- Personal Finance
Financial Turmoil-Indian situation II
October 15, 2008
Finance in India is 2-3 times more expensive. Our business class, middle class is dedicated
( Continued from http://hubpages.com/hub/Financial-Turmoil----Indian-Situation)
I watched an interview at CNBC-TV18 by Shankar Sharma (anchor was Udayan Mukharjee). Sharma seems to be a great guy, so is Udayan. I remember almost 8-9 months back, he had predicted that Indian stock market index Sensex may go down to levels near 10,000. Almost all others at that time were prdicting Sensex going to lvel of 25,000. He is still predicting going below 10,000 level also.
I like the way he analyses the current situation.
He says that other countries including India may continue to underperform USA and USA it self may not do well. A result of this will be US $ becoming stronger (he predicts it may go to 1.1-1.2 euro level). I myself had similar feeling for several months, that India is underperforming compared to USA, quite a bit. This situation may continue at least for a few months. He predicts our downfall in our shares in dollar terms may be 30-40% more and may take 2-3 years to go back to highest level.
I hope we do better than that. We have our strengths also. A lot depends also on government machinery and RBI. I hope they bring to a reasonable level interest rates and crr ratios etc. Actual interest rates in our country for business people work out to be more than 12-13%, in actual practice even much more. Our banks have to buy almost 33% of government low yielding securities or keep cash. Our middle class by and large does not get housing loans below 10% and for not more than 15 years. International corresponding figure if one compares, our finance is almost 2-3 times more expensive. It is indeed credit to our business people that we still are doing so well and also to our middle class that they still work with some dedication. That makes me feel we will continue to do well- if only government does not interfere too much.
(If you want to enjoy Sharma’s interview link is given below.)
Our Karma and detachment theory helps us
Let me also talk about another issue raised by Spengler a few days back in Asia times- quite interesting one. Spengler is an interesting column writer. He writes regularly and mostly with a big bang. His articles generally create immediate reactions to extremes. Currently he is writing mostly on financial turmoil with focus on USA. Spengler some how drags in almost all his articles percentages of reduction in population in the country under discussion. The population growth seems to be negative in most economically better-of countries. I knew that it is causing big changes in age groups, like rising average age etc., in Japan, but only after reading Spengler's articles and of some others, I started seeing that it does have a strong effect in economic and social behavior in many countries. During a recent tour of Hungary, I myself saw that it is a big issue there too. Though, in places like Hungary, reduction in population is perhaps more affected by migration to other countries. Comparatively, in India we have average population quite young.
In the current article Spengler talks quite a bit about a series of interesting books by Reuven Brenner, the Repap Professor of Business at McGill University, beginning in 1983 with History: The Human Gamble and culminating with his latest volume, A World of Chance: Betting on Religion, Games, Wall Street.
Reuven Brenner has an interesting theory. Most of economic and social theories are about studying average behavior and have assumptions that rational behavior will not involve taking strong risks. Brenner argues opposite. He argues that taking risk is an important part of economic and human activity. Hence it should be studied extensively and should be considered as a very normal behavior. It should also form an important parameter in Economic and Social predictions. Bheyrenner argues
“If people reach the age of fifty or fifty-five and have not "made it", what are their financial options to still live the good life? Except for allocating a few bucks to buy lottery tickets, it is hard to think of any other option. If people find themselves down on their luck and see no immediate opportunities to get rich, what can they do to sustain their hopes and dreams?”
Spengler mixes this with his own population-reduction observations. He observes that in USA the population of baby boom- period of 50’s and 60’s is turning to be about 50-55 and in next 20 years, percentage of this age group will jump from 15% to 25%. This together with the theory of Brenner leads, one to some interesting conclusions—“from where the urge to invest in risky sub-prime mortgage related financial instruments got strength?”.
Interesting observations - surely worth studying further, if they are right. What does it say for India. I think in our current style of family life and our theory of “Karma and detachment” reduces our urge to take risks as you grow older. Many in India (specially the so called secular or pseudo secular lot – who brand everyone else except themselves communal) argue that these theories are Hindu and are only talked about but not practiced. For many years they harped on Hindu growth rate, BIMARU states and millions of derogatory terms. Their enthusiasm seems to be increasing day by day. But so is revulsion to their ideas by the silent majority.
My views are quite opposite of this so called our “intellectual class”. I feel we live in this theory of karma and detachment. It inspires us to do work more efficiently at the same time, it helps us to be ready for worst possible scene. We learn to take failures in a calm manner. Further it has nothing to do with the religion. It is indeed cultural and is followed by all in India, whether you are a Hindu, Muslim, Sikh, Christian or Buddhist. It is even followed in the same manner in our neighboring countries, Pakistan, Sri Lanka, Bangladesh or Nepal. It is a part of culture of our region. It helps us in overcoming increase in destructive tendencies as we grow old. Though decreasing family size may have some strong effects on our behavior. Interestingly with decreasing family size, we are also witnessing with Bollywood-culture and spread of Internet and mobiles, an increase in general interest in cultural and religious ideas. In fact they have become a part of fashion for young. That may perhaps compensate for decreasing family size. Let us hope.
Coming back to the theory of Brenner, Brenner is quite right about importance of risk taking behavior. The whole Entrepreneurship indeed, quite a bit depends on this behavior. Every body wants to take risks some time or other. Often winners are those who are ready to take bigger risks.
One may indeed feel like jumping to “Hey! let me also take risks and right now”. But then you also see that current financial turmoil is also caused by the same phenomena. A rash risk taking not only sinks you but a whole lot around you. Risk taking has to be with advance calculations, also of turmoil one may cause in case of failures and preparations to be ready for it. What really Brenner must be arguing is that governments and financial institutions must factor out while creating regulatory mechanism, that success also requires risk taking. Also they should be ready with the consequences, in case failure of such risks already taken.
Let me not hold you now from enjoying Spengler. Link is given below.
Discussion continued on http://hubpages.com/hub/Financial-Turmoil---Indian-situation-III
1. Stephan Lebaton The Reckoning- Agency’s ’04 Rule Let Banks Pile Up New Debt
2. Shankar Sharma’s interview by Udayan Mukharjee at CNBC-TV18
3. Spengler Gambling, economic growth and imagination
4. Thomas L. Friedman Why How Matters