes cut at the time of distribution, plus some of the coupon holders never turn up to claim the food grains so he saves this quantity as well. Dealer is not alone in this nexus, the SFC secures grains from FCI on weight without bag basis, means 50 quintal may be 110 bags, but FCI always assumes every bag contains 50 kg when it supplies to dealers. Now SFC saves lot of bags, these bags are sold in the underground  market to wholesaler, grain dealers and in mandis, the transporters have active role to play in this as they move the trucks from here to there. The FCI knows all this but they also have some interest in this play and they take their own share. At every stage supervisory structure chooses to close the eyes as they have their own share in this whole game.

Well , I am not blaming or saying that this is what exactly happens everywhere, modes may be different, but then if we have to look the whole system, we will find that over the years system has improved a lot and from the siphoning off of 50-60% it has reduced to 15%-20%, well this is no excuse, but we have consider the mammoth scale at which it operates , sheer number of people it involves, and the deep importance it holds for the food security.  What’s needed is not the complete overhaul but the gradual improvement, because no alternate system is practical on ground at least for the time being

WHAT WENT WRONG WITH INDIA’S GROWTH STORY

Some 4-5 years back when Lehman brothers fallen, the world was gripped by fear, and the fear was not wrong, but in the middle of the global crisis there were rescuers which ensured that crisis would not be deepened and not be as painful as it was during great depression, these rescuers were surely the emerging economies including  India. It not only shown the strength but also promised that the pillars of its economy are strong enough to withstand any global crisis. Take the odd; the government of the day was supported by the leftists, known for their strong anti reform agenda, India was darling of global financial analysts, magazine, rating agencies, it is substantiated by the fact that India received the largest amount of FDI/FII inflow in crisis period when most of the countries were desperately witnessing outflow that left these economies bleeding.

Now when crisis is partially gone, lefts have left the government, the situation is diametrically opposite than what was thought, the credit rating agencies, like S&P, moodies have downgraded India’s rating to negative grade, currency is the worst performer, growth is losing its steam, FDI/ FII has fallen, and one of the most influential financial columnists Ruchir Sharma has revealed in his book BREAKOUT NATIONS that it was not inherent strength of the engine rather it was high tide that led to sporadic rise of India’s economic boat. So what went wrong in these years, people suggests mainly corruption, lack of political will and global factors.

I sincerely doubt that any of the above was absent in those years, I mean, corruption is not a new discovery and political bargain is the order of the day in the era of coalition politics, probably the responsible factors lies somewhere else.

To my mind, the way corruption is handled is the key issue, US corporate has bigger corruption cases than India’s own, but the key difference is the way they are handled at both of the places, west media has always been very critical of emerging nations growth story so little cooling off of the growth is projected as emerging nations failing story, and no doubt Indian media started aping it, we must understand that fundamentals like saving , investment rates, market capitalisation etc are still strong, there is bit of truth in the high tide story but the engine has gotten strong too.

The world economy is facing slow down, the effects of crisis on emerging economies come with a lag, and this is probably the most important reason. The supply of goods and services could not kept pace with the huge welfare expenditure across the sectors that created nflation conditions, in this scenario when rate of interest was increased to tap the inflation, it increased the cost of finances and production thus inflation became spiral, once inflation became secular, it created conditions for rupee fall and had its toll on growth rate.

The real point is that this phenomenon is purely economic, we need to form sound economic policies rather than becoming directionless, it is true that low corruption economy has better chances to grow, but in our cases, the urgency is little different, of course we should keep in mind that  long term objectives should be of reducing corruption.

The west Bengal boomerang

When mamata ji secured landslide victory in west Bengal, everyone was euphoric including me, she replaced left rule government with a promise of a great dawn, but now it seems to be fading up gradually, she probably misjudged the people mandate, clearly, it was more because of people being fed up with the left rule than sheer charisma of didi, she miscalculates that mandate has been given to do whatever she wishes to do and people will be behind her to justify her action. First it was disastrous decision to replace visionary rail minister, over an issue which she acted of not being aware until budget was made public, and now defending the arrest of a professor from Jadavpur University, over making a cartoon of her, the professor was thrashed, beaten up and forced to resign.

Even in the days of emergency Indira Gandhi never got any one arrested just because she was shown in poor lights, this is even worse than those days. Freedom of expression includes freedom to resent, until it is strictly personal affair, and by no standard this caricature was vulgar or personal, her supporters are explaining that those were real picture and not cartoon. This is the most laughable defence, as cartoons are always made to look real pictures funny. Just before this incident she ordered rewriting of history in school books, so that left ideology could be wiped off from the schools. It seems that she has become a guardian of everything that will take place in west Bengal.

The real issue is not about the cartoon or the books but about the ways she intends to carry out the governance, the real problems of Bengal are as stark as they were before her, but she chose to get engaged in those issues which suggest sheer vendetta or her own image building. At the time of left rule Bengal was stuck into the inertia, everything was compromised in the name of socialism, industry registered negative growth, number of chronically poor went up, and now when people thought they can see a new light mamta ji is engaged into everything other than real issues.

The most unfortunate event for the public figure happens to be when he or she stop listening to his/her own criticism because then they are surrounded by sycophants and false supporters who completely prevent any undesirable information and thing to reach to their leaders, and from here, these figures start drifting away from the reality, and that, ultimately becomes the cause of great collapse. Check the history of collapse of any figure and you will find almost  the same answer, I am afraid mamta ji is on the same boat.

Derailing the rail

After so many years, we saw a real visionary and pragmatic rail minister, who never intended to use the railway as a vehicle for corridors of power, this man, Dinesh trivedi, did his MBA from Texas, and make no mistake, he got it financed from a loan of rs 20000 long back in 70s,. He was more than perfect for the job, as he also worked with detex as a logistic expert. But these things, i am sure, were never in mind, when he was appointed for the job by mamta banerjee, and was never in mind when he is about to be sacked. He was simply appointed because somebody had to be there, and that too from the TMC, mamta banerjee always road on railway to get her votes, and after becoming chief minister, she never wanted to lose this beautiful wagon of popularity, so it was given to mr.trivedi.

Nobody will deny from the fact that railway is in dire need of reform, take the safety issue, although at 0.55 accident per million km, it is low, but huge population make the number of affected people quite large, the modernisation is hanging from time immemorial, the platforms are one of the filthiest place you go around, the wagons are hopeless, only one third of lines are electrified, border railway is simply inadequate, on top of that in every budget you have more trains on same track. For all these things you need money.

The central issue over which, the minister is likely to resign is the passenger fare, which has been increased marginally, that too keeping in mind class differences, is a non issue to my mind. The passenger fares are unrealistically low, and probably one of the lowest in the world. Take the example of Delhi metro, the fare I bet is , if not the highest, is competitive to other modes of transport like bus. All kind of people ride on it, rich and  poor, office goer and student, and they hardly ever complain about it, the gist is that today people are more concerned about the amenities the get than the fare, railway has not increased its fare from last eight years, taking the average inflation and cost of other inputs that have gone up average 4 to 5% in these eight years, the fare must have gone up by 10% by now, to say the least, even the cost of a cup of tea has gone up from rs 2 to rs 4 in these eight years, the simple point is that bottom income has  increased, so there was no rational behind holding the prices so low for so long. In this context this man proposed one of the finest railway budget in recent years, proposing separate authority for stations, for fare determination etc.

There is another angle of this problem as well, although railway has never been seen in the context of competition with the other modes of transport but one of the biggest reasons behind low and ridiculous development of other modes of transportation is that of low fare charged by railways and throwing other modes of transportation simply out of  competition, this further has aggravated the problem of public transport.

If people pay little higher, they seek little higher services and thus an informal pressure to reform the services on the system builds up and that, to my mind is the precursor of real reform.

They way this Nobel attempt was undertaken cornering the political expediency is really appreciable, but the way it is about to be sabotaged just show the sheer political opportunism and it is without doubt a real danger for the bigger agenda of reform.

corporate curruption in inda and US

                              

This blog is especially written in response to the article by josh Goodman in wall street journal, his article on ‘what India can learn from the US battle on bribery’ is an excellent piece, but certain refinement is surely needed in Indian context.

He points out quite rightly that it was not only the enactment of Foreign corrupt practices act 1977 in US that reduced corruption, but other factors that accelerated the process were exposing high profile cases and penalising them like Daimler, Siemens (jointly paid penalty of $ 2 billion) which could became model for other corporate to deter them from being involved in the corrupt practices, creating stakeholders in non corrupt practices and political will. There is no doubt that these measures are very important, but what is more important in India, looking at the recent spate of scandals, is little different.

The one common thread that runs across all the major scandals is the lack of automated transparency, which simply means transparency of a kind which is deeply embedded in the process itself. Let me explain it, technically the most democratic form of corporate are joint stock listed companies, the value of a company depends upon the information it reveals in the market, shares prices move as per the prospects of profit, not only that, people are wise enough to gauge the impact of even a political event on the prospects of a company, so movement of resources are ideal, but that never happens in any country, in any company. Why ? because information  are either suppressed are calculated wrong information is circulated to misdirected the choices of investors, this is exactly what happened in Satyam, Worldcom, Xerox, Enron cases where wrong accounting data were provided to the market.

In corruption cases like 2G, antrix- devas deal the major problem was again the same where, contracts or allotment of scarce resources were made through a clandestine deal, only came in the public notice when damage was already done.

So what is needed most, is the reform which embed the transparency automatically, every information that is provided by the corporate must be verified, corporate governance and especially, corporate accounting and auditing need to be strengthened , today ICAI hardly makes any news  about auditing and accounting in Indian corporate except conducting CA and CS exams, this is the high time when 2^nd generation reform is adopted,  listing of public corporate  is achieved, SEBI the market regulator is given more teeth in corporate governance, the overlapping issues between SBI,RBI, ministry of corporate affairs need to be resolved. The more the economy will be open, liberalised and market friendly, the more open information in the market will prevail. The right to information act with some exception need to be applied on the corporate as well.

India is in the nascent stage of corporate governance whose problem of corruption is anatomically different from the corruption prevailed in the US corporates which has a fairly strong corporate culture, the company like galleon and person like Rajat gupta are caught and charged, while in india, we have not heard any galleon or rajat, gupta barring few mysterious arrests like harshad Mehta and ketan parikh.

The political will follows the trend, not the vice versa, political will need to be made a process not an individual effort, to make it a process , it is important to have a strong and vibrant corporate governance, where every possible information is revealed. The major challenge is to sustain the political will not its sporadic application.( the best example is the Nitish government in bihar, who have made development as an issue, so no matter who follows him , he will always be judged on developmental parameters, so successor will be process bound to undertake development.)