Welcome to the Machine: America and Money

I wrote a while ago of my first brush with America's financial system as a fresh-off-the-boat expat applying for a credit card. Thanks to a career mostly pivoted on financial services, however, my experiences with the world's largest economy run broader. These have only deepened in the last couple of years building a life in the country, but continue to leave me perplexed on more than one count.

Of my subsequent wanderings, I find the average American's attitude vis-à-vis the stock market the most peculiar. One might verily imagine investors lining up outside the door given its extraordinary breadth (in offerings), depth (of liquidity) and information access (implying transparency). Yet, in reality, retail participation in the NYSE-Nasdaq is unlikely to make India's NSE jealous. Broader still, it appears linked to the outlook around Money.

Some facts for starters. Wealth-accumulation is, in many ways, an inveterate part of the 'American dream'. Next, unlike the land of my birth, inflation has mostly been in check since the Supply Shocks of the 70s. Finally, median incomes have almost doubled in the period. Statistics, therefore, point to significant investible surpluses. Yet, reams can rightly be written about burgeoning US household debt as much as the general disaffection of its populace in matters financial. It takes us back squarely to saving discipline.

To unravel this, consider an analogy from another bane of modern human existence, namely lack of fitness. Be it a shudh desi tond or American overweight, we know that exercise is key. Indeed, that rush of endorphins at the end of a workout is the glow of champions. Watch what happens next, as the hungry, proud-as-Punch body heads out to eat. How often do we overestimate calories burned; gorge on 2X the amount we typically need; and feel no qualms therefrom? And then we bemoan fitness levels, go jumping from one fancy exercise plan or fad diet to another, and hurtle towards the eventuality of a large medical bill.

Just as the gap between calories burned and replenished drives success in a weight-loss regimen, so a saving habit determines financial well-being. So why the proclivity for conspicuous consumption that fells the average American? Answers are at hand. Akin to the rush post a rigorous workout, income growth also stokes an increased propensity to spend. Cast under its 'have-earned-this' spell, Americans splurge guiltlessly on indulgences. Luxuries of today turn into necessities of tomorrow, and wallets continuously seek new extravagances to feed the sense of entitlement. A social-media-centric existence plays no small part in this frenzy, with lifestyle expectations driven by peer benchmarks, resulting in a vicious dance of debt.

Culturally overindexed on wealth, America can only be happy when the cycle of overcompensating rising income with indiscriminate consumption breaks. The solution is obvious, but fundamental. From chasing the tangible and easy (spending), the Average Joe or Jane needs to be inspired towards the intangible and difficult (saving, directed towards goal-focused investment). Apps that demystify wealth by making its creation and tracking ubiquitous shall pave the way. Celebrate, therefore, the tingle of income more than the whoosh of the credit card, virgin or otherwise, as the real money machine. Godspeed.

Cards, Cars and Gold Czars

"Lucky you; a Credit Card in hand fresh off the boat!" or words to that effect. Thus went the refrain, notably from friends having made a similar India-to-US move mid-career; and thereafter grappled with the task of rebuilding a financial profile from scratch.

Fact is that, absent a Bureau score, many of us who wash ashore have to face the rather mortifying experience of credit denial(s). Some are forced to resort to Secured cards to build payment history. Therefore, the modest $1500 limit from BofA (I had higher in my first credit card as a mere student graduating from IIFT 20 years ago) felt like an occasion to celebrate!

Part of the distress, to be fair, comes from the dissonance between the erstwhile financial standing in India (while no HNW, one had the pick of financial products; and a feeling of being chased rather than chasing) to newbie status in the US of A. Mind you, this would be equally true even with a global bank; one you had used in India for years; and carried some priority status. Your creditworthiness is reset perforce.

So, with prospective landlords looking askance and utilities insisting on bank auto-debit of monthly bills, a credit card felt much like being granted the Moon. Why not use your India plastic, you ask? Unfortunately, that would be akin to kicking the can down the road. Even if you found a way past the international usage surcharge with an appropriate card, it would still not solve for the need to have usage and payment history domestically to build your credit profile (circular logic, did you say?).

Thankfully, there is a potential hack, and a doubly sweet one at that. AMEX, as I found out last week, could give you a charge card based mostly on your India relationship (albeit driven more by their customer service ethic than hyper-connectedness of the world)! Equally, this 'no limit' card saves me from needing to pre-pay my original credit card multiple times intra-month (when paltry limits meet large household set-up expenses). Note, therefore, my unequivocal endorsement for the 'Gold' in its name!

Next pit-stop in the finanical reset journey, is a car. Once again, as I shortlist, it is evident that usurious rates of interest await me on the loan. Neither will the humbling experience end quite there. Given recency of relocation, a lack of intimacy with domestic stocks is only to be expected. Ergo, I have miles to go to attain the next goal (of high-conviction stockpicking ideas). Till then, we soldier on, as we must.

Teesri Kasam

Investing as a theme pops up periodically here, testament to my abiding interest therein. Success here can have a fairly direct correlation to material well-being. That said, in matters financial, it matters more what not to do, than otherwise. In this, I am reminded of the quintessential Bihari ethos of Teesri Kasam.

Flashback 1961. Mare Gaye Gulfam, penned by the indomitable Phanishwarnath Renu, was turned to film by some of Indian cinema's tallest. On camera were Raj Kapoor and Waheeda Rehman, but also Iftekhar, Keshto Mukherji, AK Hangal and Asit Sen: names that verily lit up the silver screen much as the faces of cinemagoers for generations. Rest of the crew was no less luminous: Renu himself, Basu Bhattacharya, Shankar Jaikishan, Lata Mangeshkar, Manna Dey, Asha Bhosale, Mukesh etc. Perhaps above all, was Shailendra, this being the only movie the lyricist extraordinaire ever produced. Thus, we got Teesri Kasam.

So how does Teesri Kasam connect to my investing experience, personal or observed? Simply that Hiranan, its bullock cart-driving protagonist, idealist yet unafraid to try the new, makes mistakes in his pursuit of life's affairs, swearing each time never to repeat them. And in a fashion, his three blunders, that lead to the eponymous three vows, mirror my view of the most common slips in financial matters.

Perhaps unsurprisingly, Hiraman stumbles first in ignoring the risk-reward equation. His simpleton character tries to make a fast buck ferrying smuggled goods, merely managing a brush with the police and promising himself a long-term focus thereafter. Many of us, myself included, start life at the other end, content at managing money near-term and confusing bank balance for financial security. We fret about market risk but assume inflation-immunity. Consequently, savings go to FDs, PF contributions stay minimum, and equity action is a rushed, year-end Sec 80 investment at max. Thus, the power of compounding is missed for years.

Hiraman's second folly is not planning for oversized loads. He picks up a consignment of bamboo, being new, rams it into a horse-cart, and gets a thrashing. His kasam: avoid 'long poles'. Of such cargo, real estate is the most ubiquitous in our lives and the cause of much financial misery. I didn't buy my first till 12 years of career (missing two Gurgaon booms); yet others buy too early; or too much; and some simply a 2BHK that they outgrow in no time. A similar case could be made of Insurance. Point is to tackle the big rocks as soon as one is able, which means a financial plan.

Twice singed, Hiraman is then felled by the most confounding folly of 'em all. Tasked to transport Hirabai, a performer in the Great Bharat Nautanki Company, to the village fair, he is smitten by her beauty and (in his eyes) apparent virtue, during the course of their day-plus journey. His consequent conflict with zaalim zamana and zamindar is typical filmi (the denouement is anything but), culmintating in his third and final vow: say no to nautanki-walis. Cut to our financial lives; and how often have we similarly lost when appearances and emotions outbid logic and fact?

A tad more on that last named. Its typical setting, interestingly, is folks who spend a lifetime confusing investing to be a armchair sport. They watch the market ceaselessly, debate it tireslessly, and wait for the 'right level' endlessly. Then suddenly one day, armed with an ostensibly hot tip (delivered over sips of 'Glen' perhaps), they rush in to bet the ranch. They may get lucky, but mostly they don't, only to slink back into the corner, cursing their luck, the markets, or both.

Be it rooted in any of these mistakes, but it is the dud that we carry too long that has the biggest bite (I have never lost as much money as I have selling late). Pigheadedness, optimism, or sloth, we only invite peril home when the basic principle of stop-loss goes amiss.

These experiences aside, like most walks of life, success in investing must rest on the bedrock of lessons learnt. "The four most dangerous words in investing are: this time it’s different" is how one of the greats so adroitly put it. It remains a game where discipline and math plainly trump creativity and chance. Ignore this, and one is left to rue mare gaye gulfam.

OROP: No Silver Bullet

Emotions have run amok on One Rank One Pension since the governmental baton passed to the NDA last year. In a fashion, this is actually a compliment to the PM's leadership. After all, expectations are sky-high in light of the ruling party's widely perceived fauji-friendly tilt, made even more striking by the UPA's characteristic somnolence (that election-eve accpetance of OROP was disingenuous, if not downright dishonest).

Imagination need not be stretched to understand why OROP demands find widespread support. Naturally, the nation's heart-strings tug easily for those that guard her borders. Our Forces' stellar record of aid in times of calamity or strife comes in handy too, no doubt. To top it all, the institution enjoys a moral high ground, thanks to a reputation unsullied barring occasional blemish, standing tall amidst a general decline in standards of public life (that plumbed new depths in UPA years).

So why the delay? The ask itself is clear: to index pensions to benefits for currently serving personnel. In other words, the Government implement a system of 'defined benefits' (percentage of last salary; with math around years worked), paying uniform pension to retirees in the same rank. Yet, be simple as it may, the commitment is not sans ramification. It is a multi-dimensional issue, wherein the crux is money.

For starters, a bitter pill must be swallowed immediately. In other words, funds are needed to bring pensions of old retired on par with new. Unfortunately, this hit isn't merely one-time, but inflates GOI's pension bill considerably in each pay revision cycle (roughly every decade) going forward. With our economic planning often a precarious balanacing act, this has been a deal-breaker hitherto.

Additonally, there is clear-and-present danger that OROP for the fauj opens a Pandora's Box and demands of a similar nature could emerge from other service groups. This includes Police and para-military, but could cross over to non-uniformed personnel too. Railwaymen appear to be first off the mark here (we hear noises around 'essential lifeline of the country' etc) but others may well follow suit. It is this deluge of politico-legal and economic tangles that worries the government.

Fact is that defined benefit pension programmes always run the risk of unsustainability. Many countries have junked such plans on account of the rising burden on declining (productive) populations to support a growing number of retirees. Granted we aren't there today, but what is to suggest that we never will?

As conundrums go, this is hardly unsolvable. One need look no further than our Central Government employees who have been on a defined contribution (versus defined benefit) programme for over a decade. In fact, the National Pension System is class-leading, with multiple low-cost, managed-risk product options (especially those that enable qualified equity exposure) and offers an excellent alternative. Switch to NPS, however, shall be no cakewalk and would entail a mindset shift than mere policy change.

Parsing through all these requires time: a commodity the Modi Govt may not have. It remains true that the UPA's wanton profligacy in the name of social inclusion has pushed India close to the edge of a fiscal precipice. An ill-conceived or reckless OROP implementation must not become another nail in this coffin-in-the-making. That is a prospect our fauji brethern would certainly wish to avoid.

Investor as a Split Personality

"Be ye of reasonable means, with intent to secure thy future, thee cannot afford naught to be in stocks." There, I quote myself (Shakespeare merely for effect)! Truly, the merits of equity investing are beyond doubt. Even more certain is that they are ill understood. "The real key to making money in stocks is not to get scared out of them" is how Peter Lynch, one of the gurus of the craft, put it admirably.

So why this reticence that, in face of volumnious data on stock-picking benefits, makes even the well-heeled go weak in the knee? Market evidence shows that the issue is not opportunity. Nor is it barriers of entry; lack of visibility; or absence of ambition. And very rarely, contrary to popular belief, is it ability. For today, let us dwell on that last named, for it is the one I find most difficult to fathom.

In context, ability could be thought of in two ways: the capacity to invest; and skill therein. Not that I choose my company specially, but enough investible surpluses (after emergency cash or fixed income commitments) exist around me. However, they find their way into real estate, almost without exception. I don't discount residential or commercial realty being part of a well designed financial plan (though my personal experience of returns isn't much to write home about). However, I do take issue with over-exposure to this asset class, and notably when at the expense of equity.

Nothing brings this better to light (to the mythical point on ability) than the dramatically different approaches folks follow while investing in stocks versus real estate. Most realty shopping, perhaps on account of packet size, is backed by effort, discipline and rules. However, the same individuals behave diametrically opposite when picking stocks. For instance:

• Look before you leap?: You buy an apartment in DLF after arduous research, talking to the world and their mother before you commit. Stocks you buy because you got a hot tip with a shot of Jack Daniels last night!
  
• Shylock or Great Gatsby?: You bargain down to the last thousand, even hundred, in buying property: negotiating terms, comparing freebies and so on. Stocks you buy in a bull market, when the local barber is dispensing investment advice, with nary a care about valuation!
  
• Till Debt do us part?: You negotiate mortgage rates down to the last bp, manage monthly EMIs with appropriate down payment, pre-pay whenever can through the tenure; all to keep debt under control. Stocks you rush headlong into F&O or complex margin positions with little regard for complexity or leverage?
  
• Ain't it a team sport, baby?: You are happy to employ and pay for real estate expertise with agents, lawyers, architects, interior designers etc; anything to ensure asset acquisition and management is optimal. Stocks you trash financial planners, avoid research advice, preferring hunches and going solo?
  
• Time in market vs timing the market?: You invest in property for the long term, commitments that typically last years; and exit only when goals are met, or as last resort (if faced with hardship). Stocks you look for upsides in days or weeks, often selling for small profits in bull market, or huge loss when bears rule.

I will not even start the argument that disciplined equity investing can bear returns superior to real estate. Or that the property market is far less transparent and much more illiquid. Least of all that smaller packet size and SIP possibilities make equity an easier option to manage risk through market cycles. All of these are true; yet they are just facts. Crux here is behaviour. And hence another homily with a touch of of Shak: "stay ye considered, consistent, and committed; and long term wealth shalt be thine." Amen!

Torches and Snow Houses

A few weeks ago, after a high-heat session hashing out a data governance/ lineage offering at work, a teammate shared material from Edward Snowden's interview by Prof Lawrence Lessig with me. It made for truly sombre reading. Watching the documentary Citizenfour (which premiered in the same month) yesterday was a grim reminder not merely of the profound moral-legal issues involved, but also of the question of what, if anything, has society learned from the sordid disclosures and consequent debate.

First off, public memory is arguably impaired by information gaps regarding what Snowden actually exposed. Mainstream media mostly reduced the 2013 leaks to personal gossip, political theatre, and character assassination. Its occasional stirring into thriller-like coverage of Snowden's whereabouts or asylum attempts was also as predictable as it was puerile. The terrifying reality of mass citizen surveillance, which was core to the episode, was almost entirely ignored.

The fact remains that l' affaire Snowden deserves examination through multiple lenses. The legal, moral, political, and organizational perspectives are obvious, but the precipitating action was technological. In fact, advances in information technology enabled the Orwellian surveillance just as much as they paved the path for its eventual exposure. Furthermore, this was not an isolated example: infotech advancements have dramatically outpaced our legal and ethical framework in the last few years. No lesson is enough, for we continue to lack the muscle to foresee and mitigate the risks of such revolutions.

Going back to Snowden, it must be acknowledged that there are two fundamental dilemmas (lines of morality and legality blur here) at play. First, at a policy level, is the balancing act between prevention of public harm and invasion of privacy. The vision of Big Brother run amok is not just conspiracy theory fodder. Equally, it is difficult to guarantee civil liberty without the protective cover of public policy, which almost directly implies the enforcement power of a benign regime. As such, a balance is expected to be provided by internal checks, legislative oversight, judicial review, and Fourth Estate scrutiny. This framework assumes no information asymmetry, however, and is increasingly strained by an inherent bias, namely, one that results from a sustained global rise in threat frequency, disruption severity, and adversarial sophistication.

The second ethical conundrum is personal and, one would think, integral to whistleblowing. Many would find no fault in the NSA's use of PRISM under a means-justify-ends logic. For them, loyalty to one's employer and commitment to a hallowed mandate (perhaps even a premonition of vituperative consequences), should have weighed heavily against Snowden. Yet, he acted under an overriding, good-faith obligation to shine a light on these surveillance practices. He evidently recognized his duty as being beholden to the nation at large, not merely to its instruments of state. Defining the 'common good' is a slippery slope, of course, and causes one to pause before becoming overly celebratory of Snowden's stance.

Finally, there is the perspective of consequences. If one were to characterize Snowden's actions as Gandhian civil disobedience (conscience-driven, non-violent, public action), then he undeniably shook the State out of its complacency. From Obama on down, the polity was compelled to attend to policy deficiencies, including reform at the NSA itself. As for Snowden, the price of valuing integrity and a high sense of morality, enormous as it may be, was only waiting to be paid. History will be the eventual arbiter, but this is the seeming cost to keep the spirit of deliberative democracy alive.

Bigger, Better CIRcle

One of the more fulfilling assignments in my career was in a role managing consumer debt in the Indian banking and financial services industry. I had started in mid-2007, when signs of stress were unmistakable in our portfolio, and enough to discern similar trends across the sector. They were the direct consequence of indiscriminate lending and immature borrowing practices that had been rampant earlier in the decade. Naturally, the resultant losses led to tighter credit policies and general housecleaning, with varying degrees of success, across all players.

Though mandarins at FinMin and RBI downplayed it, but this improved hygiene had a major hand in ensuring that our country emerged from GFC 2008 relatively unscathed. Thus, while capital flows and liquidity hit a reset globally, one of its key facets, namely burgeoning consumer debt and subsequent borrower impact, largely gave India a miss. I argued too, with a ringside view, that rise of credit bureaus was one of our most far-reaching gains from this period ("CIRcle of Life"). They emerged from the shadows in those days beset by uncertainty and churn, and have remained a vital cog in the industry’s wheel ever since.

GFC is now but a distant memory (save for some of us). Credit offtake has reached or exceeded pre-crisis levels in most economies globally. Consumer indebtedness is not yet a concern, including in India. Everything points to business-as-usual. Hence, it is vital that we address any gaps in credit management before lessons of 2008 are entirely forgotten.

The most visible of these is our weak credit reporting framework. Despite having moved away from Indian consumer finance (in a work sense) I still hear enough stories around inaccurate reporting of defaults, especially around old write-offs that have simply been mis-recorded. A chunk of these are false positives from identity mix-ups by CIBIL and or the lender in question. Equally, there are instances of bad data like closed credit card annual fees, collection agency fraud, disputed charge write-off etc.

No less worrisome is the imbalance of power that puts the onus for data clean-up entirely on the consumer. Processes to do so in a few banks are reasonably unfriendly too. Most important, though, is the opportunity cost. Almost all cases I know came to light when the consumer has applied for fresh credit, often for big life events like home purchase. In at least a couple of cases (till my advice to the contrary) folks were even willing to honour an incorrect demand in order to get a “clean CIBIL” (motivated by the math of charge being in hundreds versus credit need that is much larger). This is hardly kosher.

It goes without saying that the issue needs a fix at source. Banks must be taken to task for irresponsible reporting, with a threat of monetary compensation to disincentivize laxity. In most mature markets, this is secured by legislation (FCRA. CCA, Privacy Act etc). If needed, the government must consider similar consumer protection laws in India as well.

The other issue with credit reporting is coverage. There is a strong argument to expand consumer behaviour monitoring, in the Indian context, to telecom payments. The rise of wallets and payment solutions are blurring the lines here in any case. Yet, this could well be an apres moi le deluge moment. Dimensionality of credit data would multiply (volume, churn, nature of disputes etc) were this to happen. It makes it incumbent to establish the ground rules now, with a much better defined financial services scope.

Crises, as students of economics know, are cyclical by their very nature. Hence, we must act now, so as to be better prepared when the next unforeseen strikes. Lest history judge us differently.

A House Divided: The Script of AP

Andhra looms large in my Weltanschauung. Notably, I lived in Hyderabad back in 2005-07, making many friends for a lifetime (in one case, hopefully longer) during my sojourn. Scores more over the years have hailed from Telugu-land. Rare among this breed, however, were those who believed possible what shall become a reality later this year (having lived through BR turning BR + JH, I was much more sanguine). Erstwhile AP shall split, and Telangana shall be State #29 of the Union, come June 2!

Much ink has been expended on the why. Of these reasons, none is cited with more vehemence or consistency than historicity. Indeed, the idea harks back to the India of sixteen mahajanapadas in the form of Assaka. Yet, through the Satavahana, Vakataka, Chalukya, Rashtrakuta, and Kakatiya periods, the borderlines remain fluid. Come the Nizams and the 1799 alliance (which gifts Rayalaseema and Coastal Andhra to the British while retaining Telangana within Hyderabad) and the map starts to take shape. Then, of course, comes the Telangana rebellion against the Nizam and the Doras, building the groundswell for Hyderabad's merger with India and culminating in Operation Polo on September 17, 1948.

Enter Potti Sreeramulu. Overcoming Prime Minister Jawaharlal Nehru's long-held opposition, a language-based Andhra state comes into being in October 1953—almost directly in consequence of Amarajeevi's sacrifice—comprising seven Coastal region districts along with four from Rayalaseema (and no Telangana!), with Kurnool as capital. Genie out of the bottle, demands to redraw the map of India on a linguistic-regional basis proliferate across the country, forcing Nehru to appoint a States Re-organisation Commission. This is where it turns into a veritable political thriller.

The SRC, headed by the PM's beloved Fazl Ali (and including the venerable KM Panikkar, HN Kunzru et al), recommends in 1955 the formation of separate Andhra and Hyderabad states, considering economic disparity and relative misalignment in public opinion with respect to unification. Note that this is entirely in line with Nehru's concerns around the “tint of expansionist imperialism” in the Telangana-Andhra merger, with the PM going so far as to compare it to a matrimonial alliance needing “provisions for divorce” if the partners cannot get on well. At the very least, the SRC indicates a five-to-six-year cooling period before considering Vishalandhra. In a strange u-turn, a forever-sceptical PM now overrides his own SRC, not to mention earlier JVP and Dar commissions, to deliver a unified Andhra Pradesh in 1956!

Much has been speculated about Nehru's rather uncharacteristic volte-face—whether driven by blackmail by Andhra elites, the spectre of a communist Telangana, threat of royalist-Muslim revival of Azad Hyderabad dream, or a Soviet-influenced vision of mega-states. Or, perhaps more characteristically, the idealist in him was taken in by the 'Gentlemen’s Agreement' (in the main for political power sharing with a CM/Deputy CM split, a 60:40 Cabinet composition, job protections via Mulki rules, no revenue surplus diversion, and oversight via a Regional Committee as a special legislative body). Regardless, Nehru wilted, and in so doing, virtually wrote the exact script of the subsequent movement and eventual division.

Of course, in the typical arc of history, it took a few years for the union to entirely unravel. The Agreement itself was violated almost at once: Deputy CM post frequently left vacant or abolished; job quotas bypassed; Telangana surplus diverted to fund major irrigation projects in coastal Andhra etc. The ground continued to simmer: over 350 students lost their lives in 1969's First Telangana Movement; TPS won 10 of 14 seats in 1971 only to be co-opted into the Congress ranks in true Indira style; the 1973 Jai Andhra counter-movement that led to abolition of Mulki protection; and NTR's 1985 Government Order 610 to repatriate non-local appointments etc. Much was promised, little delivered, and for an illusory period of peace, it appeared that the demand for separate Telangana had petered out.

Cut to 2000. Chandrababu Naidu was at the peak of his political prowess. Having secured a crushing victory to enter his second term in 1999 and deeply allied with the ruling NDA at the center, he was internationally celebrated as a tech-savvy "CEO" Chief Minister. The Congress, led by the feisty Y.S. Rajasekhara Reddy, was entirely unable to breach Naidu’s development-focused narrative. Against this backdrop, a certain K. Chandrashekar Rao, then Deputy Speaker of the Assembly and disgruntled at being denied a cabinet post, sensed a massive blind spot in Naidu's Vision-2020 plan: the severe agrarian distress and deep feelings of neglect in the Telangana region. He walked out of the TDP and formed the Telangana Rashtra Samithi. There has been no looking back since, and in just over a decade, the statehood demand has fructified.

Naturally, as clear catalysts, KCR-TRS are being feted for their contribution toward the realization of the Telangana dream. What is less obvious, and arguably more pivotal, has been the Congress's strategic role. India's GOP may or may not have orchestrated his exit from the TDP, but they intentionally elevated KCR to legitimacy, forming an alliance in 2004, and including a promise for the reorganisation of states in their common manifesto. With this, they fractured TDP’s Telangana vote bank, sending Naidu into political wilderness for the last decade. What's more, when in power, the Congress carefully sustained the Telangana issue on a slow burner to keep the TDP perpetually at loggerheads internally, utilizing this friction to encourage a steady stream of desertions that have severely hollowed out Naidu’s regional leadership. For now, at least in Telangana, it appears bye-bye TDP.

Where does that leave the Congress? The bifurcation has obviously been inspired by massive anti-incumbency both nationally and regionally. Fact is that much of their woes are the outcome of a sense of entitlement and being too smart for their own good. This move appears no different. Thus, in the Congress high command's calculation, the division finishes Naidu off forever, checkmates a rising Jagan Mohan Reddy, and hopefully gains KCR as a long-term ally (for an eventual merger). I would be surprised by either outcome. Naidu will now double down on residual Andhra, and it is likely to be a two-way fight between him and Jagan for the foreseeable future. And KCR is unlikely to share power when he can reign absolutely. Eventually, the plan backfires on the Congress itself.

In summary, yes, one must justifiably expect celebrations galore in Telangana and KCR-mahal come June 2. And yet again, the fortunes of the country and its states have been held hostage to the Congress's partisan machinations and short-termist outlook. Chacha Nehru then, Sonia Gandhi now. Here's to hoping that this script changes nationally soon...

Inflation Bonds: Flatter to Deceive

Months in the making, the Reserve Bank of India has finally launched consumer inflation linked bonds. Going under the moniker of 'Inflation Indexed National Saving Securities - Cumulative' (a mouthful, if ever), these bonds had been the subject of much anticipation. Alas, the fine print finds them come up woefully short.

The biggest stumbling block is tax treatment. In most countries with such bonds, the formulation goes broadly thus: pay the investor a nominal interest rate on face value while letting the FV float in line the linked inflation index. It is a simple structure that pivots on gains from the inflation-driven FV increases, which are accounted as capital gains from the taxman's lens.

To take a line from the fabled Maggi sauce commercial, the IINSS is different. It has been structured as a bond paying interest, the rate of which is pegged to the Consumer Price Inflation index. By implication, the entire interest earned qualifies as income, to be taxed at the marginal rate. To be fair, if only the inflation-compensating portion been subject to capital gains, it could have benefited from indexation. Clearly Fin Min and or RBI thought otherwise.

Several sticky points other than taxation come up too. The typical desi fixed-income investor, mostly given to income, may not line up in droves for the compulsorily cumulative IINSS. To boot, the lock-in period itself is rather long at 10 years. Such an extended tenor may only accentuate inflation and interest rate uncertainties that scare away investors. Early exit is possiblle, but only after 3 years, and with a penalty. Finally, there is an unfathomable 500K investment cap. All told, I don't see investors being inexorably drawn to IIMSS (versus, say, infrastructure bonds with friendlier format and better post-tax return.)

Be those as they may, one could still have rooted for distribution success. We know only too well that, in the Indian context, financial products need to be activey sold (occasionally with little correlation to merit, ULIP being case in point). I wouldn't hold my breath for this though: these bonds are to be sold only via banks, and their low commission structure is unlikely to be incentive enough there.

Perhaps I am being overly cynical. Maybe IINSS is a step forward, but it could have been so much more. Certainly, days into his tenure, our rockstar RBI Governor had himself talked the big game as to it's market-making potential. At least on that count, if not more, this is an ahem.

Raja Beta Banega Neta!

No, this is not a rant against dynastic politics. Only an ostrich, or your Congressi blessed with archetypal thick skin, would have missed its disastrous limitations. Fact is that India of the present pretty much makes the case for misfortunes that result when power is thrust in the hands of those with credentials mostly limited to parentage. Thankfully, though General Elections are a year away, but the writing seems to be on the wall for sundry dynasts and their brazen sense of entitlement.

My pitch today is almost the opposite. For our polity to step up, more of our bright young things ought to be encouraged to don the political mantle. This, however, is a long walk from current reality. Quiz any Indian schoolgoing child about career ambitions, and it would be difficult to transcend familiar doctor-engineer-civil servant territory. Yes, MBA has gained some coinage as a livelihood option in the last decade or so; and there will the occasional interest in bijness (often running in the family); but you can bet the barn against finding anything more than the odd aspirant for public life.

Yet, at many levels, politics is the top of the pyramid. Take a country like ours, and it is easy to argue that professionals of all ilk actually have to defer to the neta class more often than any other. Apart from an undeniable power to do good, it is not as if there is no economic upside either (and that is without perforce resorting to UPA my-kursi-is-my-ATM style moral degeneracy). Despite this, politics as a career somehow continues to be considered lowly and fit only for 'the scoundrel'.

Of course, this is in stark contrast to democracies housed in the more developed nations of the West. Politics is right up there with Medicine and Law as career choices for the nation's bright minds. Sure, there are jokes on the neta as much as, say, on a banker, lawyer, movie star, or any other. However, there is no sustained scorn or uniform vilification of the kind we see locally. Thus, talent does enter, and often from the unlikeliest of quarters. In the US, for instance, from a Lincoln to an Obama, politics has accorded means for the the proverbial outsider to rise to the very top by dint of merit (and some timing; but such is true in all walks of life). Must we be so very different?

The mostly commonly profferred hypothesis for this dichotomy seems to be the vintage of those democracies. Somehow, barriers to entry are lowered as the democratic model matures over time; and (eventually) the cesspool of politics becomes less murky. However, in this respect, our record of the last few years has been rather uninspiring. One does not have to look farther than the principles that were IAC, to the compromise that is Kejriwal, in order to understand this gap.

Thus, the AAP's apparent descent from the promise of breathtaking change may have ramifications beyond the obvious. Will similar future efforts be equally torn asunder by the fallibility of a few? Were they felled in trying to do much too soon; and is that all we must guard against? Or must we be willing to tread the longer path by galvanizing from within, centred around the two national parties? With the Congress seemingly intent on self-destruction, at least part of the answer is clear. That time is now.

Karnataka 2013: What Next?

It may not have made a monumental difference to its result. Yet, I did not enjoy being forced to watch the recent state elections in Karnataka entirely from the sidelines. I had little choice though. Our move to India's IT Capital was far too recent for us to have a vote, and I got a taste of what it would feel to be among the disenfranchised.

As it turned out, the contest was even more one-sided than expected. The incumbent BJP dispensation, battling misgovernance and corruption charges as much as a widely perceived disconnect with the electorate, was always faced with an uphill task. Perhaps it would have weathered the storm better. However, a three-way split in its vote left it with no chance. A beleaguered Congress, stung nationally by a second summer of scandal (and intervening winter of discontent), had some reason to cheer with a clear mandate in the state.

I don't know if many in the BJP were surprised by the result. Sure, India's principal Opposition party would have been happier if not pipped to #2 status by an HDK led JD-S. Equally, they rightly worry about the ground ceded, not only to a resurgent Congress but even the JD-S, in the usually more discerning urban vote. Yet, the saffron dream had gone sour in their fabled 'Gateway to the South' a lot earlier. Naturally, their spokespersons tried their feisty best to minimize airtime on Karnataka results, and focus debate in national media on the scam-battered Centre. (That a bumbling UPA-2 continues to provide grist to these windmills, has more to it than meets the eye perhaps; but that is another story.)

Does the Congress have enough to rejoice in its Vidhan Soudha victory? I would call it a mixed bag. Faced with a possibile rout in Andhra and expected reverses in TN, the UPA is desperately looking at states to make up its losses. As things stand, it comes up woefully short. That, incidentally is the reason behind the unashamed wooing of a Nitish in Bihar despite a 'committed' Laloo ji who remains Barkis-is-willin'. One hears of a personal subtext too in Shri Chidambaram's new-found bonhomie with the Bihar CM; a fact that Congress High Command may be unwilling to admit publicly. At any rate, gains in Karnataka help, but must be seen in context of its relatively small 28 MP size in Lok Sabha arithmetic.

How does that leave the BJP (in itself a complicated call; it seems too much to prognosticate on the NDA overall) in 2014 battle stakes? It is clear that they have their work cut out. For starters, the fixation with the leadership question is almost reminiscent of the erstwhile Janata party; as if the electoral contest was in the bag and this was the only issue left to be resolved.

At one level, the BJP's predicament is understandable. It is difficult to see the party cross 200 minus Narendra Modi at the helm (so the cadre believes). Truly, no figure polarizes the debate in India today more than he. That so few folks in our polity tread the middle ground when it comes to NaMo, must count as a significant achievement of post-2002 Congress strategy. Of course, a wide section of the media sympathetic either directly to it, or to the 'secular' cause, has willingly played ball. The last word on this remains to be said though; I am sure this will occupy centrestage over the next few months.

Coming back to Karnataka, it is do-or-die for the new regime to consolidate the vote ahead of LS elections next year. Fact is that 2014 remains a tough call. Can the UPA get its governance mechanism back enough to perform an unlikley hat-trick? Shall the BJP and-or NDA get its house in order, politically and electorally, to get third time lucky? Or will an unfortunate nation be subject to a post-poll Third Front-led ragtag coalition as many pundits currently postulate? Lets keep watching.

Corruption: Obelix and the Magic Potion

There is much in R-Day celebrations to tug at the heartstrings. Its crowning moment is the parade: rich in nationalistic appeal, celebration of valour, and pride in the achievements of a republic but a few score years old, and culture thousdands of years young.

In addition to patriotic fervour, R-Day is also just occasion for solenn contemplation. In thus ruminating over the state of the nation, one can't help but rue as to what ails its fortunes. Today, the most prominent such malaise is corruption. The affliction is hardly new, but has become so endmeic at the top, so brazen in its extent, that it has become morale-sapping and threatens the very fabric of our motherland.

This is not scare-mongering. Take black money, which has a deeply symbiotic relationship with corrpution. A few years ago, the Swiss Banking Association reported that banks in Switzerland had around $1.5 trillion in deposits from Indian nationals. Compare this illicit stash to the size of our formal economy, especially one that is strapped for investment to spur growth, and you wonder at the possibilities.

Of course corruption is hardly the preserve of those with access to Confoederatio Helvetica (or Bahamas, the Caymans, BVI, or other similar global money-laundering havens). Enough exists around us, in form of the friendly neighbourhood policeman, sarkari babu, driving licence agent, and so on. However, when the Central Govt gets as mired in it as UPA-2 has, then the nation starts to lose its moral compass. After all, what deterrence is to be expected when not a day goes by without headlines screaming obscene amounts and prominent names neck deep in graft. It appears almost no part of Dilli sarkar is left untouched.

With the stench in Raisina Hill reaching unimaginable proportions, one looks for answers. The mind goes back to a UPA-2 corruption headline of a different kind. A year or so ago, then CEA Kaushik Basu, had offered a striking formulation (endorsed amongst others, interestingly, by INFY co-founder Narayana Murthy). Shri Basu spoke of legalizing bribe-giving so as to encourage reporting, thereby improving incidence capture.

As solutions go, perhaps we need something similarly drastic to shake us off our slumber. This idea though, however innovative, is a slippery slope. It can easily degenerate from honest reporting, to wilful entrapment (lessons from news channel sting operations that have bred their own format of corruption). Stretch the point and one could start offering bribes by default. If caught, you are protected since it was only civic duty, trying to unearth the corrupt. Rinse, repeat, till a pliable babu is found. Voila.

My other bone with such legalization is how it shifts the onus of catching the corrupt to whistleblowers, thereby diluting the ownership of the relevant authorities. Like it or not, it is the government's job to identify and nab the dishonest. Outsourcing it to sundry 'citizen journalists' of potentially dubious intent and zero oversight, sounds ominous to say the least.

Much as the heart would wish otherwise, but there is no magical solution. Very little in the proclivities of the current government thus far suggest that a different, deep-rooted attempt to counter corruoption is likely to be made soon. It may take a regime change for the requisite political will to surface, and perhaps thats what one must pin hopes on, this 26-Jan.

Shape-shifting Monster

Being a toddler-parent means toys of assorted shapes and sizes are an inveterate part of existence. I have one of either gender, and would like to believe that neither is overly pampered. Yet, there moments when I am at wit's end as to how so many trinkets make their way into the house (my childhood benchmarks clearly don't apply, outnumbered 1:16 or so). At the same time, I cannot but marvel at the ingenuity and imagination that powers many of these. Colour-changing cars and shape-shifting beasts fall in this category.

It was such an object of fantasy that offered the perfect metaphor during a fevered discussion the other day. The conversation went somewhat like this: my friend, part of the domestic Insurance industry, was trying to argue for more instiutional indulgence (government, courts, banks etc) to support the fledgeling sector. At some point in the evening, the conversation went to ULIP, one of my pet peeves, (as I have written earlier), thereby prompting the monster reference. I don't know how the tete-a-tete ended (some Dalmore was involved!); but perhaps a few notes from it bear repitition.

In a nutshell, that India is under-insured is in no doubt, but there's more to the picture. We ought to know too that, other than bank deposits, Insurance is the most popular financial product in town. It has a legacy that goes back decades: LIC in its present avatar itself is about 60 years old; National started in 1906; and there were companies in this business in most of the 1800's. So the industry is no babe in the woods.

Cut to the present as well and data shows 20% of household savings going into insurance (all of Equity including MF is at a paltry 5%). Likewise, take AUM: Insurance is 10X of equity MF, with ULIP alone being more than double of Equity MF at last count. Insurance, therefore, can hardly claim not to have felt the love.

This brings us back to the point on ULIP. Just the last 10 years have seen the industry peddle them aggressively to a gullible public, with disingenuous advertising and aggressive distributor incentives. The opaque nature of ULIP performance reporting and high exit costs were common knowledge, perhaps even deliberate. Certainly they did not speak to any genuine effort to serve the Great Unwashed.

The IRDA did (belatedly; and perhaps only driven by turf war) attempt to rein in the monster. Fee structures as well as rudimentary visibility levels were mandated. Yet, even after 2010, the most notable message we heard was ‘new, improved’ plans accompanied by significant switching cost. Shape-shifting right there!

In truth, glancing beyond ULIP at traditional plans too show up the industry as pretty lazy. Despite lofty goals of under-insured India etc, these products (term cover is a particularly glaring need) are sold with terms mired in complicated legalese, unfriendly surrender and claims processes and overly high sales commissions. Once again the IRDA has attemped some fixes, but these are arguably half-hearted or too late.

Summarizing, it is not difficult to posit that the Insurance industry has itself to blame for much of its ills. If only the Indian investor was a tad more discerning (and not perplexedly averse to equity), the heat on them could, in fact, have been worse. For now though, the monster lives to see another day.

The Son of Cash

Cash is King. Or, in the context of our government's benefits structure "cash is leaking". We have known about this for a while: I vividly recall having dissected the ills of India's subsidy framework as part of Economics curriculum in College in the 90s; and it was a well-worn fact then. Commentary focused on flaws in the mechanism and mushrooming of vested interests that were mooching off it. Indeed, the latter had gotten so well entrenched, and critical voices so muted, that the infirmities had became part of the accepted, expected ways of working of mai-baap sarkaar.

Little wonder then that, far from being shown the door, the framework has continued to prosper to this day. Sample this: the GoI spends an estimated INR 3.65 for every Rupee of benefit to reach its intended target. The resultant fiscal burden across the 3F's (subsidy categories: food, fuel and fertilizer) is clearly unsustainably high already. Yet, there is every indication from our government, reeling under the influence of NAC-chhaap Welfare State model, that the economic cost shall escalate further.

Before casting our eye to the future, it may be instructive to take a look at the design and delivery challenges that plague our mechanism today. First, the design is inherently faulty. For instance, food subsidies are run via PDS, pivoted around identiication of BPL (below-poverty-line) needy. This tagging has been a corruption magnet. Inability to pay bribes for BPL ration cards means large swathes of true beneficiaries remain denied benefits, while the subsidy bill for the government continues to grow.

Next, lets talk about delivery. Staying with the food example, there is little control over diversion of subsidised grain (meant for BPL households) to open market by ration shopowners wanting to make a quick buck off the price differential. Likewise, practices like adulteration, false BPL cards, or stockpiling lead to leakages. Upstream too, we have distribtion losses in acquistion, storage and transport due to substandard quality and potential for corruption. Finally, the government spends a packet in administrative expenses to keep this massive rig afloat.

Now, the mammaries of our welfare state are expected to grow (the GoI seems serious about the Food Security bill). This makes the case to entirely overhaul the benefit distribution process even more compelling. Simply put, the need of the hour is to replace the corrupt and convoluted PDS with direct cash transfers to the target population. Life changes dramatically at the consumption end, with a pronise to empower the needy; bid goodbye to the ration-wallah's corruption and coercive power; and incentivize quality supply. Likewise, the government's unproductive (administrative) subsidy burden gets a haircut from dismantled PDS, reduced sourcing & storage expenses and tech-enabled planning & monitoring.

One cannot, of course, expected it to be a walk in the park. The most critical element is target identification. UID is trying to solve this tagging problem multi-dimensionally (technolgy, process, controls, change management). Helmed by Nandan Nilekani since last year, one should expect a good outcome here. Next, the farmer lobby would need to be managed: anything that is seen as encroaching on MSP and government's grain offtake, is a political hot potato. It remains to be seen how much will UPA-2 has to tackle this. At another level, the availability of cash (and presumably an increased amount) in lump sum has been called out as a cultural problem. Fears are that menfolk would drink this 'windfall' away. Not only for this reason, but as broader social empowerment or financial inclusion move, the GoI would do well to contemplate transfers to the Lakshmi, the woman of the house instead. And so on.

Cash, in any event, is likely to see a return, if only in a new avatar. Even if not perfect (and we don't know all the questions yet, far to speak of all answers) it cannot be but an improvement from the mess we have today. Much of this will be played at the level of policy, even more in execution; we have seen UPA botch up both umpteen times. Yet, for the high stakes here, let us remain hopeful.

2B Or Nought 2B

A degree in Economics and early years trading commodities mean that the markets hold me in an enduring thrall. I mostly restrict my passion to delivery trades though; F&O action is rare. Equally, those that I talk equities with are folks that classify more as investors than traders. This means that margin speculation is around the fringes of my stockpicking existence.

I was, however, greatly intrigued with JP Morgan Chase's losses on account of derivatives trade last quarter. For one, the amount involved was an obscene $2B (frankly, my imagination runs short when faced with such astronomical sums, for reasons not entirely unrelated to my humble circumstances)! I hear too that many believe the actual hole to be at least twice that ungodly number (phew).

Of course, markets are replete with instances of mindnumbing losses. I was in College when Nick 'I'm Sorry' Leeson brought down Barings. He was neither the first, nor last, in a long line of operators whose avarice or ambition (but almost never ineptitude) delivered similar shocks. Indeed, the trail of destruction in their wake often had more than a fair share of the humble investor in addition to institution in question.

Naturally, it begets the question as to how organizations of considerable repute come to such massive grief. These are not easy to reconcile with the high quality of internal talent either (case in point: Jamie Dimon has been a star in an industry under intense public scrutiny of late). We ought to know of process or technology inadequacies that resulted in failure to detect and correct the situation.

In the current instance, for starters, let us rule out that Options as a financial product itself is an issue. Arguing this is like blaming steel for knife-wounds in ghetto crime. That out of the way, the picture is no less messy, with mismanaged hedges at JPMC's London Treasury at its core. The sequence went thus:

JPMC, like any commercial bank with funds in its charge, needs to optimize returns (invest in high quality, long term bonds) vs liquidity (via overnight money market, at near zero interest in a QE world). Too much liquidity lowers the spread between investment returns and what the bank pays depositors; too little risks it running out of cash. Bond investments need protection too, since prices vary inversely with interest rate. When rate moves up it is a double whammy for the bank: its investments erode in value, and it coughs up a larger 'share' of returns due to increased interest outflow. Naturally, banks hedge such exposure, including through Credit Default Swaps (bankruptcy-protection instruments).

By all accounts, JPMC's Treasury at London was running huge positions. This forced them to trade massively in a relatively small, illiquid CDS market as a hedge strategy. This created price skews that drew hedge funds (and others) seeking arbitrage opportunities. Continued aggression from 'London Whale', however, meant that the distortions grew larger (valuations changed an unheard-of 50% in three months). Pressure on CDS market players mounted: the game was too expensive and prolonged. They were angry, but could do little in an unregulated market with the Whale running amok.

If this was bad, it soon turned worse. Perhaps realizing limitations of the original CDS hedge strategy, Whale & Co devised new plans. Defying logic, they got into related but riskier instruments, with further exposure to volatility. Hedge funds started to sense the desperation and waited for the nut to crack.

Meanwhile, this had rung alarm bells within JPMC too. Reinforcements from the core i-banking unit were sent to London Treasury. It did not take them long to figure out how untenable and inherently risky JPMC's position was. They wanted out, presenting the perfect revenge opportunity to hedge funds and CDS market punters. To liquidate the trades, these players wanted their price. $2B, or more, is this pound of flesh.

Perhaps I am guilty of over-simplification (for more gory details, refer an excellent article on the Whale at Seeking Alpha). Regardless, the episode throws up a few conclusions. The most critical is the need to regulate such specialized (and illiquid) markets. Another lesson is the limitations in deploying narrowly defined, fixed technical strategies to mitigate risk.

In an 'Occupy Wall St' backdrop, it is worthwhile to note too that this was not a case of i-banking excesses that have fired up public imagination and invited lawmaker attention lately. In fact the scene of crime at Chase commercial bank Treasury in London is far removed from JP Morgan i-bank. Of course, the starring role for CDSs is a throwback to GFC, but that's about all (or an 'ought-to-regulate' lesson at max).

Unless you own JPMC stock, therefore, the pall of gloom and hyper-suspicion is somewhat ill-founded. A sigh of relief too, may not be out of line. Until, of course, the next quake strikes.

NCTC - Intel Inside

By all accounts, Shri P Chidambaram, our Home Minister, does not take kindly to fools. Nor, can stakes be higher than on Terror, with multiple strikes over the few years highlighting our extraordinarily vulnerable national security status. Yet, when GoI shared a "50 Most Wanted" dossier with Pakistan a few months ago, it was a disgrace (two on the list were in India). That very fortnight, CBI's pursuit of Kim Davy (Purulia arms drop notoriety) in Denmark ended with egg on the face owing to an "expired" extradition notice.

Those 'bureaucratic gaffes' were, of course, only the latest in long history of ignominy (Kargil, 26/11, David Headley, Red Corridor being but a few of its more sordid chapters). Questions were asked of Indian intelligence, or the lack of it. In response we were told to think beyond the CBI, NIA, IB and RAW, all under our venerable Home Minister's charge, to NATGRID, his pet project. NATGRID would allow 11 security agencies access to 21 linked databases covering financial, travel, immigration, asset ownership, telephone and internet usage information for individuals and entities in the country.

Arguments had been made against a NATGRID style response. There were concerns around diffusing focus away from building good ol' Hum-Int with a grandiose but potentially ineffective programme. For instance, it may not raise any alert for an American citizen with Caucasian looks, no cellphone or financial records in his name (save, perhaps, every itinerary with return via Pakistan; an obvious need to brief ISI-LeT) thereby missing Headley. Equally, the potential for assault on personal liberty and data privacy with Government's power to obtain sensitive information without warrant or consent, bred its own share of D Thomases.

Resolution to these, naturally, lay in a well-considered approach. Last week's order notifying the creation of NCTC, alas, displays none of this sure-footedness. In typical PC fashion, it managed to raise hackles all over instead. Opposition-ruled states are up in arms, for one, when Center-State cooperation would be ideal for seamless execution. Likewise, we have conflicts within GoI's own framework with RAW (external intel); NTRO (collection and analysis); and NIA (investigation and prosecution), all of whom have mandates broader than counterterrorism. Nesting the NCTC under the IB, a body sans parliamentary sanction or oversight, too reeks of shoddy legal formulation, if not downright empire-building on part of the Home Min.

PC apologists may point out that feedback has gone into the current notification vis-a-vis his original plan (IB centenary endowment lecture; Dec 2009). This had the NIA, NTRO, NCRB and NSG under the NCTC; as also the counter-terror work of RAW and CBI. Yet, even if watered-down, NCTC remains deeply flawed, most notably in its lack of separation of analytical and operative powers. Add lack of governaceto that, and we can put the US miliatry-industrial complex to shame in its reach. I hope sense prevails soon, with a better design that helps our counterterrorism effort acquire effective teeth. No terrorism-frontline State (for we are unmistakably one) worth its salt should settle for any less.

Bihar: A New State of Mind

I have been meaning to stay a lot more connected to my hometown. Despite intention though, physical visits have been few and far between. Thus, it was a direct call to action when the W alerted me to my expected housebound status for the next few weeks. I planned a trip in a jiffy, managing to cover Patna, Muzaffarpur and our ancestral village - all in the space of one weekend.

Hurried as it may be but the trip's mood was ponderous; and overall much upbeat. In fact I came away with my intent to travel Patna-wards markedly stronger. This reinforcement, admittedly, is partly on emotional counts. Yet, Bihar's almost unique socioeconomic theatre too contributes to my renewed resolve.

For the record, I have long believed my beloved native state (often including Jharkhand in the bargain) to be a microcosm of India at large. Indeed, its fertile Gangetic plains or mineral-rich badlands present, firsthand, a quintessential paradox: penury-amidst-plenty. Of late, in Bihar like in India, nature's bounty fought and lost a daily battle with the grime and toil of life in poverty. Equally (and perhaps inevitably), beyond the obvious despondency and squalor, a subterranean strife constantly tested the overt social detente, the undercurrents often erupting in murderous class wars.

Talk history and the microcosm argument is actually an understatement. Bihar's leadership - in thought or wordly terms - is sans parallel. Yet, some years ago, an otherwise discerning (non-Bihari) friend had scoffed at my assertion that Patna (Patliputra) was capital of 'India' longer than any city but Delhi. For Doubting Thomases such as he, try google the following to get a sense of what I say: the Buddha, Mahavir or Guru Govind Singh; Balmiki, Vishwamitra, Aryabhatt, Panini, Gargi, Maitreyi, Vatsyayan, Banabhatt or Chanakya; and certainly the Guptas, Mauryas, Ashoka or Sher Shah! (The list is by no means complete.)

I believe too that there was more to my aforementioned friend's mirth. The unfortunate but undeniable truth was that Bihar had simply lost the plot over the years. Always in news for the wrong reasons, it was tough to associate glory or excellence with the state. Appreciate too that through the 90s and this millenium's first few years, the Indian nation was burying its Nehruvian policy overhang in favour of globalization and free market. As sarkari sloth made way for private enterprise, the air was rich with the promise of prosperity, not hollow socialist shibboleths. In this period, the land of Nalanda and the Lichhavi republic was going the other way. As if under a sorcerer's spell, Bihar turned a family's fiefdom, discovering new heights of lawlessness, negative growth rates, and wanton polarization of an already fractious society.

At another level, with liberalization, cable TV came to town. Likely looking for comic appeal, the media lapped up Shri Laloo Prasad and his country bumpkin caricature. Bihar's strongman readily obliged, with bytes or antics more befitting a Bollywood comic than otherwise. Arguably, this was deliberate: playing-up his rustic roots for lowest common denominator appeal. Regardless, he made a virtue of the ludicrous. With a clear development-is-anathema stance (discordant with rest of India) and longevity in power, this perpetuated a rather sorry image of Biharis: buffoons who wouldn't know (or didn't deserve) any better.

For most of this peiod, I was still deeply rooted in Bihar, yet spent significant time outside the state. At its worst, I felt my compatriots had given up hope; that the pithy but patently unfair caricature had grown larger than life. Bihar had gone from being a state to become a state of mind.

I hoped too, that some day, regardless of the dispensation's colour, my home-state's fortunes would rest with a believer in progressive political agenda. Bihar would then feel the difference, reward the change, and break the defeatist psyche. On this trip, driving on a new rural road as alternate route to my village, I felt my idea's time had come (much better than merely talking of Nitish Kumar and Elections 2010; equally hope that having reaped benefits, the NDA regime will push for more in Round 2). Its zindagi mili hai dobara!

Cinema Cinema

I love cinema. At the risk of domestic bliss, I can add that we haven’t got much of it lately (IPTV is a godsend, but the W isn't exactly chuffed at the prospect of which I'm perfectly capable, namely a weekend watching two to four, maybe more)! It is not as if good cinema is my sole preserve in the household though. The difference lies solely in my preference for remote control (some may aver it’s the couch) driven variety versus the more social cinematic experience in a theater.

Interestingly, I grew up to almost no moviegoing, nor much interest in films. Through school, cinema was regulated like fresh air on a chilly winter night: you may be unable to shut it out entirely, but at least limit its intake. I reckon this was mostly in keeping with a general bias towards discipline in upbringing (to which I owe a number of my latter-day strengths). Economics may have played a part too (thrift is good); concern over my grades most certainly did. Thus, I averaged one to two films in the 'hall' (as we called them) a year over this period. These were thanks to a friend who consistently planned such as his birthday outing; and the occasional parental endorsement (Dweep Ka Rahasya was one such: I loved it).

Of course, the few I caught on TV (courtesy neighbours, till we acquired our own in '84) were not without a twist. Given that we did not stay out late, a chunk of these films were incomplete, missing 'climax'! I vividly remember the festive air in our middle-class community too, when Doordarshan decided to telecast movies on Thursday evenings, thus doubling frequency to a joyous twice weekly (the first such offering was Vachan, and I have good reason to forget all about it sans name). In short, the uninspired offerings and fragmented viewership did little to stoke my cinegoer buds (though an ill-understood Achanak or half-seen Ittefaq did plant seeds of love for crime-mystery-thriller genre that I have not shaken off ever since).

Later, the VCR came to town. It brought with it a rudimentary element of choice. Grainy picture quality (not that DD was any different) was small price to pay for the ability to watch what you wanted, and at the pace and time of your choosing. Naturally, video libraries, parlours etc mushroomed all over town. At home, the Pater made decisions of his own though (likely inspired by my scholastic record) and this contraption only entered the Jha household once the son had been packed off to College! Most of my movie-on-video, thus, was with friends. I emerged much enlightened from these soirees (I can sense your wicked smile, reader!) not the least of which was exposure to cinema beyond mainstream Hindi (a Khamosh or Prahar amidst The Godfather and The Medusa Touch). Not entirely unrelated, this included QSQT, a milestone in the sense I saw as well understood it (ah those vague, vicarious pleasures)!

Come College. My means stayed modest but the joys of freedom more than made up for it, strained by early stirrings of a sense of responsibility. Films played a part in this general process of self-discovery as always, occasionally as input, but often a companion in the journey. The plot stayed true at B-School too; save for a mild sharpening of the pen.

The intervening years have taught me how much I delight in having (almost one too) many balls in the air. As in life, so in the movies (or literature and friendships) and variety is an overarching theme. I can watch almost any movie once, and a few many times to this day. And thus, a remote control helps.

Asleep at the Wheel

One of the most telling descriptions of the bureaucracy in the 70s went thus: "if you can, don't move; if you must, move slowly; if pushed, move in circles; if cornered, appoint a committee!" One can say this most certainly of our economic policy. Despite years of evidence, governments in India hung on to an anachronistic Nehruvian model, mouthing hollow garibi-hatao type slogans, till being forced off our backs two decades ago. Few know this better than our venerable PM. As key apparatichik in the estwhile growth-sapping regime (something Congress propogandists wantonly gloss over) he wilfully fashioned policies that eventually had us staring down the barrel of a gun in 1991.

Should it, therefore, surprise us that, when the bottom falls off the Rupee, or GDP growth plummets to its lowest in almost a decade as it has today, the GoI is a deer caught in the headlights? Dr Singh would have us believe this is all thanks to the global economic slowdown or Eurozone woes (external locus of control; not leadership). Notably he calls out RBI's tight-fisted monetary stance even though structural problems need a fiscal and not monetary response. Indeed, the central bank has little elbow room in the face of oil price risks or current account gap (widest since 1980). I would argue, on the other hand, that the RBI is doing its damnedest to keep inflation in check.

In context, it is important to peel the onion (!) on our inflation problem. Food is a structural shortage story. Agricultural growth at 4-5% is simply inadequate to meet the demands of a burgeoning 1.2B population with real incomes rising 5%. Next, MNREGA pushes up rural wages (10% YOY in Jan 2010, accelerated to 14% now) to unprecedented levels as GoI continues to dole out money with low to no link to productive use. Then the government raises MSP adding further fuel to the fire. Consequent rise in rural wages soon translates to urban wage inflation (via construction and informal workers).

This cycle of food and wage inflation combining to increase input costs for goods has turned our inflation into a structural one. It can, of course, be tackled. The path lies through supply chain efficiency and productivity. These, however, need a strong policy response, not status-quoist bias that is happier with incremental versus exponential change. Likewise, the GoI cannot print its way out of the quagmire, continuing to push populist policies in the run up to elections in 2014. With fiscal deficit spiralling out of control, there is only so much the RBI can do. If he is half the economic genius he is touted to be, then Dr Manmohan Singh knows this. Point is will he act; bell the cat?

The Real State of Real Estate

I plead guilty to being less than laudatory of the Real Estate sector in recent posts. This comes partly from experience: investments where I was promised the Moon have yielded negative to negligible returns. Again, I understand the caveat emptor argument (my ventures being ill-advised, risk-reward equation etc). It could be sour grapes too: nerves made me sit out the boom years and now I am priced out. Yet, it remains true that many of us are wary of the sector and its general functioning in our country.

Logically, things ought not to be in a bind. The dictum of being in money when investing in mitti had been ancient wisdom. Further, India's long term housing shortage story had its takers a decade ago. Little wonder then that, as friendly interest rates and rising household incomes fed core demand, realty prices pushed north. Investors attracted by visible short-term price upswing (perhaps more than long run potential) and overseas liquidity added to the momentum. Landowners made fortunes selling ancestral holdings in New India’s cities (NCR, Hyderabad, Bangalore, Pune etc). 'Buy pre-launch sell pre-possession' became the go-to strategy while a few risk averse or financially constrained folks like I fretted on the boundary!

This is where it began to go crazy. Developers overleveraged themselves using all avenues under the sun to raise money domestically (banks, IPOs) or across borders (ECB, FDI, PE). In short order (unlike most parts of the world), this borrowing stopped funding construction. Instead we had a mad frenzy to build ‘land banks' driven by continuous new project launches, and realty valuations feeding off every cycle. End-users were relegated to the sidelines; investor mood swung into high speculation zone. Fly-by-night developers sprung up dime-a-dozen in urban India, more than a few clearly headed towards a debt trap.

Enter GFC 2008. Liquidity dried up and demand, speculative or otherwise, was hit. It was mayhem. Buyers, caught unware, were the worst off; New India was abuzz with protests against project delays or defaults. The response from even the most well-known realty names was not much to write home; dharnas and court cases became the order of the day. The government could finally not look the other way, virtually leaning on banks to go easy on real estate loans to stop the bleeding for getting worse.

Today, we have come off the crisis edge. Property prices almost regained their peaks last year (although 2011 appears flat). The fundamental issues in the sector, however, have not been fixed for good. Like much else in our beloved country, there is more than meets the eye:

• core demand stays strong, a good chunk unmet. It ought to rise over time for population and prosperity reasons (the good);
• scope for corruption is unabated, ranging from Money Matters borrower scam variety to land acquisition, clearances etc (the bad);
• cash preponderance makes it a money-laundering magnet. Shahid Balwa types shall fester, with vested interest from powerful neta-naukarshah-businessman nexus (the ugly)

Clearly, the only way out of this jalebi of a mess is reform. A solution benefits those looking for roti-kapda-makan; yet others desiring more upmarket addresses; and wannabe investors like I. Hope is at a premium mid-week, but I set some aside for this. And may be rethink those Noida Expressway SMSs again :)