Monday, January 16, 2017

Bollywood, Cricket and GST

Going by recorded history, it was King Ashoka who had ruled over entire India. After him, there was no other king to match him for the geography under his command. Even the Great Mughals did not venture into south or north east. After a gap of roughly 2000 years of Ashoka’s rule, the British took India under their rule. They unified India to make it easy for them to administer. They built long rail roads and postal network to run their machinery. But that helped none other than M K Gandhi. He traveled by train mostly to all corners of India asking people to unite against a common enemy and fight for their freedom. People wrote to him addressing “M K Gandhi, wherever he is” and it was the job of postal network to locate him and deliver the mails. An idea of independent and democratic India was born and propagated using the infrastructure built by the British. After the independence, it was Mr. Patel played an instrumental role in shaping the geography of modern India, we owe map of India to him. Then Bollywood took over the job of keeping India united. The movie titles such as Raj Kapoor’s ‘Jis Desh Me Ganga Behti Hai’ to multi-starrer ‘Amar-Akbar-Anthony’, touched the underlying strings of united India. When P T Usha won the medal and Kapil Dev’s team won the world-cup for India, we all took pride in being Indians. Now Virat Kohli is not just a cricketer for us but a representative of Indian pride too. Last decade’s movies like ‘Lagaan’, ‘Chak De’ and the most recent ‘Dangal’ turned out to be block-buster successes as they were built on the theme of national pride and the motivation to fight against the odds. Though the heroes of these movies do not seem to be understanding what they stood for in their movies, the collective efforts of movie makers evoked the the right feelings in Indians. Thus, Sports and Bollywood have played a very important role in guarding the emotional sense of feeling the national pride.

As the baby boomers are aging and the new generation millennials are taking over, what would help us Indians in remaining united? First is migration across states. There are people from Punjab and North East who have found a home in Bangalore. Similarly lots of Mangaloreans are in Mumbai and Keralites have found to be far reaching and many more such instances. These migrants know the importance of inter-dependence across states and if their home state want to go separate, they would vote against it. But the in-equalities have to be reduced in the first place to avoid any such urges. Goa and New Delhi pay out the best wages in the country but those in Bengal or Orissa earn a fraction of what other Indians earn. This gap has to be bridged. Economic growth should spread and create a homogeneous India. And a step towards that will be played out by the tax reform GST. Central Govt. will collect a uniform tax from entire India and distribute the share to state Govt’s. This will avoid some state Govt.’s giving huge incentives and other states levying hefty state taxes. As the tax benefits or impact across states neutralize, focus moves on to labor rates. Those states with lower wages are likely to attract investments in the future, so job creation & economic growth spreads to under developed regions of India. Infrastructure too follows along with it. There comes a better India, with playing ground being leveled. Then Bollywood and Cricket will find some weight being lifted off their shoulders.

Thursday, January 12, 2017

Digged for Gold but got Copper

We came to know that Modi can take bold and tough decisions. But political mastery does not necessarily equate with mastery over economics. So the benefits of demonetization were overestimated and the inconveniences were underestimated by his close aides. And they had to learn hard way that poor execution can spoil a good strategy. Newly printed Rs.2,000 notes became an exchange for black money and created a large scale corruption. It proved that the majority of Indians are not ready to pay taxes they owe to the system.

Let us look at the negative effects first. Take a glance at credit growth rates, it shows that it has gone to 50 years low. Bad times for banks. Vehicle sales have plummeted. Construction industry is seeing a set back. What India badly needs is job creation but the jobs are being lost as the mass employing sector like construction is seeing a set-back. You think it is a temporary phenomenon, well, it is difficult to estimate when the turnaround will come. Forget growth, going back to past levels of valuation will take couple of years for the real estate industry, so there is not much motivation for investors.

There are many positives too. Interest rates are down, inflation is under check. Money in banking system has gone up. Cash to GDP ratio is reduced. Tax collections will see an upside. Indians learnt to use Paytm. Debit cards are not limited to withdraw cash at ATM’s and consumers as well as retailers are demanding for use of POS machines. All these will help offset the negative impacts over few years period. Unless monetary system is tampered again, India would absorb this shock and post higher growth rates.

Collectively, over a period of years, benefits may over weigh the injuries done by the demonetization. But the expectations were set very high that India would be clean in 50 days, which was quite unrealistic.They digged for Gold but what they found was Copper. It too has some value.