Friday, December 20, 2013

Lessons from the Khobragade case

There is such a big ruckus about breaking the law in the Devyani Khobragade case. One could easily say that the law that has been broken is one that is not practical and was made to be broken. Most laws in India along with their attendant rules are of this nature.


The minimum wage in the US is about $8 per hour in most places, and in New York from what I read in the papers it is about $10 an hour. How is this figure computed? By taking the cost of living, I presume. What is the cost of living for a live-in maid who comes from India and stays at her Indian employer's residence? Effectively zero. From what I read, she was being paid handsomely by Indian standards. If she wanted to, she could send most of the money home. Who has that kind of savings in India? Not even a mid-level bank officer after expenses can save so much.


Coming to the employer in this case, if she had actually paid the minimum wage, the salary of the maid would have far exceeded her own salary. So are we really expecting her to be paying that kind of amount? To add to this, there is the problem of "overtime". If she is asked to sleep with the kids (don't know if that is true in this particular case) it can be construed as overtime since she is on duty! 


There has been a request pending with the Finance ministry for long now from the Foreign ministry to revise pay along with suggestions to change the visa category under which the domestic help for consular staff travel. Meanwhile, a US posting which was much sought after is now sought to be avoided by foreign service staff. Who wants to go to a country which so highly curtails individual freedoms even to enter into mutually beneficial actions? In fact, the more one sees how US officials act, the more one comes to the conclusion that it is a police state where the might of the state is wielded with disproportionate force against every puny offence. The list of "crimes" is long, the enforcement is harsh, and as with every other country on earth, it is the poorer sections of the population that always face the brunt of these laws. What is worse is that these actions are cloaked as being for the "protection of liberty, freedom, equality, human rights, sexual equality...etc. ", all motherhoods which can never be questioned!


There is a law in place, agreed. How practical is this law especially in its applicability to this case, where plainly the employment was a consensual contract and not by force, paying wages which are far in excess of what that maid could expect in her home country, with a comfortable work atmosphere without any harassment (no complaint of that nature has been voiced)? Should the law really apply to her employer, a consular official? She does not enjoy "diplomatic" immunity but the definition of diplomatic immunity can be stretched as in the case of Raymond Allen Davis,  the US contractor for the CIA who calmly shot two people dead on a Lahore street in 2011. The US government had him flown back by stretching the argument of who is a "diplomat"! Apparently, he was one. And Devyani, who is actually a consular official is not? But then, the US has always been known for its double standards. We in India also have double standards but we are not so sanctimonious about it. The US in spite of all its contradictions is always pristine and holier-than-thou. 


There is another mistake which the US made in this case. They arrested an upper-middle class Indian lady and subjected her to strip search and all such unspeakable atrocities. The problem is, she is "one of us". She could be the daughter or niece of any of the ministers or  IAS officers (she is actually the daughter of one). She is not of some distant pedigree (like the maid in this case) like the bonded laborers in the Gulf whom we can choose to ignore. The establishment in India obviously bristles at this and reacts with vehemence. If this can happen to Khobragade, it can happen to me or my family. The idiots could also have handled it better. By handing over the arrest totally to the US marshals, they let the cold heartless "system" take over. The US marshals know how to arrest, strip, and search. They don't distinguish between different people. They should learn from the Indians in these things. Every prison has prisoners who get food from home, "special visitation rights" so that they don't lack for the other human necessity apart from food, and even special "parole" (a la Sanjay Dutt) to keep visiting home for months at a time before sauntering back to prison. By making a virtue of "everyone is equal before the law" they are digging their own graves. Like I said, they should send the US marshals to India for training - they will go back with a heightened sense of appreciation for all kinds of class distinctions!


And then you have the "conspiracy" angle to it. The maid disappears a few months back and there is hardly any effort to trace her. Then she resurfaces and her family is flown out of India on a "T" visa a couple of days before the incident. This visa is for the families of those people who go against their governments and cooperate with the US, to fly them out to avoid "persecution" in their home countries. Intended originally for the severest cases of human rights violations, I am sure. The impartiality of Preet Bharara (of Indian origin) is also suspect. He is possibly using this case to advance his political ambitions. 


In the midst of all these complications and angles to the case, it is very amusing to read the statements put forth by the US authorities. It goes something like ( I am only paraphrasing) "We are committed to following procedures", "All the procedures and rules were meticulously followed", "We value the relationship with India", " Everyone is equal before the law", "The US stands committed to human rights (please ignore their drones over Afpak!)" and all such inanities. Most US institutions and multinational corporations are masters at this kind of communication, where motherhoods are doled out in response to specific questions, and we are supposed to be happy, nay overjoyed, with their response! 


Coming back to laws that cannot actually be implemented, they should again learn from India in these things. We are masters at having strict laws and messy rules on paper, while allowing all kinds of loopholes for the influential (and the corrupt) to exploit. They should send their lawmakers here for some training under our Babus. And their politicians could do with some instruction from ours too!

Thursday, December 5, 2013

Fwd: Chasing Mammon

Chasing after something that the world
has decreed is good for me;
even in fullness never enough,
for someone had more than me!

Higher, faster, stronger. Move!
for what is stillness, but sloth?
For that which we value we need more
though all else may be lost!

In pursuit of demanding mammon
all my days till now were spent.
In the race, I left life behind
clutching at empty recompense!

Monday, October 21, 2013

Disappointing speech by Rajan - Lecture at HBS

Raghuram Rajan on the "positive" aspects of the current situation in India. Though the arguments he makes are all based on solid facts (one expects nothing else from him of course), one gets the feeling that this is too much of a case of looking at the optimistic side, exacerbated by the fact that if you are part of the establishment, as he is now, you start sounding like a salesman whose bonus depends on making the sale.

The fact is that the government has screwed up big time in the last few years. The Indian economy is too vast and has too many opposing pulls and pressures to make anyone pulling it in a particular direction succeed fully. Hence the depredations of the ruling party could do only so much damage. The 2G and Coalgate scams are being sidetracked into semantic arguments on whether the CAG stated the "right" figure; what about the brazenness of the act of allocating natural resources in such an egregiously unfair manner? I also get the feeling that dragging Kumaramangalam Birla and a few retired bureaucrats into the CBI probe is just a ploy to make the industry and the bureaucracy back off and leave the government well enough alone.  Project clearances are an issue, all infrastructure projects that have been launched in the last few years are a sinkhole for money with no progress to show; job creation is not improving; there are no moves even to remove the most obvious bottlenecks to get things going. And who created these bottlenecks in the first place? The Grand Old Party. What about NREGS followed by the Food Security Act? The Party likes such schemes since it gives its functionaries ample scope to siphon off money while it passes through the channels, ostensibly to reach the poor. How is the resultant deficit going to be funded? Rajan does not even mention these things.

On the other hand, he is intent on looking at the bright side. When you put on rose-colored spectacles the world is bound to appear very rosy. He says that short run fixes are good; they are, provided you nail what created the problem in the first place. On that, he is silent.  His analysis of what dampened the "India success story" reads as if it was just a policy reaction to global events that caused it; how very macro top down! 

"Growth increased corruption", Rajan says; I 've heard this before, along with variants like "a democracy at our stage of development is always corrupt",  and "corruption is an inevitable part of growing up". May be, but you can leave such analysis to the historians, it is their job; as policy makers it is the job of the government and the bureaucrats to minimize corruption by creating transparent processes and eliminating opacity, while they are actually doing the opposite. The argument that corruption is inevitable is not going to solve anything, we already know that; what has the present government done to reduce corruption, or has it done all it can to increase it?

And he joins Chidambaram in decrying gold imports, the favorite whipping boy of the Indian policy-makers nowadays. In fact, Indians are smart in consuming so much gold; it is among the very few things that "fiat money" cannot touch, and hence the politicians and the central banks don't like it. 

He says "The immediate tasks are more mundane, but also more feasible one: clearing projects, reducing poorly targeted subsidies, and finding more ways to narrow the current-account deficit and ease its financing.:"   
 Yes, we know that. But this is something any novice could have told you five years back, or ten years back; these things were not done. Now that elections are nearing, the government will take some steps to show that it is at least attempting some these things I presume?

He talks of "strategic incrementalism" - do the small things first, pluck the low-hanging fruits. But he misses the major point. Everytime we screw up, allow things to go to the dogs, we shall say this, and start again with the low-hanging fruits. When are we going to reach the high-hanging ones, and how?

All in all, quite a disappointing speech, I would say....

(Rajan's speech attached below)

Filtering Out the Real India
(Leatherbee Lecture by Dr. Raghuram Rajan, Governor, Reserve Bank of India on India: Opportunities and Challenges Ahead' at Harvard Business School (HBS), Boston, delivered on October 15, 2013)
Indian cricket fans are manic-depressive in their treatment of their favorite teams. They elevate players to god-like status when their team performs well, ignoring obvious weaknesses; but when it loses, as any team must, the fall is equally steep and every weakness is dissected. In fact, the team is never as good as fans make it out to be when it wins, nor as bad as it is made out to be when it loses. Its weaknesses existed in victory, too, but were overlooked.
Such bipolar behavior seems to apply to assessments of India's economy as well, with foreign analysts joining Indians in similar swings between over-exuberance and self-flagellation. A few years ago, India could do no wrong. Commentators talked of "Chindia", elevating India's performance to that of its northern neighbor. Today, India can do no right.
India does have its problems. Annual GDP growth slowed significantly in the last quarter to 4.4%, inflation is high, and the current-account and budget deficits last year were too large. Every commentator today highlights India's poor infrastructure, excessive regulation, small manufacturing sector, and a workforce with inadequate education and skills.
These are indeed deficiencies, and they must be fixed if India is to grow strongly and stably. But the same deficiencies existed when India was growing fast. To understand what needs to be done in the short run, we must understand what dampened the Indian success story.
In part, India's slowdown paradoxically reflects the substantial fiscal and monetary stimulus that its policymakers, like those in all major emerging markets, injected into its economy in the aftermath of the 2008 financial crisis. The resulting growth spurt led to inflation, especially because the world did not slide into a second Great Depression, as was originally feared. So monetary policy has had to be tight, with high interest rates contributing to slowing investment and consumption.
Moreover, India's institutions for acquiring land, allocating natural resources, and granting clearances were overwhelmed during the period of strong growth. Strong growth increased the scarcity and value of resources such as land or mineral wealth. To the extent that these were cheap in the past, there was little reward to misallocating them. Growth, however, increased the rents to corruption.
Similarly, industrial development led to growing encroachment on farmland and forests and the displacement of farmers and tribals. India is a developing country with a civil society possessed of first world sensibilities. Protests organized by politicians and activists led to new environmental laws and land acquisition laws that aim to make development sustainable. Over time, India will learn to streamline the new laws to make them more functional, but in the short run a side effect has been more bureaucratic impediments to investment. So growth, as well as the reaction to that unbridled growth, created a greater possibility of corruption.
Fortunately, a vibrant democracy like India has its own checks and balances. India's investigative agencies, judiciary, and press started examining allegations of large-scale corruption. The unfortunate side effect as the clean-up proceeded was that bureaucratic decision-making became more risk averse, and many large projects came to a grinding halt.
Only now, as the government creates new institutions to accelerate decision-making and implement transparent processes, are these projects being cleared to proceed. Once restarted, it will take time for these projects to be completed, at which point output growth will increase significantly.
The combination of excessive (with the benefit of hindsight) post-crisis stimulus and stalling large projects had other consequences such as high internal and external deficits. The post-crisis fiscal-stimulus packages sent the government budget deficit soaring from what had been a very responsible level in 2007-2008 of around 2.5 percent to over 6 percent. Similarly, as large mining projects stalled, India had to resort to higher imports of coal and scrap iron, while its exports of iron ore dwindled.
An increase in gold imports placed further pressure on the current-account balance. Newly rich consumers in rural areas increasingly put their savings in gold, a familiar store of value, while wealthy urban consumers, worried about inflation, also turned to buying gold. Ironically, had they bought Apple shares, rather than a commodity (no matter how fungible, liquid, and investible it is), their purchases would have been treated as a foreign investment rather than as adding to the external deficit.
For the most part, India's current growth slowdown and its fiscal and current-account deficits are not structural problems. They are all fixable by means of modest reforms. This is not to say that ambitious reform is not good, or is not warranted to sustain growth for the next decade. But India does not need to become a manufacturing giant overnight to fix its current problems.
The immediate tasks are more mundane, but also more feasible one: clearing projects, reducing poorly targeted subsidies, and finding more ways to narrow the current-account deficit and ease its financing. Over the last year, the government has been pursuing this agenda, which is already showing some early results. For example, the external deficit is narrowing sharply on the back of higher exports and lower imports. The government and the Reserve Bank said it would be $70 billion this fiscal year, down from $88 billion last fiscal year, but recent data suggests it could be lower still.
This leads me to another point. Because analysts keep looking for major structural reforms to fix the deeper economic challenges, they ignore smaller steps or dismiss them as "band aids". But strategically placed small steps – strategic incrementalism for want of a better term – taken together can deal with the immediate problems, thus buying time and economic and political space for the major structural reforms.
Put differently, when the Indian authorities said they would bring the fiscal deficit below 5.3% last year, no one believed them. The final outturn was 4.9%. Similarly, while we project the CAD to come down to 3.7% this year, I think we could be pleasantly surprised. Not all the actions we have taken are pretty, and not all are sustainable, but they have done the job.
Indeed, despite its shortcomings, India's GDP will probably grow by 5-5.5% this year – not great, but certainly not bad for what is likely to be a low point in economic performance. The monsoon has been good and will spur consumption, especially in rural areas, which are already growing strongly, owing to improvements in road transport and communications connectivity.
The banking sector has undoubtedly experienced an increase in bad loans, often owing to investment projects that are not unviable but only delayed. As these projects come onstream, they will generate the revenue needed to repay loans. India's banks have the capital to absorb losses in the meantime.
Likewise, India's finances are stronger than in the typical emerging-market country, let alone an emerging-market country in crisis. India's overall public debt/GDP ratio has been on a declining trend, from 73.2% in 2006-07 to 66% in 2012-13 (and the central government's debt/GDP ratio is only 46%). Moreover, the debt is denominated in rupees and has an average maturity of more than nine years.
India's external debt burden is even more favorable, at only 21.2% of GDP (much of it owed by the private sector), while short-term external debt is only 5.2% of GDP. India's foreign-exchange reserves stand at $278 billion (about 15% of GDP), enough to finance the entire current-account deficit for several years. Even if you count all of trade credit as well as maturing deposits held by overseas Indians as short term debt, India's reserves can pay them all down and still have money left over.
That said, India can do better – much better. The path to a more open, competitive, efficient, and humane economy will surely be bumpy in the years to come. But, in the short term, there is much low-hanging fruit to be plucked.
For instance, we are committed to developing our financial system, and carefully expanding access to finance can be a source of tremendous growth in the years to come. We are also embarked on large infrastructure projects. For example, the Delhi Mumbai Industrial Corridor, a project with Japanese collaboration entailing over $ 90 billion in investment, will link Delhi to Mumbai's ports, covering an overall length of 1483 km and passing through six States. This project will have nine mega industrial zones of about 200-250 sq. km., high speed freight lines, three ports, six airports, a six-lane intersection-free expressway connecting the country's political and financial capitals, and a 4000 MW power plant. We have already seen a significant boost to economic activity as India built out the Golden Quadrilateral highway system, the boost from the Delhi Mumbai Industrial Corridor can only be imagined. The best of India is yet to come.
Back to the cricketing analogy, India is an open argumentative society. But we are prone to mood swings, perhaps more so than other societies, perhaps in part driven by our excitable competitive and very young press. Stripping out both the euphoria and the despair from what is said about India – and from what we Indians say about ourselves – will probably bring us closer to the truth.

Thursday, October 17, 2013


Awesome ruins of old, in crumbling decay,
Majestic monuments rendered to dust,
Some proud monarch, ruler of bygone days,
Built to pander to an immortal lust;
For who does not want his name to live on,
In hearts and minds of generations to come?
The entire earth he may have fought and won,
But what price achievement, it's all for nought!
Time, the great ravager, levels all things
With no regard for the monarchs of old;
It's only we, in our vanity, who think,
We can leave our marks behind when we go.
Look not at the ruins and see what is lost
but, glory in the present, and rejoice!

Dinesh Gopalan

Wednesday, October 16, 2013

Impressions of a lost civilization

A short one-week trip to Cambodia which we undertook in end-September - the pictures are in the link below.

Few monuments leave you as stunned as Angkor Wat does. It is the largest religious monument in the world, set in the middle of dense rain-forests, majestic sculpted buildings of stone, lying desolate and partly in ruins. The scale of the buildings and the audacity of vision of the builders leaves you breathless, the desolation of its present state makes you ponder about what happens to even the greatest monuments in the hands of that ravager Time (reminded me of Shelley's Ozymandias), and its setting in the middle of untouched tropical jungles makes it almost surreal.

Angkor Wat, though the most famous, is not the only temple in the jungles around Siem Reap in Cambodia.  The kings of Cambodia in the tenth to twelfth century or thereabouts built several such monuments in worship of their Hindu Gods. Vishnu is the presiding deity, and the motifs for the sculptures are drawn from the Mahabharata. The influence of the Cholas who ruled South India during that period extended to the far east as well; even the culture and religion of the Khmers (the locals of Cambodia), though Buddhist, seems to be more a synthesis of Hinduism and Buddhism. Buddhism being as tolerant a religion as Hinduism has managed a synthesis of the Hindu religion that was there before without their monuments suffering the same fate as the Bamiyan Buddhas. One of the main deities in Angkor Wat is a large standing Vishnu from the neck down, with the head of Buddha. The head apparently was fixed by the Buddhists after some bandits carried of the head.  

A visit to Angkor Wat and the other temples of Siem Reap is like going into the sets of an Indiana Jones movie. Majestic temples lying desolate, dense jungles all around, in a country that still retains its rustic charm. Travelling in Cambodia is perhaps what travelling through the rain-forests of Kerala or Tamil Nadu must have been a hundred years back. Though the comparison is not strictly accurate, since the roads, where they exist, are much better than what we can manage to build today.

The population at around 14 million, is less than any of our metros, and the people are charming and mild-mannered. They have been through their share of troubles with the Khmer Rouge killings in the seventies; it looks like the society has still not fully recovered from that dark period in Cambodian history. The economy is not very strong, the two major industries seem to be tourism and garments. The food, which reminds you very much of Thai food,  is outstanding. Any place you visit from the most humble road-side eatery to the star hotels serve the freshest and most delicious fare. 

Everything is priced in dollars. The local currency, at 4000 to the dollar, is not in much use. As a result of this, you are likely to be quoted "one dollar" prices for things as diverse as a pineapple, to a T-shirt in the night market! It does make things a bit expensive, certainly more expensive than what you would expect in that setting. Hotels, though, are surprisingly cheap. You will be able to get 4-star quality accommodation at 30 to 40 dollars a night.

The attractions that the city offers are also quite good. They have a thriving pub street where all the tourists converge in the evenings, a bustling market that is open till late, and generally everything that a leisure traveler may wish for. Massage and "allied" services are freely on offer. Perhaps because the population is so low, but certainly due to the much better sense of neatness, the place is incredibly clean. Can you imaging a canal running through the middle of the city with not even a plastic bottle floating on it, the water looking fit enough to drink?

A nice place to travel to, and if you have more time, you can combine it with Bangkok (bus-able), Malaysia, Singapore or Indonesia. 

Pictures in the link below (the people you have to endure are self, wife, and wife's two cousins with spouses):


Friday, October 11, 2013

Tendulkar retires

Even Gods have to bow to time,
and acknowledge that theirs is past.
In the crowded Indian pantheon,
this one's worship is bound to last.

Perhaps the greatest of all time,
he conquered all there was to win;
He scaled cricket's most lofty heights,
which few can aspire to, or dream.

All podiums have to be vacated,
the old stepping aside for new.
There comes time for every champion,
to walk away from what he's built.

Some do it fast, some do it late,
Some, they hang on, fight tooth and nail.
The ones who do it with most grace
have other things in life to chase.

For whatever height you fought and won,
is but a milestone on the way.
Surely, there're other things that beckon,
what is it that impels you to stay?

There comes a time when things are done,
for newer dreams to take their hold.
Don't hold on too long to older ones,
For once you've reached, it is time to go.

Dinesh Gopalan
11 October, 2013

Friday, August 23, 2013

Currency Trading: The next scam in the making?

I am seeing of late a lot of material flooding my inbox on Currency Trading. It looks like that is the next thing that the banks are on to, to make suckers out of all of us.

In the old days when things were much better, the banks were quite laid back, and in our economy, almost like a cartel of oligopolists, controlling access to capital, and being controlled by politicians who benevolently distributed largesse from their kitty to expand their constituency. They all got their salaries on time, did  little work and prospered. Opening of branches was controlled (it still is), and there was no competition worth the name. Listed or not, being virtual public sector entities, they had little incentive to push products or over-exert themselves to get business. In a way, this was good for all of us as consumers since we were not pushed to invest our money in all kinds of unsuitable schemes and products.

Then many private banks entered the scene. The banks started recruiting aggressive young MBA's, and a 'meritocracy' culture took root. They all had to show advancing profits in the interests of advancing their careers. The banks even had their shareholders to answer to, and show increasing profits of course - what else does the shareholder care about? Who does one make the profits from? The customer of course. All in the interests of serving him better.  But then banking is almost a commodity business, and there is very little differentiation when it comes to the non-fee based routine 'collect liabilities create assets' kind of banking. So what do you do?

You of course look around for allies who can help you make money. And the best allies are of course the insurance industry and the mutual funds. The banks became agents for insurance companies and mutual funds, in several cases, companies that were allied to their parent and started peddling their products. All bank managers were expected to 'leverage' their closeness to their customers and 'educate' them about the greatness of these financial products. There were of course targets - remember, we are a meritocracy - and the targets were in terms of sales, skewed towards sales of ULIP's and New Funds. ULIPs were the longest running scams of the insurance industry for a long time, and the maximum commissions were offered for New Funds. Lots of investments were being channelled into ULIP's and lots of customers were constantly exhorted by their trusted bankers to churn their funds, all in the interests of 'financial security' of course. We know what happened to that. IRDA cracked down on ULIPs and SEBI on New Fund commissions. 

So the dalals (oops, I mean bank executives) changed their strategy. Suddenly, it was good for the customers to go in for traditional insurance products. Good for their health, good for their well-being and good for their spiritual upliftment. They of course trust their bankers and start shifting towards these products, which have a long history of not giving their customers more then 5 to 6 percent return, when inflation in the economy has been far above that. 

In the meanwhile, the 'products' departments of the banks were busy 'structuring' new products, all a mix of insurance, mutual funds, risk protection, investments, returns, guaranteed bonds, risky equities, all kinds of kinks, heavy surrender clauses, lots of small print which was never obvious, and glitzy marketing strategies. The commissions to the banks were huge but hidden, and once the customers were hooked, they had to continue to pour good money after bad to ensure a decent exit, since the pre-term surrender clauses were very adverse. It was easy to sell them of course - there were careers waiting to be advanced in the banks - all those MBA's they recruited are of course ambitious young kids and you need to give them opportunities for advancement. So their targets of course included selling these structured products.

When my mother-in-law had just retired and wanted to invest her PF and other proceeds, three executives from this leading private bank landed in my house and started selling her a pension plan! I, being her financial advisor, was with her and almost came under their hypnotic spell myself. My mom-in-law of course had left it all to me, but I could well imagine others in her place listening to those bankers, and coming under their spell; just like they come under the spell of priests and astrologers. The trick, I realised, is to start off with a lot of mumbo jumbo laced with jargon (bhagwan, dosham, rahu, ketu, pariharam in one case - and pension, guaranteed, safety, high return, security, etc. in the other) which brings the victim to a trance-like state, induce a state of panic (you have 'seven year sani' since Saturn is eating into Mars / imagine your old age without pension and no other means of support), meet all queries with arcane jargon (Guru in the eighth house increases risk of death in the family / guaranteed capital protection means with triple cover), and then suggest the way out of all troubles (if you do this pariharam at Rameshwaram you will be ok / if you buy this ULIP/ endowment / pension plan you will ensure a good retirement) - usually, when the victim signs on the dotted line handing over her money to you, she actually feels indebted to you! And what you have sold her is a pension plan (post retirement!) or a 'structured product'!

The same thing happened recently with my mother - when all she wanted to open was an FD for a couple of lakhs, was the time when the 'trusted banker' cornered her and started pushing some structured product which would have given her at best a return of 7 percent (if she kept contributing for the full term, 15 years), or less (if she 'surrendered' any time in between). And this recommendation of a 15-year product, to a seventy-year old!  It of course had a heavy insurance component - it is usually lost on these bankers if you tell them that a seventy-year old with no dependents does not need any life insurance.

In the meanwhile, commodity markets took off in India. MCX, NCX, and all kinds of X were set up to facilitate 'trade' in commodities. They appointed brokers, who of course started to induce common folks (people like and you and me that is) to 'invest' in commodities with a 'sure' return of 12-13%, 'risk free' and 'guaranteed' by the exchange. All kinds of marketing gimmicks were of course used to induce people to undertake margin trading in commodities, a very risky game even if undertaken by those in the know. And what did these people understand about sugar, guar gum, cotton, castorseeds? They were told that it was enough to have some basic knowledge, which could of course be given to them in a crash course in the brokers' offices. And there were various software products which would teach them about commodities. And research reports sent by the brokerages themselves!! And the 'common public' piled on into commodity speculation. And then NSEL collapsed. It is almost certain now that there is fraud involved, and many 'investors (suckers?)' will stand to lose their money. The brokers of course are washing their hands off the matter - according to them, they acted in "good faith"!

I don't know why bankers were not peddling commodities - must have been some regulatory issue that came in the way. But how can bankers be far behind? They were looking for the next big thing to peddle, one that will bring in guaranteed commissions and trading fees for them, while the customers would bear all the risk. So I guess they hit upon currency trading! 

There is a spate of such ads (as the one below) from various banks that I receive nowadays, all exhorting me to trade in currencies. The dollar-rupee exchange rate. Even the yen-dollar rate, or the pound or euro. Whatever. So long as I trade in something. And they are offering to 'train' me for free, so that I then get a 'free' online software and indulge in currency trading which will surely make me a fortune! Currency movements are something that involves very big players including central banks and institutions like Goldman Sachs and JP Morgan. It is a sea in which only sharks swim. And they are inviting me, a minnow, to swim along with the sharks. I will of course be trained, and I am sure, helped by 'research reports' that the banks will make me privy to.  How exciting!

That is what the poor fish thought before he swallowed the bait at the end of the fishing line. How exciting!

Attached below is the mail from ICICI Bank (not the only one sending such mails) exhorting me get into currency trading.

---------- Forwarded message ----------
From: <>
Date: Thu, Aug 22, 2013 at 2:25 PM
Subject: Investor education session on Currency Futures by

If you are not able to view this page properly, click here
Greeting from
We are pleased to inform you that has organized investor seminar on Currency Markets for you in your own city.
This training will be on Introduction of Currency Derivatives, through which you can trade in dollar, euro, pound and yen against Indian rupee.
There is no registration fee for this training. Following topics will be covered in this program.
Introduction to Forex Market
Introduction to Currency Futures in India
How to start trading in currency
Currency a hedging tool
Currency - An asset class product to diversify portfolio
Factors influencing currency exchange rate
Product specification
Forwards v/s Futures market comparison
Trading in currency with
Please click here to locate your nearest venue and timings for the upcoming events.
Please walk into the venue at the respective timings.
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Wednesday, August 14, 2013

Nothing is without risk

Everyone and his uncle wanted to speculate in the commodity markets. Brokerage houses like India Infoline, Anand Rathi, Motilal Oswal, etc. were aggressively pushing their clients to trade in the commodity bourses. The "exchange", in this case National Spot Exchange would ensure fair trade and also there were enough stocks in their godowns to ensure that the contracts were covered with physical stocks at the back end. There was also a settlement fund that was worth more than a thousand crores, or so we were told.

And then something happened. The exchange was forced to cancel contracts and get the parties to settle. It's a mess of counterparties on both sides, with some of them being merely shell companies with no assets on the balance sheet, owing crores to the exchange. The "settlement fund" suddenly shrank to less than a hundred crores. There are whispers that the stocks in the godown may not even exist, since they may have been created by fake purchase receipts. The brokers, the same people who encouraged their clients to trade in the exchange, in exchange for commissions, now want to file a case against Jignesh Shah and his family. They know very well that nothing will come out of it, but they have to show to their clients who have lost money that they are taking some action. When the whole thing unfolds there will be a few thousand crores still owing, a few thousand investors, or speculators in this case, crying foul since they have lost money, a few hundred articles decrying the whole shameful episode without really coming to grips with the problem, a few cursory enquiries to quiet the many strident voices demanding action, and a collective shrug of the shoulders. Some people will be left nursing their wounds, never to see their money again.

We are repeatedly told that the markets are safe since there are institutional structures to cover for counterparty risk. There will be no default because the exchange mechanism will ensure this, is what we keep hearing. Of course this cannot be true. The moment you give your money, or your commodity or whatever, to someone else to safeguard, there is always a risk. The moment you create instruments out of them, and complicated structures to administer them, there is further risk.  There is no such thing as zero risk.

What about lending to the government? May be as zero risk as you can get? The returns are barely enough to cover inflation, and we are funding the government to cover its deficits. No government has savings that it can dip into to pay you when the time comes. They just rely on the next person in line to lend them money which they can then pay to you. The city of Detroit has just declared bankruptcy, and many cities or municipalities in the US are set to follow. That means that the promised pensions of all those who worked for the city may never come, and all those who invested in supposedly safe municipal bonds may never see their money.  Federal governments don't like to declare bankruptcy, so they just print more notes to cover their debts. Which erodes the money that the rest of us hold.

Lending to the bank? Insured up to Rupees one lakh in India, only one lakh. A lot of banks are actually bleeding, and have highly suspect balance sheets. Politicians need to expand their patronage network, and banks are a good source. Which farmer in India really believes that he has to repay the bank when the time comes? He just waits for the next loan waiver scheme to happen. A lot of small businessmen in India pass a credit entry in the P&L (as revenue!) instead of a liability entry when they take a loan from a bank! Are you sure the NPA's of your bank are what they are stated to be? You can still consider it zero risk, since the banks will be bailed out, and someone else will pay. That someone is usually the taxpayer, which is you wearing a different hat. 

Investing in shares of a company? The risk is that the business may not do well, due to macroeconomic factors outside your control, or due to inefficiency of the management. Both of these you are willing to live with. But what about corrupt managements lining their own pockets? Corrupt promoters diverting money from the company to their own shell companies through various ingenious ways? What about boards who are actually dependent on the management and promoters to retain their board seats, hence are ineffective? In case there are huge losses, you can be sure you as a shareholder will share in it. In case there are very good profits, what are the odds that part of it is siphoned off and never reaches you?

And then of course there are institutional structures on top. You invest in the shares of a company through a mutual fund. The fund has its own fees which have to be recovered by the fund managers by generating an alpha over the benchmark returns. How many funds generate return over the benchmark consistently? And are the funds truly independent researchers and thinkers as they claim to be? Because of the way they are appraised, against a benchmark, and against each other, quarter on quarter, they tend to follow a herd mentality. Herd mentality implies investing in the Anil Ambani power venture's public issue - because everyone else is investing in it! Even a person without any knowledge of business would have found their business plan without any substance. Or it implies investing in the Facebook IPO. No one questioned the 100 billion dollar valuation at the time of the IPO, while any reasonably cautious retail investor would surely have stayed away.

And then there are the ETF's. Gold ETF's are safe we are told. We think it is because there is always physical gold of like amount to back up our units. While in reality, most ETF's say they invest in Gold or in assets (read paper securities) that move with the price of gold! Paper securities have a way of multiplying more than the underlying physical stock. During times of "national crisis" the gold that actually exists in the ETF's vaults is easy prey for any policy wonk who can commandeer it and give you "currency" in return. Just a few months back, Chidambaram permitted ETF's to lend twenty percent of their stock to jewellers, thus introducing counterparty risk to the ETF.  Just goes to show, that the moment something goes out of your hands and is replaced with a piece of paper, there is risk.

So what is the solution? Where do we get a real risk free asset to invest in? No such thing as risk free exists. Right from the time the caveman lent his tool to his neighbor on a promise that he would get it back, there was always risk that he would not. You can create instrument on instrument, structure on structure, on top of basic transactions like these, cloud them with jargon, insure them for all they are worth, and create complex derivatives out of them and claim they are risk free, but the risk always exists so long as the underlying risk exists. 

Someone finally has to pay.

Friday, August 2, 2013

The Food that destroys life...

Plants are created with the interaction of sun, wind and soil, and ooze with vital energy that gives life to animals in the food chain above. The same goes up through the food chain - the vital energy is transmitted along with active nutrients as animals consume other animals and so on. And then the need to increase production was felt due to increase in populations and people started cultivating crops in fields rather than just hunting / gathering. This was bound to reduce the life-giving properties of the soil, but all ancient communities had developed their indigenous ways of managing the soil and the crops that gave back to the soil, through natural and organic methods. The fertilizers they used were organic, like cowdung; the soil was kept healthy by living things like earthworms; and the insects were kept at bay by using natural insecticides like neem.

Then along came the scientists and isolated the 'active' ingredients of the sun, the soil, and nature. Modern science (and medicine) is one of "reductionism" where we isolate one compound from a mix that nature created for a reason, and think that we can use it in isolation - thus doing the job better. How can the part take the place of the whole? Where is the synergy in this, that nature had created over millions of years? Where is the interconnectedness with all other systems on the planet? All that is lost when you follow the reductionist approach. The so-called active ingredients were packaged into chemical fertilizers and we started poisoning the soil with them. Ditto with insecticides, deadly poisons sprayed on the crops. The resultant produce is not what nature intended and we still insist on calling it food. 

And then the modern transportation system takes over. It transports mangoes to arctic regions, and carts arctic produce to tropical climes. We thus end up eating out of season, and not of the region. Certainly not what nature intended. We still call it food. The industry that transports it needs to reach it to the consumers in good shape, so they start doing things that will preserve it and enhance its appeal. They coat apples with wax in factories so that they won't get spoilt. They pluck food before they are ripened on the tree, as nature intended, and ripen them chemically at the destination - raw fruits are obviously easier to transport than ripe ones. The food needs to look good on supermarket shelves, so they start interfering with them while they grow - apparently it is not only humans that need to be cosmetically enhanced to appeal to us, we demand that of our food as well. So we get uniform-looking produce on the shelves - tomatoes that are perfectly red and perfectly round, and bananas that look like they have come out of factory, which, in effect, they have. In Japan they even produce watermelons which are square in shape so that they stack better. And we still insist on calling it food.

And then comes the process of converting the food into forms that we can use. Like the seeds into oil. Obviously the extraction has to be 'efficient', so they apply chemicals and heat to the oilseeds to increase the yield, destroying all the vital enzymes in the oil in the process. But what about the smell? The oil still smells and, being a living food, is likely to turn rancid faster. So they 'refine' it by using all kinds of detergents to remove all the smells and stuff, and add 'preservatives' to make it last. The wordsmiths have given it the word "refining" which makes us feel that it is actually something better that we are buying, the kind of conditioning that takes place all the time. But we still insist on calling it food. 

Take another common product, salt. Natural salt, whether sea salt or rock salt, has more than 50 trace minerals in combinations that the body can use. Every animal in the world needs salt, it is essential for survival. Every landlocked civilization from the dawn of time has gone to extreme lengths to obtain salt.  But then modern industry cannot just leave it alone. Their chemists inform us that salt consists of its main ingredients, Sodium and Chloride - NaCl. A lot of different industries need pure NaCl for varous industrial applications, in fact, over 90% of the salt produced in the world today is used for industrial applications. So they of course have to produce pure NaCl. Since it is 'pure' it will be pushed for human consumption as well. And since the word 'pure' gets hammered into us, we as consumers want only the 'pure' salt. What happens to all the trace elements that the body needs? What happens to the magnesium and potassium which is there in natural salt in the right proportions to help the body absorb the sodium in the NaCl? What happens to the minerals that have been lost in the 'refining' process? But then, the resultant salt is "pure". Along the way, they realize that iodene deficiency is a major health problem in the world - what is unsaid is that this is the case only in regions of famine or when people do not get enough to eat, that this happens. But then, why not kill the problem in one clean sweep? What product is used by everyone without fail? Salt. So voila, add iodene to salt, and you will solve this problem once and for all! Anyone who is reading this article does not need this iodene from the salt, since I am sure he or she is already eating well. To add iodene to the salt, it needs to go to the factory and be 'refined' first. So out go all the trace elements. What remains is just 'pure' NaCl enhanced with iodene. The one food that is essential to every life, completely tampered with. In some cases, through laws making it illegal to sell any other kind of salt. And we still insist on calling it food. 

Apart from salt, another food that modern man consumes in almost every item he eats, is sugar. Nature never intended sugar to be consumed separately.  Natural foods have sugar in them that the body can process. It is in small quantities and in a form the body can assimilate. The body produces insulin to help assimilate this sugar. But then, somewhere along the way we managed to make "sugar". We all have a sweet tooth, and we learned to add sugar to everything that we consume. The amount of sugar that we consume per capita in a day is more than the amount of sugar that we used to consume in a month, just a century back. It is not only the sugar that you add to your tea and coffee that is the culprit here, it is all the processed foods that we eat. They contain inordinate amounts of sugar, in extremely harmful forms like 'refined white sugar' and 'high fructose corn syrup'. The body is not designed to cope with this sugar rush. With every food that we consume the body gets into emergency response mode because of all the sugar that we dump in. Over a period of time, the body's natural mechanism for dealing with sugar collapses. We are of course familiar with diabetes - many people we know suffer from it, and the odds are greater than 50% that we are going to get it. Along with associated lifestyle diseases like heart ailments, blood pressure, and kidney problems. But we never wondered why this is the case. We will continue to abuse our bodies by eating all the processed and packaged foods in the world, for the privilege of taking insulin injections later, and worry about why our cholesterol is high and take useless drugs to combat it. We don't ever question the need to do this; we accept diseases like diabetes and heart ailments as inevitable and part of the process of aging.  

What about maida? Try taking wheat to the local chakki, and running the atta through a fine sieve. You will get you own homemade maida which is not so bad, in spite of the loss of some fibre. It is still good to eat. That maida is never pure white like what you buy in the stores. Consumers demand pure white maida, so industry 'bleaches' them with ingredients that are so deadly that some of them are known poisons. What about dalda / hydrogenated vegetable oil? It is a chemically altered substance that is no longer oil, a substance that the body cannot digest. Most of us may not be using it in our homes any more, but most commercial establishments that fry stuff use hydrogenated vegetable oil since it is far cheaper than using oil.

I don't even want to touch upon milk, that other non-food that we have been convinced is so essential for our well being. I shall reserve that for a separate article. 

The unfoodification of food does not stop there, of course. Modern life demands that we need everything processed and packaged. Every processed and packaged food that we buy (read biscuits, breakfast cereals, bakery products, soft drinks, noodles, ready-to-eat foods, refined oils, maida) uses one or more of the ingredients listed above, with many preservatives and chemicals further added to them, the entire process being such that that it no longer remains food - the 'prana' is long gone from it. It is just a bunch of modified food items with a host of chemicals. But then, we still insist on calling it food!

And we lament that whole populations are losing their health, that obesity is an epidemic, and younger and younger people are visiting the heart specialists. We have started defining health as the taking of medicine to control health problems and regular health check-ups to catch problems that are inevitable, not as an absence of disease, far from the real definition of health that means absolute positive radiating vitality, which is the way God intended us to be. And as to the medicines that we take to combat what the food industry pushes down on us, I shall reserve that for another time. 

And we still insist on living like that, and still insist on calling it life!

Dinesh Gopalan
2 August, 2013

Monday, July 29, 2013

a good medical site - and some thoughts

I was just forwarded the link to this very good site ( ) giving the composition of various branded drugs, the generic names of the ingredients, and equivalent brands of the same generics, with prices. Also lists all the information about each generic including what it is prescribed for, side effects, etc. 

Very useful considering that the medical industry is the one that loots you the most, and takes you the cleaners before making you better - actually, whether the butchers in white coats make you better at all is very debatable.

Even a routine visit to the doctor is no longer routine any more. They insist on taking your blood pressure every time (though it beats me what that has to do with a common cold), and will look for every excuse to prescribe some expensive diagnostic tests. There are diagnostic centers opening up on every street, they require a huge investment, and they need to recover their costs. In several cases, the doctors get up to 40% of the test charges as kickbacks, so their incentive to get you tested goes up manifold. Even if I had money to burn, I would not go in for the tests, because the tests will always throw up some things which may be considered "out of range". In most such cases the body is capable of correcting itself, especially if one follows a reasonably healthy lifestyle. By going in for unnecessary tests, you are likely to find non-existent problems, and be asked to drug yourself needlessly. In fact, I firmly believe that one should not go in for a "regular health check up". It's completely unnecessary, and will end up in things like your taking statins since your cholesterol is high or something - one of the many cases where the cure is worse than the disease. Lifestyle problems need to be corrected with lifestyle changes - and not with taking statins or something else. Talking of statins, that is a category of drug which the medical industry likes a lot - the kind of drug which needs to be taken by you for the rest of your life. Lovely, recurring stream of income for the drug companies. 

Back to the visit to the doctor - if it happens to require a visit to the hospital, you are in for even bigger trouble. Hospitals require heavy capital expenditure to build, and the money has to be recovered from the patients, i.e., us. They even have a range of super-specialist doctors, one for each part and each orifice in the body.  The moment you enter, you are put on the assembly line of diagnostic tests, interventions, and still more tests. If you happen to have insurance, the bills are going to be even higher. Again, I don't have so much of a problem with the higher bills, as much as with the needless extra intervention and drugging that goes on. I have never gone in for any kind of regular health check-up, and generally cross over to the other side of the road when I pass a hospital to be as far away from it as possible.

There is another conspiracy afoot in the entire medical industry - that of increasing the number of "diseases" or, in other words, of conditions that require medicine and medical intervention. They made depression into a disease, then all kinds of so-called mental disorders; the latest is that they are labelling obesity as a disease that needs drugs! All it needs is to take the patient off junk foods in most cases, but then, the food industry and the medical industry feed on each other, so the patient continues to gorge himself and become fatter, and then goes in for procedures like stapling the stomach!

And then, of course, there are the pharma companies. They need to grow their profits, so they will incentivise doctors to prescribe more of the expensive medicines. It is doubtful to start with whether a lot of these medicines are required in the first place. But then, who wants to question the doctors? We easily fall into the trap of consuming more and more medicines, which screws up our bodies more and more, requiring more and more visits to the doctor, culminating in more and more medicines - you get the picture...  But then, if you are going to be like that only, at least you better be armed with all the information about the drug you are taking - and more important, know how to get the same drug cheaper. Which is where this site comes in. 

Happy browsing!

PS: Two articles by Dr. B M Hegde that you may find interesting:


Sunday, July 14, 2013

Good NCD issue coming up

Shriram Transport Finance is certainly a good company and a low-risk investment option for NCD's. Worth considering - also go through the two articles - links given at the end, one on NCD's in general and the other on the tax implications. A greater than 10 percent post-tax return is very good in today's context.


Shriram Transport Finance Limited will open its public issue of Secured Redeemable NCDs of the face-value of 1,000 each aggregating up to 375 crores with an option to retain over-subscription upto 375 crore for issuance of additional NCDs aggregating to a total of upto 750 crore ("Issue"). Allotments will be on a First Come First Serve Basis.
The NCD Issue has five investment options and yield is upto 11.15%. The Issue opens for subscription on July 16, 2013.
The NCDs have been rated 'CRISIL AA/Stable' by CRISIL and 'CARE AA+' by CARE. The above ratings indicate high degree of safety for timely servicing of financial obligations and these instruments carry very low credit risk.
Issue Details
ListingBoth on NSE & BSE
Tenure36 months 60 months
Interest Payout AnnualCumulative AnuualMonthly Cumulative
Effective Yield (% p.a.) Individuals10.90% 10.90%11.15%11.15% 11.15%
Non-Individuals9.65% 9.65%9.80%9.80% 9.80%
Redemption AmountIndividuals Face Value + Interest Accrued1,364.33 per NCD 50% face value at the end of 48 months and remaining 50% at the end of 60 months Face Value + Interest Accrued763.37 per NCD at the end of 48 months and 848.48 per NCD at the end of 60 months
Non-Individuals Face Value + Interest Accrued1,318.67 per NCD 50% face value at the end of 48 months and remaining 50% at the end of 60 months Face Value + Interest Accrued726.93 per NCD at the end of 48 months and 798.17 per NCD at the end of 60 months
Company Profile:
Largest asset financing NBFC in India*
Track record of over 34 years
Pan-India presence through widespread network of 539** branches
Total employee strength was approximately 16,178**
AUM of 50,120 Cr as on Mar 31, 2013
Total Income of 6563.59 Cr & Profit After Tax of 1,360 Cr for FY 2013
Capital Adequacy Ratio (CAR) of 20.74% as on March 31, 2013
* Source: D&B Research Report
** Figures as on March 31, 2013
ICICI Securities
Private Wealth Management

Dinesh Gopalan
mob: 9845257313; blog: