The Rise of AAP

First let me take some credit for myself  - for rightly predicting a rise of a political force after the Anna Hazare movement in 2011. (http://indiapoliticalblog.com/2011/04/19/anna-hazare-the-catalyst-of-new-india/#.UsGYc6yA2t8)

I am also glad, I used the word "Catalyst" - meaning Anna Hazare would facilitate a formation without being a part in it.

Now that you are impressed - let us get going.

The rise of the AAP is simply spectacular. Historically, a rapid rise of a political power in Independent India was always due to a larger than life image of its leader. NTR and MGR are notable examples. They were people from the screen. The face recognition was there., and they capitalized with a favorable personal image. The next line of new netas where mass leaders. They came out of  vote bank politics. They adhere to their base (religion, caste) for their political ascent. L.K Advani, Kanshi Ram, Mulayam Singh Yadav, Lallu Yadav are notable examples. In both cases, unlike the AAP - the leader was bigger than the party. The rise in AAP however is amazingly different. AAP was more or less a leader-less grouping to start with. It was a group of people who reflected a big section of Indians - who were upset with the status quo of the political apparatus in the country. The frustration and anger at established political parties and their unwillingness to change., and the peoples sorry state of helplessness - were fundamental reasons of the formation and rise of the AAP. When they decided to contest the Delhi state elections., we all knew it is going to play a role. But it was difficult to predict that they would win 28 seats. As the campaign got into momentum it was successful in convincing the people of Delhi that they were honest and more importantly - one of them. Because it was their first election - the people in other parts of India had serious doubts about their survival. The Delhi results were stunning. The BJP not able to get a majority on its own was a blessing in disguise for AAP. This new party suddenly in lime light now. The phenomenon has evolved., and it took just over a year. Unlike the film stardoms or vote bank political leaders, the AAP leader, Arvind Kejriwal is still very much unknown even today across the country. The principal he stands for are getting noticed. His involvement and evolvement as the face of AAP is tremendous progress. His name is not "pronounceable" to most south Indians like me. (Before the NDA PM's name hit households repeatedly in south India, there were times when you asked who Vajpayee is - the immediate question is - in which film has he acted?) His simplicity and thought process looks promising.

Now that the Delhi government is in place, it is time for AAP to give good governance. It does not have to be a perfect government - but should be vastly different from current establishments. The Congress would support the initial vote of confidence. With a heavy defeat, the wounded grand old party is looking to save its face. It is highly unlikely it will withdraw support to the AAP., even if it means its targeted for corruption in the 15 year old Sheila Dixit government. So I believe AAP party is here to stay in Delhi government at least till the Lok sabha polls. BJP would function as an opposition and blame the AAP, even if something minor goes wrong. It too has the may-election in mind. It will try not to spoil its name and would just concentrate on the Modi magic somehow take it home to 272 seats. So for now it looks - the BJP would be a silent opposition for the next 6 months.

Arvind Kejriwal oath taking was impressive. The symbolism of taking the metro to get to the swearing-in ceremony has been well received across the nation. Also having it in Ramleela maidan was symbolic too. Unlike the crackers going bizarre and people in white and white netas running in their scorpios, safaris, Benz and BMWs with a hooligan crowd dominating the proceedings  - this gathering was different. The speech by Arvind Kejriwal was also impressive. He made people take a oath that they would not give or take bribe. No political leader has done that in recent memory. At least we have someone who talks about it. The common man is looking forward to it.

There are low hanging fruits that can be done without much effort. They are not controversial., but will have deep impact on society. It is also positive step to ban all the red-beacons and personal security to people. They are completely useless and in more than one way "spoils' the society and the perception of a politician. We have got to realize that no one needs a police security. Why in the world you need a police personnel coming around you when you are walking or riding in a car - where everybody goes in the road? It is not that they are going in a dense forest with wild animals around. It is really ironic that elected law makers, even village chairman go in fleet of cars. Not sure - when it got introduced., and people started accepting it was OK.

AAP effort to tackle this menace and identity itself with the common man is unparalleled to ethics of other political parties. The introduction of Lokpal is next goal. This should reflect Zero tolerance for corruption in public offices. System in place to report bribe seekers. Strict punishments to start with immediate loss of Job. Heavy fine and jail term., if proved guilty. It should also Increase fines to abnormal levels. Even petty traffic violations., should cost lot of money to the people. This will fund the state's coffers and judiciary. Strict enforcement of law and order is vital and the whole system has to change.

On the government financial level, it should concentrate only on Bijli, Sadak, Paani, Education and Health. Reduce ALL unwanted expenses of government. Ban ALL subsidies that goes to people of age 15 and above., and age 60 and below. Only Children and old people should be entitled to government subsidies. Also streamline taxes. Make them low and simple in procedure. Tax consumption but not income. (We got rid of the British because of taxes.)

AAP with its media hype surrounding it should not play into their hands. The time has come to leave the camera out and do efficient governance. They don't have to be sitting there and clapping for every move. And more importantly the government doesn't have to impress the public every single day. All that matters is a systematic change for a better livelihood for the people. Three months from now, if the people of Delhi see visible improvements in how the society operates - that would be the only gauge to measure the new government's success.

There is a charge against AAP - that its pursuing the now outdated communist ideals. Personally I do not think so - but there is a feeling its going to shower freebies on the poor and going to tax everyone else for it. Since the movement identifies itself with the common man - and the majority of the common man are poor - policies needs to be done according to reality. Arvind Kejriwal I believe understands that. But at the same time - it is not possible the government can supplement their hard work. The nature of the society has to evolve such that everyone can get a job and pursue a living with hard work and make a decent wage with basic freedom. The government should try to create this kind of society. Flushing out free rice, wheat, bulbs, saree, dhoti, television laptops (by the way - have no idea how this benefitted) etc. is just repeating failed policies. It will only make poor people worse off.

The AAP government seems to be on-ground and getting its act together. Let us wait and watch and see how they are able to make it better. A long way to go.

What would be AAPs strategy for Lok Sabha has become the next point of interest. I will not be surprised if they pull north of 200 seats with the current momentum in place.  The party has left the nation guessing on this. Unlike Delhi, the rest of India is lot different. Delhi being a small state and fully urban - AAP mode of reaching to the people has clearly worked out in its favor. This approach cannot be replicated in the entire nation simply because of vastness of the country and its diversity. More importantly - with just six months away for the election. Just wonder - if India had a presidential system - Arvind Kejriwal would definitely become President. (Even Modi or Rahul Gandhi would agree!) With representative form of government still in place - the number of MPs is what matters. AAP needs to employ a different strategy. The following are some options that they might consider.

(*) Contest ALL seats and hope for the best.
(*) Contest realistic seats only - say 150 seats (Delhi, Mumbai, Kolkata, Chennai, Bangalore and other urban cities)
(*) Contest realistic states - say 150 seats (Delhi, Maharashtra, UP, Gujarat, Tamil Nadu)
(*) Align with parties like Lok Satta and create a genuine seat sharing agreement in some specific states.

I am not going to guess any more - let AAP surprise us more.

With the rise of AAP - both the national parties in the Congress and BJP have been left thinking. Congress is the worst hit. Poor assembly election results have exposed its vulnerability in the national election. Modi - who until now seemed to have capitalized on the anti-Congress feeling in the country is suddenly feeling just not strong. The assembly election results have proved that people are against the Congress. But if there is a non-Congress, and non-BJP alternative - then people would opt for it. This is where AAP filled the vacuum in Delhi. This is a good news for AIADMK supremo Jayalalitha in Tamil Nadu and the YSR Congress's Jegan Reddy in Andhra Pradesh. With current mind-set of anti-Congress and anti-DMK (with multiple scams to its name and the perceived vision of not doing enough in the Sri Lankan war against tamils) AIADMK should sweep the state. Modi is not a factor in the state, I believe. (goes back to which film he has acted!!)

 The rapid rise of the AAP is because of "lack of will" in the Congress government at the center particularly in the last five years. In UPA-1, the policy hurdles and lack of major progress in decision making was pin-pointed to the Communist parties in the coalition. But the UPA-2 was without them. Congress had a better margin of seats. But the complete lack of will in the part of the government to enact strict / ground breaking laws really cost the party. They could have changed the face of the society by vital reforms, such as Lokpal and would have taken 100 percent credit for it. Rahul Gandhi coming out now and pointing out the problems is probably too little too late. The government underestimated the anger of ordinary Indians., who were suffering because of lack of change. In India - the so called spring Arab revolution did not topple any ruling heads, but it created a new wave of leaders to lead this nation to a better destination. At last we see some light. Power was lying on the ground for someone to take it, and AAP took it. Good Luck AAP.



 

Software mergers and acquisition

The company that I have been working for the past seven years has been acquired by a bigger competitor in the same industry. In modern US insurance industry it is common. In fact we have been sold and resold three times in the last five years.

The modern capitalistic system particularly in the west grows on mergers and acquisitions. Gone are the days where industries became more productive, produced more and because of that, added more resources and serviced more clients, and as a consequence made more profit. When this happens, they invest the profit in more machines, man power and take it to the next level.  They diversify into related fields and expand businesses around them. They grow from scratch to huge conglomerates.

The modern capitalism - the way it is practiced in the west now., has brought in a new phenomenon in the past decade or so. You do not grow by being more productive but instead you acquire smaller (multiple) businesses with often borrowed capital and show up a bigger revenue estimate and a fatter balance sheet. This way the path to becoming a bigger company is sooner and easier rather than a painful way of growing up from start. This has resulted in successful companies. They acquire and brand it as though it was yours. You build on the legacy. It is always the end users (client) who benefits from it. Overtime the acquired company name and brand become oblivious and only the buyer is known. Not many people remember wa-mu, Wachovia these days. Do they? They were easily recognizable until the 2008 economic crisis. People had their money in them actually. It takes few moments to recognize their past now.

Why is this trend so prevalent. Western industries have moved from manufacturing to service sector in the past 20 to 30 years. A normal progression of a manufacturing company is long often cumber some. It involved huge capital, high-end machinery, factory, labor, time, and a lot of years to make it successful. Most often the people who started the business end up running them for a life time. We see this setup in growing economies like in Asia. I have seen it in India where the entrepreneurs run their business as part of life. Most often they start it in their late 20s and 30s and end up running it through their life time. It gets carried over to their siblings who end up running it in the same fashion. Lot family owned businesses follow this model.

Acquiring a manufacturing firm is lot riskier. it often involves lot of capital. Service sector industry is so abstract.

One of the primary reason for mergers and acquisitions to be so common is the easy monitory policy of the US Fed. Big business often with a good track record can borrow millions of dollars from the bank and buy out competition rather than competing with it. This consolidate business. Eliminates competition in a way and ultimately results in fewer options for end users.  The money that is supposed to create new jobs often end up cutting jobs. There are harmful effects of easy credit policy.

**** Companies get bought for more than market price.
**** Ridiculously low interest rate skews market demand / supply.
**** Badly informed decisions by upper management.
**** More optimism for success there by masking failures.
**** Stock market highly priced based on bad facts.
**** Unproductive labor employment. Eventually huge layoffs when reality catches in.
**** Poor cost benefit.

Unlike manufacturing, the service oriented companies tend to be acquired or merged with others relatively with ease. The aim of the merger is to consolidate business and be more a major player. The field is reduced to lesser players. It does not add any new value.

With respect to acquisition that happened in Aplifi:

> Cost of acquisitions is higher than market price.
> Merger hopes for a more weakened competitor rather than strength of "Merged Company".
> Promise on new products that is yet to be developed from scratch. No one knows what this should look like and there are more probability of failure.
> Process and resources are in conflict and needs a careful management strategy to put things in place.
> Right now in my opinion the morale is at an all time low with unclear directions or road map. Unless there are radical changes., it is just a lost cause.

One thing that is always overlooked is there is huge money changing hands at these times of mergers. Often it's done with secrecy and only the top tier knows about it all. They sit together, deliberate it and decide. There is too much hype on the compensation claims, partnerships, bonus packages, relieving terms - the fundamental value (software products with resources to develop and maintain) is often overlooked. End of the day it's the "nuts and bolts" that matters. Enhancing the nuts and bolts is the ONLY thing that decides performance of the firms.

The current deal hugely lacks clarity on these.

One of the problems in merging service sector businesses is - we don't know if it's a good buy for a long-long time. The cause of failure can be easily blamed on a trivial change that happened post buy out. It wouldn't be a ideal for the top management to admit it was a bad deal to start with.
During mergers they shut down software products in favor of a better product that the bigger partner has. So what happens to the productive work that went into developing it in first place. Of course it was priced and sold off. But there is no continued value proposition of labor. This trims employment rather than create new employment. This would be unfair. The hidden truth could be the product that is being shut down could have had a better future prospect. It is lost opportunity. It would have been better to exist than to be sold on a fire sale.

Acquiring a company only to shut down later is true loss of productivity and a major mismanagement for the leadership. Multiple smaller companies benefit the real economy more than the few bigger ones. Some companies are found and operated by an entrepreneur. They reach a point there is a buyer for their company and the entrepreneur sells it for a fee. The cause could be that he is getting old or is unable to run the business or he thinks it makes sense for someone else to run the firm which could make it more profitable. This is a clean sale. Founder has interest in the well being of the firm and it's future. Many people find it more profitable and they initiate businesses with the sole aim of selling it to someone else. There is nothing wrong about it. Soon the trend carries over to people who are loaded with cash. They buy a business from a single owner and take it to the next level. These people are called investors. They do it because they are lumped with cash. And once they feel it's good for resale, they just flip it over. It's value addition to a commodity. Is this good for business always? But unlike the founder, the investor does not care about the future of the company. He just happens to be the holder for a brief period of time. In  a service oriented company it is very hard to measure the value proportion during these mergers. lot of emphasis is given to the revenue growth. We hear talks on how to make the company from a $10 million company to say, $50 million company. Lot of massaging of the financials take place to sell it to the biggest guy. One of the primary consequence of this is a reduced work force and less benefits. Income is exaggerated for the purpose of accounting and the expenses are cut drastically to give an impression of less cost. Sometimes you wonder if these really work at the ground level. irrespective of the huge numbers as I said before the nuts and bolts that govern the basic success is what matters.

Only the future can say how good Aplifi sale would work out. I will definitely want to know about it say 2-3 years from now.

If you don't mind living life in "whatever way you want" then you can lead a life like that. Some things bother you, and you go along with that. But if you decide to live a life with some self imposed conditionality then you might have to take some personal decisions that you know is right but would involve losing something personally.
Unfortunately you have to do those, not because it's different but because it is right. In a distant future, one day in my life I would turn back to look at this very moment and have a sense of satisfaction of the behavior. And that is where you gained.

Inflation numbers

We got the recent inflation numbers this week. The government usually underestimates them. But for the sake of argument lets go with what they say. The CPI (consumer price index) is again in double digits at around 10.09 percentage and the WPI (wholesale price index) hitting the 7 percent mark. Food inflation is as high as 18 percentage. As usual the RBI, the finance minister, the media have their own reasoning for it.

Let us take a step back and understand the terminology here. There is a gross misunderstanding (misleading I should say rather) if you read the message coming out of policy makers and the media.

The basic question : What is inflation?

Before giving out the definition, let me say what is not the definition. Inflation is NOT rise in prices.
Inflation is expanding money supply. Rising prices are a consequence of that.

They often blame the demand-supply for rising prices. The prices do not rise in double digits for multiple years because of demand and supply. Permanent price increases are results of monetary policy only. Demand and supply are one significant factor for inflation but they are mostly short term. India is under significant inflation for the past few years. Demand and supply logics hold true - only if the money supply remains constant. If money supply expands exponentially as in the case of our country, only the RBI and the government are to be blamed for the problem. Blaming the entire problem on supply side bottle necks is just to deflect the problem from its real cause.

The Indian rupee has been expanding for decades now. See below link.

http://upload.wikimedia.org/wikipedia/commons/3/37/India_Money_Supply_Components--Larger_Label_Fonts.png

This can be easily reflected in the union budget figures.

The total expenditure amount for the year 2009-2010 was 10.2 lakh crores.
The total expenditure amount for the year 2012-2013 was 16.7 lakh crores.

The expanding balance sheets are a positive, for business or industry. It conveys expanding business. More money in the balance sheet reflects more business activity and hence more profits. On the other hand - a expanded or inflated balance sheet of a country with amounts in monetary bills that it can print endlessly - is a sign of serious weakness. If the budget is a surplus budget - meaning the income (tax collection) is more than expenditure - then it is good. But the Indian union budget is always a deficit budget. The expenditure outweighs the income heavily. If the budget is a deficit budget - who pays the difference ? The government borrows the money. Who does it borrow from ? Because of lack of viable creditors, the bulk of the money is borrowed from the RBI in the form of government bonds - who then create money by running the printing press.

Printing new money causes the existing money to lose value.

This excess money supply does not percolate into the society creating productive assets. They are usually squandered. They get misallocated and eventually plundered by few. The real economy would be better off without the excess money. The Non-performing Assets (NPAs) of public sector banks are 3.25 lakh crores. If you compare it with the above budget figures of the country, they are significant part of it. Unfortunately the NPAs are going to get worse. Because the government owns them - they need to induce cash into it (read bail out) with fresh money., which again expands money supply.

The expanding money supply kills the ordinary saver. Retirement savings of individuals will be blown out causing social problems.  Asset prices become over priced. Recent real estate price escalation is a direct result of the expanding money supply. Misallocation of funds to these sectors have starved other productive sectors of the economy. Hence the growth has stalled.

To rectify the situation - RBI has to suck the liquidity out of the system. There is too much money in the system. Inflation will not come down until the excess cash is sucked out and destroyed. Increasing the interest rate by 25 basis point every other month is not sufficient. The general perception is by decreasing the money supply, it will drag down growth. Unfortunately growth has to be sacrificed in the short term for long term gains. The current rate of inflation is unsustainable. Failure to take hard and unpopular decisions lead to more social problems and more economic disaster in the future. Current trends would lead us to what Argentina went through economically.

Persistent high inflation of course will cause weakness in currency. No wonder the rupee is trading at an all time low against pretty much all the currencies in the world. Indians are earning poor and getting poorer returns for their labor because of its policy makers. Purchasing power of the rupee is going down like a sinking stone in the pond. You can still see news article that says - the weakness in currency would boost exports which is great for the economy. This is an idiotic argument. Exports are results of economic success. If weakness is good for exports - why can't we make it Rs. 200 to a US dollar., why around Rs. 65.

A weak currency reflects a weak country.

Unfortunately all Central banks around the world are increasing the money supply at the same time. Japan being the worst of all. In a world with no gold standard or an equivalent system - these things lead to terminal economic disasters. The pace of money printing has increased post the 2008 financial crisis. The western economies in the US and Europe still recovering from the financial crisis and still not out of the woods with high unemployment and slow growth. In spite of this we see oil above $100 a barrel. Just imagine what would be its price if the economic activity picks up rapidly. The price of oil would at least double from here. Can any economy afford that?

The US Fed is also practicing cheap money policies. It is doing historic blunders. It is pumping in $85 billion dollars every month with the intention of boosting its economy. The result of this is gold being around $1300/ounce and $100/barrel oil. Being the world reserve currency it is exporting inflation to all around the world.

You cannot read a single news paper in India today - without reading the story where the policy makers are trying to impress the foreign investors - FDI  (foreign direct investment) and FIIs (foreign institutional investors). They give the impression that without the foreign money - India cannot survive. Actually the truth is - without the foreign money the current bad policies cannot survive. India does not need foreign investment in any form - it needs only foreign currency. This is to fund the imports. The government would not slash its subsidies, particularly oil and food. To fund these in CAD and fiscal deficit - the easiest way is to get new money from outside. The ultra cheap monetary policy in western nations is currently funding it. But India would soon run out of it. That is why the mere mention of taper in the US is causing the FII to withdraw money from Indian investments sending the rupee to hit new lows.

For years - Indians have moved abroad for work. It is often sighted that they move to seek opportunities, better standard of living, etc. Those reasons mask the original intent. The sad truth is - they go there ONLY to earn in an appreciating currency far higher than the Indian Rupee. Just say - the salary of a Indian software engineer (in purchasing power) is same (or more) in Bangalore than in New York or London? Would any one go for work to the west? This is exactly the same reason we do not go to work in a poor country - say Somalia or Sudan but to rich western nations. Without a high value currency the reason to live abroad makes no sense. The value of the Indian currency is indeed in our policy makers hand and not controlled by foreign nations. Creating a very productive environment would lead to a appreciating currency.

Public awareness is needed about monetary policy. It is a sad truth that subjects like these are not discussed in open forum. This will keep Indian politicians in check. Over years, the political establishment has given undue subsidies and made the poor people more poorer. The fre money helps them to hold on to power. Intentionally people are misled on these subjects. The rich segment of people who understand this - invest in hard assets like gold, silver, rental properties and manage to retain the purchasing power. But the poor and the middle class with relatively less money with salaried income and meager savings get washed away during these times of sudden increase of money supply. This is exactly what is happening in the country now. With no gold standard in place, the governments around the world with huge debts are practicing the easy way out. Appreciating currency promotes hard work and in turn savings. These savings fund investments. Because the savings are hard earned - they get invested only in productive labor and hence productive assets. Expanding money supply causes all the prices to rise. Capital gets misallocation, causing mal investments, low growth rate and resulting low wages. Hope one day we Indians (who already save a lot) live in an environment where our currency appreciates against other nations and we contribute to a flourishing economic activity within the country and not move abroad for earning other currencies.  

Lunch with Charlie Rose

The company I work for got recently bought over, and we had a big lay-off and the mood within the employees is at an all time low. Sorrow has descended on the floor and its silence all around most of the time. But on an individual basis I see people interacting more among themselves, sharing their thoughts more openly that before. The primary point of discussion is the everyone's problem of being on the list next time. The theme unites every one. This triggers more open discussions. It was as though the personal opinions have come out of the closet and more open comments on relevant topics without the class tier among employees. One thing I realized was unlike popular belief that people group/pool together better at happier times it the sad times that bring them more closer. Someone more famously told - the precious part of the human body is the shoulders. There would once be a time someone needs it to rest their head on amidst profound sadness out of uncertainty.

Re-enforces the most common political wisdom - we need common sorrows to unite people.

Everyone has the same concerns and they see themselves in others. This motivates more conversation/discussion and opinion sharing. It is a good sign but unfortunately wrong cause. May be that is why tight deadlines build successful teams.

Let us come to Charlie Ross story now - Recently I had lunch with my office co-workers. The discussion was about all topics. The crowd was of "opposite" nature to the way I think (I am the sick one). Things like fashion, dancing, partying were discussed. As always I was a patient listener with some occasional comments - sarcastic most of the time. At one point - someone told usually young crowd (this time girls) do not want to know someone who watches Charlie Rose's interview. This made me think.

For someone who do not know who Charlie Rose is - he is a relatively serious political commentator who conducts interviews with newsmakers. The interview is always with someone across a small table in a dark room to create a illusion of serious talk. It is just series of question - most of them relevant. Candid discussion. Most of his interviews are serious - he isn't talking to the guy who raises Panda somewhere or they guy who split up with some so called celebrity. He asks some tough questions (relatively to other main stream American media).

Watching serious political commentary cannot be a bad thing. Why has the younger generation lost interest in it ? Communist regimes were very careful in motivating ideology among the young people. But Capitalistic societies is losing out to trivial areas of interest. May be if there was something like world war or something going on - people would be more keen to the stories that come up on politics.
Politics and current affairs are part of life for everyone. Lack of interest on those is deeply worrying. Particularly among younger generation who are more tech savvy and live in their own virtual world. It is not that they are not important but they are less important. critical thinking is vital for people who are young. To do it., you need to understand people and their problems. Human race has come a long way from hunting and gathering. Those must be primitive. Now we have a modern world.

The majority of population has moved away from politics particularly in the western world and is spending more time in the virtual world like websites, fashion, vacationing, leisure. The younger generation is completely insulated from world problems/issues and an environment has been created that it is someone else problem. It is as though an international calamity - like a world war or a huge economic crisis is probably needed to unite the human mass. (just a comment)

Current affairs is not a boring topic that you can choose to follow or ignore. You follow it because it affects your life directly. Your decisions, life style depend on it. In the west, information that people get is heavily masked to create a sense of "everything is great and it can only get better".  

In the pre-world war two era there was a famous quote when Hitler was in power in Nazi Germany which is worth a mention here. The quote goes something like this.. First they came after the Jews. I did not worry because I was not a Jew. Then they came after the communist. I did not worry because I was not a communist. Then they came after the trade unionist. I did not worry because I was not a trade unionist. Then they came after ME. There was no one to help me.

Life is a mix of happiness and sadness. It is a mix that makes life interesting. It looks without the sadness in it., we will never be happy.

Economically viable : Right to escape disease

Seeman, the leader of Naam Tamilar party in Tamilnadu recently made a casual comment in a public rally that caught my attention. Seeman is well known for his anti-congress stand. He blasts the UPA leaders on policy issues and that part is not unexpected. But he took a swing against its president which is not often stated publicly, may be out of moral ethics and political decency. But is of course a truth.

He told (to para-phrase) - Smt. Sonia Gandhi, the ruling UPA chairperson and Congress party president had gone to the United States of America for her treatment to an undisclosed illness. The treatment for that cannot be availed in India. They have the money and can afford to go to a different country to extend their life but what will we the ordinary citizen do if we have the same illness and cannot afford to go else where for treatment. Should we then go to the graveyard to die ? These are the people who ruled us for more than 55 years. Are they not morally responsible for this situation we are in?

I believe - this was a passing comment by the speaker and he didn't venture into it further. But it does raise few valid questions.

We don't hear political opponents of the congress say this. The general perception is that the personal health issues are beyond politics. It would not be decent to raise such an issue in open forum. People always have sympathy when health issues are brought up. But why? Not even considering a open discussion on this is anti-democratic in my opinion. The media should discuss it and deliberate. The people on the dusty streets of India should know that their rulers are a step ahead and they may not be privileged enough when it would really matter. In a open democratic societies like ours - nothing is beyond deliberation. If there is a conscious effort to leave out this story and consider it not worthy of a discussion, then it is an insult to way democracy is practiced and should be thought of as agenda-driven. The media is orchestrated for its wealthy masters and not for the general mass.

People have a take away from this - these are universal truths - most importantly they are responsible for themselves. You have to be economically viable if you or your loved ones need to avail a facility that would enable you to live longer. Dependence on government for health benefits is suicidal. You are responsible for your loved ones. The government is just a foreign direct investment (to borrow Seeman's phrase). It just doesn't care about you. It might give you free rice, wheat. But don't think if you have a illness it will fly you out for a treatment to a advanced medical facility in a foreign nation. They will definitely leave you to die.

Of course the treatment is to escape diseases and not death.

In the 1980s, MGR was on a stretcher and was moved to USA for treatment for a terminal disease. With socialistic society, we were all told - the advanced western nations (capitalistic) have better ways of treatment. In Post 1990s liberalization - Indian leaders still go abroad for treatment. what a shame! it doesn't matter which political leader he or she is or which party they are afflicted to. Rulers are the nation's conscience. People of India look to them as gods. When they themselves are dependent on a service from a foreign country., Is it not a insult to the way of life in our country?  If the political establishments are skewed to another nation for a personal benefit - would it not lead to an unfair assessment in making political decisions. Just for argument sake, If Pakistan had the best medical facilities - will a Indian leader go there for medical service at a time of conflict within the countries ?

Whose fault is this for the current state of the country. In fact it is Congress that has ruled India for much of its post independence era. It has to take credit for whatever  progress that has happened and more importantly whatever that has not happened. If you have to think rationally - the policies and performance of the governments since 1947 have created more problems than they ever solved. Basic health and hygiene is absent in most parts of the country even today. Diseases like malaria, dengue fever which has been eradicated in most countries are still common causes of death in the urban cities of the country. We lose lakhs of people to this 'avoidable' illnesses.

India started off as a Soviet ally, and preached communist ideology in first 40 years of its self rule. It never became a communist state but with the government in all fields of business was essentially navigating towards that. And then the Soviet Union disintegrated and with the balance of payment crisis of the 1990s India started opening up its market to private players. Now after more than 20 years of anti-communist policies otherwise called globalization/liberalization, India is pertaining to a capitalist line of operation. It doesn't follow capitalism in its strict form either. It is somewhere towards it. So ordinary Indians have lived through both life styles. In spite of all this - health care system has not improved the way it should be. The leader of the government leaving the country for treatment summarizes its achievements in that field.

The common argument may be that the western countries are more advanced in science and technology and hence in health. So it would make perfect sense that India hasn't progressed because it is still a developing country. If this was true, why would Cuba be better in health care. There isn't any liberalization there. Life expectancy is higher in Cuba than in most scientifically advanced countries. Leaders from Latin America like Hugo Chavez, flew to Havana for medical treatment. So advancement of science promoted by privately owned huge corporations can only give better health care is a flawed logic. The government controlled Cuba medical system has proved it.

It is an under achievement in the health sector (just like other sectors) as a country. Poor health care - is because of serious government mismanagement in post-independence India.

We need to have policies that benefit our people. Blindly following the trend of the day - either communism or capitalism which works in other country (in a different set-up) is equivalent to a person forgetting that he has legs and dependent on a person who walks, to carry them around. They would take you to where they want and not to the place where you want.

The aspiration to live longer is universal. It would be a big failure if a huge country like ours is dependent on other nations for it. Scientific research has to be encouraged and health care needs are to be affordable to all. World class treatments should be in our cities and villages and not in New York or London. Indians are highly educated and scientifically smarter compared to others around the world. Their math and science skills are second to none. Technology has to be nurtured and promoted so that people from all over the world come to India for treatment and we do them all a service of affordable treatment at a reasonable pricing.

Roll back Ordinance

Rahul Gandhi, the vice-president of the Congress party walked into the Press club meeting that was in progress with the congress spokesperson Mr. Ajay Makken, and threw a bomb shell to unexpected press, saying the recent cabinet ordinance to protect convicted leaders was a "nonsense" and it deserves to be torn and thrown out. The press was caught off-guard. The Prime minister was out of the country and had to release a press statement that the matter would be discussed when he is back in the capital.

Recently Supreme court of India ruled, that any person who is convicted of punishment that exceeds two or more years of imprisonment stands to lose his legislative representation as an MP or an MLA immediately. This is welcome step as part of cleaning up Indian politics.  It is hard to disapprove with the Supreme court ruling because, Indian politics has recently seen a rapid rise of leaders with criminal backgrounds and pending legal cases against them including murder and multi-crore corruption scandals. The civil society welcomed this decision overall. Just when you thought something was going to change positively the UPA government stepped in. The plan was to pass an ordinance that will over rule the Supreme Court ruling where by it allows convicted law maker to hold on to their MLA/MP seats, until the legal case is decided by the highest court - Supreme court. Shockingly most parties except very few like Biju Janatha Dal, CPI, Aam Aadmi Party  didn't utter a word against it.

In India legal cases run for decades not years. The probability of a neta being convicted UNTIL the Supreme court are very less. You have to be really (really) unlucky for this eventuality to happen. If the convicted leader can hold of to be a representative of the people even after conviction in lower court - he might rewrite laws to suit his immunity. Isn't it a bad precedent for the younger politicians ? If a verdict of the lower court is not that important why do we even need a lower court. Can all legal cases be dealt by the Supreme court directly which has the final say? Recent scams that have happened in UPA - every time a major fraud is unearthed, say its 2G, coal gate, housing for fallen soldiers, Railway recruitment scam - there is a ritual that happens. You can loot as long as you get caught. As soon as you are exposed - you just have to "resign" as a minister. Just that. Media shames you for a day or two. This is publicity too. At least your name is uttered across the nation across newspapers and TVs. If smart, you can always make a comeback when the dust settles. How may times have we seen that? Then you can continue living your normal life as a MLA or a MP. Of course a FIR will be filed but you don't have to worry about it - the legal petition wouldn't see the day of light. Some ministers went to Jail recently which is true - it gives a illusion the system is working - But where are they now? Out there having fun from the money they stashed out during their hey days. There would be no legal recourse. I don't believe they will even be punished one day. Even if they did - it will be too little too late.

After Rahul's nonsense comment (which was nonsense since day one when it got introduced) - the Cabinet met and rolled back the ordinance. BJP - which is main opposition didn't jump at the opportunity and was inline with the government on the motive of ordinance since day one. what a shame?  Even though the social networking sites / media / public opinion was against the ordinance - BJP was dumb enough not to have picked up this issue. Finally Rahul Gandhi emerged the sole winner with all of UPAs allies finally decided to tore and throw the ordinance out. Rahul Gandhi looks "Prime minister" ready now for some.

Lallu yadav, the RJD supremo became the first victim of the roll back. He was convicted by a lower court and was handed down 5 years imprisonment and will lose his MP seat. Kapil Sibal's effort to save Lallu with the ordinance didn't work out this time. finally at least we see a neta go to jail for a corruption case. That was after 17 years. Wonder what you did for your birth day 17  years before? that should have been the important day of the year..think.. you don't remember?? no one remembers. 17 years is really lot of time. Cannot believe it took 17 years for a court to come to a conclusion. Hard to convince the people of the country to trust in the judiciary.

Only punishment will clean up Indian Politics. All people who break the law must be punished without sympathy. Speedy justice within accepted time line. People would trust the government and judiciary only then. Until now - it wasn't working. Lets see in future - if the Supreme court decision will refine out the bad neta's and make only genuine and honest politicians rise in stature and power.

Stuffs!

George Carlin, the greatest comedian to have ever lived once famously said Americans are addicted to stuffs and they keep on buying them endlessly - stuffs they don't need, stuffs that they don't want, stuffs that are poorly made, stuffs that they cannot afford. I recently was helping an american friend move to his new house. I was amazed at the stuffs he had that he needed to move. Lots of stuffs. To make it worse - he is moving what in my opinion could easily service at least three families in a normal household to a storage facility because he doesn't need them in his new house. Apparently he has enough stuffs in his new home. When at the storage I did see lot of other people who had their own stuffs and are paying to just keep them. Believe me - lot of stuffs.

Lets take a step back, and see what is the economic cost of the whole thing. Why do people in the US  buy more than the rest of the world? Why do you spend hard earned money on something only to put in a storage later? The answer is simple - because it's cheap. When I say stuffs these are hard assets in the home like Majestically looking sofa sets, huge show-cases made of glassy wood, flat screen television sets, fire places, entertainment systems, multiple carts with beds(twice the number of people at home), tables pretty much of all sizes, out of proportion sized mirrors and all kinds of furnitures that you can possibly imagine. It is amazing  quantity of goods within what is called a persons home. It turned out to be an American consumer zombie - in Carlins own words.

Almost all these items are manufactured abroad, most of them in Asia particularly China. They are being put in containers and shipped across the planet and stocked up in every store across the developed economies. Lot of resources such as wood, raw materials, labour are used to manufacture them. Americans over years had accumulated the buying power because prices of goods have come down dramatically.   This has created lot of wastage. People do not value their possession as one that involved labour, capital and environment when they appear in market cheap. The people is Asia definitely cannot afford them. Historically they have been savings economy and not a consumption economy. They are either non-affordable or considered luxury. Either way the Asians under consume to feed the western world with their cheap products.

Following are some flaws in the economic model - because stuffs are cheap.

1. Under-utilization, because they can afford a new one always. Apple products are good examples.
2. Degradation to environment for raw materials to sustain the price.
3. Poor labor conditions in places they are manufactured because cost needs to be set low.
4. Need distortion - non essential items become essential items.
5. Market distortion - resources mis-allocated.
6. Products do not run their life time often ending in trash sooner.

Increasing Supply is always good. Prices going down cannot be bad. But there is a problem where we need to determine which segment of the world population really would UTILIZE it better. Consumption in western world has to come down significantly. They are no longer the more productive regions of the world. They import way more than they can produce/export. Mis allocation of resources cannot go on indefinitely. Market tend to allocate better.  It will lead to better utilization of available resources.

Import tax on Gold

News Article : India raises gold import tax to tackle trade deficit

The import tax on gold has been increased 50% this week. Anyone who buys gold for Rs.100/- has to pay Rs. 6/- as tax to the Indian Government. So the cost of Rs. 100/- value gold is Rs.106/-. It is more expensive to buy gold compared to last week. The expectation is that, this will discourage people from buying/investing in gold.

The trade deficit in India is negative. It means the total value of the exports is less than the total value of our imports. Healthy economies export more and import less. This helps balance of payment. It is like typical household, you don't want to BUY more than you can EARN.
Bulk of our imports as a country is Oil and Gold. This is contributing to trade deficit. If we leave out oil and gold while calculating trade deficits, we are having a deficit of less than one percent of GDP which is supposed to be better.

So the government has come up with this plan on increasing the taxes. The following are the reasons why it will not work.

• Gold has appreciated eight times when measured in global currency (USD) in the past decade. Much more in Indian Rupees. So 2% is not a big margin.People will still choose it as investment.
• Demand of gold in India is not price driven - The demand for gold has gone high even though the price went up many folds.
• Demand of gold in India goes back centuries and it is more cultural. People buy it irrespective of its pricing.
• Unlike oil which is imported and consumed., Gold is locked up and has value in global market anytime. It can be encashed any time in future. It is really savings of the nation. Government might argue that capital allocation to gold is unused resources. But it can help on a rainy day.
• Black market to smuggle gold into the country will increase. It cannot be stopped.
• Poor people will not be able to afford gold investment. They would get cheated by dishonest jewellers/merchants. (Rich people can afford the higher prices and shop at the honest merchant.)

 What should the government do instead?

• Allow the India rupee to appreciate significantly, so that return on currency is equal (or more) to return on gold. This would encourage savings in cash and hence capital formation.
• Stop inflation and lets go into a deflation period. Lowering prices is exactly what India needs. Growth with double-digit inflation is useless.
• Allow the gold to be market based. Minimum tax is good for all. How wise is the government going to spend its money?
• Set oil prices to market value. Abolish subsidies for it.  This will bring down trade deficit. When resources are scarce, proper utilization of those occur.

Indian Railways and Air India

Recently the Union Railway minister in his annual Rail budget came up with marginal increase in ticket prices across all fares, including hikes in platform ticket. This was to shore up the Railways as a viable entity and increase operation efficiency. As expected reaction from the opposition (Including the party leader of the Union Railway Minister) were against the hike and protested it until a roll back was done. In the meanwhile, the rail minister lost his job. It was not a complete roll back. The high-end tickets like A/C coaches fare were left out from roll back. The low-end tickets were brought back to where it was, including the platform tickets. The mantra behind that was to leave out the aam aadmi (the common man). The leaders patted themselves on the back. They have rescued the common man.

The perception is the aam aadmi is happy and so called saviours of aam aadmin, the political leaders found some peace with great pride. It is an action to just oppose anything without a basic sense of reasoning.

But there are unintended consequences to this just emotional political posturing.

The actual increase of price was long due. As an institution that ferries people, Railways cannot afford with such a low price. Ticket prices are still at rock bottom compared to other means of transport. Railways is going deeper into debt and is not making money. Modernization plans are put on hold and safety of passengers is definitely not assured. In neighboring China, trains run in excess of 300 kilometers per hour., But in India the travel time has not come down in the past few decades. With this poor state of railways, even a marginal rise in price is not acceptable to politicians? Even though a majority of people think it is much needed and willing to pay more for better service.Unfortunately both are not going to happening now. Politicians have once again demonstrated they want the people of India to have a sub standard travel vehicle.

It does not hurt the rich people. They will find a means to get around the country in a better way. The masses have to cope up with sub standard, life threatening, uncomfortable, slow system of rail transport in the country. The people who voted these politicians deserved to be punished with these petty politics., some times it makes you think.

Now comes Air India. No one who is flying on that is Aam Aaadmi. But the government will still own it. because.. because... because... Sorry., I have no idea. Why would a government run an airline business? Government has no incentive to run an airport or an airline in the country. It is better done by private players rather than the government. It is impossible for a few government beurocrats to operate a airline. A lot of smart people have failed on that. The government beurocrat is no smarter. Now the government has allocated Rs. 30,000 crore to bail out Air India. You should be a fool to believe that money is going to bail out the airline. It is throwing good money after bad one. It cannot even be called Gambling. There is a possibility of getting back more in a casino. But here... you don't get anything back. It is a pure loss on investment. And it is being given to the same people who brought Air India to what it is now. Moreover the government of India doesn't have to run this business. Where are the aam aadmi helper politicians here? Just treat Air India as a rich people business and just let the government get out of it. Rs. 30,000 crore is lot of money in any scale. Even after 5 years, I am 100% sure Air India would still be a negative earning business. There can be a argument made, that other national carriers are successful, like the Singapore airlines, Malaysian airlines. The simple reason is this, they are not run by Indian governments. There is a system in place with proper oversight and more importantly a system that is well managed and works. Can we do it in India? We are not able to do it so far... there is no reason to believe we will be successful in future. Bottom line, the Indian Government does NOT NEED to own an airlines or airport for that matter. Airport and Airlines are used ONLY by the elite and there is no aam aadmi role in it. People who fly abroad are perfectly capable of funding their fares from their own savings. Who is the government trying to help ? It is just fooling the tax payer.

If the government of India does not take decisive action with a long term perspective in mind, more of people's money will be lost through Air India. Don't maintain airports. The AAI has been a failure. It is slow in implementing projects, there is lack of discipline and horribly behind its international peers. The best way forward to give the average Indian, a pleasant flying experience is to privatize the sector 100%. Let the market take over. 

Recent Market Movements : what it means

There has been and continues to be a shaky share market all over the world for the past three months. There has been high volatility and there is a sense of what can be simply referred to lack of confidence among the global business community. The market basically reflects reality most of the time, if not all of the time. So why is that now?

There are many significant things that are guiding the market uncertainty. Primary among them is what is being referred as sovereign debt crisis. In the financial crisis of 2008, even that was a debt crisis (remember?), but it was in big corporations. The huge corporations mostly in investment banking had took too many leverage and were overwhelmed with debt. The investments made against the US housing market went bust and the institutions were on the brink of failure. The US government stepped in and bailed out the institutions with tax payer money(read newly printed money). On this side of Atlantic the Euro and the UK did similar acts to shore up their own banks. At that time it was believed it was a wise decision. The recent market itchiness is really a consequence of those bail outs. It just turned out the banks were little bigger than the governments. The whole debt has been shifted from private corporations to the government. When the government has the debt its considered sovereign debt. The situation in 2008 and now in 2011 are the same. Both are debt crisis. This time the volume is lot larger. And there are not many way outs... The world economy is basically in uncharted territory.

When the bail outs of these multi billion institutions were done in 2008, it was famously called "too big to fail" companies. What it meant was - if these institutions incur huge loses or go bankrupt it will affect the overall economy and will have ripple effect in the country as a whole, causing a scenario where there is no growth for many years. That was the rhetoric then. Now it turns out these institutions are "too big to be bailed out too". Now that the corporations have been shored up., the governments had gone into deep debt. The Euro zone and US are going through the exact same problem. Euro has immediate problems and US has significant long term issues. The group of Euro countries standing behind the Euro are being challenged. The effect of having same monetary policy and different fiscal policy has become the focal point. very famously when the Euro came into existence, Milton Friedman, the noted free-market economist had predicted, it is not possible to have a economic union where there is a common monetary policy and not fiscal policy. This nightmare has come true for the Euro zone. Germany and France have come up with an idea to see Euro bonds instead of individual nation bonds. This is easily said than done. There are only two options - Euro gets more integrated and work based on common financial policy or they break up. The break-up could mean the weaker nations like Greece walk out of the Euro first. This may cause incentive for others to walk out "after they have debt problems". Both the Euro and US have stepped in to create new money and pump it in to the economy to solve previous debt and attempt to avoid going into recession again in what is famously referred as "stimulus". The recent downgrade of US sovereign debt from AAA rating to AA+ by S&P, is historic. Many years from now, we will turn back to see this moment and realize the country that prints the world's reserve money is not a credit worthy borrower. It is not going to have immediate effects and the ratings are sentimental. But these are definitely symptoms of a much larger problem as we head into the future.

Main stream media portrays there was a recession in 2008 in the US and there there was a recovery and now there is a possibility of another recession . Eminent economist who predicted the current crisis Peter Schiff says, there is no double dip, and the recession that started in 2008 is still intact.. and what has happened is the government really put a pause to recession by pumping in new money. Once the stimulus ended the recession is back. He refuses to acknowledge its a double dip but just a one long recession that started in 2008. You think about it., it sounds very true.

The global recovery and positive growth is what is going to get back the world economy on its foot. unfortunately there are no signs of it so far. All we see are new problems. Some of them long pending due even before the 2008 crisis. They have just come to the fore.Every country in the world has borrowed more than it can make. As a result everybody owes a lot of money to lot of people and no one wants to pay back now. It is particularly true in developed countries.

Usually when the expenditure of a government is more than its income the government makes effort to increase income by additional taxation. Did you ever realize why the government never runs out of money ? is that not impossible ? You cannot increase spending without increasing revenue. Since growth has stalled in most developed economies the incoming money as taxes have come down significantly. It is ironic, at the same time governments around the world particularly the Western nations have managed to increase spending many folds. You go and ask an ordinary citizen, his taxes have not gone up. So what it means is the government has conveniently chose the option of printing more "currency bills" instead of real productive income. This is more electoral friendly and post pones the initial pain for its citizen. Unfortunately the value of currency falls making everyone poorer in the long run. We cannot get out of the problem by printing more money. It just gives a temporary illusion of richness and will fade with more misery.

The whole concept of solving real economic issues by controlling the money supply was advocated by a noted economist Keynes. According to his theory, the government should primarily control "demand and supply" in the society. This is far away from Austrian economics which says limited government and sound monetary policy backed by commodities such as Gold. Unfortunately Keynes economic model is what is taught as economics around the world with emphasis that government will solve all of people's problem. When paper money loses value, people would realize the harmful effects of this ill culture perpetuated by the governments. If we go by history, the currency crisis in the world is long due and we may be on the brink of it.

The value of precious metals such as Gold, Silver are signalling the lack of confidence in paper money. Gold for example has went up from $250/ounce to $1900/ounce in the last ten years simply beating any other investments in those time period. Commodities such as food, oil are going up for the exact same reasons. Not because food production is going down, but there is too much paper money in the world that is going behind produced food products.

Recent astronomical rise in inflation in India are also the effects of the same problem. If the world prints lot of money the Indian Rupees has to appreciate against those currencies. But unfortunately the India government prints more money to maintain the weakness of the Rupee. This they say, will help exports and make Indian-made products competitive. It will not. Might help in short term but not long term. One day the developing countries like ours will come to senses on this and allow their own currency to appreciate. Remember, real economic growth comes from - production and savings. Not by printing more money or by exporting to nations that give a currency of more value and that currency just came out of their printing press.

One thing readers must know is the common definition of inflation given in media is rising prices. It is not. That is what the government wants you to believe. Inflation is "expanding monetary base" and price rise is a "consequence" of that action.

One of the analogy given by Peter Schiff goes like this, Just imagine an auction where everyone has Rs. 100/- only in their pockets. Whatever the product that may be auctioned -> they will not be worth more than Rs 100 whatsoever. Will they be?