Tuesday, January 23, 2024
Sunday, January 21, 2024
New rules of trade game: Can free trade and globalisation flourish in a polarised world? Financial Express 21st January 2024
The book begins from the time various countries got together to foster free trade with liberalism at its core. This helped to bring about economic recovery in the countries affected most by the wars.
Book: The Global Trade Paradigm: Rethinking International Business in the Post-Pandemic World
Author: Arun Kumar
Publication: HarperCollins
Pp 352, Rs 699
Arun Kumar has written an insightful book about the changing dynamics of global power over time. A global executive with multifaceted experiences, including working with the US government, the author has dwelled upon the changes in dynamics starting from the Bretton Woods agreements.
The book begins from the time various countries got together to foster free trade with liberalism at its core. This helped to bring about economic recovery in the countries affected most by the wars. But things have changed in the past decade and half, driven by various factors, including politics as well as Covid, where the world has gotten more polarised. The dogma is now turning inwards and working more for individual fulfillment, which in a way has made globalisation secondary to the growth doctrine adopted by various countries.
America was the dominant force post the World War and has driven the global agenda and brought about multifold growth not just in global trade but also GDP of participating countries. Kumar uses the concept of total trade to GDP as a measure of openness of any country. This can be measured on a relative scale, not just with other countries but also over time. Hence benchmarking can be done both ways. These ratios tended to increase until 2008 or so when the Lehman crisis struck followed by the Euro crisis, which in turn caused countries to go several steps back.
The major challenge for the West has come from China, which has both the technological and financial clout to drive not just global trade but also alliances with various countries driven partly or largely by political aspirations. There is an overt sense of conscious expansion in this area as it seeks to gain ascendancy as a global power. Here it is pointed out that in the course of these couple of decades, the West has also increased its dependence on China with high levels of investment in the country. The open policy and quest for faster growth in China had made it a favourable destination.
The author provides the historical context of each of the major countries or blocks that he sees as driving this agenda. In this journey he takes us through the British Empire which dominated the world prior to the world wars right from the time of the East India Company. But subsequently it lost its power and USA, Germany, Japan and Germany became major economic powers. Britain, in fact, is turning inwards with Brexit which means that they are out of the EU. This kind of non-alignment is gaining pace across the world, with the USA when it was under Donald Trump also talking a lot of USA for Americans.
Europe has been different and worked hard for the integration of the region and creation of the EU. The concept of euro is the final frontier crossed where several nations have a single currency which helps them take advantage of each other’s strengths to grow faster. In this context the author points to the initiative taken by China to establish the Belt and Road Initiative (BRI), which, while sounds good from the point of view of global integration, can be interpreted as another attempt made by China to establish its hegemony in this region. The present Ukraine-Russia war with China giving support to the latter will dampen and probably erode this initiative in the next couple of years.
The author sees a lot of potential in India playing a major role in driving the world economic agenda. Here he brings in political strategy shown by the country, where India is now seen as a friend-shoring location, with the advantages of a democracy and free economy, which is seen as a valuable ally by all nations. This is where political diplomacy has played a role in strengthening this view. India, he believes, can be an integral part of the global supply chains for an environment that has been crafted where corporations all over seek to create sources of supply. The author is impressed by the initiative taken by the government to give a big thrust to manufacturing, saying this is the sector that can provide a delta to the rest of the world in terms of integration of supply chains and growth. The PLI scheme is hence a very good example of what is being done to further this cause.
The surprise package will be Africa, which is referred to as a sleeping giant. A continent that is as large as USA, China and India with a population close to that of India has argumentatively been on the table for a long time. Unfortunately, the continent is a union of several countries that have low levels of governance and are stuck in the quicksand of unstable dictatorial governments that are self-serving. Hence a resource-rich set of nations remains the poorest by any standard. He points to improvement of logistics trade boundaries, but this may be inadequate in the absence of governance.
Arun Kumar’s belief in free trade and globalisation as a vehicle to faster growth cannot be contested. This has been proved in the past. But the changing face of politics in all nations has changed, which is making them all look inwards. Here the reader can differ with the utopian picture painted by the author. Coming from an expert practitioner, there is a lot of wisdom in the book, but political ideology needs to go back to the pre-2008 days for this plan to replay.
Saturday, January 20, 2024
Watch the numbers: The gross borrowing amount will be a market mover Financial express 20th January 2024
An interim budget, by its very nature, is not supposed to evoke much excitement as prudence dictates that there should be nothing different under normal circumstances. This is a view which has also been endorsed by the finance minister. What then, can the areas of interest be?
The most useful part of any budget is the revised estimates of the projections made in the previous year, which would be FY24. Hence the size of the budget, expenditure outlays, as well as revenue from various sources would be reported. Based on past experiences, these revised numbers normally do not change much when the final accounts are presented later during the year. This is because all expenditures tend to get adjusted to the revised budgetary numbers in the next two months. And more importantly, the revised fiscal deficit ratio would be the key to all projections made for FY25 as it becomes the starting point of moving back along the path of fiscal prudence.
There is reason to be sanguine on the revenue side. There has been some very good news on both direct and indirect tax collections. The government has also received a higher-than-expected surplus from the RBI and the PSUs are to contribute substantially to the kitty. However, disinvestment has been tardy and it does look like that there would be considerable slippage here. But this may not matter if all gains and losses on the revenue side are netted.
On the expenditure side, there have been announcements made on higher allocations, especially on the subsidy front, with the free food scheme being extended for another five years. But on the positive side, the overall spending has been reined in ostensibly on the premise that the government would like to wait and watch how these number play out before letting various ministries spend their resources. Presently, the accounts do indicate that expenditures on social schemes like MGNREGA, subsidy, housing etc. are going according to plan. All this means that the fiscal numbers should be achieved and even though the denominator of the ratio, nominal GDP, will be lower than was projected, it may not really matter.
The other area of interest will be the capex plans. While arguably there can be no significant new programme introduced, the overall budget size would probably be 10-12% higher than last year, which was around `45 trillion. The Interim Budget does not stop the government from allocating the available resources on ongoing schemes and plans. Last year, capex was 22% of the total budget, and if the same remains, there can be around a `1-1.5 trillion increase from the `10 trillion budgeted amount for FY24. It does appear that the government would persevere with the capex thrust and go beyond the 22% ratio of last year. But it has to also keep in mind the allocations for social welfare, which is important especially in an election year. There are several schemes including subsidies, insurance, employment, housing, water, education etc. which will have to be persevered with, and hence the overall allocation would be monitored.
On the revenue side, the take on disinvestment will be interesting. This is so because FY24 has not been a very good year for these programmes, even though the timing was good in the sense that the market conditions were favourable, with the Sensex scaling new heights. It is more likely that the tilt will be more for asset monetisation, which can be completed based on the available calendar rather than selling stake in PSUs. This is so because practically speaking, the government would have nine months to complete the process, which may not be adequate. Also, the market conditions cannot be conjectured at this point of time.
Last would be the fiscal deficit. While the ultimate short-term target is 4.5% for the fiscal deficit, a vital call has to be taken on lowering the same from the present level of 5.9%. Last year, the pitch was for a reduction of 50 bps. But this may be on the lower side as the onus would then be on FY26 to be more aggressive. Therefore, the toss would be between 50 and 75 bps. Anything more may be difficult given that spending commitments are still high, with the Centre doing the heavy lifting on capex.
The fiscal deficit number matters for the market as it would determine the ultimate borrowing programme of the government. In the last couple of years, the government has spread this out across market borrowings (which is the main source) and small savings, drawing down of cash balances, and short-term borrowings. There would be substantial redemptions this year—at around `4 trillion—which will increase the gross borrowing by this amount. Hence, the gross borrowing amount will be a market mover, even though this is an Interim Budget. It can also be assumed that this number is unlikely to change even in the final budget later this year.
Hence, the budget will have a lot for the analyst from the point of view of numbers. The allocations across various heads may not be significantly different from the past and would be scaled up depending on the size of the budget that is pitched for. There could be some reallocations across these headings. But it can be taken for granted that primacy will be given to fiscal prudence, as the overall economic environment is good and this is the right time to expedite the process. While 4.5% is the short-term goal, we need to move to 3% with more urgency, as that has been the ultimate goal. This budget can be a useful starting point.
Friday, January 19, 2024
Analysis: Why is the citizen always taken for granted? January 20, 2024 Free Press Journal
The major takeaway is that citizens as customers are always put to a lot of inconvenience by some authority or the other. There is always a justification for the rule, but somewhere along the way the implementation is tardy and lacks empathy
The recent airline fracas reflects one thing for sure, which is that customers do not really matter. While there are explanations as to why the airlines are as helpless as the passengers, it is unfortunate that it had to take the unpardonable behaviour of one passenger to actually get the ministry to address an issue that should have already had a standard operating process (SOP) in place for a seasonal contingency.
If one looks at the travails of customers in almost all segments, one can sense this feeling of apathy. Let us look at banking. There is a regulation that asks banks to do a periodic KYC of all deposit-holders. There is evidently a rationale for the same — to ensure that the customers are still banking with the bank as there has been a piling up of unclaimed deposits. But banks insist that customers should fill in forms with photos attached and submit self-attested Aadhar and PAN cards. Now this is odd since these two documents never change unless one has consciously changed the address. This involves customers going to the branches to do the KYC which is inconvenient especially when nothing has changed. In fact, when the address changes, it pays the customer to notify the same to the bank as it is in her interest. A simpler way would be to take a default no-change in KYC as being given with customers being told to provide documents in case things have changed. For online customers, there can be a clear marking once one enters the site to confirm the address.
The same holds for the stock market regulator asking for a mandatory nominee to be named or opting out. Here too mutual fund holders had a harrowing time figuring out their status with the threat of not being allowed to deal with the folio lingering. One ended up filling forms as online compliance had other conditions when the account was a joint one. A simpler thing would have been to take the customers’ details from the mutual fund and treat that as a default nomination (or no nomination) and then let the customer ask for a change. It is interesting that customers could also opt out of nomination, in which case insisting on everyone saying a yes or no looked out of place. Given that mutual funds holders have several portfolios linking the details of the nomination to broker or trading or demat account would have been simpler.
The agony for citizens does not end here. The recent decision of the government to make a KYC for Fastag borders on the ridiculous. Using cash was time consuming and replaced by the Fastag. The identity of the person was irrelevant as there are no financial implications in terms of black money or audit trail as the amount involved is insignificant. The objective of the government is to earn a revenue which happened irrespective of how many Fastags were linked to a vehicle. Now, the onus is on citizens to comply with the KYC with the threat of being blocked hanging. Clearly there should have been serious thinking of this measure. In fact, with the government already working on abolishing the Fastag with vehicles being charged for the distance travelled and the number plates being gradually changed to chip-based ones, this KYC step smells of irrationality. It is as ridiculous as saying that anyone booking an entertainment ticket should have a KYC in place!
One can recollect the order being passed almost two decades ago that all vehicles had to change the number plates of their vehicles to white with the number written in black. The threat was again there that non-compliance would mean being fined by the police authority. More recently the rear seat belt was made mandatory after the accident of high profile persons on the road. The absurdity here is that public taxis and autos are exempt when they are the ones ferrying the public and run often decrepit vehicles that are unstable. In all cases citizens are made to go through harrowing times with the threat of penalty always accompanying them.
The system of getting a passport renewal borders on the hilarious. The passport is used to get an Aadhar card. Once procured, the Aadhar card has to be shown for a passport renewal. The police verification, which is an avenue for the cops to take money from the customer at home, again asks for the Aadhar before signing off. Can this not be an automatic process?
These are the travails of citizens when dealing with rudimentary services. Hence when there is a lot of noise on the new airport in Navi Mumbai, it can lead to trepidation for air passengers. In most countries where airports are located 50 km or more from the city, there is a rapid transit metro/rail system to move people in less than 30 minutes. But in India little consideration is paid to connectivity. Hence the metro system in Mumbai faces challenges of how passengers move to their destination once out of the station. This will be ominous for the new airport which has absolutely no metro connectivity to the rest of the city. This will make it cumbersome for passengers to travel to and from the airport which will involve a lot of time and money.
The major takeaway is that citizens as customers are always put to a lot of inconvenience by some authority or the other. There is always a justification for the rule, but somewhere along the way the implementation is tardy and lacks empathy. The assumption is that the customer or citizen has to comply or face the consequences. This form of governance needs to change and policies thought through more carefully.
Thursday, January 18, 2024
Wednesday, January 17, 2024
Monday, January 15, 2024
Sunday, January 7, 2024
I have the power: The difference between being successful and wielding power: Book Review in Financial Express 7th January 2024
Power is something all of us like to have and exercise. It can be at home or in office. We also know that some do it very well while others do not, or cannot. This is where Jeffrey Pfeffer’s book Power comes in handy. He points out that if we want to learn anything about power, it is not an easy exercise and has to be learnt over time. It certainly cannot be from someone who has risen to the top, as they always make it sound simplistic with the usual clichés.
A revelation is that being successful does not guarantee one power and the converse also does not hold, which is that poor performance does not lead to loss of power. There are several cases of CEOs who did not quite perform in the conventional sense yet held on to power because they knew how to use it. Even at the lower echelon it is shown that job performance is not important when an appraisal is done, but the relationship one develops with the immediate supervisor. This is the power of power.
The author gives some very useful tips, like making sure one gets noticed. Often one can be self-effacing and think that making a noise is not right. But it is essential to keep creating a buzz because that is the only way one can get noticed and make an impression. Even after leaving an organisation one can always be called back in case the person made an impact, ensuring they are never out of the mind space. The more important thing is that one should never shy away from being noticed.
Related to being visible is to do things that matters to one’s boss for it is important for any upward movement in a career. Here the author goes on to say that it makes sense to make others feel better about themselves as it ensures that you are remembered. He does not also rule out flattery as a tool to remain visible to those in power. Here one cannot disagree with the author as we see in the corporate world that everyone loves flattery and there are myriad examples in some of the best run companies where the CEOs just love flattery, which can vary from showering of petals to open praise.
Based on his experiences as well as observations, Pfeffer lays down a playbook to be followed if one wants to establish a position of power in any field. These qualities are practical and doable and often one may do it unconsciously. There are seven personal qualities that he alludes to as essential to claim this position.
The first is ambition. One can say that all of us are ambitious and rarely does one not want to progress in their careers. We normally associate this with politics, but even when it comes to the corporate world, this becomes a prerequisite or else one will fall behind.
The second is energy. Being ambitious is one thing but one has to be working hard all the time and this requires uncompromising use of energy. Almost every tale of success is enveloped with hard work which involves long hours and grabbing every opportunity even if it means compromising on a personal life. There has to be endless energy for sure. Following this is ‘focus’, which means knowing what one wants and choosing the path ahead. Switching career lines may not work for all. He gives examples of leaders who stuck to their line which can be finance, pharma, etc. Further there has to be focus on a limited set of activities and not a diverse set, which can lead to diffusion of effort.
The third is self-knowledge. It is not a cliché that education never ends. One has to be up to date with everything that is happening in the industry as well as competitors so that there is thorough knowledge of the sector. Fourth, along with this knowledge goes confidence. While there are examples of CEOs who rise due to reverse gravity, the absence of confidence makes them unable to wield power and they end up being unsure of everything and suspicious of new ideas. Companies that have such leaders in power tend to lag behind.
Fifth, which is very critical, is empathy with others. Often successful leaders lose respect because of absence of empathy. They feel that they can do anything and get away due to market acceptance. The author cautions that to build one to a position of power, empathy should be shared with others, because at the end of the day one has to exercise power in a group which can be a team or company. This will automatically lead to the inculcation of the sixth quality, which is ability to manage conflict. Otherwise, it can lead to awkward situations, leading to opposition and ultimately resignations. Managing conflict is hence important.
The last quality required is intelligence that involves dealing with work and people. We need to accept that we cannot be knowing everything as that can lead to arrogance. Even knowing when to stop requires intelligence.
The author takes us through reasons why people lose power, which can be due to overconfidence, ignoring interests of others, trusting the wrong set of people, becoming impatient, getting out of touch with the changes taking place and so on. The reader can then match the seven qualities to the reasons for failure.
Power is a very good book for everyone pursuing a career as it helps one to seriously navigate the different steps in a career to reach the desired position. Admittedly the journey is long and challenging, but it is doable; and that is why there are several such success stories— not just leaders but also common people who are referred to in the book who have made considerable strides.
Friday, January 5, 2024
A slightly rosier picture: Financial Express 6th January 2024
The first advance estimates of the gross domestic product (GDP) for FY24 needs to be interpreted with caution. With nine months in the year having passed and official data existing for the months up to November, taking a call on the full year is based on extrapolations. In fact, since the value added numbers for some sectors like manufacturing are based on the first two quarters information, there also is the assumption of persistence of trends, which may not always hold. Therefore the growth rate of 7.3% for the year should be seen more as a forecast rather than an estimate.
The question then would be: Is there any value in bringing out such information? In fact, towards the end of February, the second advance estimates will be brought out by the government. This would be more data-driven than extrapolation, and could be different from what has been projected this time.
There would be information for two more months, taking it closer to the mark. The answer is that such an estimate is required not from the academic standpoint but for drawing up the Union Budget. Ever since the Budget has been moved to February 1, having some estimate of GDP in absolute terms has become imperative for the finance ministry.
The Budget is based on an assumption of growth in the GDP as all tax revenues are juxtaposed against this number. While a projection for FY25 can be based on the ministry’s conjecture—which normally tends to be conservative, the base for FY24 needs to be there. This is where this advance estimate fits in. It also means that the Budget is based on two GDP numbers in nominal terms which are forecasts rather than true numbers. Hence, even though this number will change, there is some value to this number as there has to be an indicative number.
Prima facie, one could have expected a high GDP growth number, and, hence, 7.3% does not come as a surprise as it is higher than the RBI forecast of 7%. This had to happen as the first two quarters registered growth of 7.8% and 7.6%, and any extrapolation would mean replication of the same—which, in turn, provides an upward bias to the estimate. It is also not surprising that most of the growth rates look healthy as they gel with the official numbers released for various sectors till November, which is the latest data available on most indicators.
Manufacturing is to grow by 6.5%, and, here, the bulk is accounted for the organised sector where profit-and-loss (P&L) accounts of companies are used. For the unorganised sector, the Index of Industrial Production (IIP) is used, which has also been high due to the base effect.
Mining has grown by 8.1% and electricity by 8.3%. Here, too, the core sector data—released on a monthly basis—have highlighted the same level of buoyancy. In case of construction, where steel and cement are the main proxies that are used, 10.7% growth looks very much on expected lines. If the government is less aggressive on spending towards the end of the year, there could be some correction here. But, projects in housing and roads have dominated this sector’s growth.
The trade, transport, communications, hotels, etc, segment has slowed down to 6.3%, which is more due to the high-base syndrome (its growth was 14% last year). This is one segment that still sees vestiges of the pent-up demand, with people spending a lot of money in all these segments.
Ideally, a higher number would have been expected as the buoyancy remains even today if one goes by the proxies used. The finance and real estate segment has grown by 8.9%, which is in line with the high growth in deposits and credit in the banking system. The government sector has shown stability, at 7.7%, which in alignment with the accounts released till November.
The only disappointment—and this bears out in the real world—is agriculture, which is to slow down to 1.8%. In fact, this was to grow by 3-3.5%, but the kharif output has disappointed and it does look like that rabi harvest would also be lower this year as the sowing in wheat and chana are lagging. This can be attributed to the less-than-normal monsoon and the low reservoir levels seen at present.
The investment scene, as indicated by the gross fixed capital formation rate, needs to also be looked at with caution as it has increased from 29.2% to 29.8%.
But other proxies such as growth in bank credit to large industry or bond issues (which are basically by finance companies) do not support the theory that investment is booming. It can be assumed that this has come out of higher government capex, with the states not fully supporting this trend. It is possible that there could be some moderation going forward.
As the GDP data is based on extrapolations, an interesting feature which emerges is that consumption in nominal terms has grown by 8.7%, which is less than the GST collections rate for first nine months that was in double digits (11.7%). This can see some upward movement when the final numbers are out as the two should move together once the economies of better compliance are exhausted.
On the whole, it does look like that there could be downward bias to the estimate and growth will tilt towards the 7% number. There is likely to be a slowdown in corporate profits growth and affect segments where these proxies are used. But this will be a good base for the government to use when planning the Budget and estimating the revenues to be garnered.
Thursday, January 4, 2024
Opinion: What Lies Ahead For Economy In 2024? NDTV 3rd January 2024
There is a definite air of optimism as we begin 2024; almost every economic parameter looks better than last year. It can be said with confidence that the economy is on a take-off mode in 2024, in the absence of any external or weather shock. Even if there is any external shock, the Indian economy has done well in the last two years and was buffered against two wars through the adept use of policy tools.
What lies ahead?
All attention will be on the national election and the outcome. Many believe the result is more or less known, but investors may like to wait before taking any fresh action. So, till May, when the elections are due, it will be business as usual. The government has indicated that there will be no surprises in the budget, which will be a vote on account. The full budget is like to be presented only around June, along with new policies. Going by the track record of the current dispensation - its commitment to fiscal prudence is known - there will be movement along the glide path already laid down.
Let us crystal gaze into what the numbers could look like in 2024-25. GDP growth is likely to be closer to 7%, after the 6.5-7% growth recorded for FY24. The conditions for sustained growth are in place. Two missing links that will warrant a change in direction are rural consumption and private investment. The former has slowed due to the unfavourable kharif crop and possibly lower rabi harvest this year. This should change.
Private investment has been concentrated largely in industries tuned to infrastructure and this may become broader in 2024. Companies are waiting for the elections to be over before taking a call, which is a habit now. This year will be exciting for private investment. In fact, the revival in rural demand will provide a push to capacity utilization in sectors such as two wheelers, FMCG, consumer durables and tractors, which should lead to higher investment. With a bit of luck the gross fixed capital formation rate, which is in the region of 29% of GDP, should be able to touch the 30% mark.
The second variable of interest is inflation. The RBI has already indicated that inflation will come down to 4% in July-September and then rise in October-December, but remain below 5%. This is significant because the industry is counting on repo rate cuts in the coming year. It looks like that the second quarter of the next fiscal or third of calendar 2024 will witness the start of the rate cuts. Here too, we must be moderate in expectations as there will probably be a cut of 50 basis points at most, assuming a normal monsoon. Decisions will be taken based on inflation numbers. What is certain is that the RBI will continue targeting 4% inflation and even 5% will be accepted only in the interim term.
Third, from the point of view of savers, the days of high interest rate on deposits will be over as any reduction in repo rate means lower deposit rates. Borrowers can be happy as almost 53-55% of borrowing is based on the external benchmark rate. Therefore, the balance will tilt towards the borrowers from deposit holders. This will pose a further challenge to banks as they compete with mutual funds for the savings wallet. The assets under management of AMCs has increased to closer to ₹ 50 lakh crore this year. As the Sensex has been moving relentlessly northwards and scaling new peaks, it is but natural for savers to become investors, especially when interest rates come down.
Fourth, the stock market has behaved in a remarkable manner with corporate profitability improving sharply this year. Now with the economy expected to do better in 2024, which will go along with the performance of companies, valuations will be healthy, leading to a further rise in the stock indices. This, incidentally, has been a more global phenomenon and not restricted to just India.
Fifth, the currency will be another variable to watch. We have seen that the two factors which drive the rupee have worked in favour of a stronger currency in the last month. The first is the weakening dollar. This will continue as the Fed keeps lowering rates and the dollar becomes weaker against the euro. Second, the external fundamentals will tend to improve for us as the current account deficit shrinks. This has already been seen in Q2 of this year. More importantly, capital flows are expected to be buoyant, with an expected boost coming from the inclusion of Indian bonds in the global bond index. Therefore, a stable rupee in the range of ₹ 82-84 per dollar can be expected for the year.
2024 promises better economic tidings and more stability. This chain will also help to create more jobs, which has been the Achilles heel when it comes to consumption. If we do manage to cross the 7% level this year, at a time when the global economy takes a breather, India can be well set to move down the 8% path that will help accelerate the process of moving towards the $5 trillion economy.
Monday, January 1, 2024
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