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 (www.npscra.nsdl.co.in).
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.
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Monday, May 11, 2009
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...
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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...
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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.
________
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.
________
Tuesday, April 7, 2009
GENERATE DEMAND FOR GOODS AND CREATE EMPLOYMENT
In today's recessionary circumstances it is imperative to create demand for goods and rebuild the infrastructure. This effort if proved successful, employments would be generated automatically and that in turn would generate income of people.
Sad news are hitting Indian society all the time since January 2008. In a period of recession worst affected areas are always industrial sector first. The secondary sector always becomes first to receive the social bullets during down turn. Since industrial enterprises, in the period of boom, create employment liberally it gets effected badly during the time of economic recession. In India the agriculture is the biggest employer. It is followed by textile segments. Due to bad export more than four lakh employees have lost job during the year. It would start cascading effect. The most employees are workmen. Up till now sophisticated urban boys were losing jobs. Now even skilled workers have started loosing jobs. This may create turmoil in the society. Should this trend continue a chaos may erupt resulting in arson and looting which was not seen in our society for economic depression. Even during Bengal famine no such major upheaval was noticed amongst the various economic segment of the society.
Barrack Obama, American president forewarned recent the youth of America recently that unless boys were prepared to compete with Chinese and Indian lads it would be an annihilation to them. Neither mediocrity would be tolerated nor survived. Young American boys need to pull up their socks in case they want to survive . These words of President Obama was meant for the boys of his country. But it is also true for our own country too. Our boys must develop skills, new skills for new job. Not only development of skill alone would resolve the problem. Indian boys shall have to understand the dignity of labour.
In a time of recession for most boys’ service sector might be the only answer. The service sector would need honest and dedicated employees. Over the years it is seen how transport sector have developed with private drivers giving excellent service coupled with watch and ward forces. Ten years back 12 hours dedicated service from employees was unthinkable. Now it has become the order of the day. Courier service is another example of dedicated service of the day.
During the recession it is health and food related segments which can provide some stability. In this respect Government can help providing for training facility for health
related machines and instruments. The medical facilities of the private sector enterprises can be utilized for the training purposes. These boys could be deployed after proper training to the villages to take care of health of the population.
Perhaps development of agriculture sector could be also savior. In Assam fertility of land is high but credit availability is low, supply of fertilizer and irrigational canal , except in few place are not sufficient. Can Government think of these areas for development? This is also the time for building up enough roads in the villages linking the district headquarters. Fisheries are other areas where development can be thought of.. Thesd are the areas where our boys also have to show interest. Otherwise money would be spent by Government but it would go to the new generation of workers across the border.
The Government must also start quasi medical facilities at the earliest. A host of engineering college has been opened. There would be lots of requirement for laboratory technicians, teachers, demonstrators etc. Our boys must also be prepared to accept training and get them selves retrained with Media related avenues. During this time
There is no chance to loose jobs in media sphere, educational institute, nursing and
NGO. More and more services are coming into the fore in NGO. The social welfare segments are also coming up pretty well. Young engineers instead of waiting endlessly for the job posting which they were promised during campus interview should prepare for All India civil service jobs. A lot of engineers are required in the defense forces. Young boys and girls can keep their eyes and ears open and apply for these job. In Assam even most of the educated boys do not like to sit in the Government of India jobs. Slowly this trend is changing and boys and girls are trying to compete for these post..
The most important thing during these periods is the support of the family. Family members must try to provide great deal of support to boys who have not been able to get jobs now or whose jobs have been laid off.
The unions of the state have also a roll to play. Instead of confront with the Management it is the time to cooperate with the management. Productivity must not be ignored. Lay off could be avoided at the cost of acceptance of lower salary if need be. One thing must be kept in mind that bad time will not continue for ever. It is bound to change. The bad days would change for good .Only thing workers must wait with positive outlook.
-----------------------------------------------
Sad news are hitting Indian society all the time since January 2008. In a period of recession worst affected areas are always industrial sector first. The secondary sector always becomes first to receive the social bullets during down turn. Since industrial enterprises, in the period of boom, create employment liberally it gets effected badly during the time of economic recession. In India the agriculture is the biggest employer. It is followed by textile segments. Due to bad export more than four lakh employees have lost job during the year. It would start cascading effect. The most employees are workmen. Up till now sophisticated urban boys were losing jobs. Now even skilled workers have started loosing jobs. This may create turmoil in the society. Should this trend continue a chaos may erupt resulting in arson and looting which was not seen in our society for economic depression. Even during Bengal famine no such major upheaval was noticed amongst the various economic segment of the society.
Barrack Obama, American president forewarned recent the youth of America recently that unless boys were prepared to compete with Chinese and Indian lads it would be an annihilation to them. Neither mediocrity would be tolerated nor survived. Young American boys need to pull up their socks in case they want to survive . These words of President Obama was meant for the boys of his country. But it is also true for our own country too. Our boys must develop skills, new skills for new job. Not only development of skill alone would resolve the problem. Indian boys shall have to understand the dignity of labour.
In a time of recession for most boys’ service sector might be the only answer. The service sector would need honest and dedicated employees. Over the years it is seen how transport sector have developed with private drivers giving excellent service coupled with watch and ward forces. Ten years back 12 hours dedicated service from employees was unthinkable. Now it has become the order of the day. Courier service is another example of dedicated service of the day.
During the recession it is health and food related segments which can provide some stability. In this respect Government can help providing for training facility for health
related machines and instruments. The medical facilities of the private sector enterprises can be utilized for the training purposes. These boys could be deployed after proper training to the villages to take care of health of the population.
Perhaps development of agriculture sector could be also savior. In Assam fertility of land is high but credit availability is low, supply of fertilizer and irrigational canal , except in few place are not sufficient. Can Government think of these areas for development? This is also the time for building up enough roads in the villages linking the district headquarters. Fisheries are other areas where development can be thought of.. Thesd are the areas where our boys also have to show interest. Otherwise money would be spent by Government but it would go to the new generation of workers across the border.
The Government must also start quasi medical facilities at the earliest. A host of engineering college has been opened. There would be lots of requirement for laboratory technicians, teachers, demonstrators etc. Our boys must also be prepared to accept training and get them selves retrained with Media related avenues. During this time
There is no chance to loose jobs in media sphere, educational institute, nursing and
NGO. More and more services are coming into the fore in NGO. The social welfare segments are also coming up pretty well. Young engineers instead of waiting endlessly for the job posting which they were promised during campus interview should prepare for All India civil service jobs. A lot of engineers are required in the defense forces. Young boys and girls can keep their eyes and ears open and apply for these job. In Assam even most of the educated boys do not like to sit in the Government of India jobs. Slowly this trend is changing and boys and girls are trying to compete for these post..
The most important thing during these periods is the support of the family. Family members must try to provide great deal of support to boys who have not been able to get jobs now or whose jobs have been laid off.
The unions of the state have also a roll to play. Instead of confront with the Management it is the time to cooperate with the management. Productivity must not be ignored. Lay off could be avoided at the cost of acceptance of lower salary if need be. One thing must be kept in mind that bad time will not continue for ever. It is bound to change. The bad days would change for good .Only thing workers must wait with positive outlook.
-----------------------------------------------
Saturday, April 4, 2009
HOW TO SURVIVE ECONOMIC DOWN TURN AND G-20 CONFERENCE
As the month of April stepped in it has become primary concern of most of the nations to find ways to save their own countries from the economic downturn. India felt that a sweeping change in international financial system is not necessary at present. But the developed countries must look after developing countries of the world and the stimulus package should be considered for the countries in Asia and Africa surely. The meeting of the G 20 was supposed to usher in a new financial discipline in the world economy. The most of the developing countries of Africa, including Kenya and Egypt, want that there should be sweeping changes in the international financial system. These countries felt that the effect of globalization has badly effected their countries and developed countries have got themselves enriched at the cost of developing countries. The concept of Globalization, developing countries felt, has brought in one sided benefit. It created poverty in developing countries whereas developed countries were hugely benefited. These system of controlling financial discipline for benefit of developed countries must change, African and Asian countries felt. Most nations feel that China and India will be Engines for change. Though the economic growth of India is coming down to 6.5% for 2009, it is still much better off compared to Europe where the growth rate is not only negative it is below zero.
With the economic down turn developed countries of the world too were in turmoil. They felt also that the time has come to have a re-look at the international financial system. They felt too that it is high time for a change in economic system. But what change is envisaged? None of the countries are sure exactly what would be the most ideal system of managing fiscal discipline. The French president forewarned that unless the strict new financial system is ushered in his country would not be party to G 20 deliberations. However Indian Prime Minister felt that more than sweeping change in the fiscal system, the World Bank and IMF should be strengthened and developing countries should be given bigger say in managing the funds. The head of the state of developed countries are waiting for the advice of Indian Prime Minister for he is regarded as the brilliant mind in World Economics.
We felt that what was needed in developed economy was more supervision and not regulation. In the recent crisis it appeared that the bank supervisors in developed countries did not do a proper job. The Bank supervisor did not use the common sense to go beyond what was usual business model in vogue. Indian banking system survived because it had stricter supervision in place.
In a survey conducted by Glob Scan, in association with the university of Maryland, reported BBC, it was found that More than 70% of people in 29 countries think major changes are needed in the way the global economy is run. Nearly two thirds - 62% - of the public say the downturn has negatively affected them, and half say the downturn will last more than two years. There is also broad support for reform of domestic economic policy.
In a survey conducted by BBC it was found that in four countries - Russia, Japan, Mexico and India - which are all in the G20, there is not majority support for major changes to the international economic order.
The survey did not ask what sort of changes in the global economy the public wanted, but another poll carried out in the UK suggested that a high priority would be a global stimulus package that created jobs. The vast majority of people of most countries want international stimulus so that job creation could be taken up expeditiously. Another important point came out in the survey that the shortage of credit seems to be having a bigger effect on families in developing countries; while 29% in the US, 19% in the UK and 16% in Germany say it has personally affected them or their families. What was more important in the present situation is to create demand for consumption rather than controlling of inflation. The growth activities need to be propagated. There is a strong possibility in India for further reduction of interest rates shortly despite falling, almost zero level of inflation. For the first time Indian Prime Minister admitted that the growth of the Indian economy might be negative and it can be as low as 6.5%. It is a fact that Assam Tribune’s business page predicted this rate of growth despite great optimism of some officials and institution of Government of India in the month of January.
In this connection the comment of the British Prime minister is praiseworthy to be quoted : “Leaders meeting in London must supply the oxygen of confidence to today's global economy and give people in all of our countries renewed hope for the future," This was what India also wants.
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With the economic down turn developed countries of the world too were in turmoil. They felt also that the time has come to have a re-look at the international financial system. They felt too that it is high time for a change in economic system. But what change is envisaged? None of the countries are sure exactly what would be the most ideal system of managing fiscal discipline. The French president forewarned that unless the strict new financial system is ushered in his country would not be party to G 20 deliberations. However Indian Prime Minister felt that more than sweeping change in the fiscal system, the World Bank and IMF should be strengthened and developing countries should be given bigger say in managing the funds. The head of the state of developed countries are waiting for the advice of Indian Prime Minister for he is regarded as the brilliant mind in World Economics.
We felt that what was needed in developed economy was more supervision and not regulation. In the recent crisis it appeared that the bank supervisors in developed countries did not do a proper job. The Bank supervisor did not use the common sense to go beyond what was usual business model in vogue. Indian banking system survived because it had stricter supervision in place.
In a survey conducted by Glob Scan, in association with the university of Maryland, reported BBC, it was found that More than 70% of people in 29 countries think major changes are needed in the way the global economy is run. Nearly two thirds - 62% - of the public say the downturn has negatively affected them, and half say the downturn will last more than two years. There is also broad support for reform of domestic economic policy.
In a survey conducted by BBC it was found that in four countries - Russia, Japan, Mexico and India - which are all in the G20, there is not majority support for major changes to the international economic order.
The survey did not ask what sort of changes in the global economy the public wanted, but another poll carried out in the UK suggested that a high priority would be a global stimulus package that created jobs. The vast majority of people of most countries want international stimulus so that job creation could be taken up expeditiously. Another important point came out in the survey that the shortage of credit seems to be having a bigger effect on families in developing countries; while 29% in the US, 19% in the UK and 16% in Germany say it has personally affected them or their families. What was more important in the present situation is to create demand for consumption rather than controlling of inflation. The growth activities need to be propagated. There is a strong possibility in India for further reduction of interest rates shortly despite falling, almost zero level of inflation. For the first time Indian Prime Minister admitted that the growth of the Indian economy might be negative and it can be as low as 6.5%. It is a fact that Assam Tribune’s business page predicted this rate of growth despite great optimism of some officials and institution of Government of India in the month of January.
In this connection the comment of the British Prime minister is praiseworthy to be quoted : “Leaders meeting in London must supply the oxygen of confidence to today's global economy and give people in all of our countries renewed hope for the future," This was what India also wants.
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Tuesday, March 24, 2009
STAGFLATION IS MUCHMORE DANGEROUS THAN INFLATION
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.
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
HOW TO TACKLE LAY OFF NOW ?
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.
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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.
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