Tuesday, December 30, 2014

Opinion: Why Hyderabad-Karnataka region did not grow like rest of Karnataka?

Last Sunday I attended a convention in Bangalore organized by institutions built by Mr. Basavaraj Patil Sedam, a well-known politician and a Rajya Sabha member. Topic of the discussion was how those migrated from Hyderabad-Karnataka region could help their motherland prosper. Dignitaries put forward their perspectives. All assembled there took oath to commit funds towards welfare of the region they originated from. It had good motive and right intentions. The leader behind this scheme, Mr. Basavaraj Patil Sedam had put all his efforts to convey this in right manner and had roped in officials, and those respected from society to have a greater buy-in and make it a movement.

But there was a big flaw in their thought process. Truth is politicians and Govt. officials are facilitators of economic growth but they cannot create it. Even if they are able to do something, they can create pockets of growth but not a full-fledged, sustainable economy. It is the majority of population and the demand for their produce drives the economy. Policies, governance helps to promote growth but there has to be underlying force in the economy to succeed. This is what the history of economics all over the world had shown us.

Let us assume Govt. has created proper policies, provided all the infrastructure needed and banks are funded with the capital required to be lent. Will that make Hyderabad-Karnataka a developed region? Not really, as reasons are many. Take the case of Bellary. It was prospering as long as there was good price for iron ore despite the lack of infra, policies etc. When China reduced its imports, there were not many takers for iron ore left in the market. So it impacted economics of Bellary. Now you can see hundreds of Earth Moving equipment lined up outside Bellary Bus Stand looking for work. This is the reality of the economy. It prospers when there is demand for products or services produced in the region.

So what are the other main produces of this region? Rice comes first to my mind. Look at those paddy farmers, are not they doing well? Why not, they are no less than those live in Bangalore in lifestyle. Then who is left behind? And why?

You pick any poor family randomly in any village or town in this region; see their income and consumption pattern. Look at their productivity. Any family which is below poverty line is sure to have more consuming mouths than working hands. It is not that all cannot find work but all of them do not want to work. At least one or two members in those families spend time lazily and they live off on the earnings of the working member, a single head many a times, burdening him and ensuring that they do not break out of poverty as a family.

Look at those families who have loads of debt and see where it all started. Most likely that loan would have origins in a grand marriage or any other family function. That means they spent more than they could afford and there is no easy way out. They are struck in the vicious cycle of debt.

Mr. Basavaraj Patil Sedam
We need to be sympathetic towards those farmers committing suicide and offer them help but the same kindness towards other poor will backfire. We will spoil them further. Those who say they do not have a roof, why cannot they build their own? Why do they wait for Govt. to help them? Who will suffer until the help arrives?

I too grew up in this region. I tried supporting many in my personal capacity but results were not encouraging. You cannot make someone work who do not want to work. There is an old saying ‘You can take a Horse to waterhole but you cannot make it drink water’. It is his choice. If those poor want to remain poor, what is there for me or you to do? If they want to break out, they will find work and also a way out of poverty.

Mr. Basavaraj Patil Sedam, please see how you can put those lazy poor to work if you want to realize your dream. There is plenty of money in this world for those who want to work but not much for those who do not respect it.

Monday, December 29, 2014

Gold has another golden use in treating the cancer

Physical and chemical properties of Gold make it a supreme metal. It is biocompatible too, that makes it useful in the medical applications. Recent studies show that gold-plated nanoparticles are able to find and destroy cancer cells. Gold nanoparticles absorb high levels of ionising radiation, boosting the impact of radiotherapy treatments that work by damaging DNA in tumour cells.

Dr. Kattesh V Katti
Behind this research there is an Indian associated with it. Born and educated in India, Dr. Kattesh V. Katti, now lives in US and works for University of Missouri Cancer Nanotechnology Platform. He is recognized as one of “25 Most Influential Scientists in Molecular Imaging”. 

With many awards and citations to his credit, Dr.Katti is a top scientist today. But he traces his roots back to a small town in Karnataka and modest beginnings.

More info about him can be found at: http://web.missouri.edu/~kattik/katti/

Gold loving India has produced a gem in Dr. Katti. While Indians take pride in his origins, one has to also note what he says “India needs to spend more money on science and technology". Hope those who manage budgets care his words.

Sunday, December 28, 2014

Opinion: Financial freedom is never a taboo for savers

To those who wonder if and when it is possible to earn their financial freedom, there are two questions to be asked – can you control your expenses and how much you save toward this goal? Rest you can see for yourself.

I made few assumptions for the model. One is 35 years old. Has an income of Rs.50,000 a month. His regular expenses are at 50% of income. Other expenses like paying towards insurance premiums etc. are at another 25%. Hence he can save 25% of income towards retirement kitty. It is also assumed that income grows at 5% every year and expenses too go up accordingly. If he puts the 25% savings into deposits or bonds and manages to earn 10% on the savings, he can retire comfortably at the age 50. And he can live off rest of the life from the income his accumulated savings earn.

Accelerator mode: If one can save incremental 2% savings a year to accelerate this scheme and boost the returns by diversifying savings into index funds and ETF’s, he can retire by 45.

How one can save this additional 2% a year? Fixing the finances would be one of the ways. Refinancing higher cost loans with lower rates, paying off credit card bills and treating it as a buffer would help too. When the income grows on yearly basis, spending should not be increased at the same pace. One can go for bargain buys for the necessities, avoid impulse spending by procrastination and extend the life of goods by maintaining them well etc. Basically avoid spending to impress others and look to get the value out of all your spends.

Aggressive mode:  For an aggressive saver and an informed investor, who saves 40% of his income and manages to earn 18% on his savings with a balanced portfolio of deposits, bonds, ETFs, mutual funds and good quality index stocks, retirement or financial freedom is just 6 years away.

Though 40% would look a higher number, it is not impossible to achieve. Count the contributions towards Provident fund, gratuity earnings, investments made to save tax into your savings. They would be already 15-20% of your income for salaried people. You need to make additional conscious efforts to boost it to earn your financial freedom.

Life does not follow any model. Many unplanned expenses come in the way that would delay reaching the goal but yet one can earn financial freedom if one can manage his/her spending, saves regularly and earn consistent returns.

(Inspired by the article on MarketWatch: How to retire early — 35 years early Link: http://www.marketwatch.com/story/how-to-retire-early-35-years-early-2014-01-17)

Friday, December 19, 2014

Opinion: India wakes up to Ebola

Source: Unicef
India or Indians were/are always busy with our own lives and tend to ignore the developments around the world. But there is evidence that it is changing. In our past mindset, we would have ignored Ebola as African pandemic and would not have taken notice unless it had spread and claimed lives in India too. But not anymore, we too are proactive.

Before arriving at Bangalore airport from international travel last week, we passengers were handed over a form to fill-in by the cabin crew and it was about Ebola. The form needed declarations of the traveler and had identified the affected countries, symptoms of the disease, measures to prevent spreading etc. and whola, it also gave a toll-free number to call for help during emergency. At Airport too, all passengers were made to line up to hand over the forms as the first thing to do and also seek clarifications or advice on the disease or to undergo check-up if needed. Kudos to those who made it possible as airports are the first place and easy passages to import this disease. 

If it arrives, it would be really difficult to stop as it spreads quickly and would have a dangerous impact on countries like India which have dense population. Better to stop it at the borders and the effort has begun.

Wednesday, December 17, 2014

Economic news round-up

Brent falls below $60

What seemed unlikely is no more impossible. While many are speculating further downslide, charts suggest otherwise. For those oil exporting countries, their revenue is halved, their economy will be hurt badly. But fundamentals of oil pricing would come back kicking in quickly. Further low crude price would not leave any profits on the table for oil producers, many would get out of this business, reducing supply glut and prices may hold on or come back to $80/barrel.

But this sharp fall in oil price has put pressure on those who made a living out of that surplus money in the oil pricing. Those organizations funded by oil money appear to be starved now and the attack on humanity in the neighboring country of India would be a side-effect. Though this is gross speculation, if it has any truth in it, we would see more violence before those organizations disappear or become smaller in size.

Value of Russian Rubble takes big hit

Putin might be wondering in private that there is no power left in his MIG’s, missiles and aircraft carriers in the new world of economic wars. He could annex Crimea but the economic war with the west took away all his pride. Former KGB agent might be feeling his training is insufficient when raising the interest rates to 17% could not stop Rubble from falling further.

Couple of months ago, you needed 2 Indian Rupees to buy a Russian Rubble but now you would need less than Rupee. It is time to increase oil& gas import from Russia. Tourists take note and plan your trip to Russia!

Source: Investing.com

Monday, December 15, 2014

Opinion: Bravo Rajan!

Two recent news reports from Raghuram Rajan, Governor of RBI offer wisdom and shows what he stands for. Here they are:

One: RBI Governor Raghuram Rajan's word of caution on 'Make in India' campaign (Link: http://zeenews.india.com/business/news/economy/rbi-governor-raghuram-rajans-word-of-caution-on-make-in-india-campaign_114054.html )

Two: Raghuram Rajan Says It's Not The Regulator's Job to Boost Sensex (Link: http://profit.ndtv.com/news/economy/article-raghuram-rajan-says-its-not-the-regulators-job-to-boost-sensex-712041 )

In the first news item, what Rajan says is ABC of economics. Do what you are good at and outsource the rest to flourish. Instead if every country follows the approach of make it all themselves, there would not be much international trade. And the prices of goods won’t be any less leading to opportunity loss. Manufacturing has worked for China but it does not mean our primary focus should also be the same. Manufacturing creates more jobs and has a lot deeper trickle-down effect than service industry. But what the Prime Minister’s office fails to see is manufacturing is not just labor, it is skilled labor and it also demands uninterrupted power, huge water supply and a robust transportation network to enable moving around things quickly and at low cost. Without the supporting infrastructure, it is not possible to produce at low cost. It takes lot more time to build infra than building factories. When we have so many power plants producing a lot lower power than name plate capacity due to coal & gas shortage, who will power the new factories coming online? And what about the water, chemical supplies? Hopefully you now see, why many goods from plastic goods to solar cells would be lot more cheaper to import than make them here in India. Until we fix infra woes, which may take a couple of years to a decade, focusing on manufacturing may not yield the desired results. So Rajan’s caution is all about economical wisdom but who knows whether the powerful person of India is willing to lend an ear or will he ask Rajan to leave at some time? It would be unfortunate if Rajan’s caution is not taken in right sense.

The second news item is about the priorities of a central banker. Inflation and Rupee valuation come first for RBI before the wish list of finance minister and businessmen. The former Governors of RBI too had this as priority but they were pressured successfully by politicians and businessmen. But Rajan is giving them a miss. He raised rates during UPA-2 governance and now he is able to withstand pressure from NDA Government by not reducing it. It may cost his job, but the rock star Governor made it clear what are his priorities. So I say, “Bravo, Rajan!

Both inflation and Rupee valuation were hit hard in the past few years. Inflation was stubborn above 8% for many years and Rupee had a good fall from 45 to 60 against dollar. But now, in the last few months, inflation is reversing and Rupee did not give up much when rest of the emerging market currencies were sliding quickly. While RBI can be credited for arresting the Rupee fall but not for bringing down the inflation which is due to softening of crude oil and other commodities.

Since the liquidity is high, bringing down rates by a 100 bps may not increase the inflation, but could help in bringing down the interest costs and help boost economy like it is happening in US. Rajan said he is noticing this, but he will act only on confirmation and that may come very soon. What he says is best is best for us, the common men. Of course his priorities are priorities for the common man too.