Saturday, April 30, 2011


Despite great optimism of Government of India for achieving country’s 8.5% growth rates it is now apparent that it would be an impossible target to achieve. Many professional economists, including foreign banks, feel that the growth rate will rather come down to 8%. as inflation and high cost of borrowing would impact production. The finance Minister’s expectation of 9% growth, within three years, would remain a futile dream. We feel, as the inflation would remain the dominant force during this period. India is in trouble. It is facing the highest non-food inflation in two months. Professional Economist now recommends that Government should build up strategic stockpiles of staples to cool prices, in medium term. Warren Buffet replying to journalist in India told that the present problem of world, including India, is not liquidity or the functioning of markets and capitals. It is the inflation that may constraint growth for a while. But ultimately inflation is bound to go down and growth would take place as productivity increases. The growth is bound to take place but may not be in a hurry, he added.

The Governor of RBI, D. Subba Rao has categorically stated that monetary policy is not that effective when it comes to inflation driven by supply side factors as is evident at present. The upper echelon of secretaries and officials has deliberated very recently to control the supply side of inflationary pressure. They felt that the inflation could be controlled through three ways. Firstly , through monetary measures, secondly, by bringing down deficit financing on one hand and, thirdly, by improving supply side either by increased production or by rationalizing supply line.

The Government is convinced that RBI has taken enough monetary measures already and now is the time for administration to improve the supply side of goods and services. The chief Economic Advisor of government of India feels that inflation has started coming down and in another six months it would reflect his optimism in practice. But most economist feel that inflation is not going to come down before 2012 and even the economic growth would not be more than 8% despite high hope of the Finance Minster and his team. While current inflation levels certainly need to be brought down, this year’s Economic Survey has a radical suggestion – inflation may be here to stay with us if we want a high-growth economy. Using crude instruments to bring down inflation could have unpalatable consequences – such as loss of output and jobs, factories closing down and farms becoming less productive. If that is the case, rather than curbing inflation radically, an alternate course would be to work out ways of shielding the poor from the effects of inflation.

The Economist of HSBC bank feel inflation n India is not going to come down in a hurry. India shall have to depend on import of crude oil. The value of crude is not going to come down soon. Neither corruption of the society is going to evaporate overnight. The lethal combination of these two components would force the country to pass through a great inflationary pressure. The growth story is intact but with moderation. According to private professional economists the economic growth rate of the country is not going above 8% till 2012.

. India, the second-biggest grower of rice, wheat and sugar, may buy some supplies from overseas, boosting prices of commodities including palm and soybean oils. Inflation is a casualty of high vegetable prices and the government may need to import some essential commodities to cool costs The buffer stocks created should be rotated regularly or else we’ll be doing more harm to prices. Today, we have no hesitation to recommend starting of retail movement through local corporate with foreign participation like in case of Insurance management. India does not have expertise on retail distribution system. The system can be developed with foreign participation.

Given extreme weather patterns across the globe -- floods in Australia, snowstorms in the northern hemisphere and turmoil in middle east and Africa beside natural caloaminit3s of Japan -- price rises could persist in the coming months. This poses upside risks to our inflation forecasts.

. Kaushik Basu said that India is a huge country in terms of population and land area. It is utter mistake to think that it is fully within the control of the government to move prices of food up and down. Despite our high regards for Mr. Basu we do not agree with these arguments. China is a bigger country than India with greater population .How China is controlling food prices? China is controlling through long term planning of stock piling and eradicating corruption and by managing public distribution system with greater vigilance. This is where Indian politician cum administrators failed.

Palm oil, which accounts for 80 percent of India’s annual cooking oil imports worth $8.4 billion, have surged 57 percent in the past six months in Malaysia, while soybean oil climbed 43 percent in 2010 for a second straight year, because of adverse weather in the producing nations. Did Government of India ever thought of stock piling these products knowing well that onion could be avoided but for Indian kitchen cooking oil is a must.

Reserve Bank of India Governor Duvvuri Subbarao has raised interest rates Eight times in a year, the most by any central bank in Asia. Monetary action alone won’t help cool inflation.

Basu, however, cautioned against using any blunt instrument like arbitrary fixing of prices to tame exceptionally high prices, as such a move results in shortage of commodities and retard growth. We are entirely in agreement with Basu. But let the first stop be taken locally to control unscrupulous traders and hoarder and cartel of fish market at least for Assam and vegetable cartel in Delhi and west Bengal. Unless oil prices stabilize and international situation in Japan ,Africa and Middle east improve lurking fear of inflation would be there and growth rate would be dependent on these factors indirectly.


Warren Buffet’s visit to India generated spectacular enthusiasm and created sensation. Not only Indian investors but also Indian industrialists, Media, investors, teachers and students have made a beeline to listen to his advice. But Buffet himself has said that he has not come here to teach Indian. They are not required to be taught. Indian is one of the most intelligent groups of the world. Ajit Jain, his prodigy, is one of the most valuable gift of India to him, accompanied him and also participated in discussion with students.. Today’s Indian know exactly how to confront problems and dig out prospect much better than most Nations of the world, he added.

Buffet was born in 1930 in Omaha, Nebraska, the son of a stockbroker and Congressman. Nobody, including himself, thought in his early years that he would be the world’s most successful investor in future.. As a boy, irrespective of his family background, he delivered newspapers to make extra money and this probably sparked his interest in the media where he has made several successful investments including the Washington Post Company, a stock that has made him a lot of money and which he vows never to sell. Buffet is loved and respected not only because he is one of the richest persons of the world but for his humanitarian attitude towards life. His humility, sincerity of purpose and compassion has won respect throughout the world. Speaking to Business school students of India Buffet mentioned that to be a successful investor terrific IQ is not necessary. The most important requirement for an investor is sensible temperament and robust common sense. A successful investor must learn to value business. His preference for value stock is wellknown.

From his young age Buffet was a determined person. Imbued with a determination to make good and an entrepreneurial nature, Warren dabbled in several part time businesses but his destiny was chartered early in the piece when, after graduating from the University of Nebraska, he studied business at the Columbia Graduate Business School .His Guru was Benjamin, Graham who shaped up his foresight. About India, where his presence is comparatively minuscule and includes recent tie-up with Bajaj Allianz for distribution of motor insurance products, Buffet said that he was looking at investments in large countries like India., Buffet said that he was looking at investments in large countries like India. Saying away from Indian enterprise so long was a mistake , Warren Buffet said. But he also conceded that none from India also contacted him so long.. Sooner or later the mistake would be surely rectified but no time frame has been fixed yet, he added.

Like many legend his first attempt to get a job ended in failure. He tried to get a position with Graham’s firm and was at first unsuccessful. Finally he got the job and learned a lot about stock investment from the Master. Graham eventually retired and Buffet started a limited partnership in Omaha, using capital contributed by family and friends. The partnership was a great success and Buffet is said to have averaged an annual rate of return for the partnership in excess of 23 per cent, far in excess of the market. Buffet was born and raised during the time of great depression. By the time he grew up, USA was returning back to normalcy and was getting ready to jump to prosperity. Buffet availed the opportunity with meticulous discipline. He never overspent. His philosophy of life was money earned by him was not meant for him alone. It is to be shared with the society. To him society did not mean America but the world of have-not this attitude of his endeared him with mass and class.

Buffett, after several years, decided to wind up the partnership, returning the lucky investors their capital and their share of the profits, and bought an interest in Berkshire Hathaway, a textile company, giving his original investors the chance to invest. The smart ones joine3d him. This attitude reflected Buffet’s sincerity towards his friends and colleagues. Contrary to popular belief his early days at Berkshire Hathaway were not great. The company was in an industry facing real challenges from exports and high manufacturing costs. Warren Buffett had not, however, forgotten what he had learned under Graham, and arranged for the company to buy out two Nebraska insurance companies that changed his business fortune. The business of insurance is a hard one but under Buffett, the company has become, not only a successful share investor, but a leading provider of insurance. Buffet always look for shares of solid companies with tremendous future prospect, having capable and honest management with a difference. His favourites enterprises are mostly large value based companies with service orientation and mass based. He preferred Insurance, Media, infrastructure, cold drinks and finance companies. Despite his great regards for the business acumen of Bill gates Buffett never owns any stock of Microshoft. However he donated most of his money for charity to be managed by Bill and Melinda gates.

Buffett ,, struck up a friendship with Charles T Munger, a lawyer and investor and Charlie Munger eventually joined Warren at Berkshire Hathaway as his Vice-Chairman, alter ego, and friend. Warren Buffett is always the first to acknowledge the contribution that Charlie Munger has made to Berkshire Hathaway. Under Buffett and Munger, Berkshire Hathaway has become an investment giant that wholly owns a number of successful companies that include, Geico corporation, Nebraska Furniture Mart and See’s Candy Shop. Warren Buffet is known for his lavish praise on his colleague. He recently told that Ajit Jain, his colleague at Berkshire, is the greatest gift of India to him. Ajit Jain has most intelligent Business Mind much better than his own, he declared in a meeting in India.


Warren Buffet has become a legend and is generally ranked, along with his mentor, Benjamin Graham, first in a stellar cast of investors that includes Peter Lynch, John Neff, and Philip Fisher. Buffet, however, was different from his master for his exceptional philosophy of life. He also earned money, created vast wealth but used very little out of that and felt happy. He did not keep his enormous wealth for himself or for his family . he distributed it to the people wo need it most. He excelled his Master for his philosophy towards life. He earned his billions and, in his life time, donated most of it for charity. He donated his wealth to a Charitable Trust to be managed by Melinda Gates and Bill Gates , another richest person of the world. Warren Buffet is not going to invest in India immediately. He has come here to study the environment and to request his fellow Indian rich persons to spare at least fifty percent of their personal wealth for the cause of poverty. Buffet advised not to buy share of any enterprise unless investors understand the dynamics of that business. During great Dot Com boom he kept himself away from tech companies . Many of his share holders expressed reservation for his aloofness from the tech world. But later on when the boom was burst they heave the sigh of relief understanding his vision well. Perhaps Buffet would start investment in India in future after he understand business philosophy of Indian businessmen and Government’s attitude towards business enterprise. The greatest thing is Buffet is bullish in US economy followed by India and China. He wanted investors to make money not only for their personal gain but for the gain of the world economy and to eradicated poverty. His investing advice to people is to select value stock and value mutual fund and keep it for decade to get benefit.


The New Ulip is not the Best insurance Product

The new ULIP scheme is an excellent product provided insured have a goal or objectives in front of him . The new ULIP could be a sought after product for Children’s education, marriage of daughter or to create wealth for initial down payment for home loan. It is neither a pure investment nor a pure insurance product worthy for middle class. Many readers of AT asked whether it would be prudent to buy new ULIP product for the sake of insurance or investment. My views are loud and clear. It is a good product with an objective or goal in mind for the wellbeing of the family. It is neither a cost effective life insurance product nor an efficient investment product, unless continued for long term. It has 80 c tax benefits for the insured. But it has yet to receive tax free status under section 10d of finance Act.

The Unit linked Insurance Plan(ULIP) is a type of life insurance product under IRDA having an investment overtone.. The cash value of a policy varies according to the current net asset value of the underlying investment assets. It allows protection and flexibility in investment, which are not present in other types of life insurance such as whole life policies. The premium paid is used to purchase units in investment assets chosen by the policyholder.

ULIP came into play in the 1960s and is popular in many countries in the world. Now in India once ULIP is taken cannot be surrender till fifth year of subscription is over. ULIP once subscribed must be maintained till full policy term in order to gain benefit.


In India investments in ULIP are covered under Section 80C of IT Act. However, the concept of having an investment and insurance by the same instrument was challenged by the market regulator SEBI which took up the matter to the Supreme court of India .The Indian government brought down curtains on the two-month long tussle between the regulators by ruling that Unit-linked Insurance Products (Ulips) will be governed by the IRDA

If you use life insurance as an investment instrument, be prepared for slightly lower yields because of increased taxation. The ULIP product is not tax efficient despite it provides 80 C benefit. The service tax on ULIP is now 1.5 percent against 1% on Life insurance.

For example, if you paid an annual premium of Rs 10,000, the service tax (of 10 per cent) was charged on Rs 100. Now, the tax will be charged on Rs 150. “These will be adjusted in the premiums and accordingly the yield will fall,” said a senior official of a life insurance company.

Similarly, the finance minister has also brought all unit-linked insurance plan (Ulip) charges under the gamut of service tax. Until now, only mortality and fund management charges were subjected to service tax. This means, policy administration charge and policy allocation charge, too, would come under the service tax net. According to Nageswara Rao, CEO and managing director, IDBI Federal Life Insurance Company, guaranteed Ulips would attract higher charges, too, after the Budget modification in the service tax.

However, the insurers were waiting for the finance minister to clarify on the continuation of the exempt-exempt-exempt (EEE) tax regime on life insurance products once the Direct Tax Code is implemented from April 1, 2012. “EEE is an important incentive to invest in long-term savings instruments such as life insurance and hence should be retained. However, the speech did not give any clear indication on it,” , commented by an insurance expert.

In the new guidelines, which took effect from September 1, Irda increased the lock-in period for Ulips from the existing three years to five years. And, all Ulips other than pension and annuity products were to provide a minimum mortality cover or health cover. This has resulted in a sharp drop in sales of Ulips, which once had constituted more than 90 per cent of the sales of life insurance companies.

“All products under the new guidelines have been performing very well and this shows if a proper product can be developed, sales will not be an issue,” said an LIC official.Private life insurance companies, on the other hand, have seen sluggish growth in the financial year so far. In the first 10 months, they collected Rs27,865 crore by selling new policies, a modest 5.8 per cent increase as against Rs26,328 crore collected a year before.

Why ULIP plans are avoided now a day by most people? This is due to the fact that in earlier regime most ULIP plans were improperly sold. The insurance officials did hide the fact that it is a long term product and would not yield any profit for at least for seven years, though product could be exited after three years. Many insurance agents sold the product on the basis one time payment . Agents also never clearly mentioned that if policy is exited before seven years a penalty would be charged as the surrender value. If the insurance companies would have trained their agents properly this kind of miss information would not have occurred. Instead of imparting proper training to their agents, insurance companies pressurised their agents to achieve higher target every months. This was done for ULIPS were the bread and butter for insurance companies then. Difference between two regulators forced the government to recast the ULIP. The product is of great value now provided it is understood properly. The ULIP could be bought by young parents while they are in their late Thirties. This would provide them with great satisfaction while sending their children for higher education and during marriage.