On 68th Independence Day – more ways to serve India…

68th Independence Day – there’s never been more opportunities for educated people to serve India. With the liberalization in the 90’s and rapid growth in the 2000’s, millions of people are driving India’s Economy forward leading to phenomenal progress in Communication, Transport, Healthcare, Industry, etc. Philanthropy, Job Creation, Education are of course common ways for educated successful people to serve the country as well. But for a long time from the 70’s until now, Politics and Government have been untouchable areas too dirty for decent, educated people to consider.

Lately, there is a renewed interest from young educated people in directly participating in the Political process. In the last year, I have travelled more than 30,000 Kms in India, met a few thousand young people and I see a dramatic difference in their view about Politics compared to even a decade back. A Delhi Arts College student that I met wants to be Education Minister one day, a Mumbai MBA student wants to be RBI Governor, a Coimbatore Engineering student wants to be a Municipal Councillor, a Bangalore Engineer wants to be a Public Policy Analyst.

The Aam Aadmi Party and Narendra Modi in their own ways have made Politics exciting again. People like Nandan Nilekani have shown honest, successful businessmen can enter politics and make a difference. Slowdown in IT growth, abundance of Engineering graduates and questions about RoI of MBA education has lead to more interest in Civil Services again. College students and IT engineers suddenly have aspirations to decide the future course of the country.

Following are some interesting new opportunities for people to get involved in serving India:

The future does look bright…

Rupee crash of 2013 – India’s downfall or a Global shift? Do we have a Solution?

India Economic Doom??While there is panic over the fall in Rupee value against the US Dollar, it is important to see the events in a global context.

With the Sensex crashing, politicians pointing fingers, some in the media calling it the end of the India growth story and discussion about recession in India, it is easy to miss the real details. Following is my assessment of what is going on and what we should do about it. I’m not an economist and would be glad to be corrected.

Three key observations:

1) Sudden Fall in Rupee is not just about India but part of a global phenomenon, caused by speculation about US Fed actions and its potential impacts.

2) India does have serious challenges to be solved and there will likely be short term decline. But the fundamental long-term potential for growth & poverty alleviation remains true and the next 6-12 months might be the best time to invest in India.

3) One solution to India’s present problem is deep in Indian psyche – Faith.

4) Don’t trust everything shared on Facebook or “popular” news websites.

More details:

1. Fall in Rupee vs USD – Global Phenomenon

As the chart below shows, currencies of most major emerging economies have fallen against the USD in the last year – Brazilian Real, South African Rand, Australian Dollar, Russian Ruble and Indian Rupee. Indonesian Rupaiya has also fallen sharply. For different reasons, Japanese Yen has fallen sharply against the dollar as well. Chinese Yuan cannot be compared as it is tied to the US dollar at a fixed exchange rate (that their Govt decides). You can look closely at this chart on Yahoo Finance here.

Image

There are lots of explanations & debates around why this is happening. We have to understand what happened since 2008 to understand the current events:

USA

When the 2008 Global Recession triggered by US Financial/Real-Estate crash started, US Federal Reserve Bank started “printing” massive amount of Dollars (a few Trillion) to pump money into US banks, automotive companies, etc to avoid large scale unemployment and economic meltdown. This was based on economic principles of John Maynard Keynes from his study of the devastating Great Depression of 1930’s. Note: Recession is broadly defined as 3 consequent quarters (3 month terms) of negative GDP growth. This easy-money policies have actually worked well for the US and starting from 2011 unemployment has started decreasing, companies are starting to make historic profits and stock markets are reaching their historic peaks.

Europe

As the 2008 recession spread worldwide, many European countries ran into severe recession with concerns about bankruptcy – including Greece, Spain, Ireland. European Union came together and pumped more money (less than US) into these countries to keep these economies from crashing. At the same time, EU countries & UK have been careful about Govt expenses and have kept money supply under control. One result being the Euro economies haven’t come back as strong as US economy.

Developing Countries

Meanwhile, most developing countries including China, India, Brazil, South Africa, Russia and also Australia continued growing (at a slower pace) and did not slip into a recession like the US or Europe. India’s GDP even grew 10% in 2010. Since the US interest rates were extremely low, US/Developed economies were growing at very low rates (1-2%) and there was massive extra cash (“printed” by US Fed as well as profits generated by companies), some of that money was diverted into these growing economies in search of higher return on investment. Even small countries like Colombia, Chile became hot investment destinations as the return on capital (capital created in US) was higher. Stock markets in India, Brazil & South Africa have all benefitted from this money.

The Present:

US economy and in general the global economy is doing fine after 5 years of easy money pumped at the rate of $80 billion per month by the US Federal Reserve Bank. Now, they have indicated they will slow down in “bond buying” – one of the methods of pumping money, global stock markets are suddenly panicking that there won’t be anymore easy money.

Hence speculator feel that money will be taken out of emerging markets and taken back to US for better returns. This is the fundamental reason the Rupee, Rupiah, Real, Rand and the Ruble are all crashing.

What will happen

Reality is – no one knows. But one thing is clear – the sudden devaluation of emerging market currencies (including the Rupee) is a knee jerk reaction. These countries and the billions of citizens are not wholly dependent on US Fed money. They are on a fundamental growth trajectory that will continue for many years.

India

India has very real challenges – energy, infrastructure, education & employment of large youth population, divisive politics. In fact, India’s fundamental dependence on crucial foreign energy sources (oil, gas) is a primary reason for the large import bill and large current account deficit (CAD). This large import vs export deficit is the immediate reason why Rupee is being devalued. The concern is that once US Fed money supply reduces, less money will be invested into India and it will not be able to pay for the large amount of oil-related imports. The deeper worry of investors is that this problem might cause India to borrow more money at higher interest rates using lower valued Rupees, causing a downward spiral and lead to recession/depression in India. Given the uncertainties, Indian economy might indeed see a sharp decline until the early 2014 elections.

The answer for India is to build confidence and rapidly control current account deficit (which is easier said than done) by doing all of the following:

– Increase exports to get more foreign exchange. Encourage Technology, Agricultural & other industrial exports. India needs to produce more products and deliver more services that are in high demand in the global market. We may even want to explore “exporting” entertainment by making truly global movies/music/art and taking on Hollywood. This can also be a good way of generating good-will with other growing nations.

– Decrease import bill. One way could be by directly paying in Rupees and not in Dollars. Now all oil is paid for in US dollars which means India cannot “print” them as needed. Presently only Iran accepts Rupees for Oil. Alternatively, India could use more indigenous energy sources (clean coal, natural gas), nuclear energy or renewable energy (Solar, Wind & others). Another way is also to reduce or stop gold imports by encouraging sales/exchange of the massive amount of Gold within India.

– Build confidence about India amongst rest of the world that India is a growing country and that they should invest in India. With elections around the corner, there is uncertainty – India needs to give a clear mandate & the leaders need to step up to the challenge.

There has never been a better time to invest in India:

– Rupee is at its cheapest today.  With a young country with the most working age population, rupee will certainly increase in value in a longer 5-10 year horizon.

– Interest Rates in India are extremely high (8-9%) compared to global standards.

– Indian Govt, Corporate Bonds provide massive returns 10-15%. Indian stocks have very attractive P/E ratios.

First, Indians have to firmly believe that they can build a stronger India and start investing in the country – not in unproductive things like Gold & Land but in productive Assets & Companies. Interestingly, it all comes to faith & belief.

The World Economy runs more on Emotions than on Dollars!!

Dark clouds over India… Not just the monsoon.

Dark Gloomy Clouds

Cloud of gloomy news about the Indian economy today…

Rough ride ahead for the economy

“The Indian economy has reached a stage where no macroeconomic indicator is in favour. It has large fiscal and current account deficits, a falling currency, slow growth and high inflation. To make matters worse, there is no visibility as to how we will get out of this situation. The present situation and future possibilities indicate a tough ride for the Indian economy ahead.”

S&P sees downgrade risk rising for India as debt costs climb

“Given mounting economic stress, the credit metrics of corporates are unlikely to show a significant improvement this fiscal year, analysts at India Ratings wrote in a July report. The current economic situation provides limited elbow room to RBI to cut interest rates and for the government of India to embark on large-scale policy stimulus.”

Young Indians struggling to find a suitable job

Close to 66% of Indians surveyed by the staffing firm said it was hard for workers aged 25 years and below, to find a suitable job and 79% believed these young workers accept a job below their education level. Over three-fourth (79%) of survey respondents said it was equally difficult for older workers to find a suitable job and 71% of them believed that such workers are often forced to take jobs below their education level.

 

What should we do?

Media, Ratings Agencies, Polls and opinions do not shape the future. Action does… I believe this is the time to act and invest in India:

– For farmers, the rain gods have delivered the best showers in 20 years.
– For entrepreneurs, bright young minds are eager to work with you on challenging problems.
– For investors, Indian Bank Interest Rates, Government & Corporate Bonds are at all-time high yields.

As the cliche goes, “it is darkest before the dawn”… How will we shape our future?

 

Financial Ratings Agencies – is there a new scam in the making???

In the last few years (since the 2008 recession), we regularly see headlines such as these:

U.S. Loses AAA Credit Rating as S&P Slams Debt Levels, Political Process

India’s Investment Grade Rating at Risk as S&P Cuts Outlook

Spain’s Ratings cut to “Junk” by Ratings Agency

Who are these “Ratings” agencies who grade large countries and companies like they are school children and give them quarterly grades like A, A-, B+, C, D and “Junk”? The big ratings agencies in the world are:

Standard & Poors (S&P) with revenues of $2.9 Billion and owned by McGraw Hill companies with revenues of $6.2 Billion

Fitch Ratings owned by Hearst Corporation and Fimalac worth multi-Billion dollars

Moodys Corporation worth over $2.3 Billion

Together they influence a large amount of investments and finance in the world. As “Ratings” agencies, their primary purpose seems to be like a mirror to countries and companies pointing out serious issues so that they may rectify them. But in reality, these ratings can cause serious problems to countries/companies:

– Spanish economy in “huge crisis” after credit downgrade

– How S&P revision has hit the RBI’s rupee battle

Going back to our school analogy, bad grades are not only a reflection of a student’s performance but also negatively impact students’ future potential.

One could say, that is unavoidable part of identifying serious problems early. But what if the “rating agency” actually profited from the ratings declines? What if the school teacher got a pay hike for failing students?

Can that happen?

I’m not an economist. I’m not sure. Even learned Economists are wrong about economics when it gets complex. And the world of finance, investment and macro-economics is very complicated.

But let us analyze this from the simple perspective of “motives”, “stakeholders”, etc.

These Ratings agencies are all profit-driven large public (stock market) or private companies. They are not non-profit or governmental or UN agencies. Their primary motive is of course to maximize profits. But they have to do it legally – under laws that govern ratings agencies.

So, who are the “customers” of these ratings agencies? Investment firms, large banks, hedge funds – basically anyone with a large amount of money looking for good investments with good returns and low risks. Ratings agencies are not around to help the poor and downtrodden. If the ratings agencies help their “customers” maximize profits, then they would be willing to pay these ratings agencies handsomely.

Let us take a hypothetical scenario:

Step 1: Company A pays the Ratings Agencies to rate their new Bonds issued to Banks, Investment Banks and private investors

Step 2: Ratings agencies give them high ratings

Step 3: Company A pays Ratings agencies more money by paying for more research reports, etc.

Step 4: Company A eventually goes into bankruptcy

The above scenario seems to have happened in the case of Enron, Sub-prime mortgages and mortgage-backed securities which caused the Great Recession of 2008.

To prevent such issues, US and European governments seem to have enacted new laws to control these Ratings Agencies from carelessly giving high ratings.

Dodd-Frank Financial Reform Act, 2010

EU Ratings Regulations 2010

But here is a very different scenario:

Step 1: Ratings agencies reduce rating of a country/company

Step 2: The country/company with lower rating has to pay higher interest on loans in the market – from banks, investment funds, etc.

Step 3: Banks, investment funds gain more profit because of higher interest rates.

Step 4: Banks, investment funds pay more money for research reports, etc from Ratings Agencies.

In the above, very reasonable and realistic scenario, Ratings Agencies have a clear and strong incentive to reduce the ratings of countries/companies to be lower than they really should be. But in the above case, the Ratings Agencies or the large investment funds dont directly do anything wrong.

Could the above scam also be happening? I’m not sure. As I said, I’m not an economist.

But according to the facts, the Ratings Agencies and Investment Funds are making historic profits. Is there a a correlation?

Update: As an interesting note, the downgrade in ratings are also affecting large banks like Morgan Stanley and they estimate their cost due to these downgrades might be as high as $ 7.2 Billion! Ouch!

Simple way to reduce India’s growing Trade Deficit – stop buying gold!!

As of April 2012, India’s Exports are at an all-time high of $300 Billion. But the problem is that Trade Deficit is also at an all-time high of $ 180 Billion. This is serious problem as it is threatening to undermine India’s growth.

One obvious reason for the Deficit is Rising Oil prices. From 2000 to 2012, there has been a phenomenal increase in oil prices – 1970s was the only other time when it grew more. In the current World Politics, India cannot do anything about it in the short term. In the medium to long term, India needs to invest aggressively in renewable energy sources like Solar, Wind and other alternative sources like Nuclear (if the risks can be managed carefully).

But can we do something simple in the short term to reduce this problem?

Even if you spend 10 minutes thinking about the problem and researching, one answer should be obvious. India’s completely unnecessary and frivolous gold purchases and resulting gold imports is one of the major reasons for the Trade Deficit. If we completely cut out Gold imports, the huge Trade Deficit can be brought down by 30%.

There will be many objections to such an idea:

Objection 1) Gold is the only real saving. See in difficult times, Gold value goes up.

Answer 1) But Gold’s “supposed” value is only because people think it is useful. It is practically useless. Let us spend the money on something useful – education, health, infrastructure or even basics like drainage. “Let us build Sewage Drains instead of Golden Chains“!!

 

Objection 2) But if everyone sells Gold, then value of Gold will go down causing people’s savings to go down.

Answer 2) Most people dont do anything useful with their gold savings anyway. Let them at least, invest the savings into something more useful. Even spending the money on something else and not saving is better than saving in gold. In anycase, there is enough gold in India already that even if people just continue to circulate the gold that is already in the country, there will be enough gold for a long time.

 

Objection 3) What if countries go back to the Gold standard? India can be the richest country in the World!

Answer 3) Ask any reasonable economist. The World economy is not going back to the Gold standard. No matter what happens – severe depression, recession due to natural calamity or huge war, there is no chance the world is going back to a Gold standard.

 

Can we make a pledge – to sell unnecessary gold and diamonds and not to buy any more useless jewelry. It is killing the country. It is not worth it.

Alternatives to buying gold:

– Buy a solar panel instead. It is equally shiny and will give you useful electricity during those power-cuts.

– Buy some native handicrafts – handloom, pots. It will help poor artisans and keep art alive.

– Buy better food – organic, locally grown. It will help farmers.

– Buy books, ebooks, computers, internet access. It will help you.

Envisioning next generation school education in Tamil Nadu… and elsewhere

Some of the problems that plague schools in Tamil Nadu (TN), in India & many developing countries are:

  • Lack of good teachers
  • Very high teacher-student ratio
  • Too much focus on just chalk-talk-and-exams
  • One-way dissemination of data/knowledge rather than interactive problem solving

Following is a vision & plan to improve school education in TN but might be applicable with changes in other places as well.

There are  large changes happening in the Education scene (like other areas of life) in India – some key changes in 2010 here. One major change in TN in 2011 has of course been the new AIADMK State Government headed by Jayalalitha. The new government has proposed some major initiatives as part of their election manifesto and is seeking Central funds to implement the ideas. From an education standpoint, there are a few promised initiatives that the TN Govt seems keen on moving forward with:

  • Free laptops for Senior School Students and Engineering Students
  • Free Cable connections for the public
  • Revamping “Samacheer Kalvi” with better books (post election promise)

But they don’t directly solve the problems stated in the beginning.

Meanwhile, the Internet, Smartphones & Tablets have been driving rapid innovation in education frameworks throughout the world, like:

  • Next Generation Learning Project by Gates & HP Foundations has funded many interesting educational projects based on sound education research done by many organizations.
  • The Khan Academy has shown how a single person can inspire new ways to learn online and now has a large library of free education videos.
  • India’s National Program on Technology Enhanced Learning (NPTEL) initiated by IIT & IISc has put together a large collection of college level educational videos.

But there are still many challenges in immediately making these online & computer-based initiatives available usable for school education in Tamil Nadu:

  • Broadband Internet penetration is still less than 1% of population in TN, India
  • Computer penetration is less than 5% of population
But on the other hand we have very different dynamics with television penetration:
  • Almost 90% of the population has access to Television – previous DMK govt had provided free TV sets to Below Poverty Line (BPL) families.
  • New TN government is planning to provide free (or very low cost) cable TV access via the Arasu Cable network.
Given the above situation, I have a simple proposal to improve school education in Tamil Nadu using a Hybrid approach of one-way lectures as well as interactive learning.
Phase 1 (2012 to 2014): Using existing infrastructure & technologies
  • Create High Quality Educational Videos for each class from 1st standard to 12th standard for the entire syllabus and make it available freely to all students/families – via Cable/Satellite Television as well as DVDs, USB sticks for laptops. These should be made highly interesting to keep student attention.
  • Students should be able to see these videos on their TV sets any time they want and review it as often as needed based on their individual pace.
  • In order to facilitate better access to these educational videos, there should be atleast 12 new TV channels created via Cable TV or Satellite TV – one channel for each year/standard. With Govt Arasu cable and Doordarshan capabilities, additional TV channels should be easy to provide. The class lectures should be repeated many times in a day & over the weekend to allow multiple reviews by students who dont have DVD/Player or USB/Laptop access.
  • The focus of school classrooms should be interactive discussions, exercises, Q&A, group work. One-way chalk-talk lectures should be done only via the above mentioned videos.
  • Teachers have to retrained to manage these class interactions effectively. They also no longer have to teach the same lectures over and over again every year and instead interact with students.
  • Even in areas where teachers are not so effective, students can learn much better than current system by using the high quality educational videos.
In this phase, some students in some rural areas & poor urban areas might still not be able to make full use of the above educational methodology. But accessibility can steadily improve with time with goal of 100% access by 2015.
Phase 2 (2015 to 2020): Using better Computer penetration & Internet connectivity
  • By 2015, India (especially TN) should see much broader Internet (via 4G or newer wireless) connectivity.
  • If TN govt does make good on promise of free laptop to students, computer penetration should be quite high. Even otherwise, Internet access devices should also become a lot cheaper by 2014 – good wireless equipped Tablet PCs for under Rs 8,000 should be available.
  • Even higher quality (better than Phase 1) Educational Videos should be made available to students. By 2015, these videos should be accessible to 100% of all students – either via Cable or Satellite TV or via laptop/tablet & USB sticks.
  • Students should be able to do the interactive portion of their learning via the Internet using tools like Moodle – interacting with other teachers & students throughout TN and other places.
More detailed planning & clarification of vision still needs to be done. Also in-depth cost/budget assessment needs to be done.
But more importantly feedback is needed on this vision/rough plan.
Does this make sense? Please add your comments below and add a note if you would like to work on this project.

Bold decisions in Product Marketing…

Apple & Steve Jobs are of course known for Marketing… But thought the following snippet drives home their bold decision to develop iPad for a market that did not exist – contrary to most Marketing theories of listening to the market.

http://arstechnica.com/gadgets/news/2010/05/curated-computing-whats-next-for-devices-in-a-post-ipad-world.ars

“One month prior to the iPad’s launch, a Forrester survey of more than 4,500 US online consumers revealed the top features consumers said they wanted in their next PC purchase. Two-thirds of US online consumers want a DVD drive, but this feature, along with other most-wanted features like CD burners and webcams, are absent from the iPad. The iPad’s features, such as the touchscreen, are lower on consumers’ wish list, with only 22 percent desiring a touchscreen for their next PC.”