Great Expectations

I just finished off the web series “The Boys”. Man, the pace of the first few episodes and the premise had me hooked. Not that the season finale was a let-down, but the shock at the end of it all still rankles me after all this time.

Why am I writing about it? I somehow found myself a little rankled when I thought of how India has been kind of like this! We had great expectations from the liberalisation era, only to relapse into a bit of socialism in the mid-2010s. What the market and most of corporate India cheered around 6 years has still not been able to bring second generation of liberalisation reforms, despite 2 back to back strong mandates not seen in 3 decades. I agree that this is no crisis moment, but hey, do we always need a crisis to respond with big bang reforms.

We have had coalition and minority governments delivering reforms in the economic space and we have a muddled economic policy guiding our response to international economic pressures. Ponder on the fact that Bangladesh imports yarn and fabric from India, yet beats India in textile exports. This is partly due to the BD government subsidising a bit of the production cost but is also due to the fact that exports from BD are cheaper due to a devalued currency.

That brings me to my actual point. Nationalism has been the sole guiding factor for our economic policies for the past 6 years. This sells good for the elections but isn’t that great for the economy. The interest rate differential between USD and INR point to at least a 4% devaluation every year in INR levels just to remain at the same competitive levels for exports to grow. The RBI artificially tries to maintain the levels so as the imports don’t get too costly and then once every 5 years or so, they let it devalue at once to let off built up steam (check out USDINR levels in 2008, 2013 and 2018). Now it feels good to know that India has close to 400 billions of USD reserves (treasury bonds, actual currency, account balances) but hey, we are actually subsidising the US consumer when we buy those treasury bonds. Imagine, India indirectly aiding the US economy.

Let’s take nationalism out of our economic thinking. I am not saying that we take a drastic step. Just devaluing our currency by around 8 to 10 % would bring back the competitive levels for our exports. Let’s focus on engineering goods, value added exports and specialty chemicals and not on gems and jewelry, where it is mostly circular routing of money. Let’s use our currency reserves for the actual benefit of Indians and not as a boasting point. Let’s unleash the animal spirits we are so capable of. We would again be the fastest growing economy of the world very soon.

Who wants to know?

I have recently been talking to a lot of businessmen (part of my job being a banker). While most of them are bit reserved about adding new capacities, almost all are unanimous in saying that there is a slowdown in the market. I partly agree with them but then I ask them a question which I think makes them introspect a little bit! Almost every businessman (again anecdotal evidence and not researched evidence) had, in the good old days, invested heavily in real estate. The common thinking had always been, real estate will always go up, isn’t it?

With the IL&FS fiasco and DHFL debacle, the real estate market doesn’t have enough liquidity to sustain itself in the short term. Coupled with a drop in demand due to unfavourable trade conditions, businessmen are finding it hard to service both business debt and/or property EMI (Most of the property purchased is in the name of directors/partners, and not in the name of the company). Now what this seems like is a slowdown, but what it is, is a miscalculation of risk.

Risk management is the cornerstone of any sustainable business. It’s very easy to be swayed when the going is good, but very difficult to change course when the tide turns. I have telling all my clients, especially exporters to keep hedging their receivables. But hey, if the rupee has touched 72 levels, why wouldn’t it touch 74 or 75 levels, is what I am asked. For that I try to reason that, it is better to be sure of what my receivables situation looks like now, rather than punting on the market and then not even being able to realise my pricing for the order. But Greed, for the lack of a better word, is always the fact of life.

So, to sum it up, who wants to know, if this is a slowdown or a recession? Depends on who are you talking to. If you are talking to a prudent businessman, it’s a slowdown and would probably be over once the trade war is resolved. If you are talking to anyone else, it’s a recession which is going to continue way into the next FY.

All I can say is, I am watching from the side-lines. It’s going to be tough but I am quite sure that we would be able to emerge out of this situation relatively better off, if we embrace risk management in the right spirit.

P.S – I wrote most of this post before the GDP figures came in at 5% growth QoQ. So, this would seem a little jarring to anyone. I would still stand by my point that this is a good time to focus on the basics and work on risk management as a good business practice.

Choices

Our life is defined by the choices. As somebody has rightly said and I paraphrase, there are no wrong choices, only experiences. What could be a bad choice in hindsight might be the only option available at that point of time.

So, I have completed about 6 months in Bombay. This is my second inning in this city. Being in this city has been my choice. Not that it was the only option available to me but the fact that it was Bombay made me feel that the choice I am making is correct. Most of my friends felt that I am giving up the easy life of Ahmedabad and returning to Bombay would be bad for me. Hey, I am happy. I have met some great people here and have reconnected with most of my old friends in the city.

There are other things that I have decided to change after spending this half year in the city. Bombay has always provided enough opportunity and avenues for personal growth; however, my weekends were previously spent in boozing and other activities. So that’s my half year resolution of sorts. Of the 25 odd weekends left, I plan to utilise more than half of them to actually add value to me and my family. I plan to keep updating this blog more on the personal and professional journey and that would be the underlying theme of this blog. For my weird ideas, my Tumblr blog would be the ideal ground.

Here’s to new beginnings.