Singapores Economic Woes


Singapore’s Economic Recession

Singapore has been a powerhouse of economic growth and icon of modernity and innovation in the East.  As recounted by everyone I met, it has been in recession for the last two years. One of the foremost and lead sectors of services is the oil drilling and exploration, oil rigs, and transportation of cargo.  These have been sluggish of late and seem to have affected Singapore also significantly. The sector has seen staff shedding of significant numbers as a result. As a result other service providers to them like legal services, audit services, banking, etc have shrunk a bit – may be quite a bit and have had to down size some staff themselves.

A significant amount of investments by outsiders into Singapore was in real estate. This has caused the real estate prices to climb up steadily. In the recent years native Singaporeans have complained of unaffordable real estate prices and living costs. The minimum house price for a middle class is about SG$ 1 million. They have contended that it is not possible to support such a capital cost/debt on a salary of SG$ 6,000 – 8,000 average salaries and started migrating out of Singapore to Australia and elsewhere.  To tame it down or reverse this, the Govt has put a 15% stamp duty – to discourage runaway property prices due to purchase  by outsiders. This in order to help the ‘locals’. Due to this extreme measure (this must now be the highest stamp duty anywhere in the world), the outsiders have virtually stopped brining in investments.  And construction industry ahs seen a steep slow down and large layoffs.

Added to this, Singapore has signed off on Fatca and other money laundering agreements spearheaded by US. As a result of tight monitoring and policing and KYC requirement, the funds that were managed for private wealth clients out of a liberal and efficient Singapore have seen a steep decline. And this has led to layoffs in this sector of high salaries curbing further their spends.

‘Singa’pore is a highly dynamic and innovative society. You can’t keep it caged for far too long. I understand that the DyPM who was handling economic affairs so far has handed over to someone else (i forget the name) to put back the economy on rails. And his mentor is Dr Y V Reddy who commands a high respect there – RBI for the way it has handled several world- wide crisis 1997 East Asia, 2002 internet bubble and 2008 by their conservative approach is respected the highest by Singapore Monetary authorities I was told by at least 3.

It will be interesting to see how they bounce back. I am sure there will be some lessons for all the rest.

It stands to reason the first thing to be hit in a recession will be the discretionary expenditure. Usually when i walk from my usual Hotel Park Royal to Komala Vilas, MTR, Ananda Bhavan etc – all within 100-300 meters for my dinner, i will hear the blaring music belching out of many Music clubs and Dance bars – Hollywood songs, bollywood songs, Tamil, Hindi, etc. But this time there was just a solitary one. I am sure one day the magazineEconomist will develop a Karaoke index to measure the level of economic activity a la the Big Mac index.   Or use the level of vouyeuristic activities to measure the Economy. 


Roads alone dont mean Development

Roads and Connectvity alone may not deliver rural development.

Got 2 days to drive around in Rayagada district in Southern Orissa, amongst the poorest 3-4 districts in India. One could not but admire the great strides Roads have made in the region. Govt also seems to have made a lot of progress thru residential school for tribal children which seem well maintained (I saw 3 of them within 20 km stretch). A few takes and lessons.

1 Our first stop was a plantation nearby under the aegis of co-operative group. while the increase in tree growth was visible due to better farm practices, what was not visible was the government funding agencies which recoil at the first sign of trouble.  If risk aversion is the primary motive, development initiaves in such societies at the brink of economic existence will all fail. The Government has to take a more sanguine view – the farmers are never going to take advantage of legal loopholes a la a kingfisher nor dodge a bank manager, if he is solvent. if he has the money he will pay. counter party moral hazard is likely to be the lowest.

2 I met the farmers (slide 11) but it was a difficult conversation. My Hindi was not good currency; the accompanying colleagues’ local oriya was only a passable currency. Thank god we have one language across India. I asked the farmer in saffron T-shirt upto which class he has studied. He prevaricated but signalled something to the locals which was translated to Sixth Standard. (But barely convincing). The man in green T shirt seemed to own 2 plots. With some difficulty we could figure out it must have totalled 3 acres. I asked him what class he has been upto. He signalled to the first one and said something to the effect – to the same extent. (I couldn’t believe him either).

3 Visited the training centre of local SHG which had trained itself in book binding hoping to get some contract jobs in the local banks, factories and shops. (see the videos and the group conversation). We are not just short in financial inclusion alone. Of the sample of 20 i saw, none had been inside a train, only one had been upto class 10, 19 out of 20 did not know 3rd table, only one had gas. Surprisingly none of them had worked in NREGA.  2 claimed to own cell phones (but they all knew what i was talking about) and 2 others cycles. All had electricity and claimed that they toilets.

But i was deeply touched by their guilelessness and genuine warmth. The meeting had been arranged with just 15 minutes notice. They gave a locally made flower bouquet and coca cola (to everyone).

4 Many villages seem to be independent land locked republics within India. I could only with difficulty hold myself from asking if they knew that they belonged to a country called India or that it was once ruled by Moghuls or british and that it has got its freedom. (I did not know if it is lawful or will be deemed instigative; hence i stopped). But as you can see from the video they had very little to do with India or its development. The only ‘Indian’ they seemed to know was Naveen Patnaik.

Villagers (see slide 5) in this tiny hamlet had erected a bamboo toll gate and refused entry or exit unless we paid their toll. Toll collectors were 2 young girls of may be 9-10 yrs. There were chawls on the side each having rows of houses sharing walls with others on both sides. each such house would have been around 10ft by 10. I could see 3 or 4 ladies sitting inside and 1-2 hanging outside besides the children baking themselves in the sun. I could see a solitary hand pump, the cemented platform around which served as a open bathing spot for a village adult in full view of all those who cared to see.

5 We wanted to visit the solar pumpset which was to be inaugurated to supply water from below 200 ft to some 26 acre of land. we reached the spot at around 5 pm but found a group of people (nearly the population of the entire village) walking towards a spot very near the solar system, with 2-3 of them carrying what looked like spears. Later i learnt/saw that it was for the pre-marital prayer to thier chief temple/diety (see slide 3). After their modest prayers were over they perhaps ascertained from our guide the purpose of our visit. (Our guide knew the villagers since we had sponsored the project). There was quick confabulation amongst the villagers. They took some time off their routine to give me a ululating welcome (local custom) and performed an impromptu folk dance for me. (see video). Meaning i was told ‘bahooth dhoor se aaye hai our guest; lets welcome him’. Nice of them.

6 On the way we stopped by a hostel schooling tribal children. (see slide 4). I started asking the most grown up looking amongst them (the one to my right and the one in yellow T-shirt). But they were hardly able to speak but were stoic. the care taker intervened to say that it was their first day in the school and where they have come from and circumstances; I had difficulty preserving my tears within the countours of my eyes.

Some lessons:

1 The region is poor and crop mainly cotton, hurhur, millets and in some places Rice. Recently they have added tree plantation to their kitty. Area is rain fed which imposes its own limitations.

2 False pride is good: Although efforts from several CSR activities, govt initiatives, etc seem to be on the area is largely illeterate. You can get a sense of what they mean by literacy in the video of SHG group. The men in slide 11 claimed they had done upto class 6 or 7 before dropping out. I doubted both. But on reflection found that kind of ‘false pride’ a welcome sign. It only indicated that thay have accepted that education is a desirable end state and they are craving for a better end state than they currently were in; this desire and higher aspiration is a prime requirement for any development initiative to succeed.

3 Thank God for Hindi: The areas were hardly 12-30 kms from the district headquarters. Imagine that we had not integrated India with one language formula – with every district and sub district speaking different dialect or variations and so much time and effort lost in translation -it would have been a massive waste of national energy. (Thank God we have saved ourselves this much at least due to proper actions on independence). Our politicians have done somethings right.

4 Can Roads and Connectivity alone achieve progress: I have been visiting nearby places for the last decade. The roads have come up very well. Most village roads are concretised. The times on most roads, district, sub district and state highways have become 1/3rd and it is much more certain and lot less damage on your spine and vehicle parts. Communication connectivity has also improved greatly. Most villages have someone or the other with cell phones. The progress in literacy and living standards seem nowhere commensurate with the progress in govt infrastructure. (guess not even 15-20%). We seem to be miscalculating the linkages between the 2. (I am not saying these are not important; but how much they are able to use them at this stage is questionable. Looks like a 25 terminal airport for 2 flight landings a day). Roads in most parts seem ready for the next 25 years. (see the photos).

Government may need to work on assessing the skill levels of each village and work on each village to boost their income. The focus has to be on increasing their ‘marketable surplus’. (elaborated later).

TV in each home (still a pipedream in many villages) and programmes for social change, advisories on agriculture, personal health and hygiene will all serve great purposes.

Gas seems economically misplaced. The payment for Gas goes out of the village system whereas the fire wood they were using was ‘manufactured inside’ the village boundaries. (this needs to be studied and validated)

5 There is great potential in increase in crop yields. Our scientst told me that soil should be so prepared that the loosened soil should just about envelope the aura of the root system. It will enable the root system in absorbing the nutrients and fertilisers without running off. Tight soil wastes them on top and loose ones enable run off. There is different requirements for different plant species but most places in India resort to uniform ploughing. Soil nutrients are different from place to place – may be even within the same village. Fertiliser and nutrients have to be adjusted accordingly. He claimed that such care alone can improve the crop yields (physical or financial) by about 60% in India.

The villagers also require better linkages to the markets (for many of them the universe ends at the village boundaries and their Government is the Village headman). Such increased linkages with partner end user corporates will bring them better technology, softer credit, better information, opportunity to add more value (like sorting and grading, washing and preparing them for markets and these can sometimes be significant 30-40% of mandi values) at village level itself. Government need not relax land ownership rights at all; just more facilitative of contract kind of farming will do.

6 Corruption to me seems a secondary issue in these places. For most of their transaction with the ‘outside’ world they need transactional interpretors who can (and do) take them for a ride in every possible way – be it in religious conversion, NREGA money distribution, freebees from government, etc. It is this that they have to be liberated from first even before corruption.

7 Trapping more income inside is essential at this stage: One of the  villages had an electrical repair shop repairing fans, TVs, motors and pumpsets, and lighting earning Rs 4-5k per month. In most other villages this amount is paid to external people. Govt has to analyse such possibilities of retention of income within village as well enhance values of what they sell outside and prepare them for newer activities like vegetable growing, fishing, water harvesting, solar panels, sanitary pads making (may be for a few villages in the nearby areas), poultry and milch cow raising. This requires external help and may be investments. Government can rope in retired civil servants, local students, corporate and wealthy individuals as Village development sponsors and draw up a village level development plans and guide these villages along the path of development. India has just 6,00,000 villages.

8 Compared to what the individuals, NGOs, judiciary and media and voluntary systems have achieved, the work of the government in these areas is so far starkly ahead, at least in the last 10 yrs. The remedy of our constant carp may be redesigning the election systems so that it becomes lot less expensive and faster administration of punishment for political misadvantures. What can u achieve from a justive system which passes judgement on disproportionate wealth accumulation after 20 years and after the person has died). If these 2 can be addressed and we give the politicians some space, perhaps we can make faster progress.

If judiciary and Lawyers can together ensure that delivery is not derailed and delivered within 2-3 months for cirmes, crimes and thefts etc might even vanish. Even Politics will become a lot cleaner. Will our Lawyers accept the challenge. In fact the media should also concentrate on exposing lawyers who delay justice infinitely by misuing their priveleges.

9 India should perhaps have gone for European type co-operative model of corporate existance than English and American type Limited liability company types. We are high social animals and more susceptible to social policing and peer pressures than top down relatively more impersonal legal governance, audit and rules based systems, court trial and punishment systems. social pressures would have achieved the end result at a far reduced cost. (may be, I am foolish, but when no one can prove it otherwise let me take some liberties in being expansive).

(Sorry no videos in this piece)

Demonetisation Lessons from Brazil

An edited version of this article appeared in Financial Express today. Link:

Public policies are best when a lot of reason goes into their formulation and passion into their implementation.Those looking for an effective recipe for formulation could learn a lot from Brazil. It has demonetised its currency 8 times since 1942 and thrice simply knocked off the last 3 digits of its currency overnight i.e. like a 10,000 Cruzeiro (then Brazilian currency) will be 10 Cruzeiro from next day morning.

Lessons from 1830s to 1942.

Even before from 1830s it has been compelled to experiment with its currency due to evolving politics. The early experiments are to do with metallic convertible bases like silver and gold, metallic copper coins, birth of parallel paper money,  etc.

In early 1830s in order to stabilise the external value of Mil-Reis (then currency), the centre starved supply of currencies reducing the circulation of copper coins in the provinces. The provinces responded by issuing their own notes to neutralise demonetisation. Promissory Notes issued by Commercial banks valid for 15 days by law began to be accepted far beyond their due dates. (Source: Page 39-43,  Monetary Statecraft in Brazil: 1808–2014, Kurt Mettenheim)

Some other time commercial banks were allowed to issue bank notes (like in Hong Kong where currencies were issued by Standard Chartered and HSBC till accession). This led to loss of control of central authority and dilution of monetary policies.

Brazil through its history has clearly proved that no one can ‘starve’ the people of currency for far too long.


This period was mostly about high government expenditure, unbridled fiscal gaps and high inflation. Brazil demonetised 8 times before the last one in 1994.

It has had to change its currency, the ultimate form of demonetization for every conceivable reason – to tackle black money (Indian objective), to tackle hyper inflation, tackle daily cumulating interest rates of 3% (which is nearly 50,000% p.a.), base erosion, commodity price volatilities especially in Copper or just to avoid confusion (if Brazil had retained its currency same as in 1942, it would be 1 US $ =  2750 followed by 18 zeros, a nightmare for the accountants). They have been far deeper than t he Indian type demonetisation – the entire spectrum was replaced and the currency itself renamed.

The last in 1994.

The most recent in 1994 seemed Quixotic. It was aimed more at breaking the psychology of inflation. With 100% inflation consistently for 14 preceding  years (in 4 years over 1000%), shops had to revise prices 3 times everyday. That is when the government decided to use two currencies simultaneously – one virtual for counting the real value of currency and another for payments and settlement – and every shop having to display its prices in both and revise it 3 times a day.

But unexpectedly, people started anchoring their values against the real value (which was set near 1 Real Value unit = 1 US$).  Within a quarter or so, it was clear people were not rushing any longer to shops to avoid their currency buying less than when they started from home. Inflation abated and the real value became the Real the official unit. It was perhaps one of its most successful experiments that has lasted till date.

Lessons from Brazil

People will seek ways to settle transactions in the most cost and effort efficient ways. For many transactions in much of India, using currencies across the counter is still the most efficient option. In 1970s and 80s, when there was a coin shortage of sorts,  Chintamani co-operative superstore in Coimbatore used to issue their own tokens. These slowly gained acceptance with public so much so that even government owned busses and offices used them.

The parallel systems will start issuing notes and IOUs which will be strictly ‘enforced’ amongst its members through extra legal authorities.

One thing Brazil has always got right (between 1942-1994) is to have the 1,2,5,10,20,50,100 note sequence – considered the most friendly from transaction settlement point of view.

Currencies are as much about psychology and convenience as values for accounting and transaction, as the 1994 experiment so decisively proved.

The best way to demonetise is not to have one – avoid inflation, avoid unjustifiable or un-implementable tax systems, and not to issue too much of it anyway. Brazil has about 3% as currency/GDP whereas India’s is11-12%. Government should have incentivised and reduced it by 1% every year rather than force it in one lump.

A parade of demonetisations has not exactly curbed either parallel economy or corruption in Brazil. Corruption and black money is so rampant, their President was recently impeached for corruption, their biggest real estate tycoon is behind bars and may have to spend the rest of life there if not politically rescued.

Why black money or parallel economy, there is a near parallel administration being run by the mafia through drugs, extortion, violent thefts (one murder every 10 minutes i.e 140 a day, down of course from 600 a day not so long ago), etc. none of which will be happening through tax paid cheque money transfers.


In summary Brazil offers 3 ground rules (perhaps not with successful examples as much as negative narratives):

  • the way to tame inflation is not periodic demonetisations but curb state populism,
  • the way to curb black money and illegal economy is not starving people of cash but well thought out tax policies and effective punishments, and
  • the way to protect free trade from causing domestic unemployment problems is to maintain the external value of the currency which in turn is achieved by restricting external capital inflows to just what is required for financing current account deficits. (Donald V Coes, Macro Economic Policies and Growth in Brazil, 1964-90)

One would definitely give credit to both the government and RBI for curbing state populism within FRBMs. But given the levels of corruption in tax collection systems itself, black money curbing through demonetisation seems an ill fitting solution. Unemployment is rampant and growing due perhaps to highly overvalued Rupee and extra terrestrial real interest rates.

The daily dose of RBI circulars does indicate that someone is extremely alert at the wheel but whether he knows the destination and if it will deliver enough gains for the pains people are experiencing, time alone will tell.

The writer is CFO and author of ‘Making Growth Happen in India’ (Sage Publications)

Demystifying GDP numbers – as articulate a statistician as you will ever find

Demystifying the confusion around GDP figures

Attended an address today by Dr Pronab Sen, former Chief Statistician of India and Chairman National Statistical Commission. I must admit despite his slightly absent minded looks, he is the most articulate economist I have heard in a long time. Some excerpts. He threw a lot of light of issues generating lots of heat in the press nowadays. (Errors in figures if any is entirely mine).

Should we believe the new GDP growth rates reported

People confuse output for income. GDP is not the sum of turnover but income. A consumption good may be traded at 4-5 intermediate stages before it reaches the final consumer. Then GDP is not the summation of the turnover of the 4 intermediate trades but just the income (Value added) at each of these stages. Example: if an auto mfgr imports components of Rs 30, assembles and sells the car at Rs 55, the dealer to retail showroom at Rs 70, and the retailer to customer at Rs 80… the GDP will be Rs 50 (25+15+10) not Rs 235 (30+55+70+80) or Rs 205 (55+70+80).

Thus GDP is not summation of  Value of Outputs (VO) but summation of Value added (VA) at each stage.

GDP = ∑VA  or = ∑VO * (VA/VO). i.e output into Value Added ratio at each respective stage.

In India the long term average (1950-1998) VA ratio was 16% for manufacturing industries. Between 1998 & 2003 it increased to 18%. By 2011-15 this has increased to 22.5%. Thus a lot more value addition is taking place in our output than anytime in the past. Even if our output may not have grown at higher rates, the value added component in that output has gone up … giving higher GDP numbers. This is what is being witnessed now.

2             Typically in a downturn, industries invest in efficiency improvements rather than investments in physical assets. In Boom time they invest in physical assets (may be indiscriminately). During 2 crunch times of 1998-2003 credit squeeze and 2011-2015, India has invested and become far more efficient and is achieving higher VA in its output. We are lot more competitive globally today than 10 years back.

3             China also invested heavily in physical assets during boom years. Their VA/VO ratio was also fortunately high in mid-20s which has fallen and stands over the last decade to 19% now, less than India’s in several sectors – a sign of over investment. They are now investing in efficiencies and technologies. The World average (long term) is 18-19%. India is well placed now on cost competitiveness and more industries should identify their strengths and grow; they should not worry too much about our size being 1/5th or 1/10th of China’s in their industry.

Why corporate profitability is low in spite of higher value added

4             The VA  has 2 large components – (i) what is paid out as wages and salaries (WS) and (ii) other operating surplus(OS) (paid out as interest, dividend, retained surplus, etc.). In the last 5 years the average rate of growth in WS for India as a whole is 17% p.a. meaning far more is paid out as salaries and wages and the share of OS is 10% p.a. of which the share of interest has been high. Dividend payout has also increased dramatically affecting Corporate profitability and retained surpluses. Wages and salaries in rural India has risen faster than in urban areas/industries.

Shift in manufacturing profile

5             The share of unlisted firms is growing faster than listed companies. Unlisted firms are growing at 12% CAGR while listed firms output is growing at 7% CAGR. The share of informal sector has quietly reached 40% today.

India is becoming more entrepreneurial. It would not be surprising to see that in the next 5/10 years, the top 20 of the 40 construction companies will be totally new and unheard of now.

6             Black money distorts asset allocation.  Most of it is kept in black assets – gold and real estate. Now that there is drive against black money, real estate is suffering.

On Why IIP numbers (index of Industrial production)  don’t reflect our higher growth    

7             IIP numbers are constructed from select industries. Those mfg industries/product which contribute at least 2% of total is selected first. Some of these may have 8% some 5% and so on. 14 such products contribute 80%.

For these products/ industries, just the top 6 firms (turnover wise) are selected. Their rate of growth is taken and averaged and reported as IIP numbers. The index we are using has a base 2004.

During the last 10 years between 2004/5 and now, the small and medium scale sector in these industries have grown far faster (at 14% p.a) than the corporate sector (7% p.a) and the sample 6 have grown even slower. The share of small firms have grown from 30% to 50% in the last 10 years – a fact not captured by the index.

Construction of any index is a time consuming and costly exercise based on extensive surveys. Thats why they are not done frequently. A new series with base 2011 is in the offing, which might set right the anomaly between GDP and IIP numbers.

Why Indian industry is not investing even if it is growing

7             Informal sector which is growing the maximum does not have much savings – it is squeezed out by the money lenders – their main source of finance.

More is paid out as wages and salaries, who may not have the same investment urges as retained earnings.

and of course the High interest rates (see below)

Interest rates

8             Indian interest rates are very high. It attracts a lot of portfolio flows which come in and keeps Rupee artificially high and un-competitive. The way to correct it is to let the interest rates fall which will enable the industries to invest and absorb these flows. If the flows are properly absorbed the currency will find proper level ($ may be Rs 72/75 instead of being Rs 67-68) and portfolio flows will be moderated. This has not been allowed to happen and our real interest rates have been kept artificially high.  We are just accumulating reserves instead of putting it to productive use.

9             Indian industry is crying hoarse on high real interest rates. What they should be screaming at is the differential interest rates. Between 2008 and now these have moved significantly against India.

Our corporate interest rates were 9% average towards end of last decade when the global interest rates were 4.5 % – a gap of 4.5%. Today our interest rates are 10.5% when the global interest rates are kept at 1.5% a gap of 9%. Not an ideal situation for investments. It is better to invest overseas, even if to supply to India.

Thus Indian industry is caught between artificially high interest rates and artificially high forex rates which does not enable them to raise prices in line with costs.

Difference between Planning Commission and the current NITI AAYOG.

10           The previous planning commission had a 15 year, 5 year and 1 year plans/horizons.

15 years – There was a broad perspective plan which was not generally well known or publicized.

5 years – Better known as 5 year Plans. This was an approach paper.

1 year – laid out the expenditure for various programmes.

The NITI AAYOG has a 15, 7, 3 year cycles.

15 year. Vision document – the Government has asked the Niti Aayog to come up with this.

7 year – plans and programmes.

3 year – implementation plans for the above.


11           The current NPA is entirely that of Corporate sector. The priority sector NPAs have remained at their usual 1.5%.

12           From financing just working capital needs from retail savings our Banks are now financing long term loans from the retail savings. More than 50% of lending today is for long term loans.  This is inherent mismatch. Our commercial Banks are not just designed to deal with NPAs.

13           It is not that we were without NPAs earlier. The long term loans were earlier met by DFIs (IDBI, ICICIs, IFCIs) which financed themselves with long term Bonds (15 year types) and were far better able to deal with temporary fluctuations in business and time taken to rectify/reconstruct even bad decisions. It is simply not feasible to deal with them on a quarterly basis, which is what the banks are expected to do now.

Responsible Recovery of NPAs

Treating all debtors the same, including those with scope for turnaround, is bad for banks and the economy

There can be no doubt that banks need to go after the non-performing assets (NPA) vigorously so that the moral hazard of wilful default does not get hard-coded into the DNA of borrowers.

Banking thrives on the delicate psychological infrastructure of public confidence. One should also bear in mind that one of the most essential ingredient of growth is risk-taking capacity and entrepreneurial zeal.

The current hysteria being created by media and the sudden near-choking actions of the RBI towards NPA recovery seem to overlook the fact that we need a balanced approach to recovery even while preserving the above two.

Reasons for bad loans

The current stock of NPAs is the result of court actions of cancellation of licences, government not keeping its word on contractual obligations, global commodity price movements, low equity base in India, irrational exuberance in sanctions and a lackadaisical approach in the past, free-trade agreements (FTA), a sudden sinking of the growth table from 8-9 per cent to 6-7 per cent with services taking a greater share, etc.

Of these, the Asean FTAs have played a large part in pushing many units to involuntary defaults. According to one estimate, when all ASEAN countries implement their FTA commitments with India, India’s exports to them are supposed to increase by 21 per cent while India’s imports from them was slated to increase by 59 per cent (C.Sikdar and B. Nag, 2011,Impact of India-ASEAN FTA).

Surprisingly, Asean FTA, effective January 2010, remained largely unnoticed till the last leg. When the import duties on many end products became zero per cent from 2.5 per cent in 2014, it became a tipping point for the media, traders, and even the overseas exporters.

The cumulative lag in its impact weighed in heavily all too suddenly. This put the domestic manufacturing industry’s prices on import parity and several industries became uncompetitive or saw their margins shrink. In any case their ability to pass on input cost inflation became restricted. Due to this, the growth rate in several Indian manufacturing sector has sharply come down from 7-9 per cent to 3-4 per cent. This has elongated the pay back of several projects from 6-7 years to 10-12 years.

A moderated approach

Banks should carefully segregate stressed credits into (a) where Return on Capital Employed (ROCE) is still more than Cost of Capital (COC). This would indicate that the credit is still viable but less liquid than earlier planned, and (b) where ROCE is less than COC, where the feasibility itself in question.

In case of (a) the RBI should allow one-time re-scheduling of loans in line with the revised economic assumptions and the elongated paybacks, with adjustments in credit spreads, but without strangulating either the clients or banks by provisioning.

Such cases should not be reckoned as NPA in view of the general objective of maintaining a conducive atmosphere for investment. They should not be allowed to erode the confidence in our banking system and preserve the capital base of banks.

Most of current stipulations seem more appropriate for Type (b) cases. The combined might of the legal system (with its slothful, apologetic approach) and existing regulations is the weakest in cases involving immoral and wilful defaults. Immediately after the crisis of 2008, it was found that the CEOs and traders of investment banks had appropriated for themselves huge bonuses from questionable practices and structures.

The Swiss and the Swedish authorities, instead of protracted legal battles, arm twisted them to pay up a substantial part of their ill gotten gains, threatening them with the might of the State which yielded optimum and quick results.

Given that the top 60-70 cases would cover nearly 80-85 per cent of our current NPAs, the regulator, the government and the banks might do well to take lessons from such an approach and jointly ‘arm twist’ a settlement.

This approach might involve transfer of ownership in Type (b) cases to others in the industry who have competitive strengths in manufacturing, technology or distribution to make a less viable unit to fully viable one. Central Banker should have ideally asked for easy exit norms including the court procedures, automatic transfer of licences and permits instead of just concentrating on provisioning alone.

Banks should also agree on norms for lending for takeovers and mergers which is taboo as of now at least for cases involving share purchase, even if the acquirer has to pay for liabilities simultaneously.

Overly cautious approach

The contrasting approaches of the Fed to 2008 crisis as against the current scene in India is interesting. The 2008 crisis was caused by individual excesses and born of instruments created by outlandish models.

Professional excesses were writ all over and unjustified transfers of wealth humongous. Yet their approach was to save the system and public confidence and many of the sins were forgiven or forgotten, despite the effectiveness of their legal system.

Our strangulating approach of ‘one prescription whatever the diagnosis’ seems destined to manufacture a crisis out of what is at worst a matter of serious concern. This, when an accommodative monetary policy is the need of the hour, with the bulk of the economy and manufacturing sector struggling and growth and employment addition far below potential.

The excesses of strangulation can be gauged in the light of the equity that RBI holds in relation to its total balance sheet size. RBI’s ratio in this regard is the second highest in the World at 32 per cent (next only to Norway at more than 40 per cent).

The same stands at a mere 2 per cent for the US and UK. There is a clear case for a more nuanced and segmented approach, appropriate solutions for each class of cases, besides of course a re-look at the real interest rates which are at historic highs for many sectors, stubbing out any entrepreneurial spurs in the affected sectors. The high equity component in the balance sheet should be a source of comfort and assurance of the system; unfortunately RBI does not seem to know its strengths.

An edited version of this was published on March 28, 2016 in The Hindu Businessline. Link:



Choice does not necessarily bring Welfare, Dr Sen.

IMG_0896.JPGWhen it comes to Cars I was a bit like Madhuri Dixit who claimed that ‘it is just a device to get me from place A to place B – nothing besides’. Yes she does look for comfort but does not care that much for looks, prestige, colour, gizmos, etc. It was the same with me … but only till recently.

My first five cars were hatchbacks from Maruti and Ford. I must have spent a total of fifteen minutes in selecting them – cumulatively that is. Initially there was no other choice as one would have had to deal with Ambassadors or ‘on the way out’ Fiats. Choice was about the colour alone.

My last car was a Toyota Altis. I was sort of told what to buy by my employer and so i went to the showroom and looked at the car for about 15-20 minutes mostly to familiarise myself with its features. The only choice was the colour and by that time i had had 3 blues, and 2 whites and so was sort of bored with those colours. I selected Grey.

Three – four days after i took possession, i happened to meet my boss at the office park. He asked me how my car was doing. I told him that i would have rather taken a Wagon R or repeated my earlier Ford Fusion (FF) both hatchbacks and comfortable to sit. FF also had a thicker gauge of metal so wasn’t really a problem with minor dashes and kisses while parking, so frequent in Delhi. He did not relish the answer at all. He said, ‘No. You should get a good car you see. It is necessary’. He seemed to convey much more than what he said. Guess he had played a part in upgrading my values to make it affordable even if I was otherwise ineligible.

That was my last psychological engagement with Altis. 5 years of trouble free running, faithful servant, i slowly got used to sedans and the low seating. I always preferred the high seating hatchbacks or SUVs. In fact SUVs are too high to get in and out and Crosses are better. I had never measured the mileage, never bothered to do up the minor scratches, my driver had to remind me to change the perfumes (in fact he only bought them), the garage fellow will tell me to change the tyres. The only thing that i did get worked up about was eternal cleanliness. Any deposit of delhi’s dust for more than a day would send my tempers up. I finished 5 years but was not really looking for a replacement when suddenly the break pads started giving loud noises, was not reliable any more while breaking. The workshop had started warning me in the last two visits over six months.

It was time to change the car. By this time i had seen some of my colleagues graduate their cars … significantly up to Audis and Mercs. I thought i should spend some time and make a properly researched, well informed, decision after comparing all available choices and not rush into any decisions or feel left behind.

So began my search. In the 3 months that followed i would have visited several garages of Honda, Hyundai, Toyata, Audi, Merc, BMW, Jaguar and Land rover, and Porsche (not that i could ever afford one… but gave me a nice feeling that i can get into their showroom), and Marutis… some at 2-3 different places. Spoken to 2-3 recent buyers of high end cars to get their take, … a close friend provided with a comprehensive comparison sheet of all such cars.

My first dream was the curvaceous Camry. Or the spacious Honda Accord. Someone who knew me well had suggested Santa Fe. I was told Accord has been withdrawn in India for sometime. Went to the Hyundai next door and had a look. Although i did 4-5 trips in the next month or so to get an additional car – i10, i was not impressed with their reception at all. Their complacency showed : there was 3-4 months waiting for most of their cars. I would have almost bought the new Creta if it was available off the shelf. But the minimum wait was 4 months. The beautiful Camry – my true infatuation – had given way to the feature rich but extremely geometric and boring design. One look and i decided that the lady had become wiser with age but not more vivacious. Toyota was also much like Hyundai … not too bothered. To get a test drive of Camry i had to visit them 3 times. Finally promised and when i reached apologised that they had only a car to show but not to drive … great customer care!

Then i started with the European/German Cars – Mercedes, BMW, Audi, Jaguars.   All great to drive and almost read your mind to drive but i was still hesitant on the value – money proposition till i talked to my friend of mine, a CEO of an Auto component MNC. Just a decisive sentence, ‘German cars are German cars. Don’t even entertain any doubts. It is the ultimate driving pleasure’. That done one more round, this time with prices included.

I asked my driver to chat up some of the other drivers and give me a feed on Audis. He came back with ‘people are saying there are issues with their service, Sir’. That more or less sealed its fate. I am surprised till date how so much information search and experience did not make up my mind in certain respects but a single minute 3rd party ‘expert’ feedback closed my mind on one of the dominant choice. About BMW i took some feedback from a friend, ‘Have no doubts my dear friend, don’t even have second thoughts’. Again that sealed by choice decisively ultimately. Regarding colour one of the many salesman i met remarked on my favourite Red, ‘Sir, its a beautiful colour no doubt, but your eyes tend to get bored with it in six months, and you tend to get sick with it’. That more or less sealed the colour choice for me. Mercs showroom was staid and somewhat non caring i thought and there was no sense of urgency about them. In any case the back seat width in most of their models is too narrow – I can barely place my bums, i thought.

The car arrived and it was looking gorgeous in my garage slot. Two more than middle aged business ladies who live in the same building and have never spoken to me in the past 10 years came and complimented me on the new car especially the colour. And so did some drivers in our office with some well meaning gratuitous advice on how to take care of it, etc.

After 3-4 days of gloating over it, the discomfort of getting in and out of low seating sedans was beginning to singe. I am most comfortable placing my foot flat on the floor of the car… but then the low seats don’t allow that unless you have your knees almost level with your chin. You have to stretch your feet if in front seat. Without anything to rest my foot firmly, i felt that any sudden breaks i would slide down my seat and the discomfort of resting the weight of my foot on the heels of my shoes…

To incentivise, I had told my driver that the new car is expensive and every scratch will cost me a bomb and if at the end of the year there is no scratch on the car he will get one month’s additional bonus. He is not exactly race track ready but i have never had any issues: he is as fast as any ‘stick to your lane’ driver can be. But nowadays he is a unsure wreck – looking in 32 directions every now and then before he pushes ahead.

My Ford Fusion was a bully – with its thick gauge i was not afraid of the autos, or two wheelers or other cars. I would just nose my way in, honk and elbow out others and create my way. These days when i am at the wheel, i am afraid of every auto, speeding car… motor cycles and even cycle rickshaws, nervous that they may come and kiss my vehicle… DTC busses are a menace …and in general the lower the value of the other nearby vehicle the more my scare. I have caught the virus of looking over, ahead, sideways, rear view mirror… from my driver.

And a few days into my purchase, my car was stuck somewhere and i had taken a ride with a colleague on his Ciaz. A high seating sedan, I could firmly root my foot, there was all the electronics one could think of… the rear cameras, navigation, voice recognition … big boot space with Stepney properly hidden… it appeared a superset of all features I had noticed in all other cars. All at 1/4th the price… cheap price the thing that makes most Indian mouths water the most. And my sense of regret was complete.


  1. i want to convey I have bought a ‘luxury’ (according to me) car and arrived in life. (Even if i didn’t say this, most readers would have concluded anyway that it is the only purpose of this article. So why should not i get the pleasure of saying it myself instead of starting with being defensive).
  2. Choice does not necessarily bring welfare, Dr Amartya Sen. You got it wrong. Some of the most happy people i have seen, come from the poorer communities, nations, neighbourhoods, families… wherever there is a sense of brotherhood, trust, stability of things, relatively stable balance of things with others/neighbours/colleagues including income and wealth, etc. (I don’t want to include ‘success’ in that category and contaminate the rest. It seems to be a bigger pollutant of happiness than wealth).
  3. I think the more the choice of goods available and we see them all and analyse each and every feature (obviously no single thing that offers all that everyone desires) the mind constructs a super set of all features at the same measly price i paid and starts suffering in comparison. Absence of choice may not have led me to these desires in the first place. I don’t know if Einstein, Chaplin or Rockfeller or Russian Czars would have ever regretted that they didn’t have the latest iPhone or Jaguars or such like. It seems so simple: ‘what the eyes don’t see… the hearts don’t grieve’.
  4. Mostly objects seem to have some high ‘utility value’ so long as they are not in our hands and the moment it comes into our grasp (or after the first use) its utility seems to plunge so steeply. The fall seems inevitable …only the rate depends … so perhaps the saying ‘a satisfied desire can never be a good motivator’. So we see divorces after 56 hours, 56 days or 8 months… objects bought with so much urgency or passion etc lying unused in our cupboards or show cases for long un-opened, books lying unread, etc.
  5. Lets not get things mixed up. There is nothing wrong with the vehicle. It has delivered almost on all parameters it claimed. 17 km per litre is a steal on diesel … it is less than ½ the cost of travel by auto for similar distances. It packs the power of a well built mid-fielder and has the languorous grace of a David Gower or Lionel Messi. At normal speeds it stalks like a tiger on the prowl and when required it lunges forward at will like a feline hunter which has decided on its particular kill. So overtakes and high speeds are not a problem if you have the stomach.
  6. It is more my core need which is to be seated with knees bent like when you are seated on your dining chair or office chair. It is the most comfortable position for me and that’s what my previous cars have ensured. When the seating gets low and i bend my knees only half, it is uncomfortable, although i gather low seating makes for a lot better stability and balance on highways and on turning. Once this is compromised i think our psyche starts screaming which only grows with time on you. All other benefits and conveniences features and comforts meekly surrender before it. I am sure the core may be different for different individuals. Unfortunately quite often i am not able to figure out what the core is exactly before the inevitable or irreversible decision or event or purchase and use.
  7. When i see Audi SUVs these days, the mind starts wandering … would it not have been a better choice…the comfort of high seating… being able to put my foot down firmly flatly, … so what if they had put a lower engine (same as in Skodas and VWs), I am not going to be racing; so what if the service is bad, the car is not going to be in the garage every day; should i have blindly relied on the Driver’s advice, shouldn’t i have thought about it myself… my mind has now to fight every reason it used to reject it in the first place.
  8. Oh! Come on. ‘But then the Audi’s front grill looks like the smile of a lady without her two front upper teeth, grinning from ear to ear. However beautiful the face, the smile – the ultimate embellishment/jewel on a human face, on such a face always looks horrible’ this is my ego defending my action. My ego the only true friend i have … never ditches me… always springs to my defence unlike my friends, wife, siblings, teachers, relatives, colleagues, et al who all ditch me for logic (the stupid logic) sometime or the other, sooner or later. Even if i were to commit a murder one day, i am sure it will still stay thick with me and be a judge who always rules in my favour.
  9. There is the core need and there are the peripherals. I think the speed and levels of satiation, frustration or disgust or boredom depends perhaps on how far out from the core the peripheral need is. With some core needs may be satiation perhaps never sets in or sets in ever so slowly like a biological process.

Finally, with all this wisdom i am still not sure if i will get my next decision right the first time. Should i have researched more. Perhaps yes. But then more knowledge is what seems to have led to dissatisfaction, discomfort and regret in the first place … so what will it achieve but the opposite. May be lack of choice leads to more happiness … but i am not sure if i am there yet. But it looks like the absence of too much external stimuli and temptations by way of alternatives enables me to discover and stay close to my core need. Or discover myself better. If true i pity the rich… poor souls!

Wealth of Guilt


(only a part of my ‘wealth’)

My Wife had been nagging me for the most of last year to clear old and excess stuff and unusable items in my study, bath, wardrobe, and show case. As usual it faced stiff resistance till one day she cleared out partially and brought out many stuff out in the open in the drawing room. I could not resist any longer and plunged into clearing the weekend before year turn. This is what i found by way of ‘excess’ – quite apart from what i kept for possible future use or current immediate revival.

  • 1 home theatre and 2 music systems and a CD/DVD player, (I have 2 more systems for use)
  • 6 speaker sets, may be a dozen ear phones (apart from the half a dozen retained),
  • 23 leads 2 way pins old style which engage making a click sound,
  • 10 charging chords, (I have kept 18 chords of various kinds for future use),
  • 14   2-pin or 3-pin plugs,
  • More than 32 combs,
  • 17 mouth wash bottles,
  • 2 dozen tooth brushes,
  • 5 calculators,
  • Lucky I disposed off 4 shoes i am left with only 10 pairs now besides 5 sandals /chapels,
  • An embarrassing number of pens of various description (at least half a dozen of which are of high end variety like Waterman, Schauffer, one gold cross pen (gifted to me in 1993 and today’s indexed value must be more than Rs 60,000 but never used),

Batteries, watches, cell phones, batteries for cells, dozen toilet kits, scissors, staplers, punches, marker pens, fevisticks,… too embarrassing to tell.

I am sure many of you may not be far behind if you care to count and admit. I am sure that wealth – things bought with enough ‘economic’ logic’ in ‘emergent’ circumstances – afflict corporations, government departments, perhaps even ERPed organisations. (that is if they don’t have 2 versions of ERP running one for back up).

If I am not able to control this accumulation of ‘wealth’ (sure all these have entered into the National income and GDP of some country) why blame the likes of Imalda Marcos for her 4500 pairs of footwear and 15,000 saris of Tamil Nadu CM … perhaps they may have exercised their choice and bought for pleasure and it may have been far more affordable to them than the above things were to me.

Don’t read me wrong – I am not a kleptomaniac. My mother has given me strong sense of values not to pick even an unclaimed 10 paise coin. They say that we start questioning the logic of everything by age 13-18 and start questioning our values by 40 (so perhaps the saying ‘Don’t get naughty when you turn forty’). In my case this particular sense of righteousness seems to have survived the battle with values. So not for me inflating tour expense accounts, spending differently if it is from company’s account than it is from own account, seeking bribes on duty, etc. Values settle many day to day decisions for me instantly … no ruminations, no vacillations and hence no agonising over them. In that sense it has been a source of great help and happiness…regrets, I believe, come in only from foregone alternatives. A strong sense of values sort of effectively shuts out many of them and hence a lot less of the feeling of ‘foregoing alternatives’ and hence much less unhappiness.

Nor am I a shopaholic… just shopping for pleasure… compulsively!

Or profligate spender with loose controls. Again my mother would have accounted for every grain in her kitchen/house (some exaggeration here… but those were her times). Regret she didn’t train me in the same mould. Or perhaps she did. And I get overwhelmed by the scale and variety of new gizmos, articles, choices, things we are flooded with (deluge, should i call). The best of training has limits, I guess.

Regret my school didn’t train me in being responsible in housekeeping – putting things in their place for easy retrieval later, not buying anything more than strictly necessary. But then again any upbringing also has limits. They could train me to take care of 2 pens – one as reserve, but could they have imagined that one day i will be faced with a deluge of 200 pens/pencils in my house? In their days that’s what shopkeepers would have had.

I think this accumulation of ‘wealth’ may have happened in 2 ways.

These days most electronic gadgets come with their own set of connecting wires, plugs, chords to interface with TVs and Laptops without ask (and most of them look alike) instead of leaving it to be purchased independently. The Government should tax these add-ons heavily so that neither the seller or buyer supplies them as an automatic annexure.

The next perhaps bigger reason is lethargy which in a sense (at least in this) seems a sort of arrogance of affordability. Lethargy in keeping things in their designated place … or designating a place for each and taking cursory care to keep them in that place and lethargy in searching when required. When things don’t materialise as wished when required I get frustrated and go to the nearby shop to meet the ‘emergency’ or when we visit the mall next if it is something that can wait out my frustration. When I buy, an exaggerated sense of importance of my time overcomes me and ‘economic order quantity’ (why spend so much time shopping for such a small thing… hence take more than two or perhaps a dozen) is bought to be kept wherever till I hit the same patch of lethargy and frustration and the cycle repeats.

I wonder how much of our GDP and national wealth are of this kind.

How effective or desirable is ‘market economics’ when it allocated ‘resources’ for such ‘inessential’ uses when there can be so many out there more needy (or the future generations) for whom the use value would be far more even if they don’t have the ability to pay.

I don’t mean they should be given a dole at my expense. I hate doles and charity… except some basics. There is no better way to kill individual initiative and breed mass lethargy against progress than doles and charity, me thinks. But some kind of a prick on my ‘arrogance of affordability’ or on the ‘lack of discipline – lethargy – needless buying’ cycle so that i become responsible… and don’t ‘deprive’ others by boosting demand and inflating prices for them.