Right time to withdraw the stimulus???

So now, when we speak of India, we have the debate on whether it is too early to withdraw the stimulus package. India’s stimulus had a lot less to do with pumping money into the system than it had to do with tax cuts to the industry, lower interest rates and so on. So now, many feel that the recovery has been fragile and so stimulus should continue at least till September 2010. I am tempted to call in my great ‘Band Aid’ concept here :) . Are the wounds still green? And would prematurely pulling off the band-aid hurt? Observers and analysts feel, yes. I ask, was there a wound in the first place? What recovery are we talking about? We never slipped into negative growth, that defines a recession. We went from 9% GDP growth to 5.5% and now we are back at 7.9% GDP growth. Even this quarter the growth is expected to hover around the 8% mark. So, I ask – stimulus for what?

China entered into a stimulus since her economy was steeped in exports to the developed world and when the developed world was hit, it stopped consuming. And so China’s bread and butter was stolen away. But we are not so dependent on exports. And we can’t say that just because everyone in the world is stimulating themselves, we need to continue as well. If we keep up stimulation when the economy looks good to go, we’d be fuelling inflationary pressures. Through easy credit we’d be stepping into callous lending! At an extreme, we could be stepping into sub-prime territory in lending! Stimulus packages are a burden on the Government kitty and they divert funds away from much needed developmental expenditures. If India has been less hit by the Great Recession, we must thank our economy for having been resilient. We must thank the policy makers for quick action. And we must capitalize on this resilience to bounce back and out of stimulus-induced growth. The leading economic indicators spell cheer for India and so now is the time for the stimulus to be slowly decreased and eased off. This may be a bold step, but extreme times call for extreme measures.

Air India - the blunder of the decade!

‘Bailout to sail out’ spoke of bailouts and how economically they are wrong since they in a way condone wrongdoings and mismanagement. When GM asked for help, everyone was up in arms against the whole way in which they refused to change according to the times and still produced the fuel guzzling behemoths that consumers had fallen out of love with. ‘Why should taxpayers’ money go into rescuing a Jalsaghar (Satyajit Ray’s epic on pride and ego in spite of decadent poverty)’ was the question everyone asked. But then the ‘too big to fail’ card was played and the cascading effect a GM failure would have on Detroit, Ontario and the employment of millions was brought to light. I remember reading an article around 2008 Christmas in The Globe and Mail, about this family that lived in Ontario, where the only breadwinner was a 55 year old lady who had worked all her life in GM. She chronicled how her life and career had revolved only around GM, and at age 55 she wouldn’t find work anywhere. ‘Maybe this is the last Christmas we can spend together as a family, for next year perhaps we all need to move out of here to find jobs in order to survive’, she lamented. Such stories resulted in GM being bailed out, GM filing for Chapter 11 and so on.

Believers in classical economics, (me included), feel that free markets should be allowed to decide who is good and who is bad and poor performers should be penalized. Yes jobs would be lost, and there would be intermediate pain. But in the long run the cobwebs would be dusted off and quality would prevail. Keynesians believe that the State is present for a purpose and when corporate mess up, they are deigned to step in and clear the mess. So ‘the too big to fail’ funda has been bandied about and the verdict is still divided on whether it is the right thing to do or otherwise.

So speak of Air India. They have paid € 5 million to enter the Star Alliance group and another € 5 million is to be paid. They are in doldrums. They have a liability of Rs. 16,000 crores on their balance sheets. They asked for 5000 crores as Government bailout and got only 800 crores approved! And now they have engaged McKinsey at a whopping 14 crores to pull them out of this mess. Accenture and Booz Allen are already in the fray to rescue them and McKinsey has jumped on the loss maker’s band wagon as well. It really reminds of the Ferrari racing team between 1979 – 1999 when ace drivers and engineers joined the money bags team, milked it for big bucks and left without achieving that all elusive championship victory! What is the outcome of this massive bunch of blunders? Accounts payable amounts would increase albeit to consulting firms now, fat reports on glossy solutions would increase but implementation bugs would continue to persist, since clearly AI’s management team has management issues! And when AI goes beyond salvage, the eternal money bags – the Government would be called upon to HEEEEELLLLLLLLLLLLLP!!! The saga would just continue. I wonder what steps are going to be taken next in this biggest blunder of the last decade which began with the IA-AI merger, which sought to rationalize operations and ended up just spending more on painting all planes with the new logo! Integration went for a toss and from then on AI has been on a nose-diving tailspin! Perhaps its time to stop heeding the SOS.

2009 - a year that was

Ok, almost everyone chronicles the past year. On thing I like, is the one liner event history that figures on Wikipedia or the year round-up in the economist. But for me, the events come to mind at the top of my head at the end of the year, hold most consequence. Here's the roundup of things that defined the past year -

This year marked many things. It began with a bush fire in Australia and surprisingly ended with one in the same place as well - almost setting the tone for the fiery year in politics and the world ahead. Barack Obama became the 44th US President - after a well crafted, technologically and ideologically vibrant campaign. Although post election a number of factors have called into question the success of his presidency. Parleys on whether we were looking at a recession, or a depression, or whether countries like India were in a recession at all, occupied intellectual coffee table talks for a greater part of the year, while countries like Iceland collapsed, Dubai stared at sovereign default in the face, China boosted spending and India recorded 7.9% GDP growth.

Some things stayed staid, with a miscarriage of democracy in Iran and Afghanistan, which felt as though democratizing the Middle-East, an area famous for its tribal population suddenly were forced into something that they did not know how to handle! The Israel - Palestine conflicts continued. Zimbabwe saw the semblance of order with the power sharing deal to form a government, before a deadly car crash wounded the new President and killed his wife. The LTTE was finally defeated with the death of Prabhakaran, thus ending decades of civil war in Sri Lanka, opening a new can of worms related to human rights violations, displaced Tamils and alleged excesses by the Sri Lankan army. The Air France flight from Rio crashed into the middle of the Atlantic in one of the worst air crashes in history, killing all of 228 on board. The UNESCO launched the World Digital Library. Michael Jackson is gone - the music scene will never be the same ever again. This year also marked the 20 year anniversary of the fall of the Berlin Wall, which was much less the fall of an Iron Curtain, as it was the triumph of capitalism over communism.

Typhoons and hurricanes continued. India saw drought in the first half of the year followed by terrible floods in South India that almost wiped out portions of age-old villages. Climate change was becoming a reality and countries had to act really fast. Copenhagen came along, resulting in an eyewash of a climate treaty, which many hailed as at least a step in the right direction. Whether tangible benefits would come out of it, or whether the 'cold' war on who needs to blink first between the developed and the developing world would continue remains to be seen.

Sport faced several disgraceful moments with Lewis Hamilton and McLaren caught spying on Ferrari's technical documents, Flavio Briatore and Nelson Piquet Jr caught in crashgate, only to be topped by the great Tiger Woods proving he loved something more than the 18 holes of golf! Then again, the FedEx - Nadal duel got better, with Fed-Ex snatching sweet revenge thanks to an out of form Nadal. The Indian cricket scene never looked better, but the overdose of the willow implied that cricket now became almost akin to a 9-5 corporate job, with weekends off!! And then came the icing on the cake - the final and sure return of Michael Schumacher to competitive racing, thrilling several Schumi fans across the world.

2010 is not just a new year. It marks the start of a new decade. A decade that began with a promise post Y2K, saw the rise and fall of several governments, terrorism rise to its peak, economic crises of enormous proportions, a new Pope, an American President from a minority community, Saddam Hussein, Benazir Bhutto gone, shards of democracy in the middle east, strife in Pakistan, growth in the BRIC nations, the sudden rise and rise of China, the lost decade in Japan and a lottttt more. I could go on and on, but I'd perhaps reserve all that for another post. That said, hopes abound for 2010. Hope the economic downturn swings into an upturn. Hope there is peace in this world, with none of the disgruntled nations engaging in conflict. Hope that the blue moon that showed its face in India yesterday heralds a new beginning for everyone. Happy New Year everyone!

How much is too much?

They say that a sinking ship exposes the rats on board. Likewise, it takes a crisis to expose fraudsters and unethical entities who thrive on a system while it flourishes. So the Madoffs, Rajus, Kenneth Lays and Thains of the world come into the open only when the system is drained of all the water that had been providing refuge to their unethical activities for so long. Almost all of us know what ethics are all about. Soon after the financial crisis began, people raised a finger against B schools, saying that a code of ethics is missing amongst the current breed of profit-seeking, dollar-hungry set of B school products. And so, most big B schools embarked on a mission to rethink their offerings to prevent unethical entities from entering the system.

Yes, schools do have a role to play in shaping individuals. That is why we had penalties in school for cheating on an exam. That is why we had harsh punishments for cheating in sport at school. But all humans are presumed rational, and we all know the distinction between right and wrong. A school can give us a code of ethics but internalizing it and making the distinction between what is acceptable and what is not, is a confluence of the ethics code and our own ethical appetite. We all wenr in arms when we heard about the fraud committed by Ramalinga Raju. We all watched with disgust as the crookedness of Bernie Madoff came into the open. We exclaimed how brazenly unethical their acts were as the swindled millions and millions of dollars. These were huge transgressions. But think of this. You break a traffic signal, and the cop stops you. How many times have you given a bribe just to get out of the situation fast? Why? Isn't bribery a form of corruption? And isn't corruption unethical? But then, this was a minor transgression, and a small bribe never killed or hurt anybody, right?

But who is to decide what is major and what is minor? And how difficult is it to make the move from good to bad, like the transformation of Anakin Skywalker to Darth Vader? Another point to ponder is that what am I to do if everyone around me is involved in an unethical practice, to book gains? By being ethical, I clearly end up losing. So, should I adopt the rational approach of maximizing my economic value or should I revert to the conscientious approach and believe in a cosmic justice and be satisfied with my being able to sleep peacefully at night, my losses notwithstanding?

I definitely do not have the right or wrong answers to these points. Because actually these are all decisions steeped in shades of gray. At the end of the day, it is a weighted average of your basket of priorities and only you are the judge of the weights to be accorded to each priority to come to a decision metric. The only argument I have is that quick gains are seldom ever sustainable and for me personally a spiky chart is worth much less than a steady level of success and satisfaction.

Power, Politics, Success and Excess

Lord Acton said, 'Absolute Power corrupts absolutely'. I couldn't agree more. And I somehow see some correlation between power and success. Now which follows the other is purely subjective, since some argue that success corrupts a person by making her believe that she is invincible and her confidence alone makes her feel powerful and so wield power. Some others argue that when power is on your side, success verily follows since the power to tilt balances in your favor lies with you. Regardless of which explanation we choose, one must really watch out for the event when power in success moves over to power in excess.

Take China. Undoubtedly she is a superpower. And rightfully so. She has taken all the right decisions, made the right economic moves at the right times. At a time when the world is grappling with dwindling exports, she still registers positive GDP growth. This is power and success. But push the lever a bit further and China presently sits on 2.1 trillion dollars of foreign reserves. The world wants the Yuan to be revalued. The world wants a level playing field, where market forces dictate export competitiveness, not Governmental controls which choose arbitrary exchange rates. But given China's power in the T-bill market, no one dare push her too hard. Now that is power in excess.

Take China again. Post the second World War, when the UN came into being to prevent hostile take overs of other countries' territories, people felt that there would never be anything like the rise of the third Reich. But take India and China since 1962. The bloody Sino-Indian war, where India lost a portion of it North Eastern part of Kashmir. And now, with the Chinese Government going all out to claim ownership of Arunachal Pradesh, Chinese Troops entering Indian territory and painting rocks red, dam construction on the Brahmaputra (which the Chinese bluntly deny... well, I wonder how can someone fudge satellite images then???), it really feels like a push of power to the side of excess.

But then again, economic might can do many things to many people. It is up to an economic power to exercise restraint and be responsible, since those one bristles on the way up are sure to keep watching and waiting on one's way down.

Confucius and Climate Change

The weather is beautiful. The skies are cloudy, the winds are cool. The atmosphere is absolutely intoxicating. The fresh smell of rain-soaked mud, the pitter-patter sound of raindrops, everything 'perfect' in the eyes of a romantic.

Would have been perfect, if only such a weather had existed in July, rather than October in Mumbai.

2009, was declared a drought year. Cut to June- July 2009. Crops failing for want of rain, pictures in newspapers of farmers looking skywards, expectantly, all portrayed an image of the India of the 1950s. It looked rather sad, since those vivid images were a stark contrast to the image of emerging India that we generally perceive.

Cut to October 2009. A deluge in South India. A catastrophe that has not been encountered for over 100 years. Villages submerged, people dead, crops devastated, the rice bowl of India affected adversely. Before I was to leave Hyderabad, I was not too kicked about leaving behind a perfectly cool climate, to come to Mumbai, which I knew would be in her 'midsummer blues'. But I was also relieved to finally be able to travel at a time when there would be no flight delays thanks to bad weather in Mumbai. And surprise surprise, all such expectations were killed, when we were told that BAD WEATHER in Mumbai had delayed the incoming flight. All of us were stumped, since it is rather uncharacteristic for 'bad weather' to prevail in clear skies October! But then again, this whole confused weather pattern is unprecedented. Right from the frigid winter of 2007, in Mumbai, to the current rain patterns, it is bizarre! As though the Earth were screaming for help, by sending these incomprehensible signals.

And as though on cue, we have this whole impasse on the climate change dialogue. Confucius once said, " He who does not economise will need to agonize" Seems apt in the light of our current climate issues. I'd put in a post earlier (of outcomes and interests) on how expecting the emerging world to co-shoulder the climate change burden in a 50:50 manner along with the Americas and Europes of the world was almost certain to lead to a deadlock, with no amicable solution emanating thereof. And now, the UN General Assembly meeting has achieved just that, with everyone playing the penguin game - one where everyone waits for another to take the lead. In a classic case of what psychologists call 'mistaken attribution', the focus was more on WHO was responsible and WHO was not doing what was to be done, than on a clear idea on WHAT needs to be done to tackle the challenge as a global community. Here are some statistics in the map to prove why such circumlocutory behaviors are circumspect! The logic / rationale behind the developed world blaming their laggard approach on the lack of 'co-operation' from the emerging world is absolutely not justified.

The fact remains that the world is screaming for action. We need to act before it is too late. Mumbai, on the west coast of India is served by the South-west monsoon winds from June to September. Geography lessons in the lower classes had taught us that India has 3 main seasons - summer, winter and monsoon. And we also had specific months when these seasons would prevail. But imagine a classroom conversation of the future, if we don't take the cries of nature seriously -

"Teacher when do we have summer in India?"

"I can't say with certainty".

"Teacher how do crops grow?"

"Only with the blessings of God, since rains are never dependable"

What can we as the next generation do? Well, the usual stuff that we already know of, cut auto emissions, since that is the one portion of the emission story that is clearly in our hands. And on another level, we must use climate change idealogies as a guiding factor while choosing our elected leaders.

The Maoist Massacre

The scene was straight out of the Sippy flick - Sholay. Families massacred. Little kids targeted. The first reports called it a Maoist attack in Bihar. Later we realized that it was a fight - a casteist fight that resulted in such picked-out killings. And almost in immediate succession, just we heaved a sigh of relief, that Maoist rebels were not really wreaking havoc on civilized society, came news about the ruthless beheading of a Jharkhand cop by Maoists. For someone sitting in another part of this country, it felt revolting. What on earth is Maoism? And does it really promulgate violence targeted at children? Well, elsewhere in the world, such acts would be termed 'dastardly acts of terrorism', but ask the perpetrators here and they may as well say that this was their cry against the 'establishment'.

Studying developmental figures for the erstwhile 'BiMaRu' states, the plight is understandable. With a Gini coefficient at 0.318, the inequality in Bihar is stark. Reminds one of the situation during the French Revolution where the rich got richer and the poor got poorer. The state keeps screaming for all-inclusive, pro-poor growth. But when the law and order system is crippled, and the number of convoluted, inter-twined problems is humongous, the system takes some time to unlearn and relearn and implement. Granted, unemployment is high. Granted the poor are poor. Granted, the inequality is high as well. But the truth is, that efforts are being taken, and the results will show, sooner rather than later. That said, if the issue is with the Government, why not try to sort things out amicably? Killing children will almost certainly not endear the perpetrators with others who are suffering similar plights. If not anything, just like how the killings of innocent people by terrorists dilutes the so called 'cause' in the eyes of the common man, making the distinction between villainy and martyrdom even more stark, even if the Maoists, as per the original Mao Zedong doctrine are fighting for the rights of the poor peasant, they will be viewed with disgust and perceived to be another bunch of inhuman, insane, indoctrinated, inglorious, murderers and villains.

Whatever the cause may have been nothing justifies ruthless killing - be it the killing of children or of a law-abiding officer. More so, on or after Gandhi Jayanti, where the world celebrates the winner who never won, of the Nobel Peace Prize, a man who famously declared that 'an eye for an eye makes the world go blind'. A man who abandoned a rather successful non-cooperation movement after a retaliatory attack at Chaurichaura, just because the retaliation violated his principles of non-violence. If the Maoists were trying to send a message, I guess all of young India, (and I take the liberty of speaking on behalf of all other young like minded people like myself), feel that a message has been conveyed, of course, but a message that is horribly wrong, and completely contrary to the kind of picture the perpetrators wish to project.