indian economy - end of downturn?

I was occasionally following world economic forum summit India which is underway in New Delhi. During this event newspapers , economy focused TV channels were full of top ranking economists, business leaders and politicians.

When economic woes started up last year, politicos and others at first went on a denial mode saying that it won't effect India. Then they went overboard with so called stimulus where instead of spending the money on sectors like building infrastructure, & on subsidizing sectors adversely effected (like textiles, diamonds), money was spent on things like loan write off and other populist programs.

At that time, I made couple of points in my blog:

- I mentioned that lack of money in most cases was not the issue, implementation (things such as infrastructure) was the issue.

- Though the banks had sufficient funds they were unwilling to lend to people with dubious credit record, & people were not making big purchases due to prevailing economic uncertainty.

I also mentioned that economic recovery is going to take much longer than 6 months to 1 year estimated / claimed by several experts.

From discussions now it is clear that recovery is going to take at least 2 years to reach 9% levels prevailing earlier, with this year economy clocking 6.5-7%.

In view of the fact that infrastructure development has still not taken off , export sector still not performing, agriculture not performing well, I think it is still unlikely.

According to some reports, even the spurt seen in purchase of automobiles is to some extent contributed by the money getting diverted from loan write off to buying automobiles/ bikes etc.

Now, first part of what I have said is pretty much what most of the participants are saying now.

Another funny thing is that inflation is supposed to be negative, any lay person will know that this is not true with price of house hold items going through the roof. This is due to wrong items being measured and unreliable data.

But,yesterday I saw even a top economist saying that inflation was negative until recently!!

What drives profits of commodity players during downturn?

Continuing on about the Steel, I read recently about profits of the primary Steel producers.
Surprisingly, SAIL (steel authority of India- the state run integrated steel producerin India) had the highest profit among all Steel producers in the world including Arcelor Mittal which is 5 times its size. In my view, several issues are at play here. SAIL has depreciated plants with own resources of raw materials in most cases. Though the steel prices have come down substantially with other commodities like Aluminium, demand has not declined to that extent especially in rural India.
Now they have put their explansion plans on high gear thus taking advantage of prevailing low prices of various materials and services due to general downturn prevailing in most markets.
Read on..
SAIL 'steels' the show, tops world in profit stakes
BS Reporter / New Delhi October 9, 2009, 0:37 IST

While SAIL is operating at full steam, the capacity utilisation among other global biggies is just 50-60 per cent.
Government-owned Steel Authority of India Ltd (SAIL), the country’s largest steel producer, has emerged as the top profit-making steel company in the first six months of the calendar year, leaving behind global majors like ArcelorMittal, Posco, Bao Steel and Nippon. Sector analysts expect this trend to continue at least for the next two-three quarters.
An analysis of the financial performance of nine leading global companies during January-June 2009 showed that only three of them registered profits, with SAIL’s profit being the highest.
SAIL reported a net profit of $571 million in the January-June period of 2009, while other steel companies reported huge losses. Only Korean steel producer Posco managed to come close to SAIL by reporting a net profit of $564 million in the first half of the current calendar year. Tata Steel, another major Indian producer, also managed to do reasonably well, with a net profit of $458 million in the said period.

A STEP AHEAD
* SAIL reported a net profit of $571 million in the January-June period of 2009, while other steel companies reported huge losses * Only Korean steel producer Posco managed to come close to SAIL, reporting a net profit of $564 million in the first half of the current calendar year * Tata Steel, another major Indian producer, also managed to do reasonably well, with a net profit of $458 million in the said period * SAIL has improved its operational efficiencies on account of various measures, like rationalisation of manpower and enhancement in techno-economic and operational parameters * It is also a zero-debt company and, therefore, there is no interest cost pressure on its balance sheet
SAIL, with a 14-million-tonne (mt) capacity, is the world’s 21st steel company in terms of manufacturing capacity — much behind sector leader ArcelorMittal, which has a capacity of 103 mt. The L N Mittal-owned company reported a net loss of $1,855 million during January-June 2009, while Nippon reported a loss of $1,043 million, Severstal a loss of $944 million and US Steel a loss of $831 million. However, Bao Steel managed a profit of $98 million.
SAIL has improved its operational efficiencies on account of various measures, like rationalisation of manpower and enhancement in techno-economic and operational parameters, including coke rate, energy consumption, blast furnace productivity, etc. SAIL is also a zero-debt company and, therefore, there is no interest cost pressure on its balance sheet.
“For the next two-three quarters, SAIL is poised to perform better than other global players. This is mainly due to the robust domestic consumption growth that is being witnessed month after month. Moreover, domestic prices have remained stable. While SAIL is operating at full capacity, the capacity utilisation among other global biggies is just 50-60 per cent. Global giants are likely to see a recovery only after two-three quarters,” an analyst said.
According to a SAIL executive, new initiatives to achieve a better product mix and increase production of value-added steel have resulted in better realisation. Adoption of innovative practices suggested by employees across SAIL plants resulting in substantial savings, the executive added.

Steel production irreversible move to developing countries?

Last month, I spent couple of days in my alma mater which is celebrating 50 years.
I was participating in golden jubilee celebrations as well as attending a seminar / course on process modeling.
Place was beautiful as usual at that time of the year with rains and wonderful sunsets .
I found boys and girls were confident and smartly dressed (unlike most of us when we were students).

Before you think that I am trying to become a travel writer let me come to the topic of this blog.
During the discussion with some of the professors, I was told that India has emerged a 3 largest Steel producer in the world.
My impression was that it is in the 5th place.
Yesterday, I came across an article which said that in fact according to SAIL (steel authority of India- govt. run largest producer of Steel) India is likely to emerge as the 2 or 3 rd largest producer of Steel in the world in next few years. Of Course, China is in number one position. May be we are seeing gradual but complete shifting of all the smoke stack industries from industrial world to developing world which will have far reaching consequences....
Read on..


India to be among the top three steel producers: SAIL 25 Jun 2009, 1848 hrs IST, PTI
RANCHI: India is poised to occupy the second or third position in the world's steel industry, the Steel Authority of India (SAIL) said here on Thursday.
"Two years back we were the third largest producer in the world steel industry. While world steel industry is going through a turbulent period, we are still growing and are poised to occupy the second or third position in the years to come," SAIL Chairman S K Roongta said.
In 2008, India was the fifth largest steel producer in the world.
"In fact, in the period January to May India has already become the third largest producer. It speaks of our performance and industry," Roongta said while speaking at the 47th foundation day of the SAIL's Management Training Institute.
Former President A P J Abdul Kalam was the chief guest at the function.

world change

Recently, Reliance Industries (RIL) in India commissioned one of the world's largest refineries and productionised the oil and gas field (off the east coast) simultaneously involving the investment of Rs 100,000 crores. This is a great achievement by any criteria.
Excerpts form the recent interview with the chairman Mukesh Ambani appears below.

What I would like to point out is that he feels the change world has seen is not just cyclic but is a reset. And it won't go back to old way of doing business... He also mentioned that it is not just commodities alone...
And we have to reorient our way of thinking completely & there will be huge opportunities available.
Another small point one should notice is that size of US deficit is 1 trillion dollars which is almost size of India's GDP!

Read on...

The rules of the game will change in all aspects of economy and business, says Mukesh Ambani.

Edited excerpts:

The bonus came as a surprise to your investors. What was it meant to be—a signal?

It was a Reliance tradition, a commitment that whenever we finish a value creation cycle, we make sure that everybody is rewarded and in this value creation cycle—this was the biggest in our history—we had nearly Rs1,00,000 crore of assets coming on line. And it has improved India’s exports; the natural gas has really helped the fertilizer and the power economy. And so, after all the stakeholders, it was the shareholders’ turn. This was a commitment that we have made and this is something we are committed to.

Is it a project completion cycle or a value creation cycle as you defined it?

It’s a value creation cycle. In any project, ultimately the end objective is to create value and the value creation is for the whole economy.

At our last India Business Leader Awards conference, you said globally asset prices have to go through a reset. What did you mean by that and do you think prices have been reset?

What I really meant is not only asset prices. Fundamentally, what I mean by reset is that the rules of the game in the future will no longer be the same as the rules of the game in the past. And they will apply to virtually all the aspects in terms of economy and business as we know it.

You were not referring purely to commodity prices globally?

I really was saying that what we have been used to for the last 20-30 years and what we are going to see in the next 20-30 years—that’s a reset. You can apply it to many different things, but a reset is a reset. It’s a new way of adjusting to a new reality.

Do you think that reset has played out, things have globally bottomed out?

I think that what has happened is that there is much more recognition that it is a reset. When I first said this, people thought we are going through a cycle, and the cycle’s come back. In my view, (a) reset changes the rules of the game completely.

So we are at a stage where, yes, we are out of the ICU (intensive care unit), but we are still in the hospital?

Globally, I still think that we need to see a clear recovery path in terms of how we repair balance sheets and how do we repair balance sheets of countries, balance sheets of consumers in the developed world. Within that, India is still a very small part of that world and the good news is that our balance sheets are strong. The country is strong, our consumers are not leveraged, our corporates are good and our economy has a lot of potential.

But our balance sheet still has some question marks as a country?

Relative to everybody else, we certainly look good. So, relative to the $1 trillion-plus (Rs46 trillion) deficit in the US, relative to what is happening, I still think that. And everything is relative. Surely, we have to strengthen our balance sheet. But that really is our opportunity. That is why I think that India has to seize this opportunity.

Do you think global demand-supply conditions will improve and these globally focused companies continue to do better going into next year?

I think that as the world readjusts, understands the resets and charts out a path to repair and renew, there will be opportunities. The challenge really is that one has to recognize that on the back of debt there is overcapacity, and that overcapacity has to rationalize.

For Indian companies, in virtually all sectors, the challenge really is to be the most productive, to be the most competitive, to be the most efficient, so that in every sector they have the opportunity to come out in the top quartile. I think if we do that, we will not only adjust with the external world, but I think we will also create more value for our domestic markets.

Globally too, commodity cycles have overcapacities.

My view is that with the debt pinch that the world has gone through, you would be surprised as to what kind of capacity readjustments there will be virtually in all sectors.

You spoke about an asset cycle. Are you ready for the next value creation cycle at Reliance as well?

Yes, we are. We have laid that down pretty well. We laid down from AGM (annual general meeting) to AGM over the three- to five-year period.

So you will have to wait for the next AGM to get specifics of that. But the direction is not changing at all.

Who says public sector is paid poorly?

Read the article below on Air India which appeared recently. Air India is thousands of crore in the red, but not the employees. Who says public sector employees are paid poorly.? Pilots even get an allowance called RVSM (hold your breath) for maintaining safe distance between aircraft while flying. (1 crore = 10 million, 1 USD = 48 INR approximately).

Read on..

Maharaja’s Rich Subjects

Not only is Air India overstaffed, some of its officials are overpaid — 5 per cent hog a fourth of the wage bill

By Anjuli Bhargava

Swallow this: Air India has 1,790 employees who earn over Rs 24 lakh a year. That is 5.6 per cent of its total 32,000 employees. The total wage bill for these 1,790 employees is around Rs 800 crore. In other words, nearly a fourth of the total salary paid annually goes to just 5.6 per cent of the staff. Of this, 181 employees are based abroad and 1,609 in India. Of those in India, 838 are pilots and 770 are engineers; 363 of these earn over Rs 50 lakh a year, whereas six employees earn over Rs 1 crore annually.

Hold onto your seats. This is only the taxable income these employees earn. There is almost no record of their non-taxable earnings. The airline’s total wage bill is about Rs 3,600 crore a year. It has 125 aircraft in operation, offering a total number of 48,000 daily seats. Jet Airways, with 107 aircraft and 12,000-odd employees, has a wage bill of about Rs 1,200 crore. So, not only is Air India overstaffed, it also overpays its staff.

A commander with nearly nine years’ experience in a private airline earns Rs 50-70 lakh a year, while his Air India counterpart will earn around Rs 60-80 lakh a year. This may not seem very different.

But in reality, things are pretty different. On an average, an Air India or Indian Airlines pilot will fly a lot less than a Jet Airways pilot. This is due to a crazy agreement signed between the pilots’ union and the management. It allows them to fly a lot less than what is prescribed by the Directorate General of Civil Aviation. As a result, they fly an average of 700-750 hours a year (Indian Airlines) and 550-650 hours (Air India) against 900-1,000 hours for a private airline pilot. They do up to three landings in a day (for the fourth landing, the airline has to pay them extra), while private airline pilots do up to six. A Jet Airways pilot recently told me that he flies three times as much as his friend in Air India does, and earns roughly half — both are from the same batch of school and pilot academy.

In Air India, line (regular) pilots and executive pilots are entitled to a host of complex allowances such as experience allowance, licence allowance and fixed productivity allowance. Many of these are applicable for outstation night-stops. The executive pilots are reimbursed for phone bills, car maintenance and fuel. They get a literature allowance to keep abreast with the world. In many cases, accommodation in Indian Airlines and Air India colonies in Vasant Vihar (Delhi) and Santa Cruz (Mumbai) is provided at throwaway rates to senior pilots so many rent out their own houses, and use official accommodation. Predictably, getting retired pilots to vacate has been a challenge in the past.

The pilots’ allowances move from the sublime to the ridiculous. One hilarious example is the RVSM allowance. RVSM is the reduced vertical separation minima that the International Civil Aviation Organization requires one to maintain between aircraft flying above a certain level. For some odd reason, the pilots of the erstwhile Air India are paid an allowance towards this. Can someone explain why such an allowance would be needed? Doesn’t it just make sense to keep a healthy distance to avoid mishaps? This system is unique to Nacil, the company that runs Air India; (Jet, for instance, has no such allowance). In spite of the merger, Indian Airlines pilots insist on 50 per cent over and above their normal duty rate for hub-and-spoke flights. Similarly, some pilots who no longer fly get a fixed amount for 80 hours of flying in a month.

But regular pilots are put to shame by yet another category — deputy general manager (DGM), operations. I counted 174 of them in Nacil’s annual listing, and most of them earn a taxable income of Rs 75-80 lakh a year. Some of them must be performing a really special task — invisible to the naked eye — since their annual pay is well in excess of Rs 1 crore.

In many cases, DGMs earn more than the GMs, and in some cases even more than the executive director! Age, years of experience and educational qualifications have little to do with what you draw. For example, two GMs with the same years of experience, age and degree — both are class 10 pass — earn Rs 1.18 crore and Rs 71 lakh respectively. Parity is clearly unheard of in Air India. Educational qualifications, as you may have noticed, seem pretty irrelevant too.

In the pilots’ defence, I must add that pilots’ globally earn well and are entitled to many benefits, and in the case of Air India, many of these benefits have been agreed to by previous managements. Any proposed withdrawal will naturally be resisted. It is now up to the new management to do it as painlessly as possible.

Accounted and unaccounted wealth in India

According to estimates by investment arm of banks and other financial institutions number of US dollar millionaires in India is about 150,000. These are the people who have acquired wealth by legal means and is invested in stock markets etc hence legal and accounted for.

It is widely believed that black market economy in India is estimated to be as high as 60 % of the GDP. This type of wealth is acquired by land transactions, bribes, commissions, trading,professionals paid in cash, etc. Thus in my view one can easily assume that there are at least 250,000 USD millionaires in India. Thus there is a tremendous opportunity for selling luxury goods, plush apartments,foreign travel etc for which this type of wealth has to find avenue. Read the article below.


In India, the number of dollar millionaires rose 22.7% to 123,000 in 2007
Nishant Kumar / Reuters

Mumbai: Indian wealth managers are set to start hiring and revive expansion plans as a rebound in domestic shares mints millionaires, creating fertile hunting ground for new clients.

The revival comes after a tough 2008 when the ranks of the rich in India — defined as those with $1 million (Rs4.84 crore) or more in investable assets — fell by nearly one-third to 84,000, the steepest drop in the world after Hong Kong, as a 52% fall in local shares wiped out billions of dollars in wealth.

Though demand for riskier, higher-fee assets such as real estate and private equity remains below 2007 levels, industry insiders said, players such as Deutsche Bank AG and Standard Chartered Bank say new client assets under advisement have surged by more than 25% in 2009.

“The opportunity that is presenting itself in India today is unparalleled compared to any other parts of Asia,” said Soumya Rajan, head of Indian wealth management at Standard Chartered. Her firm aims to add at least $500 million in client assets at its Indian wealth arm by the end of 2010, taking the total under management to more than $2 billion.

New entrants Morgan Stanley and Britain’s Barclays Plc are also looking to hire to capture a piece of the high potential Indian wealth management industry.

Morgan Stanley attracted nearly 300 clients between the launch of its India wealth management business in September 2008 and last month, a number it aims to grow to 1,000 over the next three-four years. It intends to add another 50 wealth management staff over the next three years, a gain of 50%.

“Where is the growth? U.S., Europe, Japan—demographics are against growth... For India, we are just on the growth curve,” said Ajay Bagga, head of Deutsche’s Indian wealth arm.

The number of dollar millionaires in India rose 22.7% to 123,000 in 2007, the fastest in the world, attracting new wealth management entrants such as Morgan Stanley, Societe Generale SA, Credit Suisse Group AG and Barclays.

Late in 2007, before the global financial crisis, consultant Celent had forecast that the organized wealth management industry including private banks, then growing at 32% annually, would quadruple to manage about $1 trillion in five years.

Since India restricts overseas investments to $200,000 a year, foreign players have less of an advantage from their global networks than they enjoy elsewhere.

Kotak Mahindra Bank Ltd and HDFC Bank Ltd are among local players competing with foreign names such as Bank of America Merrill Lynch, Deutsche, HSBC and Standard Chartered to attract wealthy Indians.

However, wealth managers in India say the focus is less on grabbing market share than growing the overall industry.

“A large amount of opportunity lies not with the competition but expanding the market,” Satya Bansal, head of Barclays Indian wealth unit, said recently.

Small car exports from India

I think Indian car manufacturing market has reached inflection point.
Number of units exported has exceeded that of China which is 3 times India's size.
Also, I would like to add all other exporters like China, S.Korea, Thailand had a sharp decline in units exported.Also, it is expected that car sales including exports should touch 3 million from current 1.5 million in next two years. I think quality and value proposition are the main drivers.
Read the article below:

India’s auto market continues to grow fast even during a global auto downturn giving it an added attraction
Janaki Krishnan / Reuters

Mumbai: Global car makers are lining up to make India, home of Tata Motors Ltd’s Nano, the world’s cheapest car, a base for their export operations as they try to cut costs and move to compact, fuel-efficient vehicles.

South Korea’s Hyundai Motor Co., which already exports close to half of its Indian output, wants to make India its global hub for making and exporting small cars.

Toyota Motor Corp., the world’s largest auto maker, is designing a compact car for the Indian market and plans to make the country its small-car hub by 2012. And Ford Motor Co. is investing about $500 million (Rs2,445 crore) to double capacity at its India plant, which will not only produce a compact car but become a strategic global production hub.

Japan’s Suzuki Motor Corp. has a strong foothold as the majority owner of leading Indian car maker Maruti Suzuki India Ltd, which is spending at least $300 million on building a small-car research and development centre in the country. The firm exported 54,707 cars in the five months from April, the start of the 2010 fiscal year, more than double its shipments for the same period a year earlier.

“Apart from the obvious cost advantages, India has a good base of component suppliers who come with the experience of having supplied to global car companies,” said Deepesh Rathore, auto analyst with IHS Global Insight.

India’s domestic auto market is relatively small considering a population of at least 1.1 billion, with around 1.5 million passenger vehicles being sold last year. It is, however, a fast growing market, even in an auto downturn. For the first four months of 2009-10, domestic car sales rose nearly 10% from a year earlier. That potential offers an extra attraction to base export operations in India.

“Remember, India, along with Brazil, Russia and China, is a fast growing market,” said P. Balendran, vice-president, marketing, General Motors India. “All big companies have created capacities here. So when they have the capacity, it has to be utilized. Until the domestic demand picks up, these cars will be exported,” he added.

General Motors Corp., plans to export 20% of the output from its plant in Maharashtra in western India by 2011, once it reaches its full capacity of 140,000 units. Hyundai is stepping up production of its popular i20 hatchback to export to more countries to meet the growing demand.

John Parker, Ford’s Executive vice-president of Asia-Pacific and Africa, said its compact car would cater to local and export markets. “We see lots of potential for exporting cars from India,” he said, adding that India, along with China, Thailand and Africa, was seen as a strategic centre, especially for small cars

Suzuki in India

The article below is about Maruti Suzuki which is majority owned by Suzuki & holds more than 50% market share.
Particularly of interest is the elaborate thoroughness with which care is taken by the parent company in making changes and R + D. (Probably, the fact that Suzuki did not have majority share holding for many years is something to do with this but not entirely)
Please read the link below.
http://www.livemint.com/2009/08/20205913/A-Maruti-car-to-be-made-entire.html?h=B

Positive thinking

This is a tale about what positve frame of mind can do. Read on..
Appeared in TOI.

Mishap broke his spine, but not his spiritMUMBAI: On a cold evening on December 2, 1958, a balcony collapsed on Balasaheb Dharap, then a 29-year-old government employee. The accident
severely injured his spinal cord and confined him to a wheelchair but it didn't stop him from climbing the career ladder, wheeling around Leh or enjoying the thundering Niagara Falls.

It wasn't easy, admits the 80-year-old Shivaji Park resident about his 50-year tryst with the wheelchair. "I have complications associated with spinal cord injuries,'' he says, "I can't walk more than a few steps with crutches and that too with support. I don't have control on my bowel or bladder movements and am prone to bed sores.'' His wife, Vasumati, recalls how fellow commuters would argue about his folded wheelchair being carried into the second-class compartments. "They would want it in the luggage compartment,'' says the couple.

Dharap retired as joint director of industries in the state government over 20 years ago. He ensured equality education for his three children; two of whom were born after his accident-a rare occurrence for paraplegic patients. And, he hasn't spent a single evening in despair or pity-"after the accident, my wife and I decided that we wanted to be happy in the company of people,'' he says.

Vasumati has penned a book on Dharap's experiences, titled Can't Walk? So What. On Thursday, Nina Foundation, an NGO, is observing its first Spinal Injury Awareness Day by felicitating differently-abled heroes like Dharap.

Ketna Mehta, the founder of Nina Foundation who is a paraplegic after a paragliding accident, says spinal cord injury patients are ignored. "On a conservative estimate, India has three lakh such patients. Studies estimate that 20,000 fresh cases are added every year, yet there is little in terms of rehabilitation for us,'' says Mehta, who has done a doctoral research on this subject.

On Thursday, the NGO will encourage people to wear a blue ribbon to spread the message that it is possible for patients to carry on with pride. "There are many people who, despite being paraplegic (with loss of strength in two limbs) or quadriplegic (loss in all four limbs), have active careers and interests. The idea is to take stock of the talents and skills you possess,'' says Mehta.

Dharap couldn't agree more. Innovation, he says, is the key. "Travelling to work was difficult and expensive in a taxi every day. So I got a customised tempo and drove it to work every day,'' he says. Before going for movies, he would not take liquids to avoid going to the toilet. "I learnt that shifting your weight every half an hour in the wheelchair helps fight bedsores,'' he says.

swine flu test

People are groping the dark to find a test for swine flu.
At last there is a quick test. When you wake upin the morning look yourself in the mirror.If you look as below then don't go office.

End of London as world financial center?

Blog entry after a long time.
I came across this article in respectable (and left leaning) Guardian news paper.
For 300 years Britain has outsourced mayhem. Finally it's coming home
The author tracks the colonial history of Britain and its linakge to present day economic woes. Please read this article and I would love to read your comments.

http://www.guardian.co.uk/commentisfree/2009/jun/08/british-empire-colonies-banks-reform

Recent articles

Some articles I read recently, this one on car manufacturing hub in India, manufacturing volume appears to have reached critical mass, My take is that new players are going to find going tough.
http://www.thenational.ae/article/20090308/BUSINESS/909278899&SearchID=73347771034329

News again about Madoff. He is likely to be sentenced to 150 years in prison (of course he is only 70!)
http://news.yahoo.com/s/ap/20090311/ap_on_bi_ge/madoff_scandal_28

stimulus package.. continued

While some commentators have been saying that economies of India and China will (hopefully should) be the beacons which would pull the shrinking world economies out of the present doldrums.
Though the Indian economy is expected to clock 7% growth, I am inclined to be more skeptical.
Consider these:

++ Reserve bank of India (RBI) has been easing up on liquidity with the result banks and other financial institutions have plenty of cash. But,they would not like to lend to people with dubious credit rating and most of the people who have income to make large purchases are not inclined to borrow in view of prevailing uncertainty.
++ Also, banks are insisting on much higher percentage contribution from borrowers to prevent them from simply returning the property when the prices decline which seem to be the case in many projects.
++ Most of the real estate projects were for higher end properties which have very few takers now a days. Many of the companies are scrambling to reconfigure so that medium/low income people could buy them- but this will take some time to fruity.
++ Inflation reached record low - in a developing economy like India it is alarming in my view if sinks further.It indicates that people are not buying / spending money rather they are saving money and also there is decline in demand.
++ Most of the infrastructural projects are proceeding at snail's pace
++ Finally, UPA regime has been on a spending binge without utilizing the money for creating productuve assets. This is also pushing the deficit to record levels.

Please comment......

Ombudsman

There is hue and cry about Karnataka H.M. (home minister) Acharya's proposal to appoint Ombudsman for electronic media.
I think there is some merit in what he is saying - Power corrupts; absolute power corrupts absolutely This is applicable to electronic media as well.
Following is an instance regarding alleged kidnapping of CPM MLA's daughter incident in Mangalore. These are the news headlines in leading news channel
in sequential order:

++ CPM MLA's daughter and friend kidnapped from bus by Bhajrang dal activists - severely beaten up. One more instance failure of law and order.
++ Girl's father says Rama sene people were responsible - insensitivity of HM, I will take it up with central leadership. No news about girl getting beaten up.
++ Alleged perpetrators arrested, 4/5 from outside state. It turns out that they belong to CITU union (communist union)
++ News item abruptly pulled out of news headlines from all channels - no explanation given.

Half the guys including the newspapers opposing are asking what is an Ombudsman?
By the way, Times of India (TOI) did have a ombudsman many years ago.

stimulus package

I have commented here about india's economy not needing stimulus package, though the clamor from many quarters continues unabated.
My views seem to be supported by KV Kamath of ICICI. See excerpts from the interview below as well as the link of the complete interview:

CNBC TV18: As you are indicating a turnaround in the next quarter itself then can I assume that you don’t feel any need for any additional fiscal stimulus packages in the country?

KV Kamath: Package per se I don’t think we require.

URL of interview:
http://ibnlive.in.com/news/economy-already-showing-signs-of-recovery-kv-kamath/85026-7.html

without comment

Explanation for Mangalore violence in the pub -without comment:
Sri Ram sena is a sena of Vanars (Sri Ram Sena Activists) led by their Chief Vanar (Mr. Muthalik) trying to protects Sitas (Indian Girls who have lost their composure in the Land of the Sita) from the land of demons, The Lanka (pubs/bars). They ain't doing anything wrong.. While Sri Ram also gave lots of advice to the Ravans but ultimately had to attack as the Ravans of Lanka did not bend.. So stop arguing abt the minuscule violence and start rectifying our culture in actionable terms.. Keep educating the youth the pubs not to cross extensive boundaries.. Well if they don't listen hand over them to law, and if the law of the land doesn't take action or sides with the so called pub activities then its time for moral police to come in whack one or two.

Satyam fraud saga – the real story

It is now more than a month since Ramalinga Raju (RR) made his stunning
announcement of cheating to the tune of 1 Billion dollars. Every day, newspapers and electronic media come out with new revelations , “ exclusive scoops” & plants by various vested interests.

In most cases, these stories are promptly contradicted very next day by other sources like CID, RR’s lawyers, Central govt., Andra govt. , SEBI,SFO, income tax dept. etc.
In this din of news stories, sound bites and planted stories certain core issues are getting ignored deliberately or otherwise.
Consider these:

Though RR turned out be a fraudster, there is no doubt that he has built a billion dollar enterprise capable of delivering high quality products and services. According to data available, Satyam was 3rd largest Indian software exporter with turnover close to 2 billion dollars and a Indian success story. There is no doubt about quality of output or that of its many people. Otherwise, Satyam won’t be winning orders from Fortune 500 clients (like GE) and managing to retain them for so many years.

It is now more than a month still agencies (like SEBI) who have competency to unravel the accounting fraud have not got around to interviewing RR. (only today SEBI has got clearance). It is pretty clear that agencies like CID simply don’t have competency to investigate. Govt. could have easily decided as to which agencies should have priority in interrogating RR. From this it is obvious that RR has powerful political backers who are in cohorts with him. During this delay, most of the evidence would have been destroyed.

The foreign "auditors" PwC have been certifying the company for 8 years - they are being treated with kid gloves.

After taking prompt action to dissolve the board of the company, central govt. appears to have lost its way. Minister Gupta appears to have missed out on important point that Satyam is not a public sector undertaking. Also, it appears that he does not the seem to realize that govt.’s primary task is to protect the interest of share holders (who are in India and US), customers (who are mostly outside the country), employees (many of them seem to be of good quality) and ensure this type of fraud does not happen again.
Instead, govt.’s primary focus appears to be selling off the company as quickly as possible, and for a song. This will help to protect lot of vested interests and prevent skeletons tumbling out of cupboard.
Second priority appears to be appeasing foreign share holders. In the process, keeping Satyam as an independent company, protecting interest of Indian share holders & protecting jobs of employees appear to be least of govt.’s concerns.
Consider these:
 When RR made his infamous announcement, share price crashed to as low as Rs 6.5 /share from original quote of 180. Critical question to ask is why did the circuit breaker of the stock exchange not kick in and stop the trading? It appears that stock price was deliberately brought down so that valuable company can be had for a song.

 No information has been made public as to extent of hole in the balance sheet even now. Why should it take so long when all the transactions are electronic?

 SEBI seems to be in hurry to change the rules of takeover; It is actively considering changing purchase price to be paid to average of only 2 weeks’ quoted price from six months at present.
 Since govt.’s intention to sell has been made public that too at throwaway price, there is a deluge of people ready to buy the company in as is where is condition. Why are all these guys lining up? Simple. They have realized that it is a bargain in the offing. Most of them have no competency to run an IT company, some of them have even dubious track record running companies to ground. Some are even suggesting / considering e-auction as if it is cattle feed one is buying/ selling.
 Also, large number of people have thrown their hat in the ring to become CEO and CFO.

Even I am considering making a bid!!

book

Talking of books one of my favorite books is :
Rise and fall of third Reich by William Shirer

One of the most important characters (after Fuhrer) I found interesting was was Joseph Goebbels
the propaganda minister.

The economy and panic button

Now that Indian economy is expected to grow at the slowest pace in last 5 years, the UPA regime is in panic mode with the elections nearing.
It pressed the panic button and pushed the Reserve bank of India (RBI) to repeatedly take measures like increasing liquidity in the system. One more measure is in the offing it appears.
But certain factors are not being considered :
For a large economy like India it takes quite a while to see the effect of such measures.
From robust tax collection of last few years, the Govt. went on spending binge giving handouts to (some deserving) and mostly undeserving people, & not building assets. At the same time, completely ignoring infrastructure development started by the earlier govt. For instance,only small percent of the highway building program has reached financial closure resulting near standstill of this activity in the last couple of years. Consequently, for the measures being taken by RBI there are very few takers., as the economic activity has slowed down significantly in this area. And though liquidity is available banks are not prepared to lend.
When the oil prices were at the sky high levels, the govt. waited too long to increase the prices as a result nearly wiping out the oil distribution companies.
Now the oil prices have moderated the regime is reducing prices recklessly leaving very little money for the oil companies to invest for the future.
The justification for reducing prices given is to put money in people's pocket so that they can spend more. It appears that people in the finance ministry/ planning commission have no idea as to what they are talking about! They are ignoring the fact that India is not a developed country like U.S(where people tend to spend all the money) but is a developing country where most people save money whenever they can rather than spend it.
Finally, planning commission fellows like Montek is repeatedly interfering in working of RBI which is not their business in the first place thus destroying the independence of RBI.
If this behavior continues economy is heading for deeper trouble.

elections in India

As general elections get near the fights are getting nastier. This is between the political parties and their lackeys and newspaper and TV channels.
The news media has their own favorites - it is basically business rivalry masquerading as high principle.
Recent incident in Managalore is one such incident.
Simple hooliganism (where few females & their friends were beaten up )which was stage managed in front of media was projected as atrocity, molestation, Talibantion etc etc.
This incident looks like it is a setup.
Whereas far greater incidents are simply papered over.

Ponzi and other schemes

"In today's regulatory environment, it's virtually impossible to violate rules." -- Bernard Madoff, money manager, Oct. 20, 2007

About a year later, Madoff -- who once headed the Nasdaq Stock Market -- told investigators he had cost his investors $50 billion in an alleged Ponzi scheme.


I was amazed to read that Made -off (as some people call him) has been cheating for decades and had defrauded to the tune of 50 billion dollars (yes- billion).
Though he was arrested I read somewhere that he is living comfortably in villa though under house arrest. Nobody seems to be in a hurry to investigate. Lesson seems to be that when you rip off rich and powerful justice will be slow super slow.

When I was a kid in a small town of Karnatka state, Ponzi schemes used to be quite common, (they used to be called by various names such as chit fund, finance company, I heard this term only recently).
Modus operendi was : Some fellows set up a finance company and lend money at super duper interest rates. There used to be huge crowd of people to deposit money and collect interest - and the company used to lend money until a point when there was mismatch & promoter used to take money and disappear (unless he was caught and beaten by the people). The principle was : if inflow > outflow + profit the scheme will continue. This is same as that of scheme above. So long as Made-off's inflow was more than outflow and profit it would continue. Unfortunately, the scheme fell through when the market tanked.
By the way, some people are calling US govt. the biggest Ponzi scheme of all - i am trying to find out why- have vague idea. Any ideas?

Catch-22

I read parts of Catch-22 by Joseph Heller again.
It is one of my all time favorites- brilliant satire set during world war-2.
The tale is essentially that of

fictional airman, Yossarian, the existential hero and moral center of Heller's fierce satirical depiction of army life in Catch-22.
The title of this brilliant satire, in which the real enemy appears to be the commanding officers rather than the opposing army,
has passed into the language. With sinister logic, Yossarian, who is trying to get himself
removed from action on the grounds of insanity, is told that only madmen want to fly missions,
and the fact that he wants to be grounded proves that he is sane,
and therefore fit to fly. A Catch-22 situation describes any similar no-win argument.

Even now it has many parallels in daily life everyday.
Those of you who have not read grab a copy if you can.

interview with ASQ ex president

Please checkout the interview by ASQ (American society for Quality) ex president's (E M Keim ) India
visit.
I found this to be quite informative.
http://www.livemint.com/Articles/2009/01/19205339/Using-quality-to-gain-an-edge.html

Few inferences could be drawn:
1. Holistic view of Quality has to be taken rather than quick fix solution.
2. In medium to long run it leads to improved profitablity
Comments appreciated.

predictions 2008

Yes! 2008 predictions read it some time ago- long time since I wrote here. Will be regular now onwards.
Read on:


1. "A very powerful and durable rally is in the works. But it may need another couple of days to lift off. Hold the fort and keep the faith!" -- Richard Band, editor, Profitable Investing Letter, Mar. 27, 2008

At the time of the prediction, the Dow Jones industrial average was at 12,300. By late December it was at 8,500.

2. AIG (NYSE:AIG - News) "could have huge gains in the second quarter." -- Bijan Moazami, analyst, Friedman, Billings, Ramsey, May 9, 2008

AIG wound up losing $5 billion in that quarter and $25 billion in the next. It was taken over in September by the U.S. government, which will spend or lend $150 billion to keep it afloat.

3. "I think this is a case where Freddie Mac (NYSE:FRE - News) and Fannie Mae (NYSE:FNM - News) are fundamentally sound. They're not in danger of going under I think they are in good shape going forward." -- Barney Frank (D-Mass.), House Financial Services Committee chairman, July 14, 2008

Two months later, the government forced the mortgage giants into conservatorships and pledged to invest up to $100 billion in each.

4. "The market is in the process of correcting itself." -- President George W. Bush, in a Mar. 14, 2008 speech

For the rest of the year, the market kept correcting and correcting and correcting.


5. "No! No! No! Bear Stearns is not in trouble." -- Jim Cramer, CNBC commentator, Mar. 11, 2008

Five days later, JPMorgan Chase (NYSE:JPM - News) took over Bear Stearns with government help, nearly wiping out shareholders.

6. "Existing-Home Sales to Trend Up in 2008" -- Headline of a National Association of Realtors press release, Dec. 9, 2007

On Dec. 23, 2008, the group said November sales were running at an annual rate of 4.5 million -- down 11% from a year earlier -- in the worst housing slump since the Depression.

7. "I think you'll see (oil prices at) $150 a barrel by the end of the year" -- T. Boone Pickens, June 20, 2008

Oil was then around $135 a barrel. By late December it was below $40.

8. "I expect there will be some failures. I don't anticipate any serious problems of that sort among the large internationally active banks that make up a very substantial part of our banking system." -- Ben Bernanke, Federal Reserve chairman, Feb. 28, 2008

In September, Washington Mutual became the largest financial institution in U.S. history to fail. Citigroup (NYSE:C - News) needed an even bigger rescue in November.

9. "In today's regulatory environment, it's virtually impossible to violate rules." -- Bernard Madoff, money manager, Oct. 20, 2007

About a year later, Madoff -- who once headed the Nasdaq Stock Market -- told investigators he had cost his investors $50 billion in an alleged Ponzi scheme.



10. A Bound Man: Why We Are Excited About Obama and Why He Can't Win, the title of a book by conservative commentator Shelby Steele, published on Dec. 4, 2007.

Mr. Steele, meet President-elect Barack Obama.