Wednesday, July 31, 2013

Telengana - Andhra- Dividing People- Advantage Congress- Disadvantage People

So many issues- Doubt whether the Telengana people are going to be happy. Or the other half. Things that cannot be shared would include Tirupati temple, Hyderabad, water, food etc. People from Telengana who have properties and businesses in the other half would be targeted. Realignment in property prices is one small thing. Everything from State Transport, Infra, Police personnel will have to be divided. And a monetary payout from the Centre would have to come to the new state. One more High Court. One more Sales Tax regime. The list is endless. Positive possibility? Telengana with its own CM can develop better. If they can find the resources, which all seem to be with the other side. Till the dust settles down, expect riots and uneasy peace (if army steps in). Not a happy development at all. But suppose the Congress had to use this easy and divisive thing to get a few MPs in to its fold.

Tuesday, July 30, 2013

The Hindu Rate of Growth Is Back

The RBI did not do anything. A quiet 'state of the nation' address. Not surprising, given that it has the unpleasant task of having been told to keep the rupee below sixty to a dollar. The only answer was to squeeze the liquidity so tight that in the short run, forget dollar, the demand for everything calmed down. Will the rupee stay around or below sixty for some time? Unlikely, given that we continue to import beyond our ability to pay. We are paying for imports with borrowed currencies. How long can this go on? Fundamentally when we are revenue deficit in foreign exchange terms on a permanent basis, we have to either reduce imports, hike exports or attract long term capital that will find a home in India. Obviously that cannot be through the portfolio route. It has to be by letting foreigners engage in business in India. For that, we need infrastructure. Even that is not a big thing if our policies were stable and friendly. The number of permits and permissions, the number of bureaucrats to meet and then the capricious policies et al do not exactly welcome foreign business to set up base here. The other reason why manufacturing cannot move to India is because of the poor work ethic and the absence of a speedy and effective legal redress system. We have some laws, but apart from overhaul, they also need to be timely. With this situation, the economic growth also takes a hit. Capital expenditure in India is not happening. Demand is booming at the consumer end thanks to easy loans and a high wage services sector. With supply refusing to go up, the outcome is a combination of stagflation and higher current account deficits. The thing is that we are also seeing a slowdown in job creation. The situation now is not good at all. Maybe even consumer spending will be throttled by runaway prices. Once that happens, we will be back to five and four percent growth. But no, let us hope that the politicians do not screw it up so badly. But the last four to five years are putting spokes in every wheel of our growth story. Let us wait for interest rates to cool off. In the meanwhile, let us watch the Direct Cash Transfers. In all this economic problems, if Telengana happens, there is going to be more mess. Truly, Darkness At Noon

Monday, July 15, 2013


(Insurance companies con you with 'child' insurance etc. The premise behind their con is that should your child die before he or she grows up, you need a payout in money terms. Are you dependant on your child for your daily living? Or is it that you want to provide for the child's need in future?) Most of the adult fraternity goes numb in the mind when it comes to the future of their children. We often become easy meat for the insurance company that sells ‘Children’s Plans”. Sentiment and emotions overcome reason and we get taken for a ride. Someone hawks a plan that says that it will provide for education of your children, marriage etc and also provide an insurance cover for them. Pause. Think. What do you need for your children? Obviously, you need enough money to provide for their education and maybe for their marriage also. Can you quantify it now? How can one quantify needs that are twenty years or ten years in to the future? Do your children need insurance on their lives now? Why pay for it now? Let us say the unspoken happens, is it a financial disaster for you? So, why waste money on insuring their lives? What we need is a savings plan. And savings plans cannot be provided efficiently by any insurance company. The insurance company invests your money in bonds or stocks or some such combination. From this they will deduct their costs and selling commissions (which are way higher than in any other instrument) and give you the balance. And if you are suckered for insurance, that money will also be lost to you. So why go for that? Simply for an emotional pull that was utterly irrational? If you put the same amount in to a recurring deposit with a bank, you will have a higher corpus. Even a liquid fund will give you a better post tax return. And you do NOT have to spend on your children’s life insurance now. So get smart. Children’s Plans being hawked are simply inefficient and result in a poor return for your money. Instead start an investment plan. And since you want to be sure about having the money without any loss of principal at the time it is needed, you have to eschew equity. If you are planning to save for your child’s college fees or something, the best way is to go about putting money aside either in a liquid fund or in a recurring deposit with a bank in the child’s name. Yes, you will get a return that would be seven or eight percent. Putting money in to bonds may not be good as there would be interest payouts and no increase in maturity value. Shares are ruled out because you cannot predict either the price or the market conditions when you need the money. Yes, the next question is how much to save? The unknown here is the amount needed for education. Education expenses are a matter of luck, the marks your child gets and the kind of college one gets in to. The amounts can vary from a meagre amount of under a lakh of rupees a year for college to a few lakhs a year. In addition there could be capitation fees if you are unlucky. The only thing predictable and possible is for you to decide on an amount that you can spare regularly to be put aside for this purpose. Of course if you are well off and earning well, you are not bothered too much about it. One mistake to be avoided is to try and stretch returns on your investments simply because your calculator tells you that there is a gap between what your savings will amount to and the amount you need at the hour of need. Someone will then tell you- Over the long run, equities will give fifteen percent, so why not put some money there? Wait a moment.. What if the market is bad at that time? I might even lose some principal. Take a piece of paper and write down the needs and the means over the time frame you have in mind. The only way out is to keep your dreams and needs within your means. If you forget this, then you will take so much risk with your money that you will find it difficult even to make ends meet. It is possible that some aspirations may have to be toned down. Get smart with your money. Do not be outsmarted by insurance salesmen and dream sellers. R. Balakrishnan