The world finacial situation is very bad. All over there are banks failing and filing for bankruptcy. Today a big Japanese insurer also filed for bankruptcy in the morning. This financial overboil is sure to spill into the other sectors now. The bubble is too big to control. After US, European banks have come to the panic scene. Iceland has declared that their economy is heading towards bankruptcy. They had put too much money outside Iceland in such mortgage bonds. Last 1 month, US banks like Morgan Stanley and Goldman Sachs who are cash hungry have withdrawn tons of money out of Indian markets. This has led to a fall of markets from 21000 to 10200 few minutes ago within a span of 6 months. This is not a good news for anyone. Everyone is losing money because of this.
The liquidity cruch has finally hit India. The worst part is that, the money that is being withdrawn is going out of India. This has taken toll on the rupee as markets are facing a shortage of USD. Dollar has touched 49 and is slated to cross 50 this time unless RBI pumps dollars in the market. However, it wont be of much use as final destination of that money too will be US which is already under recession.
Let me explain Indian situation again. We are close to 12% on inflation. People of India have way too much cash with them which is driving prices up. These cash rich individuals are investing in stocks. However as explained earlier, this money is going to US. So its a high risk proposition to dwindle your portfolios now. If the money is with people then it is not with the banks as economics goes this way. Banks are facing the crunch to sustain and honour their prior commitments on derivatives and asset trading. RBI shelved CRR by 150bps today. This will infuse cash into these banks to the tune of 60000 crore. However this money will also go to USA. The reason being that banks are non manufacturing entities. The only way they can make profits is by investing in markets or lending loans. Nobody needs loans now as rate is too high and people have enough money now. So other options they have is to invest in markets which is taking nose dives everyday. So this is a critical time for such banks. To honour their commitments they are lifting loans at exhorbitant rates. This is not going to help their books in anyways.
So now is the time that Manmohan and his team should pitch in. They should take money out of these individual investors who are not only losing money in the market to US, but also keeping the inflation rate at a very high level. One way could be to float high interest giving government bonds with a 7yr lockin period. This will attract these individual investors to these bonds. The money will then be safe with government who then doesn't have to reduce CRR anymore. They can directly loan to banks in distress at lower rates. These banks can then cut their interest rates and hence taking a loan will again become a interesting proposition. Thus one source of revenue for banks will be ensured. Once investors enter into bond agreements with government, the share markets will stabalise as the volumes traded will reduce. Thus volatality in the market can be kept at bay. This will also reduce liquidity in the market with people and distribute it to the banks where it should be. Once the money reduces in hands of people, the inflation will come down automatically. The dollar will stay at 50 for some time. Once share markets become less active the big investment banks will hold their trades for some time. This will stabalise dollar for some time. India cannot afford a high dollar as we depend more on imports than exports. So future will be costly for government, but in all this game its better that only government loses and rest of the economy stays stable. Dollar can only be stabalised by increasing your exports, be it services or manufacturing. Now the time has come when its imperative for India to earn lots of dollars from international projects where ever there is an opportunity. After 7 years who knows the economic cycle will change its course and government can then invest heavily in the stocks and recover whatever it was supposed to lose.
Another option is to have heavy taxation to reduce inflation. However with elections coming in January, government can exercise this option only after that. Before that above method can keep a check on situation. Later on taxes can be increased and good tax incentives can be given to locals public for investing money in government bonds. The money distribution has to happen. Its important to check inflation now and everything else can bee tackled!!!
So all in all following steps should help:
1) Government should sell high interest bonds to people with a lockin of 7 years
2) Lend this money at lower rates to banks and stabalise CRR
3) Increase taxes after 1 year to control inflation
4) Promote exports and give tax breaks for the same
5) Bring down trading volumes somehow to control volatality
6) Restrict government investments into stocks for now!
Please give me feedback on tha above method. If am wrong somewhere, I will correct it accordingly!!
Friday, October 10, 2008
Sunday, October 5, 2008
Rama-doze, what have you done?
India has enforced a smoking ban in all public places from October 2nd, 2008
Many newspapers carried this headline or something similar a few days ago. Mr. Ramadoss,the Health Minister of India who was behind asses of King Khan and AB to stop smoking on screen found that this time he could have his way. The smoking ban is enforced in many places as per the newpapers and a single article by the government in there. I cannot say what Ramadoss has done is a good thing or bad. However one thing for sure, it cannot be counted a an achievement. Without any proper infrastructure and methodology this is the most haphazard way to enforce something. He has been behind the people who make the news due to this petty issue when as a Health minister he could have done way better. All this looks like a publicity stunt to show that he is concerned for health of citizens of India.
Lets approach this problem analytically. Something what consultants do. India's population is 125 crores. Atleast 50% of the population can be safely assumed to be below 18 years. So that leave about 60 crore people who are eligible to smoke. Assuming a sex ratio of 1 (Its just an assumption) we get that about 30 crore males and 30 crore females are eligible to smoke. In India 30% of the population is below poverty line who cant afford more than a dollar a day, so they would chose not to smoke when there is fire in the belly!!
This leaves about 21 crore males and 21 crore females. In India, the percentage of women who smoke would surely be below 10%. For whatever reasons, smoking is not a turn on amongst women (Ref: Orkut, Facebook, Myspace). This leaves about 23.1 crore people vulnerable to the tobacco companies.
About 20% of the population of India is beyond 60 years. They have many medical problems. An they would not want to add more to those woes by smoking. As everyone knows "Smoking Kills". This leaves us with 18.5 crore people who are target segment.
Out of these people, I would take a conservative estimate of 70% people who would be healthy and remain to be healty. So they would choose not to smoke although they fall in the prime customer segment for the tobacco companies.
So now we have zeroed down to 6 crore peple who consume tobacco products. Out of these 30 would prefer gutka and pan to smoking. The set of people doing both may not be very significant.
Therefore we have about 4 crore people in India, who smoke cigarettes and add to the business of cigarette companies.
Even after conservative estimates, one this is clear that Congress is losing votes of this 8% population which can be a significant swing. For such an insignificant part of the population Ramadoss is ready to give away Rs 8500 crore excise that government gets every year and some vote bank too!!
Whatever has been done is done.Now we will try to understand why Ramadoss took this step rather that forming a public health system which can benefit 100% of the population in a country where there is a dearth of good health services. The private players make merry as the government is incapable of handling such a scale. So nothing is done every term by any health minister. Ramadoss took up this issue to come to the limelight. Same was the case when he went against Venugopal, the director of AIIMS. It is very clear that Ramadoss is not concerned about public health but about his publicity in the media.
As good citizens its our duty to question the minister who seems to be so concerned about public health to develop a medical network for the future. But I am sure he wont be able to answer the question. Because that question will expose him in media. Its too big a risk for him and his government and also too big an investment!!
So Mr. Rama-doze get up from your sleep and look at real issues rather than shining away in front of the media!!
PS: I hate people who smoke cigarettes behind my back :-)
Many newspapers carried this headline or something similar a few days ago. Mr. Ramadoss,the Health Minister of India who was behind asses of King Khan and AB to stop smoking on screen found that this time he could have his way. The smoking ban is enforced in many places as per the newpapers and a single article by the government in there. I cannot say what Ramadoss has done is a good thing or bad. However one thing for sure, it cannot be counted a an achievement. Without any proper infrastructure and methodology this is the most haphazard way to enforce something. He has been behind the people who make the news due to this petty issue when as a Health minister he could have done way better. All this looks like a publicity stunt to show that he is concerned for health of citizens of India.
Lets approach this problem analytically. Something what consultants do. India's population is 125 crores. Atleast 50% of the population can be safely assumed to be below 18 years. So that leave about 60 crore people who are eligible to smoke. Assuming a sex ratio of 1 (Its just an assumption) we get that about 30 crore males and 30 crore females are eligible to smoke. In India 30% of the population is below poverty line who cant afford more than a dollar a day, so they would chose not to smoke when there is fire in the belly!!
This leaves about 21 crore males and 21 crore females. In India, the percentage of women who smoke would surely be below 10%. For whatever reasons, smoking is not a turn on amongst women (Ref: Orkut, Facebook, Myspace). This leaves about 23.1 crore people vulnerable to the tobacco companies.
About 20% of the population of India is beyond 60 years. They have many medical problems. An they would not want to add more to those woes by smoking. As everyone knows "Smoking Kills". This leaves us with 18.5 crore people who are target segment.
Out of these people, I would take a conservative estimate of 70% people who would be healthy and remain to be healty. So they would choose not to smoke although they fall in the prime customer segment for the tobacco companies.
So now we have zeroed down to 6 crore peple who consume tobacco products. Out of these 30 would prefer gutka and pan to smoking. The set of people doing both may not be very significant.
Therefore we have about 4 crore people in India, who smoke cigarettes and add to the business of cigarette companies.
Even after conservative estimates, one this is clear that Congress is losing votes of this 8% population which can be a significant swing. For such an insignificant part of the population Ramadoss is ready to give away Rs 8500 crore excise that government gets every year and some vote bank too!!
Whatever has been done is done.Now we will try to understand why Ramadoss took this step rather that forming a public health system which can benefit 100% of the population in a country where there is a dearth of good health services. The private players make merry as the government is incapable of handling such a scale. So nothing is done every term by any health minister. Ramadoss took up this issue to come to the limelight. Same was the case when he went against Venugopal, the director of AIIMS. It is very clear that Ramadoss is not concerned about public health but about his publicity in the media.
As good citizens its our duty to question the minister who seems to be so concerned about public health to develop a medical network for the future. But I am sure he wont be able to answer the question. Because that question will expose him in media. Its too big a risk for him and his government and also too big an investment!!
So Mr. Rama-doze get up from your sleep and look at real issues rather than shining away in front of the media!!
PS: I hate people who smoke cigarettes behind my back :-)
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