Indian Railways - reminiscent of our past

Few weeks ago I had an opportunity to make a train trip to one of the most beautiful beaches in India. After ruling out lot of options we decided to make the overnight journey by train. I was anxiously looking forward to it as its been nearly thirteen years since I last traveled by The Indian Railways.... over these years as I grew up and graduated, post graduated and got myself more involved in the capital markets, I read a lot of how the dynamic railway ministers like Laloo Prasad Yadav had turned around the Indian Railways for the good. Even Harvard Business School had invited Mr Yadav to give a guest lecture on how he turned around the second largest employer in the World (for those who don't know, Indian Railways is the second largest employer in the World, after Walmart!!!).

But what really prompted me to write here is the fact that nothing seems to have changed in the last 13 years!! Definitely a lot many trains would have been added on newer routes but the quality of service and train journey remains the same. You still see the cockroaches in the cabins, the blankets, pillows and sheets still are not the most hygienic to be used and not to mention the same sorry state of the toilets.

I loved the food that used to be served in the trains in my childhood days as it gave me a feeling of an adventure outing, a change from the healthy home food. The menu hasn't really changed much in these 13 long years!! You still get the cutlet bread with butter and sauce for veggies and omelette bread for the non-veggies. The ubiquitous idli-vada sambhar chutney also has not lost its place from the menu options. The chai-chai-chai monotone immediately takes you back to your childhood days when the sound of bottle opener being swiped on cola bottles used to immediately lighten up the eyes knowing the cola man was coming...

In a way I feel the Railways have definitely preserved our past for the generations to come ahead. In our fast paced life when we don't think of any other option other than taking the flight in order to save time, I think one should make a train trip once in a while to feel the roots and also see the country side of the heartland. But nevertheless I think the government should take up a separate project to modernize the Indian railways. High speed trains like the ones that are a common sight in Europe and even our Asian neighbours of Japan and China should be introduced here. Heritage railways should be preserved separately!!

Higher taxes for Wealthy Americans

There is news that US President, Barack  Obama would be proposing what is being called as "Buffett Tax" on people earning more than $1 million a year as part of his deficit-cutting recommendations to the US Congress.

The purpose for such a tax is to bring the tax rates of the wealthy Americans in line with that being paid by the middle class Americans.  Warren Buffett had once famously said that he thinks that he, and other super-wealthy Americans, don't pay enough in taxes. He said his tax rate is 17.4% whereas most middle class Americans pay 30% or more in income tax. It’s really an irony that cannot be explained by simple economics!

No wonder Capitalist America took it so long to realize as to who needs to be taxed more and who less. Taxing the rich and leaving a little more extra cash in the hands of the middle class could definitely change the dynamics of local consumption significantly. It’s vanilla economics, that the marginal utility of a few thousand dollars in the hands of a middle class is much more than that in the hand of billionaire!

In his weekly radio address Obama said that Americans need to be ready to "pay their fair share" to narrow the U.S. deficit, previewing his proposals to Congress. Obama has repeatedly argued for the wealthiest Americans to face higher taxes with fewer loopholes and exceptions as part of the effort to ensure the U.S. debt-load remains in control. In addition to floating the idea of more taxes on the rich, he is also expected to propose companies getting some tax breaks.

It’s no wonder that the Republicans, who have raised the volume on Washington's fiscal problems as the November 2012 presidential election nears, see higher taxes on the wealthy as a problem for jobs, given that entrepreneurs and companies would be strongly affected. It’s really an unfair world where the rich would go to any length to arm-twist the government in preserving their wealth whereas the middle class has difficulty in even building a cushion for tough times.  

Why Government austerity measures are not a great idea

The current global crisis has given governments a new weapon to tackle the precarious situation being faced by them - Austerity measures. Financial times lexicon defines Austerity measure as "An official action taken by a government in order to reduce the amount of money that it spends or the amount that people spend". But doesn't classical economics teach us that in order to come out of a recessionary economy there needs to be increased spending and consumption demand in order to stimulate industrial activity?

US President, Barack Obama announced a $ 447 bn package that would create jobs in the economy through infrastructure spending and government spending. This is definitely a step in the right direction, unlike what governments in Europe are resorting to. Cutting down government spending, pensions and salaries would see its repercussions over a longer period of time. It needs no economist to tell you that these activities would lead to lower local consumption, lower industrial activity, more job cuts and the cycle would get more painful with time.   

What really is needed is a change in habits of the people. Though a difficult thing to ask but then difficult times need difficult measures. This change in habits is something that would come with time. The concept of savings and spending within your limits is something the Europeans need to learn from the conservative Asians. Leverage and Debt is the single most important cause of all problems that the world is faced with now. Asians are known to be conservative investors and that has definitely helped them to sail through the current turmoil. Indians in general have a very high savings rate of 33% of their earnings. I think its not asking for too much if one is advised to spend within their limits. 

By austerity measures, governments are punishing the common man for the wrong doing of the politicians and the financial market culprits. People could also vent their anger through protests and strikes like the ones seen in Greece recently. These cannot be suppressed for long and has the power to topple governments. Instead of passing the buck of austerity on the common man in Europe, it is important to bring the bankers and financial engineers under some sort of regulation wherein a check must be kept on the leverage these guys are taking on their banking assets. Greed for higher returns and commissions has rocked the ship earlier and would do so again in future unless there is some check to keep these in limits. Investment bankers and Wall Street bonuses which defy gravity even in recessionary economy is a clear indication that the very systems which run and govern the Zillion Dollar global banking and financial markets have inherent flaws that is working in favour of a few and against the majority.

Deutsche Bank CEO Just Gave A Terrifying Speech In Frankfurt

http://www.businessinsider.com/josef-ackermann-euro-banks-speech-frankfurt-2011-9

Air India - a sick unit being kept alive on glucose

Every country has a national airline which projects the image of the country to the rest of the World. Some of the national airlines of the likes of Singapore Airlines, Swiss Air, etc have set benchmarks in customer service and quality of flight experience which many private airlines find it difficult to match up. But when it comes to the national carrier of India, we Indians shy away from even travelling in it, leave alone feeling proud of it. Once Air India and Indian Airlines were the only airlines and we didn't have a choice. Currently Air India and Indian Airlines combine have a market share of meager 15%. I don't think air travel in the country would be impacted if we really close down this ailing airlines. The private players would surely be more than happy to serve a larger customer base.

Both Air India and Indian Airlines have come a long way from their glory days. Now with both of them having merged, the mess this combined entity has got into is even bigger. Thanks to an extremely inefficient and bureaucratic way of running business, the national carrier of India is nothing more than a money guzzler. Never in the last decade or more, have I heard that the airline is not in some financial crunch! The airline made some aggressive purchases of new aircraft running into billions of dollars when it did not even have the capacity to repay any time soon. There has been a stage when the earnings from the running of the airline is just sufficient to pay the interest on the huge debt the airline has on its books. Every now and then the airline faces problem in even paying salaries to its employees.

Over the last 3-4 years, Air India has hired numerous consulting firms to advise them on how to "Turn Around" the sick giant. Interestingly the consulting fees paid by Air India for these assignments ran into several crores of Rupees without any meaningful implementation and impact on the fortunes of the airline. The people at the helm of the carrier seemed the least interested in making the unit profitable because the airline was more profitable for their personal gains. I don't want to delve too much into the personal integrity of anyone because sooner or later I am sure investigations would start into the dealings of the senior management of Air India.

Recently the government approved an additional capital infusion of some Rs 6600 cr! This is just one of the many events when huge cash was dolled out to the airline in the hope that things would turn around. But I feel, this is not an easy job to do as the Airline is run with the mindset of an old bureaucratic system.

I think the airline needs to change its policy of keeping employees till retirement. this builds a lot of complacency in the system. More professional and expert hands are needed to make the airlines competitive. I guess its time the government took a decision that does it really need to keep running a substandard airline because of prestige issues or close it down. If prestige issues really matter, I guess they need to really improve the flight experience and customer service at Air India. For the record, latest report from Aviation sector shows that Air India has the lowest on time flight performance in the entire industry. Whereas Jet Airways leads the pack with 91% on-time flight performance, Air India has the figure at a low 71%!! Analysts said Air India employees were slow in clearing and loading aircraft and conducting passengers to their seat....There is definitely lot of room for improvement and the Airline has a long way to go before it becomes the first choice for travelling within India.

Why gold investment never runs out of fashion

One investment class which has found buyers across all generations and category of people is Gold. Often people ask me whether it’s a good time to buy gold now. There is no definition of “now” as whenever you want to buy gold, it’s a good time. You are buying into an appreciating asset and disregarding the short term price fluctuations in gold, you would never lose money in the metal.

There have been fables and dynasties built on this yellow metal. Gold has attracted the attention of man since the days of the Gold Rush when people risked their lives in the hope of making it big with the discovery of some gold mine. Over the generations, the yellow metal has found a place of eminence among the asset classes on account of its never ending demand. There are some facts which one should know about the metal before they commit there hard earned money on the shiny metal.

Gold is an inert chemical element and is one of the most malleable and ductile metal known. The metal retains its shine and colour even when exposed to air and water and that adds to its value as storehouse of wealth. The supply of gold is limited on earth and unlike fossil fuels, it does not get formed through the chemical reaction of the basic materials (carbon, oxygen, nitrogen and hydrogen). Moreover gold once mined remains above earth in some form or the other…. Jewellery, Gold bars, Coins, industrial machines, etc. Till date around 165,000 tonnes of gold has been mined.

Gold has been widely used throughout the world as a vehicle for monetary exchange, either by issuance and recognition of gold coins or other bare metal quantities, or through gold-convertible paper instruments by establishing gold standards in which the total value of issued money is represented in a store of gold reserves. Gold has been fascinating mankind since ages. Egyptian hieroglyphs from as early as 2600 BC describe gold, which king Tushratta of the Mitanni claimed was "more plentiful than dirt" in Egypt. Gold is mentioned frequently in the Old Testament, starting with Genesis 2:11 (at Havilah) and is included with the gifts of the magi in the first chapters of Matthew New Testament. The Book of Revelation 21:21 describes the city of New Jerusalem as having streets "made of pure gold, clear as crystal".

A recent report ranked the central governments of different countries according to their gold reserves. No wonder, US Govt. topped the list with close to 8900 tonnes of gold reserves. India was ranked 12^th on the list, but when it comes to gold consumption, no country can match up to India as far as the demand for gold is concerned. India consumes nearly 25% of the gold produced each year mainly in the form of jewellery. So if we consider both the government reserves and gold in the form of jewellery with the citizens, I am sure India would top the charts comfortably. It goes without saying how Indians have always realized the true value of gold which many countries are now realizing considering the weakness in the dollar which has been the measure of a government’s reserves.

Gold investment worldwide has grown dramatically in the last five years, but compared with the total stock of financial assets, gold bullion investment is still just a tiny proportion. Several factors are now stimulating gold investment by new pension fund money - as well as by private investors. Sales of gold jewelry across Asia are surging as the local economies boom and private investment grows. China's gold investment demand grew by 20% in 2009, while Indian consumers bought a record 900 tonnes – well over one-fifth of the total world market. Gold buyers in Asia tend to think of their jewelry as a form of gold investment. Prevented from owning gold bullion until very recently, they buy gold to protect their savings from inflation and currency shocks. That's why the most popular form of gold jewelry in Asia – heavy chains and bracelets – is known as "investment jewelry" in the gold industry.

Gold mining companies worldwide have failed to meet the growing demand from gold jewelry and gold investment buyers, pushing the gold price steadily higher. The world's No.1 gold mining nation, South Africa, has seen its annual gold output halve since 1998, and new operations in China and Russia - though growing - have failed to pick up the slack. According to consultants "Virtual Metals" total world mining output has fallen by 4% since 2003. Their gold investment analysts don't forecast an early return to growing output.

The surge in crude oil prices has closely matched the gains in gold prices since 2003, but many people now thinking about gold investment will also want to consider the surge in world food prices, the boom in base metals such as copper, and the current all-time highs in the cost of shipping. Rising demand for better housing and durable goods from Asian consumers is certainly a factor. But many gold investment analysts also point to the huge growth in credit and debt in the West. The money supply in the United States has doubled in the last seven years. In Europe, growth in the money supply hit a near-30 year record in late 2007, increasing the appeal of gold investment as the value of each Euro in circulation threatens to shrink under the weight of new notes and electronic account balances.

Why Manmohan Singh should quit as India's PM

Like a large number of Indians, I too had immense respect for Dr Manmohan Singh and felt India would really emerge under the stewardship of his vision. However this hope soon faded away as we Indians came to realize that he would just be a puppet whose reins would be elsewhere. I would not want to delve too much into this as much of bandwidth has already been spent on this.

My view as to why Dr Manmohan Singh should resign from his current position as the PM of the nation is based on the fact that having been the face of the ruling government which is opposing the Jan Lokpal Bill proposed by Anna Hazare and team, it has become a face-off between Anna and Manmohan. People have come to see it as if Manmohan Singh is not against corruption and he is supporting a corrupt government. The real corrupt politicians have taken shelter behind the PM and are using him as a shield. No where in discussion its being said that Laloo Prasad Yadav, Jayalalita, Mayawati or Sharad Pawar are opposing the Jan Lokpal Bill. When in reality they would ensure at any cost that the bill does not pass as then it would mean nailing their own coffin. On the contrary the fight has become one between two honest and respected citizens of the nation.

I think Dr Manmohan Singh should call it a day at his current role and take up role's which involve less of politics and more of intellect which he is gifted with. We need minds like his to steer the nation towards a developed economy which he cannot do under the shadow of higher power and for always being insulted as the silent PM of the nation. It feels bad to hear when people make fun of the gentleman criticizing his silence. He needs to speak up for himself and protect his dignity which he is losing protecting those people who really don't care for him.