fiscalujval

Another Diwali is upon us. Smog, noise, and the usual muck that marks Lord Ram’s return home. Lately, a perceptible and steady decline in the use of firecrackers was seen during this Festival of Light. Despite the fact that the trend had more to do with rising prices and lower income growth, it led the optimists to assume that people’s attitude were changing for the better. Sadly, what I noticed this year is a preference for lower decibel firecrackers (read, more smoke and chemicals). Users seem to be saying “we are doing everyone a favour by not using loud ones.” To such Cuckooland dwellers, just a reminder of what the noiseless variety does to everyone:

Given rising literacy levels and the fact that many, many, users are reasonably well educated, I do wonder if willful ignorance is at play here.

The comparison between tobacco smoking and the use of firecrackers is a useful one. There has been a huge backlash against smoking due the damage it does to the smoker and those around him. Considering the above, firecrackers seem to do a lot more damage and yet are subject to the most limited of restrictions. A comparison:

	Cigarettes	Firecrackers
Who can buy	Above 18 only	Anyone with money
Where can it be sold	No sale around schools, colleges,	Anywhere
Where can it be used	Cannot be used in any public place. Banned in workplaces	Anywhere
Restrictions on advertisement	No advertising allowed. No remotely indirect endorsement without explicit disclaimers	None
Warnings	Pictoral warnings cover most of the packaging	None
Penalties	Severe penalties for violations on users, sellers, and manufacturers	Some provisions for wrist slaps exist on paper

Passive smoking through 2nd and 3rd hand smoke does a lot of proven damage, doubtless. Hence, people have now been given the choice of not inhaling cigarette smoke or any of its residue. Chemicals emitted by completely unrestrained use of firecrackers do much more damage and there is no escape from them. They waft through my home. They settle on my furniture. They seep through my skin. They enter my food chain. And there are no restraints on this. I have a say in avoiding a smoker; I have no say whatsoever in avoiding a person using firecrackers (except to leave the city for a couple of days).

The reason why the tobacco industry continues to exist and prosper is because of the employment and more importantly the taxes it generates. Combined tax revenue (Central Excise and State taxes) collected annually from tobacco products is around Rs. 30,000 crores annually. Regulations have put fiscal management in a sweet spot – those opting to poison themselves by smoking are free to do so, while paying a hefty financial penalty through punitive taxes while those who do not want any part of this are provided with well-enforced laws. Win-win. There surely are unresolved issues in that sector relating to taxation. Eg. cigarettes account for 11% of tobacco product consumption but 85% of taxes. This is because the bidi brigade dominates both the market and political clout. Operating in either the unorganized sector or by obtaining concessions through influence, they manage to stay out of the tax net mostly – this is where the tobacco industry has parallels with the firecracker industry.

The reason why the firecracker industry continues to exist and prosper is because of the religious significance of the product. Period. No politician has the balls to impose a much warranted ban or any severe restrictions on the sale and usage of fireworks.

Estimates on the fireworks market are unreliable. However, the total retail market is pegged at around Rs 10,000 crores. Of this, Chinese products account for about Rs 4,000 crores (20-40% cheaper, more variety, far more dangerous chemicals, and a customs clearance racket by importers are the hallmarks). The balance is spread between the unorganized sector (out of the tax net) and 2-3, very large and influential Indian manufacturers, all of whom thrive on using child labour, exploitation, absence of any kind of best practice, casual workers, and cheap inputs. Wholesaler and Retailer taxes have been on the rise but the momentum is nowhere near what it is for cigarette taxation.

The irony is that the Festival of Lights now ends up blocking out sunlight. I do wonder about Lord Ram – if he had any inkling about what the celebration of his return would turn into (wait, he is a God – he ought to know!), he’d have advised a dose of sanity to his followers.

Sunshine is the best disinfectant – let it shine on this industry and on the minds of its moronic customers. Happy Diwali.

So all the speculation over Raghuram Rajan’s (RR’s) 2nd term ended in an anti-climax. The man in question declined to continue in his role in an early evening announcement on a Saturday. I am not sure if anyone spared a thought for the timing of the announcement – Saturday early evening when every possible market is shut and Indian markets are some time away from opening. His hope would’ve been that knee jerk reactions will not occur and perhaps that fund managers can drink their depression away over the weekend. In most ways, this defined RR – subtle, always mindful and doing what is needed.

The list of his achievements is long and his credentials impeccable. So no point reiterating all of it. The broader problem of managing talent, in the current and in the general corporate context, seems a more interesting topic.

Why do some people have this great difficulty in cultivating people far smarter than themselves? Modi’s abilities as an administrator are proven. But then, he has proven himself as only that – an administrator (many would say he has more dubious distinctions to his name, but we aren’t going there today). By definition, an administrator requires people and a machinery to administer. For a country as complex as India working in an integrated world that is even more complex, RR was the perfect volatility antidote. So why wouldn’t the GoI worship the ground he walks on? The following attempt at an answer assumes (very reasonably) that RR’s decision was a political one and not personal.

One answer is the type of boss the PM is. When it comes to managing talent, there are 3 types:

A) Who cultivate candidates far smarter than themselves as trophy candidates meant to be showcased but put to little other use;
B) Who cultivate candidates far smarter than themselves recognising with full humility that luck, chance, and only a bit of talent (and a dose of Karma, if you will) has got them into a leadership position. This recognition leads them to optimise the contributions of subordinates, leading to a Win-Win; and
C) Who have a great sense of belief in their own abilities and knowledge (displayed overtly or not at all, depending on the situation and context) and are distinctly uncomfortable with having subordinates who are distinctly more intelligent, popular and articulate than themselves.

Appointments to the Union Cabinet are obviously the prerogative of the PM. It is a fact that the PMO dictates appointments within ministries as well as other government and quasi-government agencies. A look at some of the most unpopular and inappropriate appointments that the PM has lorded over:

i) Gajendra Chauhan, an ex soft porn actor, will teach students movie making as FTII head. The FTII students and alumni do not want him.
ii) Pahlaj Nihalni, a maker of voyeuristic, front bencher cinema is head of CBFC. The movie industry and his own panel do not want him.
iii) Chetan Chauhan, a mathematically challenged ex-cricketer of limited repute will teach students fashion design as NIFT head. Too fresh to say who all do not want him.
iv) Dinanath Batra, an avowed RSS worked who opposes sex education and an alternative perspective on Hinduism is appointed to a new committee of “educationalists” to lead changes in education content in Haryana. Who could want him?
v) Smriti Zubin Irani, a semi-literate ex (or is it current?) TV soap actress with a penchant for melodrama and twitter trolling is in charge of education. The IITs/IIMs/educationists do not want her.
vi) Mahesh Sharma, who judges people by the color of their skin and/or on the basis of their professed religion, is minister for tourism and culture. Last heard, no one wants him.

These are just the colorful ones. There are various yes men and women throughout the cabinet, bureaucracy and government machinery.

This seems to indicate a taste for the mediocre in the PM. Of course, liberals would say that it is indicative of the obvious lack of any kind of smarts in the political right, but we aren’t going there today. How could RR fit in into this scheme of things? Bullocks to those who were speculating that he would move out of RBI and be appointed FM. That could happen only if Modi was a ‘Type A’ leader as defined above.

The frustration with crony capitalism is what brought about the Modi wave in 2014. Manmohan Singh (MMS) as PM was perhaps guilty of that infraction and one could say that bringing in RR into RBI was his way of addressing this malaise. At the very least, MMS and RR were at opposing ends in the fight on crony capitalism and yet with this fact in mind, the latter was not just brought in and retained but also given a free hand on regulation and inflation management. Since curbing crony capitalism has been one of the very few genuine achievements of this government, and that RR has been one of the key operatives in this, many wonder where this fight will head now. The ones inclined towards conspiracy theories would say that it was not despite but because of RR’s pressure on crony capitalists that he was out of favour with the GoI.

Genuine capability is when despite having the track record and credentials (MMS, an economist of great repute who had a stint as RBI Governor, FM and 10 years as PM) you get in the best person for the job (RR as RBI Governor), acknowledging the fact that you can’t be everything to everyone. Idiocy is when you can’t even retain anything good given to you in the misplaced belief that you are the non existent God’s gift to India.

Goodbye RR; your motherland India brought you here, Bharat didn’t deserve you anyway.

‘Man is a social animal’. ‘A sense of belonging is one of our most fundamental needs’. So what does it mean when a money manager says he or she ‘is a value investor’ or the lover who says to the other ‘I am yours’ or the voter who exercises his or her franchise on the basis of the candidate’s caste, religion or ideological beliefs (rather than the candidate’s inherent capability) or the movie lover who bases choice on box office collection / crass popularity?

This sense of belonging emanates from one (or more) of many factors: conditioning, habit, fashion, prejudice, laziness or plain herding behavior. The common theme between all these factors is lack of clear and deep thought in making one’s choice. What does this sense of belonging do to a person? Isn’t it true that unconditionally accepting the default or popular choice ends up limiting our own perspective? This cramps our free thought, makes us follow compliant behavior and creates deep (but consciously unacknowledged) conflict in our psyche.

A sure shot way of limiting discovery is to associate with the thought of others. This gets played out in our world in every sphere of life – the tribe of value investors which grows each time the market heads south; more lately, the people that identify with majoritarianism (hitherto silent or hesitant for some reason) are making themselves heard since the political environment turned more conducive; the soldiers that were ‘only following orders’. Does this also not explain the trend of mind-numbing movies being part of the ‘100 Crore club’? The more vacuous a movie is, the more it collects since an entire tribe has been created of people who believe that a motion picture extravaganza starring ABC or directed by XYZ has to be a blockbuster. I can imagine these stars and directors waking up each morning and praying to their god/goddess of wealth to increase this tribe of ‘dimaag ghar pey raakh kay aaneka’ types.

Well, the point is that each moment spent without exercising free thought and choice or inhibiting discovery is a crime against evolution and nature. Our species evolved to discover and not to inhibit our thought, much as our leaders, elders, priests, teachers, and bosses would like us to.

Daniel Kahneman through his seminal research (a good start is his brilliant book Thinking, Fast & Slow) suggests that the human mind has two systems in use: a reactive, instantaneous and instinctive System 1 that makes decisions on the fly; and a more deliberate, slow and thoughtful (but lazy) System 2 that analyses, rationalizes and makes rational decisions. System 1 had its utility ages back when fight or flight decisions needed to be taken on cue. Then came a phase where deep thought (System 2) and innovation led to discoveries, inventions and the industrial age. Now (say the last 5-10 years) we are back to the stimulant times that involve System 1 again although the stimulants are nowhere near the momentary (or imperative) kinds that say predators wrought on us. Movies, e-games, binge TV watching……stimulation is its own reward; why invoke System 2?

I’ve always struggled with my fence-sitting tendencies and have often been mocked and ribbed by my critics and idealistic friends respectively for this. Self-doubt, un-conventionalism and non-compliance are not the crimes they are made out to be. Always ask ‘What If?’ and ‘Why Not?’. Stay weird, stay different.

This article originally appeared on ivyclique (http://www.ivyclique.in/article/Self-Help-&-Self-Improvement/Belonging-&-Identification/MjQ4Mw==/MTg1)

Most people agree that too much has been made of high interest rates and the causal RBI policy stance. Blaming Governor Rajan for high interest rates and high interest rates for India Inc’s ills seems myopic considering trends from Q4FY16 results of BSE100 companies.

As per research by Credit Suisse, so far in Q4FY16, the number of companies out of the Top 100 with Interest > EBIT (i.e. companies unable to come up with enough operating income to even cover interest outgo) is only seven: Tata Steel, JSPL, SAIL, Reliance Communications, United Spirits, and Cipla. Mind well, the post crisis peak for the number of cos is just 10, so we clearly aren’t exactly in the throes of agony! These Magnificent Seven have reached their dubious distinction due to a combination of stupidity, poor governance, corruption and/or an adverse commodity cycle. Not high interest rates.

Another fact coming out of the Q4 trends is that while aggregate ‘Interest / EBIT’ has indeed climbed, it has begun to recede from a peak of ~20% in Q3FY16. Even at its worst, it shows that the Top 100 companies had 80% of their operating profits available for taxes, distribution as dividend and for transfer to reserves AFTER interest outgo. Hardly a ‘hand to mouth’ existence!

Besides this, common sense suggests that following Subramanian Swamy’s (and to a lesser extent, Arun Jaitly’s) simplistic suggestions of slashing interest rates to end industry’s misery fails

a) Transmission Of Rate Cuts Is Suspect

In the past, RBI has hauled up banks for not passing on rate cuts on to borrowers. Two reasons why banks have not been benevolent are: a) The repo market is not the primary source of funding for banks; and b) banks are currently grappling with the massive problem loans elephant. Full recognition of all stressed assets could bloat the number to above INR 10 lac crores or ~18% of total lending. This is impacting profitability and reducing borrowing costs simply isn’t an available choice.

b) Impact Of Rate Cuts Is Suspect

Even if rate cuts are transmitted further down, the ability of lower interest rates to stimulate growth is debatable. Scaling up Government investment isn’t possible with fiscal constraints and the private sector is unwilling to invest unless demand goes up significantly. Rate cuts alone are unlikely to create this demand and if demand revives, interest rates aren’t going to matter.

c) Savings Squeeze Resulting From A Rate Cut

For sustainable growth, a high savings rate is essential. The last rounds of rate cuts had little impact on borrowing costs but led to reduction in deposit rates; basically, banks kept charging borrowers the same rates and paid depositors less! If rates are reduced further, real interest rates on bank deposits will start approaching unviable levels.

Blaming Rajan for high interest rates and high interest rates for everything under the sun is reductionist thinking.

 

 

The first step towards managing a problem is acknowledging it. As far as the problem of debt overhang in Corporate India is concerned, banks continue to ignore the elephant in the room if a recent report from State Bank of India’s Economic & Statistical Research Department is to be believed. The report surmises that the top 10 most indebted Indian corporate houses are “comfortably placed” () with debt levels 2 times their networth and nearly 2 times their market capitalisation. The companies analysed include the familiar when it comes to over-leveraged corporate groups: R-ADAG, Vedanta, Essar, Adani and Jaypee. The combined borrowings of the top 10 corporates has been pegged at ₹7,33,542 crores as per a recent Credit Suisse report that highlighted the debt mountain and the problems it poses.

As per SBI, it is inappropriate to use ‘interest cover’ and ‘debt servicing ratios’ of these companies to drive home the problem of corporate indebtedness . The SBI analysts count myriad other aspects, which would offset the concerns over debt serviceability: “However, [debt serviceability] in itself is misleading as what is more important at the end of day is the networth, cash in hand, yearly accretion to networth, investments, market value of assets and unbundling of value of some of their subsidiaries thus overall defining their repayment capacity,” the analysts say. Most of their contentions ring hollow, IMHO for the reasons here-under:

1. Networth:

The SBI analysts go on to suggest that ‘overall debt to networth’ and ‘debt to market capitalisation’ of such companies may be a good alternative to analyse solvency and sustainability. Its estimates show that on aggregate basis such top ten companies ratios stands at 1.93 times and 1.88 times, respectively, which is well within respected level of two times.

The SBI analysts also criticise the emphasis on operating profits on the grounds that the global slowdown has affected some of best international companies as well. Again, they suggest “networth also needs to be factored during lean times,”. Pray tell, what is networth made up of other than accumulated operating profits, fundamentally? Besides, when debt levels are at 2x your networth (and growing!), how long can investors and lenders overlook poor operating performance?

Networth also consists of Capital Work-in-progress (the amount of money spent on ongoing projects), Goodwill (that arises from pricey acquisitions), and Intangible Assets (by definition intangible, i.e. can’t be seen, i.e. can’t be relied upon to bail you out). Best of times, these ‘assets’ are not stated at anywhere their realisable value, assuming they can be realised. In times of market stress, the concern amplifies – a host of companies like Vedanta and Tata Steel have taken massive write downs (₹ 26,500 crores) on their investments, which hit networth.

2. Cash in hand:

Often, leverage ratios are calculated on a ‘Net Debt’ basis, i.e. net of cash balances rather than on ‘Gross Debt’ basis. The Enterprise Value of a business is also calculated after netting off cash. On the face of it, this may seem reasonable. However, one should realise that we are talking about a ‘Going Concern’, not a business in liquidation that can use up all its cash to pay off liabilities at will. A running business needs a certain minimum level of cash to sustain operations, meet short term liabilities and in most cases, also comply with loan covenants. It is a fallacy to assume that all cash is available to use at will, least of all for debt repayment.

3. Yearly accretion to networth:

This would perhaps be the fairest of all contentions made by the SBI analysts since there is no arguing with the ability of (cash) earnings to buffer the balance sheet as well as pay down debt. However, the analysts seem to have failed to realise that the businesses they are speaking of have earnings prospects that have been bleak, to say the least, for several quarters now. Eg. Reliance Infra, Adani Power and JP Associates among others are not earning enough EBITDA to even cover annual interest commitments (leave aside principal repayments). This is pre-depreciation. After providing for depreciation (these are going concerns, presumably), they surely do not cover interest payments.

4. Investments:

Barring ‘Current Investments’ – more in the nature of cash; very liquid and of short maturity (subject to my reservations on counting cash as a ‘free’ asset, as stated above) – any other investments, especially in subsidiaries, projects and group companies are inherently undependable for lowering leverage (see networth above). In most cases, illiquid investments are carried at cost or some notional assumption of fair value. Liquidation value in a stressed scenario and in case of distressed sale would be much lower.

5. Market value of assets:

Presumably this includes assets other than investments and cash as discussed above. So these would be Plant & Machinery, Land, Buildings and the like. Some valid questions that arise around these: How liquid are these kind of assets? Are they free of any encumbrances? Are these assets the subject of any loan covenants that bar their sale? How much lower is the true realisable value as against the book value in balance sheet? Does anyone even want them?!

Market capitalisation varies daily and is subject to significant volatility. Networth is subject to a lot of accounting shenanigans and may not accurately reflect the true worth of a business in the best of times. Besides, can the banker/lender take over the market cap or networth in lieu of dues? Doesn’t make any sense.

The only adage that holds true for all businesses, especially the over-leveraged kind is: accounting networth is inanity, revenue is vanity, margin is sanity, and cash is king. Time that bankers realised this, got their heads out of the sand and stopped believing ‘one shall not shed tears till one sees the coffin’.

In modern, consumerist India, brands are everything. Celebrities too are revered, given almost a god-like status in some cases. A marriage between the two was always on and consequently, the association between a brand and the endorser is deep. The question then is, when and to what extent does one start to adversely affect the other for no apparent fault of the other.

Aamir Khan has waded into a storm, head-on, with his statements on intolerance and the atmosphere of fear in India. Given his background, quality of work and track record of inviting backlash, one would doubt that he did so unwittingly. This write-up isn’t an endorsement or condemnation of his views or even whether he was being reasonable in saying he considered the possibility of leaving the country. Rather, the sensitivity over brand endorsement is something worth considering, given the coldness that one usually sees in that aspect.

Soon after Aamir Khan’s statement, a combination of those disagreeing with this viewpoint, those offended by their star’s perceived readiness to shun their apparent affection and those loyal to the current political dispensation (which does seem overly and needlessly sensitive to criticism of any sort these days) immediately vented their ire on his most visible endorsement, Snapdeal. Their app rating was downgraded in Playstore (what does that achieve anyway?!) and the app itself was deleted from smartphones as a mark of protest (doubtless only until the next mega sale is announced, which may be precipitated by this controversy, surely) under a movement hash-tagged ‘#appwapasi’.

Realizing the massive potential for loss of Gross Merchandise Value (GMV, or to put it very simply, revenue), Snapdeal snapped into damage control mode.  A statement was released, which read “Snapdeal is neither connected nor plays a role in comments made by Aamir Khan in his personal capacity. Snapdeal is a proud Indian company built by passionate young Indians focused on building an inclusive digital India”. This served two purposes – a) it left Snapdeal completely disassociated from Aamir Khan’s personal/political views as an individual (fair enough); and b) subtly showcased their buy in into Prime Minister Modi’s beloved ‘Digital India’ campaign (convenient). To what extent hyper-ventilating BJP supporters were placated is not known – one would have to do an analysis of pre and post-press release app deletion rates. That anyway isn’t the point. The larger issue is should the two (brand and endorser) affect each other in such an adverse manner. Fearing a similar backlash, Godrej hurriedly issued a preemptive statement soon after Snapdeal’s. “Aamir Khan’s contract with Godrej ended in March 2014. The said views are his personal and in no way connected to us”. Coca-Cola issued a relatively benign statement – “We have had no commercial association with Aamir Khan for several years and it is therefore out of bounds for us to comment on his remarks”. Safety first – both brands never felt the need to highlight the disassociation at any point earlier. Satirists too had a field day – they suggested that true patriots should not just delete the Snapdeal app, they should throw away their Tata Sky STBs, sell off Samsung mobile phones, and last but not the least, boycott ‘Incredible India’ by keeping foreign/Indian tourists out. The irony (and double whammy) is that while the brands above will not escape damage despite the press releases, true liberals will also end up boycotting them citing their perceived spinelessness!

Prior to the controversy, the brands were happy to use the star’s appeal in a symbiotic relationship. Symbiotic, not parasitic since the star too was handsomely compensated for lending his name. So what keeps both parties content and prosperous? Answer: absence of passionate outbursts.

Consider a serial-endorser like Amitabh Bachchan who markets everything from jewelry to pens to entire States. He is never one to court controversy. Barring his social association with some unsavory political elements from UP, he does not link himself with any political camps. He is polite to a fault. He rarely opens his mouth publicly for anything other than dialogues or brand slogans. It’s like he almost doesn’t exist outside of his movies and ads!

Further out, look at Roger Federer who has a most enviable brand endorsement portfolio – Gillette, Credit Suisse, Rolex, Lindt, Mercedes Benz, Nike, Wilson, Moët & Chandon, besides others. Again, a player who is a do-gooder, never courts controversy and wants to be nice to everyone (besides the odd spat with Djokovic and his family). Other, more emotional players like Nadal have in the past accused him of not taking a stand on behalf of the player’s body.

The reason for both Federer’s and Bachchan’s guarded public stance is economics. When you have so much riding on you, prudence is not such a virtue but a necessity.

So how ought to these commercial relationships work? The fear now is that after this controversy, Indian brand endorsement contracts may become much tighter in terms of both what the brand ambassador can / can’t do (even in his/her personal capacity and time) if it affects the brand, and include damage-mitigation and cost recovery mechanisms. Goes without saying that in a country defined by emotion, everything will affect the brand. At the first whiff of a threat to brand value or revenues, the association will be abruptly and crudely killed. Social Media – where every user is an objective and well-informed reporter, and every post is the distilled, honest truth – will be the great facilitator for adding fuel to fire. That is the overt part. In terms of the under-current, this will no doubt cause celebrities who have way too much money riding on them to clam up – much like the much-loved Mr.Federer and Mr.Bachchan.

And what of the inverse? What happens when the star’s appeal is affected by the controversy around the brand? This happened in the case of Madhuri Dixit and Maggi Noodles (Amitabh Bachchan and Preity Zinta, among others, also helped market Maggi but escaped controversy possibly because they did not harp on the health virtues of consuming the plasticky mass, unlike Madhuri Dixit). Does she have recourse to Nestlé? I doubt it.

As for Aamir Khan, a lot is at stake financially. In his heyday, when he was the highest paid endorser, earnings reached Rs5-7crs per day of work. Then again, he can probably rest assured that public memory is about as short as Amit Shah’s temper. One definite outcome is that he will per force need to turn as choosy about brand endorsements as he is about the movie roles he signs up for – if he opts to stay back in India and doesn’t want to clam up, there may not be many brands lining up with contracts.

‘Man is a social animal’. ‘A sense of belonging is one of our most fundamental needs’. So what does it mean when a money manager says he or she ‘is a value investor’ or the lover who says to the other ‘I am yours’ or the voter who exercises his or her franchise on the basis of the candidate’s caste, religion or ideological beliefs rather than the candidate’s inherent capability (yeh mera aadmi hai, yeh mera kaam karega) or the movie buff who bases choice on box office collection / crass popularity?

This sense of belonging emanates from one or more of many factors: conditioning, habit, fashion, prejudice, laziness or plain herding behavior. The common theme between all these factors is lack of clear and deep thought in making one’s choice. What does this sense of belonging do to a person? Isn’t it true that unconditionally accepting the default or popular choice ends up limiting our own perspective? This cramps our free thought, makes us follow compliant behavior and creates deep (but consciously unacknowledged) conflict in our psyche.

A sure shot way of limiting discovery is to associate with the thought of others. This gets played out in our world in every sphere of life – the tribe of value investors which grows each time the market heads south; more lately, the people that identify with majoritarianism (hitherto silent or hesitant for some reason) are making themselves heard since the political environment turned more conducive; the soldiers that were ‘only following orders’. Does this also not explain the trend of mind-numbing movies being part of the ‘100 Crore club’? The more vacuous a movie is, the more it collects since an entire tribe has been created of people who believe that a motion picture extravaganza starring ABC or directed by XYZ has to be a blockbuster. I can imagine these stars and directors waking up each morning and praying to their god/goddess of wealth to increase this tribe of ‘dimaag ghar pey raakh kay aaneka’ types.

Well, the point is that each moment spent without exercising free thought and choice or inhibiting discovery is a crime against evolution and nature. Our species evolved to discover and not to inhibit our thought, much as our leaders, elders, priests, teachers, and bosses would like us to.

Daniel Kahneman through his seminal research (a good start is his brilliant book Thinking, Fast & Slow) suggests that the human mind has two systems in use: a reactive, instantaneous and instinctive System 1 that makes decisions on the fly; and a more deliberate, slow and thoughtful (but lazy) System 2 that analyses, rationalizes and makes rational decisions. System 1 had its utility ages back when fight or flight decisions needed to be taken on cue. Then came a phase where deep thought (System 2) and innovation led to discoveries, inventions and the industrial age. Now (say the last 5-10 years) we are back to the stimulant times that involve System 1 again although the stimulants are nowhere near the momentary (or imperative) kinds that say predators wrought on us. Movies, e-games, binge TV watching……stimulation is its own reward; why invoke System 2?

I’ve always struggled with my fence-sitting tendencies and have often been mocked and ribbed by my critics and idealistic friends respectively for this. Self-doubt, un-conventionalism and non-compliance are not the crimes they are made out to be. Always ask ‘What If?’ and ‘Why Not?’. Stay weird, stay different.

A 130 run victory over tournament joint favourites South Africa, which followed a high-octane (even if entirely predictable) win over Pakistan – the BCCI XI is once again on a roll. In a time honoured tradition of fickleness, the ‘fans’ are back to cheering the team and invoking national pride. Doubtless, both wins were very compelling and seem to dispel the shadow that had been cast over a team that remained largely winless over an extended period (an acclimatizing away tour along with a tri-series preceded the World Cup). For now, let’s leave aside the conspiracy theories about what these very convenient (and imperative) wins have done for advertisers, broadcasters and the BCCI:

From nowhere, India (the country stupid, not the team) is back to believing the corny hashtag ‘#wontgiveitback’.

Which brings us to the distinction between Team India and Team BCCI. At the risk of sounding unpatriotic (entirely possible), the Men in Blue are a representation of a private enterprise not of India. The BCCI is not subject to any government oversight, is not covered under RTI, and no taxpayer money is used to fund team requirements (till a few years back, an India defeat was lamented as a waste of taxpayer money and thus evoked even stronger emotions!), although the BCCI does enjoy copious tax exemptions.

Rather, the team is a representation of a body that is greedy, corrupt, riled with conflicts of interest among office bearers, uses its muscle/money power to bully broadcasters and other cricket playing nations, is notoriously opaque, and is a magnet for politicians due to its massive influence and money spinning potential – mostly well known facts. In light of this, the ability of the Indian cricket fan to conveniently delink contempt for BCCI from support for its team confounds me. It would be admirable if it wasn’t for what it smacks of: a convenient escape of sorts where we can appear patriotic, get our back at our neighbors and whip ruffian teams that have (comprehensively) thrashed us, fair and square.

Objectively watching a sport is not possible when one is so heavily invested emotionally. My detachment with the game happened in subtle phases. First went the adulation for individuals, especially of the deified sorts. Then the disgust for the discredited BCCI cut the umbilical and made me the anti-nationalist that I am today (at this stage I felt liberated – I could watch any match without needing to root for any team and enjoy the game objectively). Next up, the IPL circus and the related T-20 farce designed for those with a need for a quick fix and IQs of a wombat – this travesty in the name of a sport has also contributed to the general decline in player skill sets as well. The effects are there in every form of the game; Test Matches that end in 3-4 days, one-dayers routinely have 300+ scores, we have had 4 individual scores of 200+ (incidentally all by BCCI batsmen and not-so-coincidentally, on flat track Indian pitches). This was the final nail in the coffin of my love for cricket. In most ways, I am glad that the dawn of this phase coincided with the retirement of players like Kallis, Dravid, Laxman, Kumble, Ponting, Hussey….a game inherently poorer from the loss of these greats decided to dig out a new low.

Then there’s the matter of ‘pride’. I fail to get how achievements of another can be a source of pride. If Team BCCI indeed ‘do not give it back’, how is that my achievement (even assuming for a minute they represent the nation)? The same applies to a Bindra, a Paes, an Anand, a Mirza, a Karthikeyan and so on. Armchair patriotism is what it is. I’d go a step further and even say that if my offspring achieves anything meaningful, I could not say ‘I am proud that he is my son’ – it almost seems like taking credit for a genetic accident that happened to make my son an achiever besides diluting his own effort! Why should the Mars Orbiter be a source of personal pride for me as an Indian? People, every human about to be born has a 20% chance of being born an Indian – making heavy statistical odds out to be source of pride is vacuous. The aptly branded ‘Pride of Cows’ premium milk is more like it – those bovines should rightly be proud of their produce, not we of 11 men in blue whose raison d’être is enrichment of the gluttonous BCCI.

Finally, here is an awesome clip from an unknown Bollywood flick that sums up my feelings rather well.

End of rant – so much for objectivity!

A surprise rate cut in festival season – so what prompted the RBI’s belated benevolence?

Financial markets were taken by surprise on Thursday as RBI made an out-of-turn policy rate cut announcement around noon (reducing the benchmark repo rate from 8% to 7.75%). Markets responded enthusiastically with the Nifty climbing over 2.6% and rate sensitives gaining even more:

INDEX	% ∆
CNX REALTY	8.32
CNX FINANCE	4.52
CNX PSU BANK	4.48
BANK NIFTY	3.40

The RBI Governor Raghuram Rajan had said earlier that a rate cut might be looked at outside the regular policy review cycle for early 2015 (the next policy review was scheduled for early February), and with this change to the repo rate, he has lived up to his word.

Whilst pressure from the political leadership, industry and consumers had been building for some time, the RBI had held out against releasing its ammunition for a fair length of time. Concerns around both inflation as well as the fiscal imbalance held policy action back. Inflation had proven endemic despite slowing growth and most recently, we heard that the fiscal deficit had already reached 99% of its full year target in the first nine months.

The RBI’s announcement begins with the statement ‘Since July 2014, inflationary pressures (measured by changes in the consumer price index) have been easing’. This is borne out by the trend in Wholesale Price Index (WPI) inflation over the course of 2014:

Data source: Ministry of Finance

So what has contributed to falling prices? To some extent, decline in prices of vegetables and fruits, lower price pressures in cereals and the large fall in international prices of industrial commodities has helped. However, by far the largest contributor to lower inflation has been the crash in crude oil prices:

Data source: http://www.investing.com

This view on lower input prices (read, inflation) has led to the RBI being a little more sanguine about its concerns over putting more (and cheaper) money into people’s hands. For now, the RBI shares the markets view that in the absence of any major geo-political shock in oil markets, prices are likely to remain low and consequently, inflationary pressures are unlikely to arise. Current demand:supply equations do seem to suggest that this is a prudent view. The Governor’s statement that “these developments have provided headroom for a shift in the monetary policy stance” suggests a major shift towards an easier policy regime on both rates as well as liquidity in the near future.

What remains to be seen is how much of existing supply is cut back at these low prices as producers shut capacity in response to persistently lower crude oil prices. The other dampener could be the government’s failure to rein in the fiscal deficit more so given the recent pessimism surrounding the ONGC and CIL divestments, which if media sources are to be believed, have been shelved. It’s not that I like to close on a negative note but risk cognizance is a virtue in these times:

• The out-of-turn policy action signals a shift from concerns over inflation to concerns over growth – not exactly very encouraging;
• Bihar (2015), Assam, Kerala, Tamil Nadu, West Bengal (2016) and UP (2017) state assembly elections will mean loose purse strings;
• CPI has moderated no doubt, but not for long enough and has shown a lower correlation with commodity prices in the past – could it rear its head again?;
• Stress levels are high in most industrials related sectors and marginally lower interest outgo is not likely to lead to huge improvements in operating performance or financial health (even assuming banks pass through the entire cut).

Until then, markets cheer the much awaited bonanza; hopefully expectations for continued rate cuts at subsequent policy reviews will remain within rational bounds. It’s now over to the banks and the Finance Ministry. The RBI has indeed taken “this opportunity to convey [its] best wishes to all for Makar Sankranti, Pongal and Uttarayana.”.