Indian Economy - News & Discussion Oct 12 2013

[Prasad]

Well forget everything else, you cannot get land at any reasonable rate around Chennai if you want to build an industrial estate or IT park like in siruseri. Real estate is too expensive. If naidu can give these guys done incentives, they'll go.

[Paul]

There is a newsreport in Deccan Herald on Andhra pharma cos wanting to relocate to KA provided they get land to move. They are not happy with the water and power situation in Andhra.

[Muppalla]

There is a newsreport in Deccan Herald on Andhra pharma cos wanting to relocate to KA provided they get land to move. They are not happy with the water and power situation in Andhra.

Read it as TG. there are no pharma stuff yet in new AP.

[vina]

Chit funds use the 'savings deposit' to lend money to people. The only difference is that there is no interest which is charged. So, Chit funds are better than the deposit banks which lend money.

Now THAT is WhizzDumb if I have seen any. Can money be really "free" and can any financial institution actually be viable without interest income ? This kind of WhizzDumb clusters with the Paki Water powered car I am afraid.

For eg, all this "Islamic Finance" banks, which don't charge interest, how do they survive ?

Hint: Instead of calling it interest, you call it "service charge" .

[sunilUpa]

There is a newsreport in Deccan Herald on Andhra pharma cos wanting to relocate to KA provided they get land to move. They are not happy with the water and power situation in Andhra.

Read it as TG. there are no pharma stuff yet in new AP.

Dr.Reddys is starting new R&D in Bangalore.

There may be bad news about FDA inspection in one of their plants in Vizag..

[Gus]

err..the chit fund organizer takes 5%.

no money is not free. it never is. a chit is not a perpetual motion machine.

it appears that you don't even know how the system works.

those who bid for the money, take a little loss because they only receive the money that they bid for, not the money that everybody contributed that term.

for some people, this system may work better because they do rotation and juggle with money coming in and going and banks just don't deal with that kind of situations.

for a subscriber like me, who participates in family based chits - i don't need the money, but i can help people out without it becoming a ego issue of them taking money from me, and unpleasant stuff like asking it back etc.

[nawabs]

Govt plans big push for coastal shipping

http://www.business-standard.com/articl ... 039_1.html

According to the proposed plan, a subsidy of Rs 0.5 per tonne a km on bulk cargo, a rebate of Rs 2,000 a container for container cargo and an additional 20 per cent rebate on vessel/cargo-related charges would be offered. The subsidy would be provided directly to shippers of general cargo items like salt, sugar, automobiles, fertilisers, tiles, steel, cement, marble and foodgrains.

Though an environment-friendly mode of transport, coastal shipping in India is beset by problems. Twelve major ports are governed by the Centre and more than 60 active non-major ports come under states.

Additionally, state maritime boards, which can direct policy, aren’t a ubiquitous presence. Currently, only Gujarat, Maharashtra and Tamil Nadu have a maritime board. This lack of coherence inhibits focus on the development of coastal shipping across the nine coastal states.

According to the plan, an online portal is likely to be developed by National Informatics Centre, which will automate the process of subsidisation. “The shipper’s consignments, from the port of origin to arrival, will be tracked online. Once the cargo reaches the destination, the tonnage will be determined and the subsidy amount will be directly transferred by the government within a stipulated time frame,” said a ministry official, requesting his name be withheld.

India has almost 70 per cent of 835 vessels engaged in coastal shipping, as of December last year, under the Indian flag. However, India’s movement of domestic cargo through water transport is paltry in comparison to other countries. While it’s 20 per cent in China, 24 per cent in Brazil and over 42 per cent in Japan, it’s a lowly seven per cent in India.

Another major factor that places a prohibitively high premium on coastal shipping is the lack of connectivity of non-major ports to the road and rail networks. The lack of consensus between state and centre about appropriation of funds for connectivity to non-major ports adversely affects the prospects of coastal shipping.

Major ports to form company for last-mile connectivity

To put port connectivity works on a fast track, 12 Indian ports will pool the resources to set up a new company. The Union government is set to clear a proposal for creation of a Port Infrastructure Vikas Nigam Ltd.

The company will construct, operate and maintain rail and road infrastructure to facilitate connectivity for transportation of goods from ports in India or abroad.The Union shipping ministry is in the process of seeking Cabinet approval for this.

According to documents reviewed by Business Standard, the company's paid-up capital will be Rs 50 crore, with equity participation from the 12 major port trusts. The authorised share capital will be around Rs 100 crore, divided into a million equity shares of Rs 1,000 each.

NAVIGATING NEW SHORES

. Port Infrastructure Vikas Nigam Private Limited to be created with equity participation from major ports
. The company will develop, design, finance, construct, operate and maintain rail and road infrastructure to provide connectivity for transportation of goods from ports in India
. Minimum paid-up capital of Rs 50 crore
. Authorised share capital of the company is Rs 100 crore divided into 1 million equity shares of valuation Rs 1,000 each
. All major ports hold varying percentages of equity in the company

Source: Government documents

Rail Vikas Nigam Ltd, under the administrative control of Indian Railways, will undertake project development and carry out other engineering works.

Last-mile connectivity implies linking the ports to the rail network, to move cargo. India has 12 major ports and about 60 active non-major ones. The major ports are under central jurisdiction and state authorities monitor and regulate the operations of the others.

"This will go a long way in improving the linkage of ports with the rail network," said a senior ministry official, requesting anonymity.

The movement of cargo by railway improves efficiency and reduces costs when compared to movement through road transport.

Shipping analysts say seeking intra-government clearances can still prove a major issue.

The board of directors will comprise a minimum of 10 and a maximum of 12 individuals. The secretary (shipping) will be chairman and the government will nominate two additional advisors to the board, who will not hold voting rights. Additionally, the chairmen of six major ports will hold board positions on a rotational basis, for a maximum of two years.

[Vriksh]

My understanding is that in Chit funds you have to bid for the pot. If you are a debtor to the chit fund then you cannot bid. Typically the bid means you pay the rest of the guys "the interest" when you take the money upfront.

Example there are 12 ppl (12 month chits) in a given chit fund of 20,000 per month. They all sit around and put Rs 20000 each into the pot = Rs 240,000. Everyone then bids for the pot, the guy who bids most (depending on his immediate need) will take the pot, his bid will be shared by the rest of the group. Say the bid for Rs 2.4 Lakh is Rs 18000 (taking an average value) then everyone gets Rs 1500 as interest. Only those who do not have outstandings to the chit can bid. This helps the guy who holds off for the end. He will get the Rs 2.4L pot at Rs 0 (by default since all others are debtors) in 12 months + the interest of Rs 1500 x 12 = Rs 18000. On the 12th month the last guy has got his money of Rs 240,000 + Rs 18000 as interest. The cycle then starts off again.



It appears to be a beautiful system if trusted players play in it (the Gujarati and Marwari community have used this system for more than a thousand years atleast if not more)

Chits greater than 6-12 people since it is very difficult to ensure integrity of the players. There may be a Chit Boss who underwrites the players. He may underwrite the system against defaults and collect from defaulters. It is his job to fill up the gap if someone defaults with other players and recover the money from the defaulters by other means.

This is my inspired guess not backed by data. Someone please correct me if I am mistaken

[Hari Seldon]

I remember that along with the golden quadrilateral, the ABV govt had also mooted the 'sagarmala' scheme of widespread port construction and connectivity. Got quietly shelved, along with other initiatives like Sankhya vahini, seems like.

[deejay]

err..the chit fund organizer takes 5%.

no money is not free. it never is. a chit is not a perpetual motion machine.

it appears that you don't even know how the system works.

those who bid for the money, take a little loss because they only receive the money that they bid for, not the money that everybody contributed that term.

for some people, this system may work better because they do rotation and juggle with money coming in and going and banks just don't deal with that kind of situations.

for a subscriber like me, who participates in family based chits - i don't need the money, but i can help people out without it becoming a ego issue of them taking money from me, and unpleasant stuff like asking it back etc.

Though I do not participate in Chit funds, from my experience, small scale Chit funds are common in India, specially the family variety. I have come across people from across states using Chit Fund in family or tight circles to deal with financial requirements. In some circles the 5% mentioned above was also not there, but this was rare and in extremely closed groups.

I was surprised at the prevalence of Chit Funds in the economically weaker segments which also coincided with low penetration in to banking systems.

[SaraLax]

My understanding is that in Chit funds you have to bid for the pot. If you are a debtor to the chit fund then you cannot bid. Typically the bid means you pay the rest of the guys "the interest" when you take the money upfront.

Example there are 12 ppl (12 month chits) in a given chit fund of 20,000 per month. They all sit around and put Rs 20000 each into the pot = Rs 240,000. Everyone then bids for the pot, the guy who bids most (depending on his immediate need) will take the pot, his bid will be shared by the rest of the group. Say the bid for Rs 2.4 Lakh is Rs 18000 (taking an average value) then everyone gets Rs 1500 as interest. Only those who do not have outstandings to the chit can bid. This helps the guy who holds off for the end. He will get the Rs 2.4L pot at Rs 0 (by default since all others are debtors) in 12 months + the interest of Rs 1500 x 12 = Rs 18000. On the 12th month the last guy has got his money of Rs 240,000 + Rs 18000 as interest. The cycle then starts off again.



It appears to be a beautiful system if trusted players play in it (the Gujarati and Marwari community have used this system for more than a thousand years atleast if not more)

Chits greater than 6-12 people since it is very difficult to ensure integrity of the players. There may be a Chit Boss who underwrites the players. He may underwrite the system against defaults and collect from defaulters. It is his job to fill up the gap if someone defaults with other players and recover the money from the defaulters by other means.

This is my inspired guess not backed by data. Someone please correct me if I am mistaken

Chit funds - the south side story

Chit funds were first started in India more than a thousand years ago. The first attempt to regulate the sector was made by the government of Travancore in 1914. This was followed by the Tamil Nadu Chit Funds Act of 1961, Andhra Pradesh Chit Funds Act of 1971, and Maharashtra Chit Funds Act of 1974. Parliament enacted the Chit Funds Act in 1982. Under this Act, chit funds have to deposit an amount equivalent to the "chit" money with the state government as security against default. This makes it a low-margin business.

R Chandrasekar, executive director of Shriram Chits Tamil Nadu, says it takes at least seven years for a new chit-fund company to break even. "It is not a cash cow." Besides, the Act is so stringent that it is difficult to start a business, he says. In a year, barely one or two new chit funds get registered.

Incidentally, the Shriram group started as a chit fund in 1974 and has now emerged as a financial conglomerate that manages funds worth over Rs 60,000 crore. In comparison, his Shriram Chit, he says, hardly makes Rs 40 crore. The commission of chit fund companies, he says, is around 5 per cent.

Despite all the negative news about the industry and words of caution from financial advisors, Shriram Chit gets 700-800 new applications every day from Tamil Nadu alone.

Sivaramakrishnan claims the industry in Tamil Nadu is growing at 25 to 30 per cent per annum, which shows that "customers aren't worried and they still trust chit-fund companies". Sivaramakrishnan's chit fund company, which has been in business for 65 years, caters to the fourth generation now. In a way, the southern states have paved the way for the Centre to come out with a regulation for the chit fund industry.

"States which properly implement the Chit Fund Act have not faced any issues," says Chandrasekar. "Take Tamil Nadu for instance. After the Act was implemented, not even one registered chit fund company closed down." Some of the other states which have such stringent rules include Andhra Pradesh, Karnataka, Delhi and Maharashtra.
.
.

Shriram Chits (from the same group which runs Shriram Transport finance, Shriram City Union) is one of the biggest in this Chit Fund business.

[krishnan]

dont think the debate is about these kinds of chit, its about local chit group , mostly run by women

[Uttam]

Any news for Disinvestment? Wasn't the first one supposed to have happened by the middle of November? I really think the market is ripe of it. We shouldn't be waiting much longer.

[johneeG]

Chit funds use the 'savings deposit' to lend money to people. The only difference is that there is no interest which is charged. So, Chit funds are better than the deposit banks which lend money.

Now THAT is WhizzDumb if I have seen any. Can money be really "free" and can any financial institution actually be viable without interest income ? This kind of WhizzDumb clusters with the Paki Water powered car I am afraid.

For eg, all this "Islamic Finance" banks, which don't charge interest, how do they survive ?

Hint: Instead of calling it interest, you call it "service charge" .

I am trying to point out that in theory chit funds are like a resource pool of a community which can be used by the entire community. And as such, they can do away with interest if they want to. They can charge interest/service charge or they can do away with it also.

Its upto the community to put up the rules as long as they are fair to everyone.

For example, the service charge is given to one who holds the entire money. If the community wants to do away with the service charge, then they can rotate this responsibility of holding the money among all its members.

Even if there is a service charge or interest, it is still far far better than the modern banking system.

>>Can money be really "free" and can any financial institution actually be viable without interest income ?
Modern banks create money 'freely' without interest and then lend that money to others on interest. Its called fractional banking.

----

Parliament enacted the Chit Funds Act in 1982. Under this Act, chit funds have to deposit an amount equivalent to the "chit" money with the state government as security against default. This makes it a low-margin business.

These rules are actually the part of the problem. The people who create small chit funds, don't have the amounts to deposit. Even if they can deposit, it won't be viable economically. So, these rules seem to be part of the problem rather than solution.

I don't know the law on this, so heres my suggestion:
I think the Govt should remove the rule that a amount equivalent to 'chit' has to be deposited. Instead, the govt should create a law that the assets of the person who defaults will be attached to clear the default. And the risk factor of the chit should be made known before hand to all the participants. If a particular chit manager is involved in multiple defaults, then he should not run anymore chits.

[Uttam]

With regards to Chit-funds, Individual Investors have time and again shown preference for Skewness in Returns (i.e. preferring investments with a very high payoffs in certain states even if overall expected returns are negative). That is the reason why Lotteries exist and so do these chit-funds, etc. This preference for skewness is not unique to less literate individual investors. Even venture capitalists and angel investors show significant skewness preference.

So what this means for policymakers. The skewness preference creates opportunities for all kinds of shady characters. There is no way the policymakers can fix the basic human nature but what they can do is stay vigilant and create a well regulated market for these kind of securities to flourish. Yes, Ladies and Gentleman, I am arguing for a well regulated market where such investors can speculate with securities having high skewness in payoffs (gambling, lottery, derivatives markets, etc.). Regulation should prevent such markets from becoming so big that they pose systemic threat to an economy, and investors from taking positions that they cannot cover (margins).

Just by banning such activity only pushes them to more dangerous by-lane and create opportunities for all kinds of bad people to provide a service and use profits to hurt the entire nations.

[vina]

Yes, Ladies and Gentleman, I am arguing for a well regulated market where such investors can speculate with securities having high skewness in payoffs (gambling, lottery, derivatives markets, etc.)

You ispeako Inglees, while this Chit Fund type ispeako Yindee and telling all must ispeako Yindee onree because that is "best" (whatever that means).

This Chit Fund business is crazy. It has all kinds of options built in, some of which you literally give away, you have no idea of valuing it, all in all a valuation black hole and then , there is very little default protection.

Heck, a checking account which pays 6% pa and is insured upto Rs 1,00,000 is a far better option. Instant liquidity and you get interest monthly. But no, the Chit Fund business is what our Yindee ispeako onree types push as the next best thing to sliced bread .. oops round chapati.

Well what goes my father. Idiocy has no cure. Or as it was already said in Sanskrit.. "Moorkhasya Naasti Aushadham"

[panduranghari]

Can money be really "free" and can any financial institution actually be viable without interest income ? " .

Yes.

Only a Keynesian apparatchik can't see the wood from the trees.

Here is a wonderful presentation by a good friend. Spare a cent or dime or paisa or a peso to listen to it. It should answer your question.

[Uttam]

Yes, Ladies and Gentleman, I am arguing for a well regulated market where such investors can speculate with securities having high skewness in payoffs (gambling, lottery, derivatives markets, etc.)

You ispeako Inglees, while this Chit Fund type ispeako Yindee and telling all must ispeako Yindee onree because that is "best" (whatever that means).

This Chit Fund business is crazy. It has all kinds of options built in, some of which you literally give away, you have no idea of valuing it, all in all a valuation black hole and then , there is very little default protection.

In case it went unnoticed, I never argued for a free-for-all chit fund market. I argued for a "well regulated market" where individuals can bet based on their preference.

Heck, a checking account which pays 6% pa and is insured upto Rs 1,00,000 is a far better option. Instant liquidity and you get interest monthly. But no, the Chit Fund business is what our Yindee ispeako onree types push as the next best thing to sliced bread .. oops round chapati.

Well what goes my father. Idiocy has no cure. Or as it was already said in Sanskrit.. "Moorkhasya Naasti Aushadham"

And that is exactly my point that the economist who swear by "rationality" cannot explain this "behavior". The 6% pa with insurance works for you because you have a "preference" for that but may not work for others with different "preferences". Instead of continuously trying to ban this and ban that and thus pushing these activities to criminals, the policy makers should try to set up rules protecting investors and then police such activities.

PS: This is one thread where moderators try very hard to maintain civility of discussion. Name calling and rude language doesn't really carry your argument very far.

[pankajs]

http://www.moneycontrol.com/news/econom ... 37507.html

Govt fast-tracks setting up infra for $40 bn steel projects

reation of basic infrastructure for four mega steel plants, estimated to cost USD 40 billion, has been put on fast track with SAIL and RINL being assigned the job along with the existing nodal agency NMDC.

State-run iron ore miner NMDC was earlier given the task of putting in place basic infrastructure, including land acquisition for the plants, each with 10-12 million tonne capacity, in Chhattisgarh, Jharkhand, Karnataka and Odisha.

...
The plan was that after developing the infrastructure, NMDC will sell it off to steel firms who intend to set up shop in India, but have been deterred by bottlenecks. It aimed at clearing the bottlenecks for private projects as a step towards achieving 300 MT capacity by 2025, a target set by the then Prime Minister Manmohan Singh-led National Manufacturing Competitiveness Council (NMCC).

[Prem]

Road map for ‘a $10-trillion economy’
http://www.thehindu.com/business/Econom ... 630105.ece
(They are aiming right)

If India wants to build a $ 10-trillion economy by 2034, growing at a rate of 9 per cent a year, it will have to focus on investments in R&D and undertake radical improvements in the Human Development Index, PricewaterhouseCoopers (PwC) said in a report released on Monday.
The report defined three possible scenarios for India’s economic growth. Of the three, the “Winning Leap” is the most aggressive growth scenario and the only one that will generate the 240 million new jobs India’s growing demography needs, said a PwC statement on the report. The three scenarios are not growth projections, PwC clarified at the launch of the report here on Monday. “India can only build shared prosperity for its 1.25 billion people by transforming the way the economy creates value,” said PwC International chairman Dennis Nally at the launch. The other two economic growth scenarios in the report are “Pushing old ways faster” and “Turbocharging investment.”

[gakakkad]

^^ We need to aim higher than that..10T should be achieved by 2025.certainly no later than 2030..of course appreciation of Rupee can do the trick..@10 t,we ll have a per capita income of 8000 USD . ie half the present per capita income of Russia..and Russia has a high poverty...we have similar inequality in income distribution . we need to ensure 15000-20000 levels of per capita income by 2025-2030 to do justice to the massive young population of the country...we should note that India will be an ageing population in 2040s ..and will not be able to grow as well by 2050 as it would not have enough young people to drive growth...we need to get rich by then..

[Suraj]

We'll probably reach $20 trillion by 2034, not $10 trillion...

[Prem]

We'll probably reach $20 trillion by 2034, not $10 trillion...

Our Own "Phinnace" man Sinha was Shouting India will be 5T economy by 2024. l
IMHO, he is the first mistake by Mopdi Sarkar. He is same man who want to change inheritance law etc. to make marriage legalized prostitution and blackmail. This one law will break Indic families to the point of no return.

[member_28756]

Road map for ‘a $10-trillion economy’
http://www.thehindu.com/business/Econom ... 630105.ece
(They are aiming right)

If India wants to build a $ 10-trillion economy by 2034, growing at a rate of 9 per cent a year, it will have to focus on investments in R&D and undertake radical improvements in the Human Development Index, PricewaterhouseCoopers (PwC) said in a report released on Monday.
The report defined three possible scenarios for India’s economic growth. Of the three, the “Winning Leap” is the most aggressive growth scenario and the only one that will generate the 240 million new jobs India’s growing demography needs, said a PwC statement on the report. The three scenarios are not growth projections, PwC clarified at the launch of the report here on Monday. “India can only build shared prosperity for its 1.25 billion people by transforming the way the economy creates value,” said PwC International chairman Dennis Nally at the launch. The other two economic growth scenarios in the report are “Pushing old ways faster” and “Turbocharging investment.”

A 9 percent growth will be outstanding but everything has to turn out well for India to achieve that growth. Modi I think is doing everything he should to achive this goal but there are many factors that will be out of his control. We shall see and keep the fingers crossed.

[sivab]

He is same man who want to change inheritance law etc. to make marriage legalized prostitution and blackmail. This one law will break Indic families to the point of no return.

He proposed inheritance beyond 25 crore be taxed. How many families will have that kind of money? May be only top 0.1% or so will have that kind of money.

One benefit of inheritance tax is to break financial dynasties/fuedalism/aristocrasy. What I find fascinating is that people who abhor political dynasties support financial dynasties.

To those who argue it is double taxation, it is a actually tax on inheritor who did absolutely nothing to earn that money other than being born to right parents.

IMO, there are plenty of other reasons to be against Sinha.

[deejay]

He proposed inheritance beyond 25 crore be taxed. How many families will have that kind of money? May be only top 0.1% or so will have that kind of money.

One benefit of inheritance tax is to break financial dynasties/fuedalism/aristocrasy. What I find fascinating is that people who abhor political dynasties support financial dynasties.

To those who argue it is double taxation, it is a actually tax on inheritor who did absolutely nothing to earn that money other than being born to right parents.

IMO, there are plenty of other reasons to be against Sinha.

But did he not support exclusion of minorities. Why exclude minorities fro this law?

[Rahul M]

excellent news.

http://economictimes.indiatimes.com/ind ... 289944.cms

NEW DELHI: Fast-growing smartphone maker Lava is said to be in talks to buy Nokia's Chennai handset factory, once the world's biggest but now non-operational. If a deal is struck, that could raise the possibility of thousands of former workers getting a chance at re-employment at the plant that had been regarded as a showpiece of India's manufacturing capabilities.

Read more at:
http://economictimes.indiatimes.com/art ... aign=cppst

But did he not support exclusion of minorities. Why exclude minorities fro this law?

that was twitter BS. he never said anything of the kind. check earlier discussion on BR.

[sivab]

But did he not support exclusion of minorities. Why exclude minorities fro this law?

Can you provide a source for this claim? Note that the video of the 2013 Forbes India event where he proposed inheritance tax is available on youtube and his recent tweet mentioning 25 crore threshold is also online. This minority claim is not in either one of these.

[deejay]

But did he not support exclusion of minorities. Why exclude minorities fro this law?

Can you provide a source for this claim? Note that the video of the 2013 Forbes India event where he proposed inheritance tax is available on youtube and his recent tweet mentioning 25 crore threshold is also online. This minority claim is not in either one of these.

No, I was only referring to previous BRF discussions. I guess, I missed the clarifications on this - my bad.

[vivek.rao]

Market to Modi Govt: Be happy with low PSU valuation

As it tries to disinvest its holding in PSUs, the Modi government is paying the price of not even making lip service to reform public sector undertakings
 
While the stock market hit an all-time high just yesterday, there is one part of the market, which is yet to enjoy Achche Din: stocks of public sector undertakings (PSUs). And this is making it difficult for a confident government to execute its ambitious disinvestment plans.
 
Take a look at the performance of the PSU indices on BSE and NSE. The week before Bharatiya Janata Party (BJP) won its massive mandate, the market sensed that Narendra Modi is likely to head the government and the indices shot up and continued to rally. Sensex is up by 27.04% from 8th May till now and Nifty is up 27.27% over the same period. However, the two PSU indices have not performed as well as the broad market indices. In fact, the PSU indices shot up initially when the market players expected the Modi government to get cracking on reforming various institutions.

I have a big question.

Jaitley and RBI governor etc. what are they doing?

Why is Modi ignoring the most important thing? Finance?

No reforms in public sector
No financial reforms. No interest rate action.

Jaitley is sitting like dumb duck doing quack quack to Barkha.

Does Modi only care about security aspect only and foreign affairs?

Vasundhara Raje and CBN are doing better jobs than the whole dream team idiots.

Why does Modi trust Jaitley anyway? he seems to be freaking loser. If Modi continues to ignore economy, he will be history.

[vivek.rao]

He is same man who want to change inheritance law etc. to make marriage legalized prostitution and blackmail. This one law will break Indic families to the point of no return.

He proposed inheritance beyond 25 crore be taxed. How many families will have that kind of money? May be only top 0.1% or so will have that kind of money.

One benefit of inheritance tax is to break financial dynasties/fuedalism/aristocrasy. What I find fascinating is that people who abhor political dynasties support financial dynasties.

To those who argue it is double taxation, it is a actually tax on inheritor who did absolutely nothing to earn that money other than being born to right parents.

IMO, there are plenty of other reasons to be against Sinha.

First of all, inheritance tax should be the last priority of this dream team of Harvard idiot economist team.

Increase the tax base, financial reforms, regulatory reforms, interest rates, tracking fraud, GST etc. So many, so many top items that need immediate attention.

Why does this supposedly right Govt. talking about inheritance tax as first priority? It won't be even 1% of the tax payers which itself is very low. How many of these people die in a year?

What kind of idiot talks about inheritance tax first thing after becoming minister?


you have a history of bad-mouthing public figures & have been banned in the past.
mend your ways or that perm ban is looming.
1 month ban initiated for 3rd active warning on record.
- Rahul

[panduranghari]

I have a big question.

Jaitley and RBI governor etc. what are they doing?

I believe they are playing cards. Come one mate, why should they tell what they are doing to you or me.

Why is Modi ignoring the most important thing? Finance?

There is nothing much he can do. The system is rotten. No amount of fixing is going to fix it.

No reforms in public sector
No financial reforms. No interest rate action.

Markets are fickle. If interest rates dont rise soon enough voluntarily, then we will see a sudden unexpected rise in rates as it happened in Nigeria last week. Interest rate rise will kill realty. It will cause a lot of heart burn to the aam aadmi who is banking on the BELIEF that Modi is going to fix India.

Jaitley is sitting like dumb duck doing quack quack to Barkha.

Keep friends close and enemies closer. That is I believe how Jaitley is being treated by Modi ji.

Does Modi only care about security aspect only and foreign affairs?

Vasundhara Raje and CBN are doing better jobs than the whole dream team idiots.

Why does Modi trust Jaitley anyway? he seems to be freaking loser. If Modi continues to ignore economy, he will be history.

What makes you believe that Modi does not care about finance? Atri saar wrote about Indrashakti theory. And the basis of preferring LKA as the figurehead PM until the the economy crashes so that Modi wont be held responsible for the economic crash was the rationale for such an idea.

I think Jaitley will be held responsible for the economic crash and will be sidelined for good. That is my opinion.

[nawabs]

I think Jaitley will be held responsible for the economic crash and will be sidelined for good. That is my opinion.

I don't think so. People voted for Modi alone and he alone will be answerable for any highs and lows during his term in office.

[panduranghari]

This is digressing from the main topic. But I feel Modi is a cunning operator. He and RSS will find someone to blame. Just like Phadnavis will be held responsible for the fall of government in MH. People will associate the economic turmoil with Modi and the media will play along. They will get a big stick to beat Modi. They have wanted one since 2002. So they will get it. Its a catch 22 situation. He is proverbially between rock and hard place.

[gakakkad]

what economic crash? How ahead of the proverbial curve can we possible be?

[Arjun]

Panduranghari, if I am not mistaken, is one of the 'gold bugs' who've been predicting (rather, looking forward to) global economic meltdown for donkeys years.

[Supratik]

Apocalypse. C'mon the guy hasn't even started.

[panduranghari]

Panduranghari, if I am not mistaken, is one of the 'gold bugs' who've been predicting (rather, looking forward to) global economic meltdown for donkeys years.

http://www.eri-c.com/hamlet

This great leap forward for mankind has, however, not made the valuation of financial instruments materially easier. Indeed, the increase in the speed and ease with which man can extrapolate data may have made valuing financial instruments considerably more difficult. Small tweaks in inputs have always had major impacts on present values, but perhaps those tweaks were made less frequently when they were tortuous, boring, time-consuming and hence expensive.

Indeed, it is now possible to dispense entirely with the human element, as the collapse in the cost of computing power means that intra-second present-value calculations are both possible and cheap. The rapid oscillation in price/value resulting from the interminable tweaking of our binary buddies is neither much of a spectator sport nor a game suitable for adults. Adults are interested in inputs, while machines and teenagers still marvel at the purity of the equation and the speed at which it can be solved. So what does the history of inputs to net present-value calculations tell adults about current equity prices/valuations? It tells us that current equity prices/valuations will produce poor long-term returns.

A simple discounting model tells us that the net present value of financial instruments rises when the discount rate falls, the growth rate of corporate cash-flows rises or the discounting period is extended. The owners of financial assets have much to celebrate, if these three amigos appear simultaneously. History shows that high valuations for equities in particular occur when just such a posse of positives rides into town.

More importantly, history also shows the impossibility of such a combination having the permanency which contemporaries assume, and which thus get capitalized by financial markets. Ultimately, understanding the dynamics of how seemingly long-term, bullish inputs inevitably pass, is much more important for investors than celebrating their arrival. We all know that an elephant can stand on its head, but for those standing in close vicinity to this talented, inverted pachyderm the more pressing question, literally, “Just how long can it stand on its head?”

Financial history has much to say on how long a low-discount rate, a high-growth rate of corporate cash-flows and a long discounting period can co-exist. These variables can co-exist long enough for the trader to make profits and long enough for the investor to lock in to poor, long-term returns. So why do investors come to believe that, on this occasion, the impossible can be possible, and why do they stop believing that this elephant will always stand on its head?

Faith that the three amigos have come to stay usually stems from a major technological breakthrough. Investors are a sucker for the transformative power of structural change, usually in the form of technology. Whether transfixed by the sight of ships sailing through the countryside (canals), iron horses rumbling across the plain (railroads), messages pulsing through wires (the telegraph), signals beaming through the air (radio), petroleum forming into household objects (petrochemicals), machines that think (computers) or phones that know how to get you to where you’re going even when you don’t know where you are (smart phones): the human mind is easily distracted by its own ingenuity.

While most technological breakthroughs are disinflationary, some are more disinflationary than others. A disinflation will very likely bring a lower discount rate and lower interest rates also reduce interest payments, thus boosting corporate cash-flows. That same technological breakthrough can simultaneously be seen as positive for corporate cash- flows, if it boosts productivity. Of course, any such improvements in cash-flows increases the likelihood that corporations will continue to be able to finance their liabilities, which in turn means the solvency of corporations improves the chances of potentially lengthening discount periods. In the modern era we have turbo charged this particular dynamic by dedicating corporate cash flows, often boosted by the added octane of cheap debt, to finance equity repurchases. Like that elephant it is quite a spectacle to see such a huge thing resting on such a small point. There are some spectacles though best witnessed from distance.

It is clear that such a bullish combination of these key inputs is transient, but professional investors’ job prospects are not well served by heeding the cautionary lessons of financial history. For instance, who would ever pay good money to see a lion-tamer who wasn’t prepared to put his head in the lion’s mouth? Risk-taking and optimism in investors may be more a professional necessity than a limitable, professional hazard. So why have the inputs of a low-discount rate, high cash flow growth rates and long discounting periods been transient in the past, despite major technological innovations? What does that historic transience tell us about how and when faith in the current bullish combination will ebb, with negative implications for prices/valuations?

This distraction of structural change, driven by a new technology, is fatal for investors as they simply forget that they are in the business of pricing, and price is ultimately set by just two things --- supply and demand. A technological breakthrough shifts both supply and demand, often in unpredictable ways. However, the mechanism of price assures that supply and demand adjust so that the three amigos of a low-discount rate, a high cash-flow growth rate and long discounting period are disbanded.

When returns on capital are high, new investment is attracted and returns decline, so that new technology does not augur in an era of permanently high returns. In some cases, when returns to capital are high, returns to labour will be poor with negative impacts for final demand and ultimately corporate returns. Similarly, a surprise bout of inflation associated with warfare or the collapse of a stable monetary system (Bretton-Woods) can cause a boost to inflation and damagingly higher interest rates. When equity valuations are high they are pricing in a stability in interest rates and corporate earnings that have always been illusory because of the simple fact that supply and demand adjust in response to price/valuation.

History tells us that we should expect such a parting of the happy, tripartite posse when the Cyclically Adjusted Price Earnings ratio (CAPE) for equities nears 25X. Simply put, from 1881 to 2014, despite massive structural change mainly driven by technological breakthrough, US equity valuations have only rarely exceeded a CAPE of 25X.

Equity market valuations have warned us in advance that the ability of that structural change to deliver low inflation, low interest rates and high growth rates is about to come to an end. This has happened either because the growth rate was too high, resulting in inflation and higher discount rates, or because the growth rate declined, and with it so did corporate cash flows. In extreme circumstances cash-flow declines threatened corporate solvency and discounting periods also declined markedly. In short, the laws of supply and demand have always ensured that the three amigos are disbanded by either the powers of rising inflation or the powers of deflation.

When the CAPE has been at 25X times there has been no room for disappointment in any of the three key discounting variables, with the consequence that rising inflation or outright deflation have had major impacts on valuations. To believe that this time will be different is to believe that something had happened to prevent the supply/demand adjustment which has heretofore made this bullish stability of the three key variables an illusion.

As at previous peaks for the CAPE in 1901, 1929, 1968 and 2000, many investors do indeed believe that this time somehow supply and demand will not adjust to shatter the combination of low-discount rate, high growth rate and long discounting period. Currently this faith is probably based upon the fact that inflation appears to have fallen to a new low trading range since 1995 and that the growth of corporate profits has outstripped GDP growth, pushing corporate profits to an all time high relative to GDP. If inflation can stay low, without becoming deflation, and corporate profits can continue to rise as a percentage of GDP, then there is no reason to believe that equity prices/valuations need never decline. While such a permanent combination may be possible, it is also highly unlikely.

The historical record suggests that the actions of central bankers are at least as likely to destroy such seeming permanency as add to it. Traders can now play the game of assessing what gains can be made before the adjustment of supply and demand drives the inflationary or deflationary outcome which will reduce the price/valuation of equities. Investors need only note the inevitability of such adjustment and thus seek to avoid equities currently trading at valuations, which guarantee poor long-term returns. With the CAPE at 26X the elephant remains on its head, making this is a good time for investors to be watching, and waiting, from a safe distance.

Hamlet once observed that, “There’s a special providence in the fall of a sparrow” but the great Dane would surely have noted that when a 4-tonne elephant topples, you really shouldn’t put the inevitable damage down to ‘the slings and arrows of outrageous fortune."

[Vamsee]

The fall of oil prices is the biggest stimulus for Indian economy.
Acchhe din are here. Hopefully the prices stay in this range for a few years.

[member_28756]

http://finance.yahoo.com/news/indias-ec ... QwATxLwFAx.

India's economic growth slows to 5.3 percent in July-September