Tuesday, March 24, 2009


Till the end of 2008 India had problem of rising prices. The inflation created havoc. It went out of control and both RBI and through monetary policy and Government of India through fiscal measures were busy controlling the inflation. The rising the price of crude oil brought in inflation and it was not possible for a while to control the inflationary pressure. But fortunately from the beginning of the New Year the effect of measures taken by RBI could be seen and slowly the prices started falling. All heaved a shy or relief when the first sign of falling inflation was noticed. But alas! The inflation fell rather rapidly.

The rate of inflation on 7th June 2008 was 11.66% say almost 12%. The end of January saw inflation coming down to 3.2%. At this point of time people in general and Economists in particulars were very happy. Even the Government felt relieved. But come last week of February the smile turned into a grin. The inflation came down to 2.43%. This was one of the lowest levels of inflation. Economist was not sure whether it is a good sign or signal of incoming turmoil. People were confused to see that prices of consumer goods have taken an upward trend. What is this? Price of potatoes and onions came up by 20% in the month of March yet the official figure of inflation has gone down. In fact inflation went down by 7th of March to0 .44%. Never in the history of modern India inflation have gone down to this extent. This time some of the economist started feeling whether the country is passing through a state of Deflation?

Montek Singh Alluhwalia stoutly defended that lower inflation does not necessarily mean a state of deflation. He felt that economy might register lower inflation some time but out of such trend of inflation would rejuvenate the economy by creating fresh demand. Though, on a few earlier occasions, we had not agreed with the views expressed by him on the rate of growth of economy yet this time we tend agree with his utterance. Yes, lower inflation does not necessarily meant a state of deflation. What is the e meaning of Deflation? In common usage, deflation is generally considered to be "falling prices" while Inflation is "rising prices". Actually this is "price inflation" as opposed to "monetary inflation".

However, every month some prices are rising while others are falling. So the inflation rate is a compilation of all of these factors. Currently, we have some major inflationary forces combined with some deflationary forces.
On the inflationary side we have rampant money creation, and rupee devaluation compared to other currencies. This is causing prices for food and energy to skyrocket.
On the deflationary side we have the sub-prime fiasco which is reducing liquidity for banks and causing housing prices to fall.
So there you have it, rising food and energy prices and falling housing prices... inflation and deflation at the same time. Many economist feel sooner of later the rate of inflation may come down to Zero. But do not panic. Zero inflation does not mean disaster. The countries like Austria, Switzerland have zero inflation but these are the country where price are greatly stable. One thing must be kept in mind though rate of inflation have reached 0.44% yet the real rate of inflation compared to last year is still higher, which does not get reflected in the maze of statistics. According to us the price will stabiles sooner or later. However Inflation affects the middle class harder because the prices of things they buy go up while their income stays the same. Generally, the Government walks a tightrope though; it cannot inflate all its debt away quickly, without destroying the economy, so it faces a constant balancing act.
I am not afraid of deflation as such. It would balance out soon. What I am afraid of is stagflation. The simple definition of Stagflation is a "stagnant economy coupled with price inflation". This would be dangerous for our economy.

Monday, March 16, 2009


The Industries have started laying off employees now! Even CITU backed employees have accepted pay cuts in Hindustan Motors Limited, to avoid lay off. Today’s youths must realize that Lay off is not a personal failure. It is a requirement of the modern business system. Yes, lay off brings in personal pain but like all difficult situation this could be tackled with determination. Gone were the days when once a person was recruited he is retained for the life. Ten years back it was impossible to enforce lay off. Now, public undertakings are contemplating job cuts. The acquiring of fresh skills of the day is the only security.

Some readers enquired how to ensure security of jobs? Most of the engineering and arts graduates are facing dichotomy. Whether to join MBA course or accept a job with paltry salary for the time being. I wrote back to them that honest boys do not get pressurized rather they pressurize their mind to stabilize the emotion. The hard time don’t last long but hard mind do withstand calamities always. We need to realize that it was single minded devotion to develop fresh skill that would be only savior The present situation of uncertainty has brought in sufferings. Unfortunately our society has developed a culture where the designation and amount of money a person makes has become the signature of importance. Job has become essentially a self definition, not the value he upholds.

The young boys need to realize following points now::

• The companies are running a business, not a charity. Don't take it as a personal failure.
• Security does not come from the Job you are doing or the company you are working with. Security comes from the knowledge and skills you have developed. Keep upgrading your skills so that you are always employable, even in the worst time.
• Keep your eyes and ears open.
• Avoid knee-jerk reactions. If your company lays-off people, don't panic.
• Once you are laid-off, keep your expected salaries for potential recruiters at a reasonable level, to avoid the chance of interview.

Many people do not realize that all educated persons may not be “employment ready” and “ready to deploy” for the jobs. What are the meanings of” employment ready” and “Ready to deploy”? The “employment ready” persons are those who have basic skills in place and can be hired by the industry. The basic skills are problem-solving communication, interpersonal skills and working knowledge of the technical domain such as computer operation and programming for IT aspirants. The” ready to deploy” persons can start generating revenue for the company immediately. It is very difficult to sometime to get employment ready people as well as ready to deploy people. In good times, these investments were done by companies after hiring fresh candidates. However, in these tough times, companies are actively seeking resources that are pre-skilled. Hence, students need to make the investment in enhancing their skills themselves to meet the industry’s expectation. I believe that the key to the solutions is to make the academia work closely with institutions that can help them improve the skill set of students. Now Government can step in and provide much needed help in this regards by identifying institution to train jobless boys. Trauma of loosing job is painful indeed. Wives feels miserable to tell friends that husband is not going to job for sometime. Of course even now there are job which are recession free. They are Accounting, entertainment, energy, education, beside Government, health care, law enforcement, media, old age help, and priesthood, plumbers, electricians and service boys. If dignity of labour is believed let us try our hands here to survive.
We are again and again harping that lay off is not a personal failure. Employees must keep cool and parents need to develop a support system instead of bullying them, showing the example of others. All boys are unique in their own ways. We need to remember; Einstein failed to count his changes initially but resolved the mathematical puzzles of the universe, later. Let us cheers up the young people for getting them trained up.


Wednesday, March 11, 2009


Though the Indian finance Minister declared recently that the economy would recover from October this year, we are not so sure. My advice to our readers would be to expect initial recovery from July 2010 and not before. The real recovery may be expected after2011 only. However measures announced by Government would improve the sentiments of business circle. It is time to talk about investment in Mutual Fund. What is the meaning of Mutual fund? The Fund Houses through asset management company provide opportunity to general public to pool together their money to keep in trust mutually with them and later invest in share market through specialists known as the fund manager .The system allows smaller investors, to invest in shares of larger companies also, allowing to reap benefit as the share market goes up slowly and surely in the longer term. Some time loss is also incurred when market crashes. If you are impatient, and are in a hurry you would surely burn your finger. The world is passing through great recession. It is the time to hold your resources tightly under control.

Many people think buying share in the market is child’s play. It is not. It is always prudent to invest first in Mutual fund and have an overview of the functioning of the share market. The most investors are neither specialist nor have inclination to do research before investment. Yet all the investor desire to make money for their sustenance and for rainy days in future. The younger generation can take risk by nature and as such they are the person who should take plunge into Mutual fund arena from early in life. I do not recommend mutual fund after reaching 75th years of age, unless they have capacity to withstand risk. Some senior citizen invest in balanced funds. In balanced fund investment pattern is 60% investment is done in equity where as 40 % money are invested in debt instrument. The best balanced funds at this moment are DSPML Balanced fund, Canara Rebeco Balance, HDFC prudence, F T India balanced and Tata Balanced. (Source The best would mean the best risk adjusted return and not the present highest return of a fund. I feel senior citizen should avoid investing more money in Mutual fund or shares. You need to invest in discipline manner and with regular interval. None would go wrong in long term if funds are chosen carefully.

While I was discussing the importance of Mutual funds with some of my professional friends Mr Basu , a former Director of McLeod Russell remarked today the greatest worries of the women of India is how retrieve the money lost by their husband in share market. Hearing his remark all of us laughed. But his statement was greatly true. . In reality, Ladies have uncanny sixth sense so far as money matter is concerned. Mostly their apprehensions come true. So, before any investment is made, even after taking professional assistance, discuss with your wife and get a nod before investment is made. If you are single ask your mother or sister. You would probably get a precise answer. One of our readers asked what is the cheaper way of buying mutual funds ? My answer was if units of mutual fund could be purchased directly from the Fund house it is surely cheaper. But in all the towns’ offices of mutual funds are not located. Some of the agent provides service so well that investor prefers to go through a reputed agent. Some agents help building portfolio statements also. It would depend on your convenience whether to use agent or deal directly with the fund House. Buying directly would reduce cost of acquiring. Another readers asked which are the funds should he invest in for fifteen years to take care of his daughters higher education. I felt happy and suggested that he should visit and find the best risk adjusted five star and four star funds and invest systematically. The regularity and discipline investment builds up real assets. However consult a Financial Advisor before investment. But Senior citizen can rely on Fixed deposit of Bank , Government Funds like SCSS and PPF.