Read Paul krugman for simple economics

Listen, don't read Paul Krugman because he won the this years Nobel for Economics. For commoner people like you and me , whatever he wrote and published on trade theory based on Keynesian concepts will go way out of head.So don't read him because he won the Nobel prize.

But if you still show bravado then I suggest you read Adam Smith's "Wealth of nations", Karl Marx "Das Capital" and John Keynes " General Theory of Employment, Interest and Money" . By the time you finish any one of these books. At least one , you will hate economics from the depth of your heart. Economics is not for faint heart-ed or for the non-receptive sapiens.

Read becasue he writes some really good economic stuff in very simple words which is easy to understand and contemplate on.

He is very much against the policies of Bush Government . And rightly so. But when you read his articles you would definitely understand the policies followed by the US Govt and inf act discuss and debate about it with your friends and peer group and claim you say in it ..wont that be simply great ?

He regularly write for New York Times and they get are published in The Hindu news paper.

You can read his articles here - Paul Krugman Column

He is a question for you -

We all know what the Madoff crisis is all about. But have you noticed the word "ponzai" in the articles on the issue? Have you ever wondered what "ponzai" means ?

Food for thought, no ?

About time we looked at Rural India !

My uncle wanted to know if I was preparing for IIM exams ( notice that he dint ask me Cat or Xat but IIM) i dint have much to answer him except that , " No, I am not interested in IIM's or XLRI's or any of the so called top colleges" ... he gave me the incredulous look that you would have probably see when you hear that"Kumar" Mayawati has become the PM of our country.

And so when he asked me what my future plans were . I had to give him the truth . I told him though i am in the advertising field I would like to explore opportunities in Rural or Health care marketing . I also told him that 5-10 years down the lane I would like to specialize in marketing/branding for rural areas and start a non-profit company.I am very passionate about using the tools and knowledge of marketing and integrated PR in Health care/fitness Industry or Rural Marketing.

He gave me that OK-i-don't-get-your-stupid idea look with a you-aint-gonna-go anywhere with that kinda nod and changed the topic. But not before it got me thinking about , " why not rural India ?" .

Have you guys read the phenomenal book " Fortune At the Bottom Of The Pyramid" by C.K Prahalad (Alumnus of Loyola College , IIM-A and Harvard)? If you haven't yet .. then run to your library or better still buy yourself a copy of the book read it . Now is the right time to read the book. As global recession is going south bound and no one has a clue to what to do next .. here is the book which will give answers to the big MNC 's .. and entrepreneurs alike .

(This is not a book review. As a personal principle , I don't write write reviews. I recommend books to my friends but i never give them or at least try not to unless asked, a review of the books I read. Who am i to take a judgment call on another man's work ?)

Getting back to the crux of the post and in conjunction to blog title , I think multinational companies in India and abroad should start looking at reaching out to rural cities/villages to stay afloat during recession. Or prevent another recession

Most SME's and MNC's ignore rural areas because they believe that people in such cities/villages have no buying power. They are considered poor by most global standards. But, that is exactly why we need to see them in a completely different perspective . C.K Prahald challenges the myth that considers poor people as poor when they are not . He quotes the work of Hernando De Soto's book "The Mystery of Capital" which postulates that poor countries ; people from rural areas are not really that poor. They are often asset-rich and capital -poor. To quote from the book , " Assets cannot become capital unless the country guarantees a rule of law- primarily the law of contracts - whereby the ownership of assets is clear..... For example, he ( Mr Hernando Soto) estimated that the trapped resources of Mexico are about $ 300 Billion" .

That is a phenomenal number! Imagine what potential can India have when 80% of India's population in the Bottom of The Pyramid (BOP) slab will be able to quantify ? This 80% currently accounts for 67% of the current consumption. Aint that an awesome information to behold ? India is quite simply and easily one of THE richest nations in the world and all that potential waiting to be tapped and unearthed. We should be doing that now!

The Big Idea ? If MNC's and SME's ( Small and Medium Enterprises ) can come up with innovative, cost effective and customized products for the rural markets we would unleash a massive wave of marketing and innovation revolution in India. This would also force goverment to work with private companies to set up better infrastructure, proper health care and free education.

Here are my thoughts on a macro scale where we can make some mega changes in this sector :

Not just 4 metros : Metros are so termed because of the huge population and infrastructure growth. I suggest the state govt with the center remove the metros tag altogether. metros means metropolis. Taking TN as an example, let there me more metros in TN alone. Identify and improve those cities . say - Trichi, Coimbatore, Erode..etc .This idea can also be reflected in other states ..

Infrastructure : Have you been noticing that the number of cars in Chennai increasing and really pissing you off ? Ever wondered why ?The answer is obvious, the middle class are getting prosperous and buying new/more cars. But why only chennai ( and other metro cities across the country) city alone? Because every year, of the lacs of engineers,diploma holders who pass out of universities come to cities like Chennai to work. Because MNC 's are well entrenched in metros. Simply put - they seek out better job opportunities and enhanced standard of living. Why not give these Young Turks opportunities in their home cities? Why not prevent them from migrating to the cities? Instead provide opportunities in their native places.

Young Turks : Have better local knowledge: These Young Turks ( as i would like to call them) can be better exploited or rather groomed by companies as they will have better working knowledge of the people in their area. Give them proper training and they will reward you with a better perspective on marketing, product development and sales, much better than IIM grads. And hey, you don't have to pay top dollars for these turks . Pay them not with just good salaries but show them how they are contributing to their society through the company and you would even reduce attrition rates. Make them not - sales executive and stop their career growth. Give them titles like - Sales Manager or Marketing Manager of the area.. This will usher in sense of ownership as well. Unlike high funda grads these guys are more loyal to companies than most.

Streamline these grads - take care of them : Assign a experienced mentor and segregate these grads to become experts in Rural Management,Micro Finance, market research,rural marketing etc , step up teams and send them out to the field to visit the villages . Make the job profile exiting. A team can consist of 1 rural management expert- he will evaluate and micro manage, 2 market research experts- 2nos because this involves number crunching , 1 micro finance guy - who will identify how and how much loan to provide and 1 marketing expert - he will conduct survey and collect customer info and come up with ideas on marketing. The marketing guy with the rural management guy can work on business development and sales. 5 in a team for one area/district, as necessary. 20-50 teams can be supervised by a General Manager . 10 General Managers can come under one Head . 5 Heads will report to Vice -President Operations of that Area - say South Market .. etc ..

And when they are out in the field- in villages and rural cities for days - give them the sense of security that their families are taken care of when they are not around. You will see ever lasting commitments to the parent company from these guys. Indians from rural cities give more value to relationships and sentiments than money and luxury.

Teach them to be innovative : Pick the latest copy of Businesswold. You will read the cover article about "The Real Nation builders". They are not from IIM's or IIT's . what i am trying to convey here is if you can teach grads from rural areas to be innovative they will bring in results. They will give you great ideas . The MNC only has to identify the right idea , ideate on it , strategize and implement them. There you may need the IIM and XLRI graduated guys with Mckensiey background to do the work.

Use technology : The best software is not good enough if it cant deliver. India is already a tech/software giant. Software companies can then join hands with services companies and launch customized products in rural areas and benefit from that .

You don't have to depend too much on global money when it is right there to be taken from our backyard.

Rural India is a gold mine waiting to be tapped. MNC companies wont just rake in profits but also built a nation in its truest form. All they need to do is understand customer demographic profile clearly and launch products according to them.

Welcome your thoughts and ideas on this .. If you like what you read here.. spread the word around and would love discuss more of the same- here in my blog.

Further reading from Economic Times :

Rural spend,housing to rescue growth

Top 5 business news about India which you should have read but dint anyway...

I am a sucker for The Hindu and Business Line. I believe that they give us some of the finest and incisive writings/articles on news, politics, business and economics related to India.

Here is a list of 5 news articles which you should have read today but dint because you aint bothered and thought it is too cumbersome. Still, you should know what is happening around you, right ?

From The Hindu :

Article 1 :From U.S. sub-prime to global economic crisis

Reason you should read :

• It is the extension of my previous post "Is India still in recession?" .

• You get to read about the global financial outlook.

• You will get to know about news terms : Decoupling theory in economics and Current Account Surplus. In case you dint know what Decoupling theory is then allow me to oblige :

Decoupling theory( courtesy : world wide web) - "decoupling refers to the ability of an economy to grow without corresponding increases in environmental pressure. In many economies increasing production (GDP) would involve increased pressure on the environment. An economy that is able to sustain GDP growth, without also experiencing a worsening of environmental conditions, is said to be decoupled"

From Business Line :

Article 2 : RBI sells $20.6b in Oct

Reason to read :

You will know what is the funda behind Forex Reserves and why RBI buys dollars to curb inflation in the country

Article 3: Textile cos top distressed list for corporate debt recast

Reason to read :

• You will read about orgin and functions of Corporate Debt Restructuring (CDR) cell of India.

• Also try to infer from the article why Textile is most hit sector in the country today. You don't have to be an economist ..just use your logic.

Article 4 : Foreign Investors cannot afford to avoid India,says analysts.

Reason to read :

• The article's headline says for itself.. India growth story is still on track and things will turn positive soon.

• Also read to know why India cannot escape from the global economic crisis and yet stand firm without any major hiccups because India's low dependency on U.S for business and exports.
  

Article 5 : Welcome moves but room for more

Reason to read :

An good editorial on the Fiscal Stimulus Package

Did you know ?

• All countries put together have provided fiscal and monetary worth around $6 trillion (3 lac crore) - six times the size of India;s GDP ( you will read it in one of the article here).

• 25 US banks have gone bankrupt since the start of the year ?

So can you tell me how Indian banks have filed for bankruptcy? or even close to it? In fact, pvt and public sector banks like HDFC, Bank of India, Axis Bank, LIC are getting to go in for a hiring spree.. ( check yesterdays : Times of India)

You know what i would say at the end of this article ... India is not going into recession . India has very strong economic fundamentals , though it is reeked with corruption and problems with implementations.

Is India still in recession?

If you Google this topic you are going to get numerous answers with some mind boggling stats to tell you that India is into recession or slowly moving into it.

I am going to give you a different opinion altogether! I don't believe even for one second that India is into recession. In fact I will take the "audacity of hope" as my tool to declare that India wont even go close to recession.

You may argue back saying , "dude! don't you read newspapers or watch news ? did you not check the IIP stats? The numbers are negative man! Our sensex has taken a complete nose-dive. People are loosing their jobs left-right and center. and you still think India is not into recession or moving into it?" ..

I stick by what I just said .You see, India is having a spill over effect of a global recession. And it is that spill over effect that is causing these job loss spree. But compared to our western counterparts Indian companies are not giving out the pink slips in droves. No Sir!

Tell you why ...

First , India is not a globalized economy. That is , India is not completely globalized like European countries, Japan and China.

Second , India was already facing a huge inflation problem when the sub-prime crisis (which triggered the global meltdown) started . By the way, Indian lending laws are so stringent and fundamentally strong that , our country cannot just go into sub prime like crisis at all. We Indians are firm believers in saving money and spending in thrift. So don't worry.. India wont go into a sub prime crisis.

Finally, India's growth story is not due to any external factors . nay.. India's growth story is completely domestic driven. The so called middle class income expansion is not just coming from IT services (which is prone to global imbalances) alone. India is a huge growth engine moving forward in all factors. Our business honchos,policy makers made sure that India and its currency stays as much immune from global currencies as possible.That is why , India is not seeing an companies going bankrupt. How else would you explain ICICI, HDFC and other banks flourishing so well when banks from other parts of the global are going bankrupt? come on .. tell me .. why ?

So how can we explain the negative stats of IIP . Just for the perspective. Our numbers are like -0.4% as compared to 12.2% last year. This is primary because of decline in exports and fear factor among Indians.Did you know that in theory a recession in the rich world should hurt India less than other emerging markets: exports amount to only about 22% of India’s GDP, against 37% of China’s.

Read the real story of numbers here : Negative show: Industrial output contracts in October

Read the complete article please!

China is making massive money from it exports like hell because they make goods a rock bottom prices due to availability of cheap labor.

Allow me to explain...

Let us take the example of a manufacturing firm of foreign origin/ or even Indian origin which produces 2000units of its products. 100o units for exports and the other 1000 units for domestic consumption. The company shall be termed X. Let us focus on export units - 1000 nos . Due to the global financial problem people in the other side of the globe dont have enough money to buy the products of the company X which they usually do.This would mean the products earmarked for shipments remain unsold in warehouses thereby increasing the inventory. Now, the companies get money only after the products are shipped to the other side and bought by consumers. The money/income thus received is then used to pay for the labour involved, raw materials, profits taken and then a huge chunk is put back into the company to produce more of such products for exports again.

Are you with me ?

Good.. So , when there is no money to re invest , obviously the company wont be able to produce any more goods. Also, the manufacturers will be cautious to use the reserve surplus to manufacture more goods because the economic outlook is bleak. Eventually and in the long run when there is no enough money to pay, people are shown the door.

Meanwhile, even if we Indians have enough money to spend , we will suddenly check the global scenario and a friend will advice to his colleague , "damn, see US and Europe is into recessions, people are losing jobs.. and that India guy who studied in IIT and such a rich fellow . He killed his family and committed suicide cos of bad debts. Maybe we should be careful now . If such big big countries can have problems ..how soon do you think we will get into trouble like that . Let us be careful now,yaar! Who knows when we will lose our jobs? Let us save now . We can spend when time are good . "

Wife will advice her husband , " listen, dont buy too much from the stores , ok? We will manage . I saw TV news about the finance problem. And i heard from my mom that her friend's son lost his job . Did you check the share market points today ? It was down and in red for the whole day ,yerterday . We have enough for next 2 days . Just buy little ", and for the first time she will use the word budget ... " Let us have a budget from next month,ok ? " ... Sensex, Budget are words which are new to her dictionary..

Mom will caution her son/daughter ( who just joined a firm fresh out of college) , " Listen, don't go out too much with friends and waste your salary on movies , clothes or jewellery. Manage with what you have. and beta .. dont resign or jump jobs. When you get the first salary. Give half to me, I will put in your savings. Don't buy that bike now. Intrest rates are high . Buy it after 6 months "...

The panic button is on and the story goes on ...

Media will use the panic to give you more sensational news from abroad and get you more worried.. It is cyclic..

We start saving a lot more than we should. Hence,money gets stagnated .

When you don't buy stuff how are you going to give money back to the manufactures to produce more? If they don't have enough to produce, how are they going to pay your salary? When they don't have enough money to pay your salary ,cos of no work getting done , why do you expect them to pay you for nothing and not ask you to leave?

Simple right?

So, as you see .. the story is we get sentimental and extra cautious when we hear the news around us .

Don't do that ..!

Check not the news .. check the real facts . Check real information released by the government and listen to well known business industry leaders.

The India Finance Ministry with RBI under the leadership of Dr Manmohan Singh and Deputy Planning Commissioner Montek Singh Ahluwalia doing a good job. The steps taken as of now ( with two stimulus package and petrol price reduction) is showing signs . Inflation has come down. The full impact is yet to be seen. A third stimulus package is on the cards. So relax.. Our policy makers are much better than our counterparts in other parts of the world.

India is having spill over effect. Not a recession. True , our economy has slowed down. From an extremely robust GDP growth of 8-9% we now predict 6% . But that would still make our country one of the fastest growing economy in the world. Only India from the so called BRIC (Brazil,Russia,India,China) nations is faring well compared to others.

But remember in economics and finance, as in other aspects of life the rule still holds water - What goes down should come up. And what comes up , should definitely go down" . Be it Sensex, economy, failure, success, happiness, sadness, love, hatred .. You cant just play the game of the gods..

As one great poet cum dramatist so aptly put " the world is stage .... "

I realize this is a very long post. Might be boring for some. But I have tried to put facts and my thoughts in a very simple way. I am no economist and will gladly accept that I am wrong if proved so ..

I welcome your suggestions and ask those who read to spread the word around if you see merit in my opinions.

Also, check this article,China and India : Suddenly vulnerable , from Economist on what they think about the effects of global recession on India and China.

Budgets are boring - How can we make it simple and efffective

Just a random thought...

Have you ever wondered why your friends never sit down to watch the budget when presented in the parliament?

Because it is too long , too boring and with lots of technical economic jagron. The budget is for the common man. And most probably the common man of India will fall in the bracket of 21 years - 35years. Unless he is married , a young college going or just-started-working guy wont bother to watch it.

Wondering why FM's have to give us long and boring budget speeches and waste time?

Here is what he can do :

• Give a ppt presentation covering the important points. He can just give the Income and Expenditure of the Year, then move on to point out what was the amount collected last year and what is to be allocated for each department in the forthcoming year. Simple one point and the amount highlighted. This should not go more than 30-45 min.

• Start a website dedicated for Indian budgets alone ( with archives) and make it web 2.0 friendly . which means, make it interactive using RSS feeds, forums , blogs etc . The site content can be moderated by a young techie guy. He should be completed briefed throughout on what to be said and what not to be said in the website. You can find numerous such talented tech/management guys via civil services exam . Make sure you pay them good.

• The minute the Budget gets over, digitize the entire contents online for everyone to read. Make sure the language is clear and simple to follow. The website can also have pop up tabs over technical words so that a 21 year old arts student can understand what the budget means to him.

• Open tabs to give info like this " what the budget means to students" , " what the budget means to the senior citizens" .. one can work out the modalities later.

• Let the government invite people from Finance Ministry, Planning Commission etc to contribute articles on what they think about the budget. This will ensure a dialogue between the common man and the ministers.

• Use twitter ( profile created by the govt) to send real time info to everyone in the web. use other micro blogging tools as well.

• Most of the "Babus" in the cabinet are not exactly net savvy. No problem. Once the Budget is done, distribute copies of the entire budget with the intricate details to the opposition parties and all other concerned parties and one copy to the press.

• Budget can be made less boring, more informative, reach more audience and entirely fun and hence more effective and accountable if we can combine knowledge and technology .

what are your thoughts ?

If you like this post , I would like you to spread the word by link back to this blog or bookmark it.

Dont forget the Iran-Pakistan-India pipeline project

The on going diplomatic war with Pakistan on the backdrop of the Mumbai terrorist attack (26.11.2008) has put the spotlight on the proposed Iran-Pakistan-India gas pipeline.

Many of my friends here actually have no clue what I am talking about . So let me put things in perspective .

So, what is the IPI pipeline all about ?

• The IPI pipeline is a 2,800 km overland pipeline carrying natural gas from Iran to India via Pakistan.
• The total cost involved is $7.5b , which would carry 22 bmc gas per annum , which would later be increased to 55 bmc per annum
• Currently India need 50 bmc per annum and would need 125 bmc per annum by 2025.

Now, what seems to be the problem? .... a lot actually

• Dispute in pricing - Iran wants $8 per million BTU . but India says "No go". India will not negotiate beyond $4 per million BTU.

• No Trade Treaty - There is no trilateral agreement between the countries like the Energy Charter Treaty (ECT) which binds 51 European countries. A legal treaty will hold each country accountable in delivery and receiving of gas under a accepter framework.

• Uncle Sam is not ok - America as we know is completely against Iran and hence scorns at any bi-lateral trade between India and Iran.So any trade agreement, that too as high cost as this, will definitely under mine US strategic value in sub continent .

• Geo politics unrest - 1.The pipeline has to go through Baluchistan which is now caught in a civil war on its own. 2. The transit country ,Pakistan can cut supply to India in case there is conflict of war. And there is no legal bonding to stop Pakistan from doing so . why ? because while India recognizes Pak as one of its Most Favored Nation (MFN) in trade, it is not been reciprocated. 3. The gas transits charges with Pakistan has not been finalized yet. which means , Pak can squeeze the maximum out of the bargain and it can be changed anytime. Imagine what would happen if Pak demands higher transits fee after the pipeline is built and running for 6 months. India wont be in a position to negotiate . Because India is a energy hungry nation and oil/gas plays a big role .

what are the alternatives ?

Instead of the the proposed pipeline , India and Iran can go for a LNG delivery deal using sea route. It is of course expensive but it would be relatively safe and stable as both the parties are bound to each other. Since LNG market is more mature , there will be some sort of competition and hence pricing can be regulated to an acceptable number. Since LNG ships would go via transits routes( import and export ports) the transit money will be stable and accountable by the host countries.

India currently has one port in Dhaej and another one coming up in Kochi. A long term trade via sea will also help India develop its own supply route, logistics and technology.