Friday, 30 August, 2013

Inequity of Income and Wealth ...

Rich get richer, Poor get poorer & its impact on us ...

Some time back, I'd written a post on:

As I had emphasized right at the outset of the above post, the optimistic side of things. In this post, I'll elaborate my thoughts about the negative side of things.

  • There is, most certainly, an India where things are hunky dory.

  • An India where luxury products are selling like hot cakes.

  • An India where the malls are crowded, the theatres are crowded, IPL Cricket match venues are crowded, jewellery shops are crowded.

  • Every "middle-class person" is planning to go abroad either for higher education or on a juicy assignment or wants to send his/her children to the US / Europe for similar reasons. Preferably, never to come back.

In the midst of all this reality, there exists another reality. That reality is NOT palatable. That reality is something that we detest, we wish to bury under the carpet, ignore like an ostrich, conveniently bypass in our personal lives to the extent we can.

Let me quote a few examples of the negative sides of the stark reality of India that is as true as all the positives that we used to be proud about:

  • The infrastructure of ALL our major cities is pathetic, to say the least. Even the major roads, the arterial roads, are often filled up with potholes. Violation of traffic rules by EVERYONE is the norm, leading to chaotic traffic. Encroachments ensure that pavements are either non-existent or unavailable for pedestrians, pushing them on to the roads. All this results in
    • Air Pollution
    • Noise pollution
    • Road Rage
    • All kinds of health hazards ranging from respiratory ailments, blood pressure, heart attacks, etc. And an ever-increasing rate of accidents, including fatal accidents.
  • I'm yet to see any signs of any of the above changing any time soon.

  • The inequity in income and wealth levels is incredible. Irrespective of the actual figures, even if we were to go by government statistics, not less than 35-40 crore Indians (That's 350-400 million) will be well below the official poverty line, just about making both ends meet. Poverty is a reality in urban AND rural India.
  • Some of us will say that the MGNREGA scheme has made things a bit easy. But that's for 100 days in a year. For one person in the household. What about the rest of the year?
  • Even among those who are above the poverty line at least another 10 crores (100 million) will be in such dire financial condition that a single medical emergency in the family or a failed crop or the loss of a job will push them below the poverty line.
  • NGOs with a focus on Poverty and school principals actually want double the usual quantity of food stuff allocated for midday meals for schools on Mondays - Because the kids often starve during the weekends. And we're talking about just those kids who have not dropped out of schools!
  • Child labour is a reality. Just go to any neighbourhood kirana store, restaurant, mechanic shop to see for yourself.
  • The percentage of the working age Indians who are enjoying the "safety and security" of an organised sector job is laughable.
  • I'm yet to see any signs of any of the above changing any time soon.

  • Slowdown, recession, joblessness, pink slips - All these are words with which an increasingly large number of middle class Indians are becoming personally familiar from first hand experience.
  • Inflation, especially at the retail level, is running well above 10% (I'm talking about the real rate of inflation that you and I face when we go to the market and not the government figures). Just look at the prices of tooth paste, soaps, edible oils, petrol, medicines, vegetables, fruits, rice, wheat, eating out at restaurants, etc. And compare the prices with what was prevailing even a year ago. You'll know what I'm talking about.

  • I'm yet to see any signs of any of the above changing any time soon.
  • Crime and lawlessness is a constant presence. And I'm not merely talking about rapes. And people are scared to go to courts in a vast majority of cases, as they're sure about the duration of the eventual trial. And often either grin and bear the consequences of a minor theft or assault, or, worse, take law into their own hands. Both are counter-productive for the nation. In the short term as well as the long run.
  • Value systems that used to prevail are gone for good, along with the gradual demise of the joint family system and the competitive pressures due to liberalisation. While I'm not against liberalisation, so-called liberalisation accompanied by endemic corruption is a sure recipe for disaster. And that's precisely where we are headed.
  • An increasing number of youths are willing to consider crime as a career option. Some take to petty crimes, others are even open to consider joining the naxal movement. When incompetent or corrupt (or perhaps both) cops end up arresting a few youths from the nearby slum for every crime that is reported without necessarily backing up their actions with proper evidence, and when they go on to torture such arrested youngsters, it becomes easy for converting such youngsters into a vulnerable lot who will fall into the hands of criminal elements.
  • Government statistics talks about entire districts across several states which are under the de-facto control of naxalites. Alienation of Indians in many parts such as Jammu & Kashmir and the North East is a reality.

  • I'm yet to see any signs of any of the above changing any time soon.
  • The demographic dividend is fast turning into a demographic nightmare. I'm given to understand that around 17 lakhs (1.7 million) engineers pass out of our Engineering Colleges - EVERY YEAR. Out of these, just around 2.5 to 3 lakhs (less than 15%) land up meaningful jobs in the organised sector. The rest of them? God knows what is happening to them??? And, to top it off, these engineering graduates are considered to be the better off among the youth. Wonder what is the plight of those who end up giving up their education after schooling (or drop out even earlier from schools)???
  • I'm sure that the condition of the vast majority of Indian youth will be sub-optimal, to say the least.
  • In the midst of all this, we import virtually everything from crude oil to electronic gadgets to gold to even Ganesha Idols! And all our major home-grown industrialists are increasingly investing overseas. Think of Tatas, Birlas, Ambanis, Videocon's Dhoots, etc. Obviously, they find the grass much greener outside India.
  • If we don't come up with policies to encourage investments in India, obviously our youth will continue to suffer without jobs and our industrialists will continue to go abroad.
  • The brain drain may soon be back. If it had ever reduced in the first place.
  • I'm yet to see any signs of any of the above changing any time soon.

Enough of the above rambling. 

What all the above points mean is that investors need to keep a very close watch on what's happening around them in the country, and not just in the companies where they are investing.

If India does not do well, the companies cannot continue to be islands of excellence. Even if we don't have a revolution or anarchy, it is easy to fall into a trap of severe recession leading to a depression. Accompanied by inflation, this will be a disaster for the Indian economy.

We may end up having a couple of "lost decades", the way Japan suffered.

If, God forbid, India goes into a depression due to all that we discussed above, what should the investors do?

My own suggestion will be along the following lines:

  • Those of you who can afford (financially, socially and mentally), either shift abroad to greener pastures. Or at least try to diversify across geographies by allocating a part of your overall portfolio to invest in global mutual funds, for instance.

  • Without bothering about what the experts and our Finance Minister may say, allocate a portion of your portfolio to invest in Gold (both jewellery for enjoyment and Gold ETFs). That's a hard asset, and while the prices can be volatile, in times of recession and depression, the fall in gold is likely to be much less and it can be encashed easily in case of emergencies.

  • Invest strategically in real estate. Your own home for living can be a convenient priority. While a second flat may appear to be a good investment presently, if there is a massive depression in real estate, apartment prices can fall. Especially in prime locations in the city. Just look at the US experience subsequent to the sub-prime crisis. Instead, consider investing in land. Agricultural land within 30-50 KM from major towns and cities can be a good idea. While the agricultural land can generate marginal income by way of agri-products, the proximity to towns and cities will increase the probability of that area becoming a part of the city over the next few years.

  • Develop the ability to think like a trader even while investing for the long term in equity - Whenever you see profits, keep taking part of the money off the table. Become an opportunistic investor who will keep a part of one's equity portfolio in cash to utilise periodic crashes in the market. Don't hesitate to take cash calls.

  • Stick to either blue chips or high quality mutual funds

  • Keep sufficient sums of money in cash or cash equivalents (like bank deposits and liquid mutual funds) to handle emergencies.

  • Make sure that you have enough insurance coverage by way of term insurance and health insurance.

More important than all the above, ensure that you keep upgrading your skills. This and only this will ensure that you continue to remain employable. You'll notice that even in the worst of the recessions, some individuals in your circle of friends and relatives not only continue to retain their jobs, but also continue to get more than their share of promotions, increments and incentives. Their secret is continuous upgradation of their knowledge and skills not only in their own areas of operation but also in terms of soft skills.

As the old adage goes, conmen and thieves can take your money or physical wealth. They can't steal your knowledge. Keep learning.

Most importantly,

  • Enjoy life. Be happy. You only live once.



Inequity of Income and Wealth ...SocialTwist Tell-a-Friend

Wednesday, 28 August, 2013

Do you know the implications of being a Guarantor of a Loan?

Be a guarantor at your own peril!

Your own Credit Score may be adversely impacted... Beware!

Take a quick look at the following excerpts from Economic Times, August 26, 2013:


If the borrower defaults, the lender can ask the guarantor to repay the loan. 

When a friend or relative asks you to stand guarantee for his loan, don’t treat it as a simple formality. The Supreme Court has ruled that the responsibilities and liabilities of a guarantor are no different from that of the borrower. In this particular case in the apex court, Ganga Kishun had acted as guarantor for a loan taken by his friend, Ganga Prasad, who died before the loan was fully repaid. When the bank tried to recover the loan by selling Kishun’s land, he challenged the move in court. However, after a lengthy legal battle, which reached the Supreme Court, it was held that the bank had the right to recover the dues from the guarantor if the borrower had failed to pay.

Apart from repaying a loan that someone else has taken, the proceedings can negatively impact your loan eligibility. If the borrower defaults, the banks would turn to you for its dues. If you are unable to pay, your credit score will be impacted. Worse, banks consider the loans for which you are acting as guarantor to assess your repayment capacity before issuing you a fresh loan. Hence, ideally you should act as guarantor for loans with shorter tenures so that your responsibility ends sooner. If you are not confident about the debtor’s capacity to repay, avoid becoming a guarantor. 


Even those of us who are reasonably financially aware and financially literate are not consciously aware about the above aspects, especially when a close friend or relative comes along with a form requesting you to be a "guarantor" for a loan that he/she is taking.

Obviously, each of us ought to think a zillion times before signing on the dotted line as a "guarantor" and ask basic questions like:

  1. Are we willing to make the commitment?
  2. Is the borrower likely to be able AND willing to repay on time?
  3. What will be the quid-pro-quo? (It need not be monetary!)
  4. If the roles are reversed, will the other party be willing to be a guarantor?
  5. What will be the consequence if we say "NO"?



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Tuesday, 27 August, 2013

So what if you are a Wharton Graduate? You can still get cheated!

Smart, well-educated & rich?

You can still get cheated!

Beware of Phishing attacks. If you're reading my blogs, I'm sure that you're quite familiar with phishing attacks. And familiar with scams of all kinds. Or so you think.

However, are you indeed sure that some conman will not cheat you?

And even if he can't cheat you, are you sure that he can't cheat your spouse / parent / child?

I'm not so sure.

Take a look at this moneylife article:

The above article talks about how a Wharton graduate (and a successful businessman operating in India) got cheated. An eye-opener for me. I hope that all my folks (and I) make it a point to be extra-careful while taking financial decisions.



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Monday, 26 August, 2013

Organising your Finances after the Bread Winner is suddenly No More

Do you love your folks? 

Make their financial life simple after you are gone!

All of us are sure to die. Some will do so today. A few more will follow suit in the coming week, month or year. Others will follow suit. In due course of time. That's a certainty.

As Yudishtir pointed out in Mahabharat, it is indeed surprising that a good chunk of us tend to think that the first person singular will happen to live on forever. At least when it comes to organising one's financial assets so as to make things easy for the survivors as and when we kick the bucket.

From time to time, we do come across exceptions. Here's a wonderful story of a senior citizen who actually did a whole lot of things to make life simpler for his heirs after he passed away.

Read on:

Now that you've read the above article, do act.

Your turn may come sooner than you would imagine. Sorry for being blunt, but that's a fact.



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Sunday, 25 August, 2013

Housing for those at the bottom of the Pyramid

Low Cost Housing

IIT Madras has apparently built a nice 2-storeyed apartment at a TOTAL construction cost of just Rs. 650,000/=. Yes, you heard that right. It comprises of a built up area of 1981 square feet. The structure was built within a span of just a single month.

Most important, the experts who came up with this building are confident that the same technology can be used to build buildings upto 7-8 floors. And they assure us about the durability and safety factors.

Do read on:

Am sure that this can be a splendid option for low cost housing. And can bring the real estate prices come down to earth. Will our builders take note?



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