Thursday, November 17, 2016

Congratulations to Mr Modi for Creating Mini Recession

A little more than a month after the 'shock and awe' by Prime Minister Modi,the football match between Government and opposition,economists on each side as well as the debate in the street is still on.

Initially what looked like a brave step in the fight against corruption is frankly turning out to be a damp squib.Almost 75% of the cash seems to be back in the banking system(11 lakh Crores) and there is still half a month left.

It just shows how successful the Prime Minister has been in his 'PR" that people on the ground despite hardships have not rioted or been impatient in a big way.That feeling is slowly giving way to some anxiety although the person in the street is still unable to do the maths.

I hear those defending 'demonetisation' say that the 'pain is short term but gain is long term".Yet no one seems able to define the short term?

Worst is the new line taken by PM Modi which basically is a climb down and the government is seen pleading with the corrupt to bring in the unaccounted funds.From levying a penalty of 200% of the funds found now the new scheme says pay 50% tax and hold the remaining for 4 years to get away with your income from corruption!

An average working person in the highest tax bracket gets 30% deducted at source so those who did not choose the path of corruption might be feeling let down.

Rural India

As per Newslaundry.com -  5.3 bank branches per one lakh Indians in rural India 15 years ago. Today the figure stands at 7.8 bank branches per one lakh Indians.

This shows that a majority of rural India has very little access to banks and the organized financial sector. They rely heavily on cash and the informal credit system. 

Then, we have just 2.2 lakh ATMs in the country. For a population of over 1.2 billion people, that's a very small number. And guess what? A majority of ATMs are concentrated in metros and cities.

 For instance, Delhi has more ATMs than the entire state of Rajasthan

Given the poor penetration of banks and formal sector financial services in rural India, we believe that Modi's cashless economy ambitions are a distant dream. 

Its like Modi trying to promote a sprinter who cannot even break the national record yet is being told to break Usain Bolt's Olympic record.

I am not even commenting on the bungling by the RBI and consequent domino affect on all Banks.The new Guvernor,Mr Urjit Patel has been silent other than press releases to say that they are taking measures to tackle the situation.

Modi who promised to set things right within 50 days now says that the situation will improve slowly!!Its like his pre poll comitment to bring all the 'blackmoney' stashed abroad so each Indian gets 15 lakhs in his or her bank account.All of us are not waiting with bated breath!!

Even RBI projects a 50 bps de growth in GDP.The general consensus is >100-200 bps.

Point to be noted is that things were working with a lag so the effect did not seem so bad in the first month but now with supply chains cashless,farmers not able to plant in the winter(Rabi) season the inflation and price growth will come in to bite.

I fear stagflation due to these policies.Rise in inflation - fall in demand.Unemployment.Fall in discretionary spending.I think Mr Modi should be congratulated for creating a mini recession.

Rural India has been worst hit and all these emergency measures of putting up more POS terminals in villages cannot work before One Year as the financial institutions do not have the bandwidth.

The Banks spent years trying to keep customers out of bank branches and this currency demonitisation has shown how stretched their resources are.It will not improve immediately.


This pain will become systemic and likely stay till Q2 of 2017 as RBI,Banks,NBFCs do not have any solution.

Cost of printing and replacing 85% of the currency is quite large

Unemployment in seasonal and manufacturing,lack of spending and consequent lack of growth in revenues for sectors will remove the positives of a good monsoon after two drought years.

Positively the banking system has been flushed with 'dead money' and the fear factor might force a lot of businessmen to do away with cash hoarding and follow a straighter path.

Interest rates 'may' come down although the Bank NPAs do not signify too much of a rate cut in the short term.

I doubt this step has dealt an ultimate blow to corruption or blackmoney by a long shot.India has paid a higher negative price than any estimation for this and will continue to do so.

Let us see if the Budget on 1st February 2017 can be an unexpected gamechanger?

India Demon(itized)...Why Do We Get This Sinking Feeling?

When my friendly neighbourhood grocer informed me one night last week that currency notes of denomination 500,1000 had been declared non legal tender,I laughed it off as another one of those bizarre rumours like Lord Ganeshna drinking milk that circulate from time to time.

The maverick politician has seriously done the unexpected this time.The long queues,the disruption to normal life and weddings and deaths was n unexpected corollary.A few weeks hence all the din will be forgotten and life will resume its old course.

Has it really changed the 'shadow' economy or dealt a death blow as the Government would have us believe?

There will be an affect certainly.But from where I stand I rather feel that its the small fry businessmen and big farmers in the rural belt that would have faced the consequences and not the big politician-businessman-industrialist-lobbyist.

They have been into  real estate,diamonds or offshore banking for many years now.

But I laud this government for putting the gloss and winning brownie points in "The Fight Against Corruption" while at the same time leaving the backdoor open for the connected ones to get away without fear or favour.

(A)The whistle blower's list of HSBC, Switzerland has not been made public till date?
(B)Election funding is still opaque(as in dark)
(C)Reintroducing bigger denomination notes immediately recreates the 'cashpile'.

The common citizen is forced to join the move or their patriotism and everything in between is questioned and chided for not been able to take the hardship.As if the everyday hardships in life were not enough!

"The poor get hand out,the rich get bail out,its those in the middle that get left out"
  Navneet Munot,CIO,SBI Mutual Funds

This quote to me catches the dilemma of the middle class perfectly.Pay all the taxes,surchages etc,give up any subsidies and see the cost of living escalate without any social security.

Still any step to fight the trillion rupee 'black money' market is welcome.The best brains of the Indian Administrative Service could not make the (demon)itisation work and its only the bankers who have been going all out to keep riots and violence from breaking out.

When will the IAS which has become a cozy power club be reined in?

When will Ministers become accountable for their work?

Can this country bear to have high income tax where a .77% of the population pays taxes and the rest enjoy?

How can we develop our infrastucture with such a handicap?

China's  per capita income stands at approx $8,000 against Indians $1,340 which 20 years ago was in India's favour.

As a nation we are not evolving.Religion,building temples or mosques,tribe,caste,gender stereotypes are being used as an election card to win votes,always has and continuing.

Not a single leader of stature that seems to be able to rise above chest thumping self agrandizement.Yet we talk of turning Kolkata into London or whatever!

PM Modi may be lauded as he is trying to instill some reforms,time will be the judge.I hope for India's sake his "Make in India" campaign becomes real and not just any slogan as we seem to be becoming a nation of traders,buy from China-thailand-US-Germany and sell here.

Can you recall an Industrialist of note to have started any manufacturing behemoth?

Please do not include the Bansals of Flipkart who are shoving PE money into advertisements and showing GMV(Gross Merchandise Value) as business success while having losses for over 8 years yet travelling the Globe preaching on how to be a successful entrepreneur.

A whole class of 'real' entrepreneurs that get into moddernizing Agriculture,Supply Chains is the need of the hour.

Tuesday, November 8, 2016

Personal Tr(i)ump(h) But Future Uncertain...!!

As I write the much reviled Donald Trump sits closest to becoming the next POTUS(President of the United States of America)...!!

How could the polls be so wrong?And WHY?

Being a psephologist seems to have become a bit of a rollercoaster as we saw with many election results in India.

JPMorgan says that a Trump win is more shocking than BREXIT.Carrying on from where I left off the previous post does this signify a change in thinking of people fed up with the sameness of political rhetoric and the same practised lines spoken from different podiums?Maybe.

Does it mean that Americans and the British all want to be left alone in a World fast becoming a small hop skip and jump from each other.Will there be new "Chinese Walls" all across and not just the Mexican border.

All I can say is that there is certainly an unorthodoxy of these amateur politicians in the offing.Prime Minister Modi shocked a nation by wiping of 6 lakh Crore rupees of black money from the system with one single announcement making the Rs 500 and Rs 1000 currency notes non legal tender!

Despite the short term pain Indians will learn to live with it but those mid level businessmen,small time politicians,criminals and sundry would have seen their wealth evaporate and about time too!
A statistic I came across says that majority of the taxes are paid by .77% of the population i.e. the working middle class that gets TDSed(Tax deducted at Source).

Globally we can look forward to high bouts of volatility but I am sure that Trump will try to tone down his abrasiveness and modify a lot of his more exotic proposals,after all he is a famous liar.

I wonder what will happen to all those American citizens who swore to emigrate to Canada?
I wonder who will pay for the Mexican Wall
I wonder if the peso will survive!!

But I do know that the markets are in for an exciting time and if you do not love "VOLATILITY",you are requested to stay away!