Santa’s Stimulus package for the Indian Economy

2008-12-22T06:29:00.000-08:00

Dear Santa the World Economy is sick. Can you fix it or should we trust the policy makers on this one?

OK let’s look at what the policy makers are doing this Christmas. Well! They are all busy creating and wrapping stimulus packages. God help them. No seriously, please God do help them as they are all going into the unknown.

Stimulus package by definition are designed to stimulate the economy and stop it from sleeping into deeper recession which could lead to deflation. It’s not a rocket science, we know that. So what’s the problem? Any stimulus package with a very short term focus might not deliver the desired result; the package should have a long term objective and not be designed as a quick fix. Unfortunately, there is no silver bullet and no quick fix. The policy markers are in a conundrum. We have seen how the US and UK governments have taken a very proactive and aggressive approach to fight RECESSION. It’s not clear if the measures taken so far are working. The idea is to throw everything at the wall in a hope that something will stick. The problem is nothing is sticking. And despite of all their efforts major world economies are sliding deeper into recession. The recent drop in Japanese exports suggests that the worst is still to come. And with the Chinese economy also not doing as well as expected the health of the world economy is getting worst.

The trillion dollar question is what should be done? Doing nothing is just not an option.

Should the world unite under a global stimulus package? Well, NO! Remember one size does not fit all. The economies are at a different level of development. A universal solution will simply not work and might even be counterproductive. A smart and tailored stimulus package should do the trick without damaging the economy.

So what will be a smart and tailored stimulus package for India?

Keep it simple don’t loose long term focus, identify growth areas, increase spending on public sector services including of policing, education, healthcare, homeland security; increase spending on infrastructure, energy, R&D among others. Provide targeted incentives that will leave more money in the pockets of companies and Individuals and offer more flexibility in this turmoil. This should boost the consumer confidence.

Where should the Government spend the tax payers’ money?

Smart Investments with long term focus: These are essential investments that will create more jobs, provide boost to domestic companies, and keep the growth engine running by insulating the Indian economy from global economic slowdown.

Homeland Security – The Government should spend at least US $ 3 billion over the next 24-36 months on modernizing the entire police force across the country. This investment is badly needed.

Benefits: Not limited to the followings below

- The police force will be better prepared to deal with any eventualities.
- Domestic companies will benefit directly and indirectly from the supply orders.
- Companies benefiting from the supply order will provide more revenues to the state

Government and Central Government Budget in the form of tax ( various taxes) etc.
- A functioning and efficient police force will not only secure the trust of the society but also
bring the crime down which will benefit the Country in the long run.
- Provide more employment across the country.

Infrastructure: The Government should spend at least US $ 20 billion on infrastructure over the next 24-36 months. The money should be spent on ready to go projects.

Benefits: Not limited to the followings below

- Create immediate long term jobs.
- Stimulate the construction and manufacturing sectors
- Provide more revenues to the treasury by the way of taxes
- An investment will generate long term revenues for the Government
- Tangible assets that the Government could sell if required.
- Good and efficient infrastructure will directly and indirectly benefit the companies as well

as individuals

R&D: ISRO is a prime example of India’s R&D potential. The Government should spend at least US $ 5 billion on high end research over a period of 24- 36 months.

Benefits: Not limited to the followings below

- Pitch India as a low cost high end high quality R&D hub
- The investment will stop brain drain
- Create more employment in new sectors
- More revenues to the treasury
- And many others

Education and Healthcare: The Government should spend at least US $ 4 billion on Healthcare and Education over a period of 24-36 months. Investment in education and healthcare is a must. It’s a smart and an essential investment with long term benefits.

These additional spending should be monitored and supervised by an independent body for better implementation.

Incentives to companies and individuals:

Temporarily lower corporate and personal tax
Temporarily reduce the sales tax
Lower the base lending rates
Allow easier access to money supply
Extend assistance to Exporters
Encourage banks to increase lending

The Government should work with the banks and other institutional investors and create a distressed fund that will buy non performing assets from the local banks.

There is also a need to create a credit guarantee agency to boost lending.

Measure to cover the revenue shortfall to the National treasury

- Increase duties on non essential and luxury items
- Remove the subsidies on Oil, Fertilizers and other items. There is no need to safeguard

the domestic consumer in the current market condition. The prices are lower already.
- Reduce red tape and wasteful spending
- Lift ban on the export of commodities including of Cement, Rice and others
- Increase duty on Alcoholic beverages and Cigarettes

There are no quick fix and no silver bullet but a balanced approached should work. The saying is God helps those who help themselves. The markets will come back and there will be parties on the streets again but for now we have no choice but to learn to navigate our way out through this category five hurricane. And who knows Santa might deliver us a rally? Smart investors will still find value and thrive.

2009 - Back to Basics

2008-12-20T06:15:00.000-08:00

All the talk about Recession and now deflation can make anyone nervous. Wall Street pros are making prediction and in doing so creating more CHAOS. So the question is what should we expect in 09? How is it going to affect average JOE on the main street well the short answer to that is things DO LOOK PRETTY BAD but this is not the end of the world as we know it. Yes there will be changes for sure. Wall Street Pros don't have answers but best GUESS and assumptions.

The turnaround will happen only when the average folks on the main street feel that things are going to get BETTER. Unfortunately, the market has not reached BOTTOM yet because the bad news keeps coming. So don't be surprised by the volatility. We should have a good estimate of the economy after the Q1 number for 2009 are out. It should tell us how bad the economy is and should also give us a pointer for 09. It should also tell us if the worst is over. Pros will be tempted to make predictions which will create more volatility and make the main street more nervous about the FUTURE but this should not worry the folks on the main street. Listen! Pros don't have a crystal ball so their prediction is mostly a BEST GUESS. They have made wrong calls.

We don't know if the folks on the main street will keep away from Wall Street in 09 especially after Bernie Madoff debacle. Wall Street of 09 will definitely be different as the fear of God has been put in most heavy weight players who thought they were invincible.

So what’s the message for an average JOE on the main street? Well first and foremost Investing should be based on KEEP IT SIMPLE AND BASIC approach. Invest in what you understand and what make sense to you and not to an exec in Wall Street. Complicated products are not the answer. In all honesty no one understands them fully. This does not mean the death of INNOVATION. In fact innovation is good for the market and also for the folks on the Main Street but Innovation should bring simplicity by making things simple to understand and it does not have to be complicated. The Wall Street pros will have to be accountable and disclose their investment strategy fully. Regulators should develop a better understanding of products they are regulating.

2009 will be the year when we will start going BACK TO BASIC. The markets will come back at some point and there will be parties again on the street but the question will this happen again? I am sure it will. After all we are human beings!

2009 - Going back to Basic

Santa’s Stimulus package for the Indian Economy

2009 - Back to Basics