Monday, May 25, 2009


Despite political uncertainty Indian economy is in the path of recovery from the recession. The engine for this growth is not IT sector but traditional basic sector of Steel and cement. A sudden robust performance of consumer and capital goods, a key barometer of activity, showed that there is generation of demand in the country. In view of above activities the Government India is insisting on world bodies like IMF to have greater shares of say in conducting the affairs of the IMF and the World Bank. If India’s political climate turns stable there is a strong possibility for her to don an aggressive new role in world bodies soon. The short-term outlook for the economy has improved significantly. But there is a glaring lack of faith in the longer term. The fall in March index of Industrial production is a pointer in this regards.
The recent data made available to us revealed that demand in India's hinterland is firm and is supporting a vast expanse of the economy. Cement sales have grown at near double-digit rates since November. The consumer goods sales have seen strong support from rural markets. While auto demand has firmed up recently after a disastrous December quarter. Most of the auto companies are bringing up new models of cars including European manufactures like Fiat, Volkswagen and Mercedes .The cement prices have gone up on increased demand from May. Some analysts say the robust growth in steel and cement sales as well as in manufacturing in recent months showed the worst maybe over for the economy. However it is still a matter of debate.
Wholesale price inflation shows demand has not fallen as anticipated and prices were holding firm. Despite such firm signal for growth the unemployment may not go down as the younger population is growing every year. The traditional industries have not been great employers. The generation of employment was faster in IT sector, garment sector, gems and jewelry sectors beside service sector which are yet to grow at a desired level. After a very poor march quarter, industrial output, which accounts for nearly a quarter of India's gross domestic product, has shown signs of recovery.
A few economists, of late, felt that stimulus packages brought in by the government since late last year, along with aggressive policy easing by the central bank, appears to be making an impact, given improved car sales and uptrend in cement and steel demand.
It is worth noting that savings and investment rates, which have reached close to 40 percent due to the structural changes in the economy. This would be able to sustain an investment rate of 35 percent. During the recent month it became clear that NRI are sending more money than before and so the foreign exchange reserves may slowly improve. This fact was revealed by none other than State Bank of India on 8th June.
The main stock index has gone up by more than 40% from its low of early March. FII bought $1.5 billion worth of shares in April and another $296 million recently, after heavy outflows in January and February. However my views are that the sensitive index is still not stable and share market may go further down. My gut feeling is that index may go further down to around 10,000 levels or below should political stability keeps slipping in coming days. Investors should be ready to accept the opportunity for long term investment.
According to well known ratings agency ICRA, the economy is likely to grow 6.5 to 7.5 percent in 2009/10 if the global economy comes out of the slump later this year. But according us the growth rate may not come up soon. We had forecast earlier that Indian’s growth would remain below 6.5% during the year. We stand by our forecast as government stimulus would take time to affect the broader economy of the country. However there is a strong possibility that by 2010 Indian economy would recover at a faster speed. We strongly feel that the high fiscal deficit of central and state governments, which according to some observers has reached nearly 10 percent of gross domestic product, could prove to be an obstacle to growth and undermine the Reserve Bank's aggressive rate cuts. Yet there is a silver lining in the sky. Monsoon is expected to be normal that might trigger better growth and possibilities of lower unemployment.


“Do you know Dr. Man Mohan Singh,”asked Nakib Ahmed, a celebrity news caster of yester years and now advisor to Indian Chambers of Commerce, recently. Without bating an eyelid I replied that Dr. Man Mohan Singh, the economist, was known to me for years now. But I do not know him well as the prime Minister. To me he is a great human being , administrator and above all a welfare economist whose prime concern has always been the welfare of class and mass. He was born in a town, now in Pakistan in middle class family and saw poverty and suffering of people from a close quarter. Educated primarily in India and England he equipped himself as the most practical economist rather than a theoretician. I met him for the first time in early nineties when I was the Member secretary of the Bengal Chamber of Commerce and Industries of Assam Chapter. Under the president ship of H.P. Barooah, then Chief of Bengal Chamber a seminar was organized in Guwahati to asses and find out the ways and means to develop Assam Economically. Dr. Man Mohan Singh was invited to address the seminar. Dr. Singh, at that time was neither a finance Minister nor was the prime minister in waiting. But he remained a person of wisdom and world looked at him with reverence. He agreed to write a paper and address the gathering at our request. The seminar was held at Hotel Brahmaputra at Guwahati. His paper was one of the most important documents which underlined the growth potential of the state. At our request he agreed to hand over the paper for publication and for use in seminars and class rooms besides using in formulating policy document by government and non governmental organization. Pradyut Bordoloi, then a budding politician and professional media person organized to record the speech. During this seminar we met Man Mohan Singh closely and were awestruck at his simplicity and sincerity of purpose. We never felt that this was the gentlemen who steered clear India from a debt laden country to a prosperous nation to be recognized by the developed world.

During that time the intellectuals of United Kingdom and some of the critics of labour party famously stated that it would be appropriate to appoint a person of Man Mohan Singh’s intellect to head the finance ministry of United Kingdom. The finance minister of Great Britain was Gordon Brown at that time who is the Prime Minister of Great Britain now. In spite of such remark of his critics in United Kingdom, Gordon Brown had great admiration for Dr. Man Mohan Singh. During recent meeting of G 20 Prime Minister Brown should greatest courtesy to Man Mohan Singh and requested him to speak in his dinner hosted in honour of visiting dignitaries of the world. Only other person who was invited to speak was Barrack Obama of USA. Man Mohan Singh respected not because he is the prime Minister of India but because he is a wise person. His personality proved the age old saying that “a king is respected within his country but a wise man is respected out side his country too”.

During the run up to the election the successive opinion polls revealed that most of the people of the country favour Man Mohan Singh to be the next prime Minister of India. The result of opinions polls expressed that preference for Advani, Sonia Gandhi and Rahul Gandhi comes much later. Why people of India like to have a professional rather than a hardcore politicians as the next prime minister. This is the most hotly debated issue of the time now. And in this in quest itself is hidden the secret of Dr. Man Mohan Singh’s importance.

Though L. K. Advani calls him a “Weak Prime Minister” yet ordinary citizens prefer an “Upright Humanitarian” to be their next Prime Minister. Today Public feel that hardcore politicians have damaged the fabric of the country and a gentleman would be a better bet if they have choice. This is where the importance of being Man Mohan Singh lies. People prefer him because he is an upright and a kind person. However, unfortunately public have no direct say in preferring the Prime Minister in a parliamentary Democracy.

This is for the first time in Indian politics the parliament may get fractured representation of people and parties making it almost impossible to combine both ideology and practical politics together. Communist may be willing to back up Congress yet may ask for another choice for the Prime minister. But that would not diminish the importance of being the Man Mohan Singh. In this election no parties may get required numbers to form Government and may loose their pride of place hitherto enjoyed. But for Man Mohan Singh it would be the “win- win situation”. How?

Man Mohan Singh remains the M.P. If congress could form the government he would be the first choice for P.M. In unlikely circumstances if Congress needs to sacrifice him or should he listen to his inner conscience and opt out, then also two most important organizations are waiting for his blessings. Those two organizations would like him to join them as their Mentor, if rumor is to be believed... The first one is IMF and second one is World Bank. In any case it would be the victory for the country! This is where the importance of being the Man Mohan Singh lies!

To end the article I quote the remark of Bipul saikia, the plasma Scientist, who stood in queue with Man Mohan Singh as his next person to vote in recently concluded election “it was a great feeling and a wonderful experience to share the same queue waiting to vote. Man Mohan Singh greeted us all with a namaskar. it was a nice coincidence that I will never forget in my life”. Yes, this is being the Man Mohan Singh, the gentleman per excellence and strongest advocate of humane behavior. People love him and respect him not merely because he is the P.M. but he is a decent person of integrity and courtesy.

Monday, May 11, 2009


At long last the Government of India has announced the new pension Scheme for the general Public on May Day. The new pension was earlier announced for the employees of Government of India only. Now any citizen of India would be able join the scheme and plan their livelihood in old age. This, however, is not the only pension scheme in the country. In fact before this scheme was introduced there were two distinct pension schemes in existence. The first one was from insurance companies and the second one was from Mutual fund Houses. Then why everyone was waiting relentlessly for this plan to be introduced ?
There are few reasons. In India people generally tend to believe the Government more than private sector. Secondly, the new pension scheme is simple and Thirdly it is cost effective and fourthly it would be managed by experts and has incorporated checks and balances so that citizens do not loose heavily when money is required most.

The scheme envisages that in younger age more investment would be made in equity and slowly as the citizens grow older more investment would be diverted to government bonds and fixed deposit of banks etc. This would ensure low volatility. Even with such checks and balances it would not be possible to predict the exact return, as investment would be market- linked. In this connection it would be worth mentioning that employees in the organized sector already have ‘ employees pension scheme’ where employers and employees contribute 8.33% and 3.67% respectively of salary. The return from the scheme is pretty low. The new scheme provides for better return as part of the money would be invested in equity market. However the invested money would be possible to be taken out of the scheme only when citizen reaches the retirement age of Sixty years. Upon retirement 40% contributions of subscribers will be put under annuity scheme to enable them to get monthly pension.Balance can be taken out within 70 years at any time in one or more installments. In exceptional circumstances contributions can be taken out before retirement but 80% money shall have to be put in annuity scheme.

The regulators have classified investment under three categories-E, G, and C from which citizens would be able to choose their portfolio. E class assets means high return and high risk meaning equity participation through index fund. Under the G asset class the investment is restricted to Government bonds etc. Under class C asset investment would be made liquid fund of MF, fixed deposit of banks etc. In case Government employees mere 5% fund could be invested in equity where as in general citizens category at least 50% investment could be made, in stock market. In case citizens want they can leave the investment choice to fund managers. This system would be known as “auto choice”. Who can join the scheme?

Any Indian citizen between 18 and 55 years would be able to subscribe to the schme. At present, only tier-I of the scheme, involving a contribution to a non-withdraw able account, is open. Subsequently tier-II accounts, which permit voluntary savings that can be withdrawn at any point of time, can be opened. But to be eligible to open a tier-II account, you need a tier-I account. To enroll subscribers will need to visit a point of presence (PoP), fill up the prescribed form with the required documents. Once you are registered, the Central Recordkeeping Agency (CRA) will send you a Permanent Retirement Account Number (PRAN), along with telephone and internet passwords. There is no investment ceiling. But the minimum investment limit has been fixed at Rs 500 a month or Rs 6,000 annually. Subscribers are required to contribute at least once a quarter but there is no ceiling on how many times you invest during the year. Subscriber will have to bear a penalty of Rs 100 per year of default and will need to pay it with the minimum amount to reactivate the account. Also, dormant accounts will be closed when the account value falls to zero. A friend asked me is there any guarantee? My reply was No. There is no guarantee since NPS is a defined contribution scheme and the benefits depend on the amount contributed and the investment growth up to the time of exit.
At the moment, the Pension Fund Regulatory and Development Authority (PFRDA) has selected six fund managers — State Bank of India, UTI, ICICI Prudential, Kotak Mahindra, IDFC and Reliance — on the basis of a bidding and technical evaluation process. What happens if someone shift out of the city where he has taken the NPS? The PRAN remains the same and you can access a toll-free number (1-800-222080). The details of your PRAN and the statement of transactions will be available on the CRA website (
According to me the new pension Scheme is a good instrument and people who are professionals and working independently like Journalists ,Advocates, Doctors, Consultants Singers , Artist, and small business persons may find it useful. It is up to individual person and his risk apatite whether to buy share or to subscribe to NPS. We welcome the new scheme, for its risk adjusted profile.


Saturday, May 9, 2009

Professionals should plan investment with a vision

During my visit to Assam last month a host of professional friends and readers of this column asked me how to plan their investment without loosing their principal. I was in fact happy to tell them that they should invest with a vision. They should plan their investment meticulously. Since these groups of our readers were around forty-fives and their children have grown up already it would be necessary for them to plan for their children, take care of the security of the family, organize their pension and build up their houses.

I was pleasantly surprised to find that most of the persons of the group have already built their own houses. This is the best thing any professional can do. This group included well-known doctors, a few extremely well-known Advocates, prize winning film makers and most popular writer cum editors of newspapers. Another great thing was that all the spouses were also working persons. But despite being in such a privileged position they have not planned their investment. A few of them have not even taken the benefit of income tax which they are officially entitled to for paying home loan to the bank.

During the course of discussion I did advise them, if all the tax benefit is availed by them, then their finance would further improve .The amount then could be saved for the education of their children. One of the couple, both Doctors, took higher amount of home loan and their EMI was high. As they have to pay a heavy amount it was difficult to save money for the education of their son. Should he get seat in IIM it would have been difficult for them to organize money. (The fee of IIM is very high now a days and it would go further up in days to come).

The couple did take a Housing loan few years back @ 12% in the name of husband only though wife was also earning. Incase the loan was taken in names of both it would have been possible for both of them to claim much bigger tax benefit. So my suggestion to them was to pre close the loan and re apply for the home loan by both of them now as a few nationalized banks have given home loan @ 8% interest.

Needless to mention that if someone takes Rs. Twenty Lakhs as home loan for twenty years @ 12% interest then they would end up paying around Rs 60 lakh in due course. But if they can take home loan @ 9 %( as is available now) they would end up paying only Rs 31 lakh or less. My sincere suggestions to my friends and readers were to take loan in the name of both husband and wife if both are working or if both of them have separate file for earned income.

It was a revelation to me that around 60% of the professionls did not know the benefit of having PPF account. I advised them to open an account and start saving minimum Rest 500/- or maximum Rs 70,000/- per annum.
One of my Doctor readers stated that they do not know how to handle the cash which are received by them from their patient. I told them that those were not ill-gotten money so they need to pay income tax as due to them and save the balance money in arbitrage fund (without any income tax). With last year’s amendment the income tax slab have gone down. After availing all IT benefit if the taxable income stands at Rs 3 lakh then they have to pay only 10% tax , at Rs. 3 lakh only 20% and 30% tax only after crossing Rs. Five lakh. Income.

The most important thing is to plan ahead of time. This is the time to invest in equity under SIP. Considering the 45 years age, Fifty-five percent of their investment should be in equity, rest in fixed income, like Bank FD, Post office FD, PPF and Deferred annuity Scheme etc. Money has no value of its own till someone adds value to it. Rip Van Winkle kept one thousand pound to enjoy his life but failed to support him for a month when he woke up...


The rural sector would steer the economic recovery

It is now apparent that India’s economic recovery would come through the villages. Unless the villages of the country are developed it would be impossible for the country to usher in a new era of Growth. This fact was ignored till recently. With the better statistical analysis and with the strengthening of studies of welfare economics it become apparent that not only the soul of India rest in villages but the secret wealth of the nation is buried under the dust of villages.

The job loss is a matter of great concern no doubt in recent downturn. More than five lakh educated employees had lost jobs. More than million had to undergo pay cuts. Now it is the turn of new graduates to feel frustrated since companies have not really absorbed employees even after the on campus interviews held twelve months back . A few boys have been stopped from joining the service even after issuing the appointment letters. The traditional markets have shrunken. The companies have started research work to find out where the new markets for their products do exit. From this research work it was found that in India the savior could be the rural sector. This area was hitherto ignored.

The companies are employing fewer persons now a day. The most of employees are sent through rigorous on the job training before any official works are assigned. These training schedules are tough. The most of the employees fails to pass these tests and get sacked. Some of the employees undergoing training get so scared that some time a few commit suicides as they fail to stand up to the rigor of the training. With more and more competition for the lesser numbers of jobs the nervousness amongst younger recruits does create hell . Now companies have started counseling as to how to withstand the training pressure by the newly employed executives. Fortunately the down turn has affected minimal in India. This is due to the excellent management of monetary system by the Reserve Bank of India.
A seminar held recently in Columbia Business School noted that although developing countries, especially India and China, are doing much better than the rest of the world, including the US, Prof Stiglitz said one should not believe the effect of the US economic downturn would not affect emerging economies worldwide. The Nobel Prize winning Economist however conceded that RBI has managed the financial affairs of the country much better than most of developed nations including USA. India would be the vanguard in bringing back economic growth to the world economy, along with China, Russia, and Brazil.
He said that about a year ago people used to talk about de-coupling, meaning that emerging economies, especially that of India, are not linked to the global economy and so any downturn would not spread to countries like India and China. But later on it was found that now a day’s economy of the world is greatly interlinked and pressure on dominating economies would bring in ripple effect on the entire world.
"I always thought that that was a myth, and today it seems that the downturn in the world's largest economy has to have global implications and that is what is happening today. We are tied by a whole set of connections -- capital markets, export markets, labour, all that. . .," Prof .Stiglitz said, adding that India's economy is likely to continue growing but at a slower rate than before the crisis.

Prof Stiglitz’s concern found echo in the study of the Associated Chambers of Commerce and Industry of India. It found the rural market is becoming increasingly attractive for FMCG, automobiles and organised retail businesses. Rural India accounts for more than 40 per cent consumption in major FMCG categories such as personal care, fabric care, and hot beverages.
None can afford to ignore two third of the consumer population pie. No wonder, the growing power of the rural consumer (accounting for 64 per cent of country's total consumer base) is forcing Indian blue chips and MNCs to flock to rural markets. Not only FMCG companies but even banks, auto, telecom and retail companies are finding it difficult to keep themselves away from the lure. Young boys must have patience. India is bound to improve soon . The unemployment would surely ease out by 2010.