Wednesday 14 December 2011

Governance and impact on the economy

Governance and impact on the economy

Look at the year 2011 thus far - Domestically:

  • Series of Anna Hazare fasts - Resulting in policy paralysis
  • Multitude of scams, with several political bigwigs going behind bars - resulting in policy paralysis
  • Telangana crisis - Most of AP comes to a grinding halt
  • Manipur blockade - Large chunks of the north-east come to a grinding halt
  • Politicisation of a multitude of issues ranging from Mullaiperiyar dam, Dow Chemicals boycott demand, Afzal Guru "non-hanging", Rajiv Gandhi killers "non-hanging", etc.
  • Release of people "wrongly accused" of acts ranging from terrorism to murder - Obviously the suffering that those who were wrongly confined for no fault of theirs are not going to be happy Indians.

Each of the above, individually, can cause immense harm to the economy.

We've had ALL the above.

Unfortunately for us, despite all the above, the Euro crisis and the continuing US economic recession happen to be an even bigger threat to the Indian Economy. In addition, our neighbours - Pak, China, Nepal & Sri Lanka - Each of them have their own basket of problems which have a direct or indirect impact on our economy.

Result:

  • Runaway inflation that refuses to climb down
  • Significant slow-down in our GDP growth rates
  • Ever increasing inequality and vast disparity in income and wealth levels among different segments of society
  • Huge fiscal deficit becoming even worse

I don't see any of the aforementioned problems going away any time soon.

Each of the problems appears to be nowhere near a solution and is only likely to get much worse in 2012.

I'm sad to be a scare-monger. However, the problems are only too real. And growing bigger.

We need to be prepared.

Some suggestions on the financial front at an individual level:

  • Review your asset allocation and increase the weightage to safer asset classes
  • Increase the "Emergency Cash" levels
  • Be opportunistic (to utilise the violent moves in the equity markets and to use the temporary "high interest" offerings from reliable institutions like PSU Banks, Infrastructure bonds, etc.)
  • Reduce your "risky asset" allocation
  • Be very wary of complex financial products
  • Be prepared for violent fluctuations in the prices of Crude Oil, Gold, Metals, Agri-products, Forex rates, etc.
  • Be liquid to the extent you can.

Take care. Be very very cautious.

Regards,

N


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