Grossly Disputed Product

Absoulte GDP and GDP growth rates are often correlated to overall economic prosperity of nations. However, their relevance in this regard is quite limited

George Orwell states in his famous book Nineteen Eighty Four in Chapter 3 that, “…the choice for mankind lay between freedom and happiness, and that, for the great bulk of mankind, happiness was better. That the party was the eternal guardian of the weak, a dedicated sect doing evil that good might come, sacrificing its own happiness to that of others…” This Orwellian concept is still very practically relevant but has been buried under the deceptive and manipulative economic parameters predominantly used for measuring economic prosperity.

Economics can be really deceptive. The deception goes wider and deeper with the increase in the number of economic variables that goes into a calculation. And one of those economic parameters that hide more than what they reveal is the much touted Gross Domestic Product a.k.a. GDP and GDP per capita. Both these economic parameters are taken into account while measuring the economic prosperity of a nation and its population at large, but sadly fail to reflect the real prosperity of a nation.

The economic prosperity of a nation does not automatically imply social prosperity. There is hardly any correlation between economic development and well-being of a nation. Take Luxembourg for instance. The fact that it tops the charts when it comes to GDP per capita (highest in the world, $108,952 per year) and features among the top countries in the Human Development Index fails to ensure human prosperity. In spite of being a top performer in two of the world’s most reputed economic indices, the country does not feature as a good performer in the c – that measures overall well-being of nation. This is evident from the fact that Luxembourg has one of the highest per capita carbon footprints and intentional homicide rates (1.45); well above nations like Egypt, Kuwait & China. Luxembourg has less than 5,000 guns per 100,000 popula tion but murder rates are much higher than nations with relatively higher rates of gun ownership!

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Source : IIPM Editorial, 2012.

An Initiative of IIPM, Malay Chaudhuri 
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles. 

IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting

US housing market report

With US facing the fears of a double dip recession, investments in real estate remains sluggish. However, continuous fall in home prices and mortgage rates have brought in a great opportunity. Though the post-crisis over-cautious approach of lenders and borrowers is still playing spoilsport, current valuations and demographic dynamics may soon change the scenario.

Housing crisis continues

Housing boom in the US that began in the late 1990s led to an exponential growth in home sales. In fact, the demand remained quite strong during the period and outpaced the supply of new built as well as old homes on sale. As per reports, average sales of houses stayed at around five million per year. But with the economic crisis coming into picture, demand dipped thick and fast from over five million to less than four million. Since then, inventories have been on a painfully slow drift downward as a drop in demand offset much of the impact of the collapse in home building. However, by August of this year, combined new and existing homes listed for sale have fallen to 3.6 million units, having completed roughly 70% of the journey back to normal.

Mortgage payment at record low

With a sharp dip in mortgage rates, US Families have to leash out very low rates out of their income to pay for mortgages. As per Freddie Mac, by October 7, 2011 mortgage rates have fallen to an average annual level of 3.94%. Assuming the use of a fixed rate mortgage with 20% down, it will make the median mortgage payment on a single family existing home just 6.9% of per household personal income, compared to an average of 14.4% since 1966. While this presents a downside market, it also emphasises on the long-term gain that one can achieve by investing in the cheaper than average houses locking in cheaper long term financing available at present. Because, any demand pull in future will also pull these prices up.


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Source : IIPM Editorial, 2012.

An Initiative of IIPM, Malay Chaudhuri 
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles. 

IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting

They listened to us, in part

The recent decision of the DGCA to imprison drunken pilots is something that we suggest a year back, but DGCA needs to read us again, properly!

At last, the Indian aviation ministry did it. After much talk and criticism, the ministry has decided to inculcate a policy of zero tolerance on safety issues through a new set of rules for punishing drunk pilots. As per recent amendments to the Aircraft Act’s Rule 24, drunk pilots will now face one year jail or fine up to Rs.5 lakh instead of just being prohibited from operating their flight if they fail in pre-flight breath tests. Interestingly, this amendment came after an year of B&E’s Scrutiny article titled “Drunk pilots should be jailed” (B&E issue dated 30/09/2010), in which imprisonment was demanded for all drunk pilots.

Earlier, tipsy pilots would get suspended for three months if they were found drunk for the first time and would be suspended forever for the second time.

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Source : IIPM Editorial, 2012.

An Initiative of IIPM, Malay Chaudhuri 
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles. 

IIPM Best B School IndiaManagement Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age WomanIIPM's Management Consulting Arm-Planman Consulting

Retail FDI in the cross hairs

The government’s backtracking on opening up FDI in retail shows that its heart and mind are at loggerheads. Once the Cabinet cleared the policy, it was expected of the government to stand firmly behind it. Instead, its lack of conviction and half-hearted support to the policy has brought the entire process to a standstill

The flip-flop on FDI policy in retail is proving to be a major contretemps for the Congress-led ruling UPA-II government at the Centre. Barely days after the government announced on November 24 that it had approved 51% and 100% FDI in multi-brand and single brand retail respectively, West Bengal Chief Minister Mamata Banerjee took the Mickey out of the government’s claim by declaring that the policy has been put on hold ‘until a consensus is evolved’. With the government looking likely to back-pedal on its FDI stand, India Inc. came out all guns blazing and attacking the government for going weak at the knees. Most corporate honchos opined that rolling back the FDI policy on retail would be most unfortunate even though they agreed that the government should have chosen a more opportune moment for announcing the policy.

The decision to open up the retail sector to global investors through foreign direct investment means that global retailers such as Wal-Mart, Carrefour, Tesco and others can set up mega deep-discount stores in the country through joint ventures with Indian firms, where the foreign partner can hold up to 51% equity. But there are quite a few strings attached to safeguard national interests and allay fears of market exploitation by foreign retailers. The rules stipulate that at least half of the FDI should be made in back-end infrastructure such as in setting up cold-chains and warehousing, the minimum FDI in any multi-brand retail project should be $100 million, state governments can prohibit FDI in retail in their states if they wish to, stores can be set up only in cities with a population of at least 1 million and at least 30% of the value of manufactured items procured should be sourced from Indian small and medium enterprises.

Despite the riders, the proposed move hasn’t gone down well with many sections of the political class and their constituencies. Voices against the decision have also been aired from within the Congress. Opposition parties (including the BJP, which had advocated for a similar policy in 2004) and small traders have expressed apprehensions that deep discount stores of transnational corporations will drive out street vendors and neighbourhood kirana stores out of business, thereby endangering their livelihoods. “Foreign investors with deep pockets entering this segment will have an adverse impact on our domestic retail sector, which is growing,” says senior BJP leader Sushma Swaraj, adding that the decision will decimate competition and involve a loss of jobs, both in the manufacturing and services sector. “These jobs will be lost in the name of eliminating middlemen,” Sushma tells B&E.

For the government, opening up FDI in retail was an opportunity to salvage its image, which had been sullied by serious charges of graft and policy paralysis. That chance, if ever there was one, seems to have been lost. According to sources familiar with government thinking following the uproar and furore created by political parties in the wake of the announcement on FDI in retail, the government was already on track to potentially dilute certain provisions of the policy. But what is befuddling is why the government chose to bring the discussion on FDI in retail to Parliament when it actually did not need to. The clearance of this policy does not require parliamentary approval. As per the consolidated FDI Policy of India, the Ministry of Commerce & Industry is only required to bring out a press note indicating its intent, following which the Reserve Bank of India brings out a notification. Since the decision to allow 51% FDI would only be a change of rule under the Foreign Exchange Management Act (FEMA) and not in the legislation, it did not require any approval from the Parliament.

Why then did Commerce Minister Anand Sharma choose Parliament to make this announcement? If the government actually wanted to push the new rules through, it could have easily chosen a more convenient time and place. Moreover, despite the safeguards that the government claims to have put down in the policy, there is still a lot that needs to be done to make the policy yield positive results.

Calling the government’s move ‘suicidal’, economist and political commentator Suvrokamal Dutta says that the policy has been spelt out in accordance with the interests of the West. “By opening up the retail sector in India, which has such a huge middle class population, Western markets are looking for another dumping ground for their goods.” “India,” says Dutta, “is the second biggest market for the US and UK after China and American and European MNCs need this market to overcome recession, their negative growth rate and their job losses.”

Commenting upon the undue urgency with which the decision to open FDI in retail was brought forward without much discussion, eminent agriculture scientist and Father of the Green Revolution, MS Swaminathan tells B&E, “I think the government feels it has the right to take decisions on the ‘reform agenda’ as they call it. But the retail FDI issue affects poorer sections of the society with millions of people involved in small retail business and small scale farmers – this needs to be seriously examined.” According to Swaminathan, agriculture in India is viewed by the urban people from their own point of view of food security. “However there are issues of livelihood and food security for farmers. With diminishing land resources & disenchantment of the farming community with the agriculture economy, the decision on FDI in retail should be discussed well.” Several other experts echo Swaminathan’s sentiments on FDI in retail. They believe that in order to make this policy truly work in the interest of the nation, there are several measures with respect to land, agriculture, food et al which need to be addressed before opening up retail to foreign investors.

While the sound and fury on FDI in retail continues to rage, the policy looks all set to undergo another change in provisions, if not pushed into limbo altogether. But even if a new version is able to pass muster with the political class, it remains to be seen how many foreign retailers will actually find it viable to set up shop in India. Till then how well the policy, if and when it is introduced, works out will remain a mystery.

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Source : IIPM Editorial, 2012.

An Initiative of IIPM, Malay Chaudhuri 
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles. 

IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting

Between the Indian customs department and the Chinese “kidnapping” traders, it’s the Indian businessman who is getting sandwiched!?

The recent case of Indian traders being kidnapped in China has opened up a can of worms. Apart from the case revealing weaknesses in the Chinese judiciary (as I had highlighted in an editorial a few weeks back), it has also brought out in the open something that traders from India () were facing for a long time but not speaking about openly. The big trade that happens between India and China is through the scores of wholesalers operating out of wholesale markets in India like the Sadar Bazaar in Delhi. These are not the big guys who prefer getting into litigation that easily; they also aren’t amongst those who operate with lawyers and bigger paraphernalia. These are smaller traders, though huge in numbers, who go to Chinese towns like Yiwu in particular and pick one or two containers of goods worth Rs.30 lakh to a crore once every quarter. And they now fear entering China. The question is why? Can one incident of kidnapping shake up an entire community of traders, especially when China is such a good bargain for them? Or was this not that stray an incident after all?

Consider the case of Manish Rewari. He has been doing business in exactly the same town of China for years now. And swears by the advantages that China gives him in his business as he shows off a fascinating watch that he is wearing while narrating his story! He had first seen the same watch in a wholesale outlet in Karol Bagh (). The shopkeeper quoted Rs.22k as the best price for the watch to Manish. Not be outdone like normal customers, this China believer – in his next trip to Yiwu – went around various shops and found out exactly the same watch. And the price for a single piece was Rs.2.5k; and for bulk order of more than a hundred pieces, Rs.1.2k per piece. A watch enthusiast, he picked up only one watch for his consumption.

If that sounded nice, just a trip before this particular trip, Manish’s experience was not as good. He used to work with a Chinese agent then. During his previous trip, he had struck a small deal and purchased goods for Rs.75k through the said agent. The agent took the money, delivered him the goods, but never paid the original seller. The next time, when Manish came and tried to directly deal with the seller, the moment he provided his old receipt with the previous agent’s name to show the price at which he had bought the goods in the previous trip, the seller pounced upon him. His grudge was that he had not received the money for that particular transaction. Manish very courageously tried to defend himself by saying, truthfully, that he had obviously paid up for the same. This he did despite knowing “that they [the Chinese seller] could pick him up and make him disappear”. His reasoning clearly was of no help because soon, there were scores of the seller’s people and henchmen who came from all around and surrounded Manish. Sensing trouble, Manish approached the nearby police, who in their very usual unfriendly manner told him in Chinese that they were there to protect only the interest of the Chinese. That’s when good sense prevailed. Manish knew that he had come for just three days and had a lot of deals to strike. And this would only get messy. And spending a few days in jail like a few others he had heard of was not a great idea. Manish grudgingly agreed to strike a deal with the disgruntled seller, and paid fifty percent of the pending money again as settlement (since it was too small an amount) and fortunately got away.

This year, however, Manish is not ready to go to China anymore; well, almost. He now works through an Indian agent. The recession hasn’t been great for businesses and he fears that even the Indian agent might not have paid up properly to the Chinese sellers (though Manish has paid his entire pending Rs.37 lakh for his last imported container). The fear is that the Chinese sellers might again pounce on him. “It’s undoubtedly a fearful situation. The question of safety for the foreign trading community is totally missing despite us being such regulars and buying so much from them. There is no helpline. And they are just not ready to listen to our version. Someone messes up and someone else pays for it. The recent kidnapping has only brought to highlight the fears and trauma people have been going through for a long time despite doing big business there,” he says, elaborating further. He says something more that has been haunting a lot of Indian professionals in Gurgaon of late, due to a new phenomenon I had outlined, again in a previous article of mine, on how Chinese companies are now doing business in India only when they are allowed to get Chinese workers here (in effect, easing out their employment problem through projects in India).

The grudge the people working in Gurgaon have – as they see scores of Chinese people all around them working on various projects – is that not only are we allowing Chinese people to take our jobs, we’re also accepting their behaviour to simply look down upon Indians despite working in India itself (rightly or wrongly, is another question of course). Manish says exactly the same, “We do so much trade in China but they just don’t treat us with enough respect and that is a key reason behind this high handed semi mafia behavior.”

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Source : IIPM Editorial, 2012.

An Initiative of IIPM, Malay Chaudhuri 
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles. 

IIPM Best B School
IndiaManagement Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting