Saturday, September 21, 2013

Welcome Raghuram Rajan

Raghuram Rajan has come with a bang.

He refuses to join the FED party and signaled that he is going to target the inflation. While this augurs well to the long term financial health of the country, in short term some inevitable pain is bound to happen for leveraged players.

As expected the corporate mafia is upset. The political class who thought Raghu is a pushover is shell shocked. Chidambaram did not come on TV from yesterday. Montek Singh is so shell shocked yesterday as he refused to comment on RBI policy initially only to do a volte-face later on. We will take you through a happenings around Monetary policy from Mangoman. Your only source of very honest and open and brutal truth of Indian Economics.


Chidambaram would have thought Raghu would help him to buy time until next elections.  This is especially true when Raghu said last year that RBI was having room to cut rates. My opinion is that Raghu underplayed until he gets the chair and after getting the chair he is doing what he has to do. I fully support his action. That is how we need to do it.  Montek Singh who looks like a intelligent is so shocked yesterday and as usual he predicts good times for economy from here on. It should be noted that he along with C.Rangarajan predicted   the bottoming out for the past 5 years which is  unprecedented. Entire political class may not be happy now. But they have no other option but to wait.


The actual policy action is that Raghu reduced MSF rates from 10.25 to 9.5 and increased Repo rates from 7.25 to 7.5.  In actual terms this is net positive for banks. Banks and Industry to be thankful for him to reduce the rates. But still they are critical of him. This is because he sounds very hawkish and raised the rates.

The actual fact of the matter is that the MSF is primarily a liquidity instrument and banks are not supposed to borrow in that window. If a bank is doing good business they will manage their own funds and even in times of crunch Repo would help them. If Repo also exhausted then they should go to MSF which was introduced recently after Lehman collapse. But the in-efficient Indian bankers now claiming MSF as a birth right and continuously using this window for their day to day operations. This is because

1. For most of them their loan book is nothing but a sham.
2. A lot of money is stuck in real estate and except the retail loans all the other loans are stuck and they merely do  a CDR or eve rgreening of loans. Even then they are showing huge NPA's inspite of CDR's.
3. That causes them to draw money from Repo daily to the tune of 2 lakh crores until few months.
4. Since Subbu restricted Repo they are using MSF.
5. Instead of being happy to see reduced MSF, they are concerned.

Pratip Chaudhuri

A side comedy show is being enacted by SBI Chief. In my opinion is one of the chamcha's for Finance Minister. Having broken his nose twice during previous Subbu's regime, he is not stopping talking nonsense. Already ridiculed once by Chakraborty, he is not stopping talking about CRR. He always advocates the CRR should be abolished.

Yesterday Raghu took a dig at him by telling that CRR issue is a peanuts compared with larger issue. Now we can take a informed decision whether IMF economist Raghu is right or Chaudhuri?

After Raghu spoke about peanuts, Chaudhuri was furious and he shows his displeasure known by telling the MSF rate reduction is peanuts for him. What a loser?

I have already written a few articles about this Chap. Last week he spoke about SBI flushing with funds and now he says he is gonna to raise rates. He may tell because of others increasing rates he has to. Whatever may be.

I wonder what is his problem in raising the rates? probably he thinks that if he raises rates then the valuable borrowers like kingfisher will not borrow from him? Is that it?  The dancer who does not know dancing is criticizing the stage. This is what happening in India.

Pratip Chaudhuri is a typical example of Indian Banking System. The lazy bankers.

Raghuram Rajan

Now Raghu having raised Repo and has given a message to market and others that he is gonna to attack inflation. But mangoman is not ready to give full marks to Raghu even though I feel he started right. In my opinion Repo has to be raised to another 1% immediately.  There are thousands of policy rates floating around in India. He has to abolish all rate and keep only Repo and CRR.

The good thing he said is that unlike Subbu, he said he is neutral and not committing anything to corporate mafia in terms of rate cut. He links rates to inflation clearly. That is only the reason markets as well as corporates, bankers all are upset.

Sunday, September 8, 2013

Raghuram Rajan Effect on Brokocracy

A rally in FII controlled stock market. A marginal retracement in the badly battered Rupee. That is all it takes for the economic pundits to say that Indian economy has bottomed out and the Raghu magic has started.

Is it true? In my opinion it is too good to be true. What is true is that Raghu has done some home work and has come well prepared. He has taken a gamble. Whether that is a calculated gamble or not will be known in due course. The outgoing Governor is spot on when he says Raghu should try to come out of the chakravyuga in Indian Economy. We will see in detail later in the article.

Let me summarise clearly. What is the problem now?

1. High Current Account Deficit 
2. High Fiscal Deficit
3. Low Rupee Value
4. Corporate Balance Sheet Stress
5. Banks Asset Stress

Simply put this is all due to a single reason, and that is corporate greed. The growth which we see now is a myth and you ask anybody. Except a handful of people everybody else is feeling a lot insecure today than 10 years back. Even for the rest, the secure feeling they have is mostly false. The perceived value of their real estate asset is the reason for their brave face and that too will go in few months time from now.

Before go into further details, please read the following article    which says  that the The size of the RBI’s balance-sheet in March 2002 was close to Rs 3,50,000 crore. In March 2013, it had ballooned to as much as Rs 22,00,000 crore.

This mindless expansion has increased the inflation hugely and any economist who has a different view should be either a idiot or a cheat. In India the problem is without applying the basic economics everybody is talking about out of box solutions. Because these cheats very well knew that the basic economics is not supporting their cheating ways. Hence, if any corporate or bank guy says that RBI is following a tightening monetary policy, either he should be a lunatic or cheat.  And since a majority of them falls under the category of cheats. What are their arguments?

1.  India needs 9% growth every year because the population is huge and inflation is not at all a problem and many people has come out of poverty because of monetary expansion.

I am asking why there should be 9% growth and how it can sustain? The corrupt politicians fell into the trap and to satisfy the corporate crooks they made this expansion happen and now we are in the situation where we are now.

In 1990 if they fix 10 Rupees per day as poverty line limit and if they use the same 10 Rupees per day as poverty limit now in 2013, then we have no other option then to doubt their pa knowledge.   The figures I use may differ. But the matter of fact is we need to calculate accurate figures there and try to fix the poverty line and then decide how many came out of poverty? This should also includes the life style of current years. This should also include the kind of social security we have. Even a dog cannot believe that quality medical facilities and education facilities are available free in India.

Let us see, how this expansion spoiled the country. This is nothing new.Easy money flows to banks first because rates are low. Due to inherent weakness in the Indian system the money is not properly monitored and so most of this money went into unproductive areas. This very well explains that except the Golden Quadrilateral which is the contribution of BJP, we have not built any infrastructure. The money thus printed only helped a select set of corporates and they are the people who having tasted the cheap money is still asking for cheap money. I can give some names. You can add entire CII and FICCI goons in that.  Not to forget the Real Estate Mafia. The easy money flows into real estate naturally because the sector is run by black economy. The easy money finds real estate as the parking space. The 2000's is the time where government pushed the housing loan in big way. This along with the balance sheet expansion shows that it is a planned conspiracy by the government. The government supported real estate by giving income tax concessions and also it gives virtually free hand to the real estate goons to loot the country.

One interesting observation I make here is that entirely 90% of Indian upper middle class is heavily invested in real estate and 50-60% of middle class in invested in real estate. Now these people who has heavy presence and influence in media and other places are supportive of government's expansion policy only because it further increases their real estate asset value. This personal interest is stopping them from seeing the real effects. 'The emperor is naked' effect.

Coming back to the point, the bad thing about the easy money is that it asks for blood continuously. This we are seeing in US and Japan as well. First you reduce rates. Then when you hit 0 % rates, then you buy bonds ( Japan). We are going against the basic economics here and these countries are finding it hard way. In India's case, this is further complicated. These countries with huge money printing still do not have run away inflation. But we do have all the extra problems.

We, Indians by nature are not disciplined. So now almost all corporates lost the ability to do the business with decent returns. We found real estate is the best investment and almost all the corporates in India dabble in real estate. The problem is that the corporates compare the profit they make in their core business with real estate and conclude that real estate is the best business, or conversely they expect the same profit margin of real estate in their core business also. We do not know who spoiled whom. Finally everything is spoiled.

The effects are showing now. This has become a ponzi scheme. Now to continue this business we need the following:

1. The inflation has to go up in the same rate ( 10% per annum)
2. People earning also should go up in the same pace

We know the later cannot happen. Even the inflation also cannot go up at this rate, and if we continue at this rate, then we are staring at Zimbabwe kind of situation in few years from now. Please google search for inflation in Zimbabwe to find the scary things.

To cut the story short, the income levels are not increasing. The government cleverly avoided investing in education and health care. It is strange that Indian governments, instead of building hospitals giving insurance cover to people for private hospitals. We, like a beaten to death dog, not asking any question. All education is privatised and shamelessly ask us to go for education loan in nationalised bank which again has our money.

Now to cut the story further, Raghu is expanding our balance sheet further. Basically in my opinion he is buying time for Congress until the elections.

But still I trust Raghu for the following reasons

1.  He may know all this and he may want to really help the country.
2.  Based on the above assumption, by buying time he may want to
                  a) Prick the RE bubble
                  b) Discipline the corporates
                  c) Control the inflation
3. The noises he made so far made me think that he intends to do all this given above.

But again, he has to face heavy opposition from

1. Corrupt Government
2. Corporate Mafia
3. People ( yes, having invested huge in Indian real estate, we Indians ourselves may not allow him to do right things. It is strange but it may happen)

However in short term, the SWAP things can go against him if he cannot deliver in Rupee front. Because the hedging cost is borne by RBI now and he is giving fixed cost of 3.5% to the banks now. As usual banks are going to splash the money to real estate brokers as we are in brokocracy ( we are not a democracy). So the real risk is that RBI will have to borne the hedging cost. That may complicate the situation further.His brave pitch against corporates (promoters) may look good initially. But he will be taught a lesson or two from our corporates shortly.

I may continue the article :)

Wednesday, September 4, 2013

Raghuram Rajan have to show some spine

Mangoman wrote few days back that Rajan has to be judged after his first monetary policy. But now the situation warrants that mangoman write something to Rajan before he takes over from Subbarao.

1. Corporate mafia will start shedding crocodile with every new person coming into Mint street. He should be wary of these cheats as they are responsible for the economic collapse of India.

2. Rajan should teach them the basics of economics and basic ethics of business practices. He also should tell them the importance of doing business with decent margin than obscene margin.

3.Corrupt government is not going to encourage rate increases. But Raghu has to bite the bullet as the RBI's bond sales are continuously devolving. That shows the system is screaming for rate increase. Anybody who takes are rate cut at this juncture must be a criminal.

4. Gold consumption is going to hit sky high. Better not to treat the symptom. He should straightaway raise the deposit rates and should make the financial instruments viable.

5. He should look into banks like Yes bank and Indus Ind bank and see that how many rural branches they have, instead of asking the new banks to open 5000000 new rural banks when they start operations.

6. He should tell cleary which inflation measure he is going to follow  WPI or CPI? Central bankers cannot talk as per their whims and fancies..

              ( to be continued)