Demand Vs Supply Economics. Steps the government should take immediately

 Over last several months, several reforms have been rolled out by the NDA government. Most of these are supply side mesaures and top 3 of them are:

1. Reduction in corporate tax.

2. 20Tn Rs Atmanirbhar package - mostly in form of credit.

3. Farm Bills - Freedom to farmers to sell produce out of APMC.

However, these measures will only help when there are proportionate reforms on the Demand side. The middle class which is the highest contributor to direct and indirect taxes needs sufficient cash in hand or incentives to spend. The government should do the following in the least effective immediately:

1. Slash personal income tax by half across all brackets or double the brackets with same rates(the former option being better).

2. Incentivize the middle class to spend on the items having higher GST rates and provide them tax exemption on the GST paid.

3. The business class gets tax benefits on purchase of cars via depreciation benefits. The government should pass on these benefits to the salaried class. This will give huge boost to the collection of compensation cess and GST along with the direct and indirect jobs the auto industry would create.

Krishnamurthy Subramanian: The new CEA's view on Demonetization: Did the poor really suffer?

In the political battle that has emerged out of the demonetization exercise, both proponents and opponents are ostensibly defending the interests of the poor. Some politicians are relying on anecdotal evidence to advocate the difficulties being faced by the common man. We instead use data from the National Sample Survey Organization’s (NSSO) survey to estimate such difficulties faced by the poor. The survey provides estimates of earnings in cash and kind by different income categories. We use the survey data for 2011 which comprised approximately 500,000 individuals across the country. Our estimates suggest that the poor are likely to have visited a bank branch at most once to exchange their earnings in the old currency notes to new currency notes. Thus, we infer that the politicians advocating the difficulties faced by the poor are being disingenuous in pushing their claims for political gains.

To estimate the above, we make the following arguments. First, the poor are unlikely to have substantial savings stored in Rs500 and Rs1,000 notes. Second, the bottom half of the population ends up spending almost their entire earnings on consumption. Third, only two weeks have passed since the demonetisation was launched on 9 November. Therefore, the weekly earnings of the bottom half of India’s income earners provide us the estimate of the cash that the poor would have in their kitty, which they would have to exchange in a nearby bank or post office. Finally, since the survey was conducted in 2011-12, we inflate the earnings by the average rate of inflation per annum during the period from financial years 2011-12 to 2016-17. This is likely to overstate the earnings of the bottom half of the population because, unlike salaried individuals and other richer sections of society, the earnings are unlikely to get adjusted for inflation in a consistent manner. However, the overestimation of earnings would only reinforce the bias against the inference that the poor are likely to have visited a bank branch at most once to exchange their earnings.

As the adjoining table clearly demonstrates, the bottom half—be it rural workers, daily wagers, weekly wage earners, or fortnightly wage earners—earn less than Rs1,350 per week. In fact, even the bottom half among the urban population earns at most Rs1,970 per week. Even if the bottom half of the population has saved up to two weeks of their earnings, the amount they have to exchange will be less than the Rs4,000 limit that was set by the government in the first week. The above inference assumes that the daily, weekly or fortnightly wage earners were fully employed in the past several weeks so that they could not only earn enough for their consumption but also to save. In practice, such wage earners are chronically underemployed. As a result, the total cash in the hands of the bottom half is likely to be less than Rs4,000. Thus, it is quite clear from this data that the bottom half of the country’s population would have by now visited the local bank or the local post office at most once to exchange their old currency.

Click here for enlarge

This conclusion then suggests that the long queues seen stem from two sections of the population: (i) people from the top half of the country’s income distribution, i.e. the richer folks, who want to exchange their honestly earned savings for new currency; and (ii) people who are acting as agents for the dishonest. The significant decrease in the queues after the government decided to use indelible ink to identify people that have exchanged their currency suggests large presence of the second category of people.

Beyond doubt, the former category is inconvenienced and the government and the Reserve Bank of India should take all steps to ease their difficulties. But this category comprises people from the top half of the country’s income distribution, certainly not the poor. In contrast, those from the second category who stand in the queue are only making efforts to earn a premium from the dishonest, who are willing to pay them such premium to convert their black money into white. No politician who genuinely wants the country to clean up the black money menace should sympathize with the latter category. After all, they are abetting the dishonest in evading the legitimate tax and penalty.

With respect to the difficulties that the country’s poor are likely to face till 30 December, note that around seven weeks of earnings are left before the deadline for depositing the demonetized notes. So, based on the estimates provided in the adjoining table, the maximum cash earnings of the bottom half would be around Rs8,000. Even if we suppose that they will be paid entirely using old currency till December, at most two more visits to the local bank or the local post office would suffice to deposit their old currency. Of course, it is quite likely that these workers refuse to accept their wage in old currency. In that case, they would not need to make the visit at all. As workers in this income category are likely to have been underemployed sometime in the past, they would have a bank account to receive Mahatma Gandhi National Rural Employment Guarantee Act payments. Therefore, future wage payments can be made via cheque by honest employers. In this case, such workers may have to visit the bank once to encash the cheque.

Note, we are not arguing that poor people are not facing difficulty because of demonetisation. Of course, standing in the queue for a day can mean loss of a day’s earnings for the poor. However, using the large sample data and careful analysis, we would like to highlight the exaggerated claims of disingenuous politicians who profess to be fighting for the poor.

Source : Livemint

Emotions

Its funny how our emotions play with us. Yes, they do. Coz one thing is for sure that we don’t control them. Rather, they are the ones who govern us, more importantly our moods. They kind of embody a subtle form of our being who speaks the same way we do and can be heard only by us. They are like a constant background score of our conscious life. I don’t remember a single moment of my life where there was no on going commentary of my other self in my mind, either paraphrasing or narrating the on going events. Sometimes that other self might multiply. It can morph into those small devil and angel that appear at the side of one’s head in the cartoon movies. Both fighting and suggesting different ideas to the poor mortal human, who can’t help but listen to them. They appear just like that. Poof! Especially when you are contemplating some issue, which might be as small as choosing between coffee and tea or as big as considering to different carrier options. They are just like an undetachable part of our existence. 

People claim there is only one way to control these noises, meditation. Meditation! I I’ve tried it once. But it becomes rather more difficult for me. These voices literally begin to chit-chat with each other, completely ignoring my presence! Who gives them such energy to go on and on. They don’t seem to be mortal to me. They simply remain an unknown, unnamed part of me. When I am hungry, they are hungrier, tempting me to take just anything edible that I see first. When I am bored sitting in a meeting, they are even more jaded, trying to pull me out of the meeting room. When I am scared, they are scared as hell. Constantly prompting me to check behind the curtains, beneath the bed.

In the end, they are a constant companion. They don’t leave us alone like people do. They are with us through thick and thin. I do admit that I am grateful they don’t leave me feeling lonely at times I need someone the most. Though they might not always help in placating my worries or anything, but they do stick around. Thank you… me!!

How IPO shares gets allotted to retail investors

A series of recent initial public offerings (IPO) saw good participation by retail investors. In almost all the good issues, the quota for retail investors was oversubscribed. This is a good signal for the market as it shows significant interest from investors in equity as an asset class.

However, retail investors who had applied for some recent IPOs seem more confused as there is no logical explanation to the manner in which shares were allotted. For example, in the issues of Alkem Labs and Dr Lal Pathlabs, where retail portion was oversubscribed over three times, several retail investors have complained they did not receive even a single lot of shares despite subscribing to the full quota of Rs 2 lakh.

The method used to allot shares were changed in 2012 by the Securities and Exchange Board of India (Sebi). But the allotment process has come under investor scrutiny as there is renewed interest in some of the high-quality issues in the recent times. 

In order to understand the rationale behind the allocation, we need to look at the guidelines issued by Sebi. Firstly, we need to understand that applications are segregated into three categories -- institutional or qualified institutional buyer (QIB), NII (non-institutional investors) or HNI (High-networth investor) and retail individual investor (RII).

In the case of QIB, the merchant banker has the discretion to allot shares. In the case of QIB, shared are allotted proportionately. Thus, if shares are oversubscribed by say, five times then an application for 1,000,000 shares will receive only 200,000 lakh shares.

But when it comes to retail investors, the process is a little more complex. First of all, only RII are allowed to invest in smaller lots worth between Rs 10,000-15,000 as compared to Rs 5,000-7,000 before 2012. A maximum of Rs 2 lakh per IPO can be applied by an applicant in the RII category.

The total number of applications received in the RII category is grouped together to determine the total demand in this category. If the aggregate demand in this category is less than or equal to the retail portion at or above the offer price (in case of a book-build operation), full allotment may be made to the RIIs to the extent of the valid bids.

However, if demand in this category is greater than the allocation in the retail portion at or above the offer price, then the maximum number of RIIs who can be allotted the minimum bid lot will be computed by dividing the total number of equity shares available for allotment to RIIs by the minimum bid lot, this is known as ‘Maximum RII Allottees’.

Assuming that there are shares worth Rs 10 lakh to be allotted in retail segment and the minimum lot size is worth Rs 10,000. Thus only a maximum of 100 applicants will be receiving the minimum lot of Rs 10,000. Since Sebi says that no RII will be allotted less than the minimum bid lot, in case of over subscription, allocation of shares lower than the minimum lot is not possible. In this case, the Maximum RII Allottees are 100.

In case there is a small oversubscription then first the minimum lot is distributed among all participants and then the balance available equity shares in the retail portion shall be allotted proportionately to the RIIs who have bid for more than one minimum bid lot.

But in case the number of RIIs is more than Maximum RII Allottees, the RIIs (in that category) who will then be allotted minimum bid lot shall be determined on the basis of draw of lots. The draw of lots is now a computerized process and thus there is no room for partiality.

Source : Business-Standard

Prepare for your GDPI

This is the time in the year, when most of the guys get calls from B Schools for interviews after their CAT/XAT/NMAT/GMAT scores are ready.

Its very difficult to predict however, what questions you might end being asked in the interview, make sure you are prepared the best and you atleast have an idea on most of the current happenings in India and the world.

 Global economics:

•    Slow global economic recovery
•    Turmoil in global stock markets
•    Fall in oil prices: Its impact on India and OPEC countries
•    U.S. economy – jobless recovery and growth pangs
•    Japan and Abenomics: Recent move of negative interest rates
•    Chineses Economy: Its rise and stagnation

 Indian economy:

•    Current state of the economy
•    Reasons behind slow GDP growth
•    Budget 2016-17
•    GST Bill
•    FDI reforms;
•    SMART Cities plan
•    Swachh Bharat
•    Startup revolution in India
•    Make in India
•   Agriculture

 Global politics:

•    China - political & military muscle-flexing
•    Syrian crisis – Role of the Islamic State
•    Rise of Islamic State in Iraq and Syria
•    Presidential Elections in US
•    Rising authoritarianism in Turkey
•    North Korea versus South Korea 
•    ISIS
•    Terrorism in Afghanistan & Pakistan

Besides, based on your academic credentials, be prepared on most of the basics of the field you graduated in. If you hail from a business background, prepare yourself on the operations and marketing aspects of your business. If your family has an industrial background, make sure you know well about the big players in the market and your vision of getting it there.

PS: The blog http://mrunal.org/economy may prove very helpful for guys appearing for competitive exams.

No pain, No gain

"Ache Din Aanewale hai", he said and people believed. Everybody wants a feel good factor in life. You and I,everyone under the sun wants to live a risk free, carefree, happy and a much easier life. When we were kids our happiness was no homework or no parents at home to bother you for studies. As we grew up, in teenage we wanted to fall in love, get admission into engineering/medical colleges etc.. In early phase of your career, everybody wants to be in relationship, have amazing sex,look perfect and make money and be popular and well respected and admired by everyone. Everyone would like that — it’s easy to like that.

One day, my senior asked me "What do you want from life?". I told him "I want to be happy, have a great job and enjoy life to the fullest". And he replied "Do you really think that you are gonna get all of this so easily?" Sounded so ubiquitous that it didn't even mean anything later on. I started thinking the opposite way? And that statement of my friend wasn't a disappointing one, but thought provoking. I asked myself: What is it that I want in life? If I think I am ambitious, am I willing to struggle to achieve them? What amount of pain can I suffer and let go to get to that level in life, where people will call me a successful guy? I did not have clear answers to any of them.

Everybody wants to have an amazing job and financial independence — but not everyone wants to suffer through 60-hour work weeks, long commutes, obnoxious paperwork, to navigate arbitrary corporate hierarchies and the dull confines of our chaotic conurbations. We want to be rich without the risk, without the sacrifice, without the delayed gratification necessary to accumulate wealth and so do I.

Everybody wants to have an awesome relationship — but not everyone is willing to go through the tough conversations, the awkward silences, the hurt feelings and the emotional psychodrama to get there. And so they settle. They settle and wonder “What if?” for years and years and until the question morphs from “What if?” into “Was that it?” Because happiness requires struggle.

If you want an amazing physique like Hritik Roshan. You will have to appreciate the pain and physical stress that comes with living inside a gym for hour upon hour, calculate and calibrate the food you eat, plan your life out in tiny plate-sized portions.

If you want to start your own business or become financially independent learn to appreciate the risk, the uncertainty, the repeated failures, and work tirelessly on something you have no idea whether will be successful or not.

Anybody who has studied human behaviour will understand that our needs are more or less similar. Positive experience is easy to handle. It’s negative experience that we all struggle with. Therefore, what we get out of life is not determined by the good feelings we desire but by what bad feelings we go through and the ability to sustain to get us to those good feelings.

People want a partner, a spouse. But you don’t end up attracting someone amazing without appreciating the emotional turbulence that comes with weathering rejections, building the sexual tension that never gets released, and staring blankly at a phone that never rings. It’s part of the game of love. You can’t win if you don’t play.

What determines your success isn't “What do you want to enjoy?” The question is, “What pain do you want to sustain?” The quality of your life is not determined by the quality of your positive experiences but the quality of your negative experiences and the lessons learnt from these experiences.To get good at dealing with negative experiences is to get good at dealing with life.

If you want the benefits of something in life, you have to also want the costs. If you want the beach body, you have to want the sweat, the soreness, the early mornings. If you want the yacht, you have to also want the late nights, the risky business moves, and the possibility of pissing off a person or ten thousand.

If you find yourself wanting something month after month, year after year, yet nothing happens and you never come any closer to it, then maybe what you actually want is a fantasy, an idealization, an image and a false promise. Maybe what you want isn't what you want, you just enjoy wanting. Maybe you don’t actually want it at all. But the truth is far less interesting than that: I thought I wanted something, but it turns out I didn’t. End of story and you realize "I wanted the reward and not the struggle. I wanted the result and not the process. I was in love not with the fight but only the victory".

Who you are is defined by the values you are willing to struggle for. People who enjoy the struggles of a gym are the ones who get in good shape. People who enjoy long work weeks and the politics of the corporate ladder are the ones who move up it. People who enjoy the stresses and uncertainty of the starving artist lifestyle are ultimately the ones who live it and make it.

As I keep saying "Pain is better than orgasm".Be ready to live a life full of pains(in the context of your hard work) which are worth the successes they offer.

Marrige is function of time and people. M = f(P*T)

          While many people do not believe there is such a thing as “finding your perfectly matched soul mate,” I've seen plenty of evidence that we can become each other’s soul mates as the result of a deep and lasting love relationship. If humans can develop finely honed skills in music, athletics, and language arts, wouldn't it be equally possible for them to become perfectly suited and completely irreplaceable to their spouses? A musical genius develops perfect pitch and can create soul-stirring compositions of musical beauty.Someone who becomes fluent in a language “thinks” in that language—there is no effortful retrieval once the language becomes second nature.  

For a couple love and respect for each other have been practised so repeatedly that thoughts of separation or divorce are completely alien. As in case of Indian marriages, if not love, then respect for each other is so well practiced that thoughts of separation or divorce are completely off the mind. Both of them become indispensable to each other over a period of time. The relationship becomes so multifaceted that none can live happily while the other is unhappy.Two individuals who have become perfect for and irreplaceable to each other have become soul mates. In this way, soul mates become each other’s “one in a billion perfect match.” This for me is the form that a soul mate takes in one’s life. 

As I typically say, arrange-married couples are launched by their families in an atmosphere of great extravaganza, these couples pass a threshold of being indispensable for each too early. This transition by the way would be different for each couple. Perhaps this shift is the result of successful reconnection because of the two families which too get married to each other along with their children. However this is not a passive process. Marriages don't get better a time passes alone, but they get better as and when two partners continue to treat each other with love, respect and affection. So marriage is a function of time and people. M=f(T*P);

As a result of this, partners must continue to treat each other with love and respect , despite the challenges life brings.

Whenever two individuals become each other’s soul mate, the remaining years of marriage are grounded in security and a rare and special form of intimacy. As I see it, during the soul mate phase of a well-nurtured marriage, the developmental tasks would be to celebrate and make meaning of the life you have lived together, operating as sacred keepers of each other’s thought processes, and to become generative together towards others. One hallmark of couples who have passed into the “soul mate” phase of their marriage is that they continually bless and inspire others through the way they treat each other and those around them.

In the mid stages of marriage, couples realize that just love for each other is not enough. They need to work and toil so hard to live a perfect life and fulfill the aspirations of their kids. This is the period when the priorities suddenly change. For e.g if they have kids, then the mother's allegiance is always towards the kid and the man is busy working hard, earning dollars or rupees to fulfill the aspirations of his childhood. Both mom and dad live the life they couldn't through the kid. During this period, the time spent with each other is minimal. The communication happens through the kid, but the love for each other remains.

In the final stages of life, the love that can be felt is a deeper, more satisfying level of love than anything that anyone encounters in the first few years of the relationship. In one sense, to make a comparison between the experiences of love at these two relationship stages is like comparing apples and oranges. I would argue that love of a deep and meaningful kind is only possible when based on real knowledge. If being loved is based on being known for who you are and cherished despite your flaws, then the feelings one has during the initial goody goody phase of a relationship can’t be love. These feelings would be some combination of other pleasurable things like hope and attraction or may be physical pleasures. If you doubt this, then consider the difference between your first crush or first love and your real marriage which you had endured all these years, the person who has been by your side through thick and thin, who has invested his/her time and energy in you.

As an analogy, imagine the way it would feel to move into your dream home, full of excitement and thrilling plans for the future (in parallel to the goody goody  phase of a relationship). Now, imagine the feelings of love and attachment you would have about the same home after making every square inch of the home suited to your personal tastes and filling it with layer upon layer of joyful memories over the course of a full and rich life (in parallel to the tested romanticism phase). The feelings you would have in either case cannot be compared as equals, but I would guess that most of us would cry harder if the home full of memories caught fire.  

So what is the reason behind the hight success rate of Indian marriages? It is the time and energy which two people invest in each other along with their families, which makes it a highly stable framework in place anywhere in the world.