Why Rupee is falling Freely

23 Aug

It is said of Keynes that during a recession he said – make roads, make rail lines, dig up wells and fill them. He spoke of a cycle of activity – monitory reward – expenditure of monitory reward – expenditure bringing in economic activity in terms of supplies as services and manufacturing output – revival of economy. This tool is being used by economists to revive and boost up a down turn for decades albeit with some questions and apprehensions. May be not a panacea for economic revival but it is a nice tool.

Greenspan widely practiced lowering interest rate. With low interest rates money flowed into the economy. Which in turn got into economic cycle and boosted economy. Another tool! Exploited by the US Fed and widely stated to be reason for long recession in the USA. Nonetheless it was a nice tool when it worked.

A friend of mine saw at a bank in Bangalore. This business man walked into the Bank manager’s office, walked out with a bag full of cash. Went about running business activities in the city. Evening came with bag full plus “extra” cash, which was profit for the day. Bag full was returned into the bank. “Extra” was split between business man and bank manager. This is one plain example of parallel economy. Challenge is tool by Greenspan has no influence on this economy, that “Extra” which is called “Interest rate” in organized economy is not defined and controlled within in parlance of parallel economy.

My friend Gautam had some extra ordinary misplaced intelligence. He could rattle of half the periodic table and stop somewhere and make people believe he knew the whole. Knowing half the periodic table needs intelligence. Making people believe that he knew the rest of the periodic table is what drives business context in India, which we hail as business acumen, enterpreneurship. This extra unaccounted for advantage is where businessmen gain from in  Indian context. This second half of periodic table is in a way parallel economy. When Gautam joined as production officer with a very small company in Punjab he ended up making more money that I did in multiple years of hard and dedicated work. His employer organization specialized in manufacturing paracetamol tablets. He replaced a certain expensive ingredient in the tablet with chalk powder, made lots of money in the process. When I last spoke to him about five years back he had bought a small plot in an industrial area in Punjab. When you put in a chalk powder the tablet will not function as it should. Social good is hurt, disturbed. Economic good is hurt and disturbed. On the other side Gautam got richer. He could send his two kids to nice schools. He could buy an industrial land. He may have put up a manufacturing plant now. These are two independent but intertwined activities. Some larger picture and balance got disturbed while a small individual element got enhanced. The only challenge is accumulation of these individual elements makes a large picture. All Gautams cumulatively form India.

Hypothetically speaking, the other day I was riding my motorcycle to Jantar Mantar to attend Anna’s rally on Lokpal. I was so excited to take part in Lokpal. I imagined myself becoming Kejriwal and Kiran Bedi one day. Since I have been active part of this group for sometime now Anna and his team recognises me. They usually give some role of importance during such andholans. I want to grow big. Want to become a politician, make big impact in this country. I came across this traffic light. The cop came and stopped me, asked where is your helmet. Oh dammit, in the whole excitement of Jantar Mantar visit I had forgotten to wear my helmet. There was also another reason, when you park your bike at Jantar Mantar there is no guarantee that you will get your helmet back in the evening, someone will flick by the evening. This helmet rule is the most stupid rule on earth. It is my life I need to save with helmet. If I do not wear a helmet I need to pay fine to government. What does this government do with this money they collect in the form of fines. Is there any accountability. I informed the policeman that I am an important man going to Jantar Mantar and said I forgot helmet, apoligised. He said, “Saab you need to pay fine”. I haggled a bit. He agreed to take two hundred rupees and let me go. I reconfirmed will anyone stop me again at next traffic signal. He said no, in case anyone stops he told me to inform you have already paid “fine” at this traffic signal. Glad I was, managed the small issue. Headed off for Lokpal andholan. We need a strong Lokpal in India. Congress government with spineless guy Manmohan Singh ruled by that Italian lady is not supporting Lokpal. What a sad state we have in India. Today we will fight hard. We will get Lokpal bill passed for sure. We are committed.

Long back, I was working with this small Pharma company called Wings Pharma in Bangalore. We were a large organization earlier. However for some issues a big part of this large organization was sold out. What remained was a rudimentory memory of this big group, plus two manufacturing units with nothing to manufacture and sell. We came across this idea, we will manufacture drugs cheaply and employ a Marwadi distributor and use their channels to sell. We enjoyed old time relationship and reputation with this Marwadi distributor and we could influence him and make a good deal. I was young. Wanted to make my presence felt in the Pharma industry. I knew this Marwadi distributor. This fellow was my classmate during graduation. I spoke to him, told I work with Wings. I felt good, here I am working with this company who will make deal with Marwadi distributor company of my friends. My friend asked lots of questions on what products we plan to bring in this deal, what is our capacity all questions. Discussion went well. My friend and I agreed to meet at his office. He reminded me to bring the file I was referring from during the call. I did. We met, spoke at length. Referred to the file for products. Honed businessman that he was, looked into the file saw some gross margin columns. I asked for the file back which he returned politely. He was not happy I did not permit him study well, I did not permit him to copy the file. After I left the office he called my boss, told him I showed him the whole file. He spoke further on the margins we were making, gave a few examples that he perhaps managed to see and got the pricing he needed. Marwadi distributors make the highest money from the Indian multibillion healthcare industry. A billion dollar company I knew made thirty million dollar profits, while its owner made more profits thro a distribution arm he owned separately and also by land deals; the typical land deals included lands he bought cheap and sold later to his organization to set up various facilities. That is one aspect of subsidized healthcare industry, highly incentivised for cheap generics it brings for poor Indians.

I used to own this leather hooded Tommy Hilfiger cap I was proud of. Once I left it at reception counter of a hotel in Hoi An, by the time I came back it was gone. Last week my friend Ron left his laptop bag at his car park, he forgot to keep it in his car boot while he lit a cigarette before driving off. He reached office, realized bag was in the car park, drove back to his car park, picked up his bag and came to office. Ron lives in Singapore. If you were an investor where would you feel safe, where would you prefer to invest.

Money is the unit of measure of success, efforts, intelligence, innovativeness. Money is equivalent of E=MC2 in Physics, magic equation where mass and energy become convertible. Money is the romance of life. More life you put into your life the more romance it is, the more money it is. For more on money I recommend you reading Ayn Rand’s Atlas Shrugged. Being a convertible unit of measure money demands a few aspects such as trust, faith, respect, work and effort. That is why Keynes said make roads, make railway lines, make wells and fill them – symbol of work precedes money. Oxford learned Singh said make Adhaar Card and bank transfer money into people’s account. Sorry – no need of work, effort let alone be trust, faith and respect.¬†

Let me add clarity. We are speaking of two moneys here:

Unit of conversion of success, efforts, intelligence, innovativeness – in Indian terminology lets call it ‘Chutiyapan’ and

Second is – Unit of conversion of deception, lies, cheating systems, quick escalation to zone of success, lets call it in Indian terminology ‘Jugadupan’

When I lost my Tommy Hilfiger Cap that was collective representation of one scenario. When Ron did not lose his bag that was collective representation of a second scenario. In internationalized two systems these scenarios interact, melt together. They exchange and interact thro a system called banking. Banks need to translate all these scenarios and convert all of that using the E=MC2 of Money. We call this collective representation a currency.

Example ‘Chutiyapan’ is currency of one country with symbol ‘Ch’ and ‘Jugadupan’ is currency of another country with symbol ‘J’. Kuch samaz aa raha hai? We Indians are excellent at Mathematics, can someone tell me what is the stable exchange rate for ‘Ch’ and ‘J’

In this article I have also hinted at why Keynesian and Greenspanian models do not seem to be working in Indian currency crisis. Which explains why we do not have any statements coming from Manmohan Singh, PC, RBI Governor or Montek Singh. All that we saw was – Manmohan Singh chiding RBI givernor, which I would argue is misplaced. PC giving plain speak that fundamentals are strong and we will rebound, without any elaboration. Silence from everyone else. Will explain this piece further when I find enough motivation.

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