It is very the worse time in generations for the financial sector and we have already seen some of the biggest investment banks collapsing. It was out of imagination that a bank like Lahman Brother will go bankrupt and the biggest bank, Citi bank, will ask for bailout package from US federal government but everything has happened and more is expected to happen.
One of the main reason behind the current situation is cited by the economist is low confidence among the consumers. it is a cyclic effect. low confidence means they spend less and it affect the economy even worse and the consumers spend even more. It has not been many months that the consumers' confidence level was reasonable and this crisis did not seem so deep.
Why this is happening so fast? the only reason we can find is the role of media. In current world, we access to too many TV channels, online and off line news papers and many other sources. It is disgusting to see the way the media has played its role in reducing the consumers' confidence. For last couple of months, every sort of media has published report of collapsing banks, insurance companies and financial institutions on front page. My question is is this demanded for?
Journalist and the media will say they need freedom of expression and need to report the truth. I completely agree with this. My only worry is the way they has reported it. I do not think that all the bad news regarding the crisis has to be reported on the front page. Many of the articles related to 'financial crisis' could have been on the inner pages where the news papers publish news regarding business and economy. Probably it was not mainstream news if a bank collapses in any part of the world. Is this the first time that a bank is collapsing? The media has exaggerated the extent of the feeling of the crisis. It will take many years before the same level of confidence will return and economy will start establishing to see another economic boom.
Monday, November 24, 2008
Tuesday, November 18, 2008
EMI - Are the Indians ready for this credit culture?
Recently I have watched EMI, a movie starring Sanjay dutt. I am not writing movie review so I will not go into the topic of how the movie was. What impressed me was the topic of the movie, EMI (Equal Monthly Installments).
I have worked in indian corporate world for many years to have enough experience of the life of the young and contemporary India. Almost everyone of us was earning more than our parents. We were leading quite good life, going out for dinner, eating pizzas and spending weekends in the malls. Evrything seems very good. but there is a hidden truth that no one knows other the people who are leading kind of "good life". We were paying EMIs. These EMIs can be from credit cards to car loan to house loans.
Many of us had at least 2 credit cards from different banks. We use them in such a way that we can avoid the payment of the bills to maximum possible days without any penalty. Even when we can not pay them in that maximum time frame, we go for credit transfer to second card. Effectively we delay payment by almost 100 days. Even then many of my colleagues have to pay the bills in 3-6 EMIs.
Many of us are too young and have nothing to fall back on in case of any problem arises. We go for buying biggest possible car we can afford to pay EMI for. This is a drastic contrast to the culture of our parents who would have never gone for the biggest car but for the car that would have served the purpose of buying one. None of seems very enthusiastic enough to buy Maruti 800 anymore. Most of these young guys buy at least Santro or something costing in excess of Rs 500,000.
We do not think what will happen if we have some emergency, medical or personal, forget about losing jobs. If we get some other emergency, we always think that we have got so many credit cards so we can afford to spend a few lakhs from them. Everything is fine as long as we understand the cons of this kind of attitude, a new culture.
This new trend has given rise to consumerism in India and is one of the cause of India's exponential growth of urban India in decade. This has been much talked about in all the articles as 'India shining'. We started to behave and act like our American or European counter parts. But there is a basic difference in the life style of the two, Indian and our counter parts in developed countries.
One, though we try to behave like our counterparts but our roots are still liked to the culture of our parents. We change jobs every six months but we seeks and expect permanent and secure jobs from our employers. We are not ready to see pink slips yet. Neither we are ready to work on a petrol pump when we lose. This is a different issue that the working conditions of petrol pump in India are sub standard and exploitative. We have our parents and families living back in small town who see us as urban rich man and feel pride in the local community when they talk about us. Can we break the news of losing job to them? This is what happend in the case of Jet Airways when they fired over 1,000 employees in one go.
Second, people in developed countries have social security system. so they are not going to die of hunger anyway. China, that is always talked about its worse labour laws and long working hours, has public hospitals and education system much better and easily accessible to all the Chinese people.
I feel that we are not ready for the EMI culture. We need not spend all the money every month and try to save a certain percentage everymonth as our parents did. Because just earning more than our parents is not the only way of more happiness. We need to think about total happiness, something I will write another time.
I have worked in indian corporate world for many years to have enough experience of the life of the young and contemporary India. Almost everyone of us was earning more than our parents. We were leading quite good life, going out for dinner, eating pizzas and spending weekends in the malls. Evrything seems very good. but there is a hidden truth that no one knows other the people who are leading kind of "good life". We were paying EMIs. These EMIs can be from credit cards to car loan to house loans.
Many of us had at least 2 credit cards from different banks. We use them in such a way that we can avoid the payment of the bills to maximum possible days without any penalty. Even when we can not pay them in that maximum time frame, we go for credit transfer to second card. Effectively we delay payment by almost 100 days. Even then many of my colleagues have to pay the bills in 3-6 EMIs.
Many of us are too young and have nothing to fall back on in case of any problem arises. We go for buying biggest possible car we can afford to pay EMI for. This is a drastic contrast to the culture of our parents who would have never gone for the biggest car but for the car that would have served the purpose of buying one. None of seems very enthusiastic enough to buy Maruti 800 anymore. Most of these young guys buy at least Santro or something costing in excess of Rs 500,000.
We do not think what will happen if we have some emergency, medical or personal, forget about losing jobs. If we get some other emergency, we always think that we have got so many credit cards so we can afford to spend a few lakhs from them. Everything is fine as long as we understand the cons of this kind of attitude, a new culture.
This new trend has given rise to consumerism in India and is one of the cause of India's exponential growth of urban India in decade. This has been much talked about in all the articles as 'India shining'. We started to behave and act like our American or European counter parts. But there is a basic difference in the life style of the two, Indian and our counter parts in developed countries.
One, though we try to behave like our counterparts but our roots are still liked to the culture of our parents. We change jobs every six months but we seeks and expect permanent and secure jobs from our employers. We are not ready to see pink slips yet. Neither we are ready to work on a petrol pump when we lose. This is a different issue that the working conditions of petrol pump in India are sub standard and exploitative. We have our parents and families living back in small town who see us as urban rich man and feel pride in the local community when they talk about us. Can we break the news of losing job to them? This is what happend in the case of Jet Airways when they fired over 1,000 employees in one go.
Second, people in developed countries have social security system. so they are not going to die of hunger anyway. China, that is always talked about its worse labour laws and long working hours, has public hospitals and education system much better and easily accessible to all the Chinese people.
I feel that we are not ready for the EMI culture. We need not spend all the money every month and try to save a certain percentage everymonth as our parents did. Because just earning more than our parents is not the only way of more happiness. We need to think about total happiness, something I will write another time.
Thursday, November 13, 2008
cost cutting by indian companies (manufacturing and the IT)
Recently there has been a lot of talk by the Indian companies about 'cost cutting'. Commerce minister of India, Mr. Kamal Nath, has said that the Indian companies are running on huge profit margin so they have flexibility of reducing profit margin and continue to operate as normal.
The problem is how much cost cutting is feasible, practically. When the demand is going down for all the commodities in market manufacturers can not keep producing. In the developed countries, there is lot of emphasis on firing the employees whenever the companies face any kind of crisis, financial crisis or even low quarterly profits. The tragedy of system is that the management is rewarded, at the share price go up in short term, for taking such drastic steps. It is a problem for the society when there are unemployed people around. But the social security or the unemployment benefits take care of the people before it becomes serious problem. But this option is not the first choice for Indian managers. India does not have social security system to support unemployed people.
But this cost cutting mantra does not seems to be relevant for the manufacturing companies in India. Most of the companies in organised sector are working very efficiently and the salary is a minor fraction of the total expenditure. It the operational cost that can be reduced by using some more efficient ways or just by stopping production when there is no demand. Bajaj Auto has operated only 4 days in a week after the crisis of 2001, dotcom bubble bust. Workers do not seek to exploit the companies beyond a point and coopearate when they understand there is real crisis. I am sure they will not ask for salary hike in the bad time.
It is completely different story for the IT companies. There employees' salary is the major portion of the expenditures. They generally do not own anything. Everything is on rent, desk chair and computers and the building of course. Most of the IT companies had lots of project from the BFSI (banking, financial services and insurance) sector and these projects were quite rewarding as well. Financial institutions pays well to everyone because it is not their money anyway. Most of the companies had big expansion plans and were recruting like crazy in the last couple of years. They had 10-20% on bench for future projects. They have big margin to cut cost by reducing the strength or keeping at same level as they are. Bonuses might go for the workers in this sector. The young generation that was looking for lucrative salaries in the IT sector will be quite disappointed in this recession time.
The problem is how much cost cutting is feasible, practically. When the demand is going down for all the commodities in market manufacturers can not keep producing. In the developed countries, there is lot of emphasis on firing the employees whenever the companies face any kind of crisis, financial crisis or even low quarterly profits. The tragedy of system is that the management is rewarded, at the share price go up in short term, for taking such drastic steps. It is a problem for the society when there are unemployed people around. But the social security or the unemployment benefits take care of the people before it becomes serious problem. But this option is not the first choice for Indian managers. India does not have social security system to support unemployed people.
But this cost cutting mantra does not seems to be relevant for the manufacturing companies in India. Most of the companies in organised sector are working very efficiently and the salary is a minor fraction of the total expenditure. It the operational cost that can be reduced by using some more efficient ways or just by stopping production when there is no demand. Bajaj Auto has operated only 4 days in a week after the crisis of 2001, dotcom bubble bust. Workers do not seek to exploit the companies beyond a point and coopearate when they understand there is real crisis. I am sure they will not ask for salary hike in the bad time.
It is completely different story for the IT companies. There employees' salary is the major portion of the expenditures. They generally do not own anything. Everything is on rent, desk chair and computers and the building of course. Most of the IT companies had lots of project from the BFSI (banking, financial services and insurance) sector and these projects were quite rewarding as well. Financial institutions pays well to everyone because it is not their money anyway. Most of the companies had big expansion plans and were recruting like crazy in the last couple of years. They had 10-20% on bench for future projects. They have big margin to cut cost by reducing the strength or keeping at same level as they are. Bonuses might go for the workers in this sector. The young generation that was looking for lucrative salaries in the IT sector will be quite disappointed in this recession time.
Monday, November 03, 2008
Is Indian economy safe from financial crisis?
Whole world is facing problem because of the financial crisis started from the Wall Street. Many of the big and once successful banks and financial institutions have gone bankrupt or have to take huge capital support from the national governments. But in India we are made to believe that there is no problem in the market. Though we would like to believe this sort of reports and statements but it is hard to believe that this is true.
For last many months, world is facing the problem of layoffs and recessions but we were denying there was any problem. Jet airways fired over thousand employees who were on probation but the company had to take some of them back because of the government pressure in the election year. No one will say that there was pressure from the government on the Jet Airways but if we look at the huge pending bills for the fuel with the state run companies and the relaxation that the government gave in delayed payment of the bills, it is more than obvious that there was pressure on the company or some sort of hidden agreement to hire some of them back. Now the Prime minister says that the country is suffering from the recession in the world economy but the Indian banks are safe.
This kind of hiding the facts and telling white lie is the biggest concern and it is hard to believe that the Indian banks are safe as claimed by the Prime minister and the finance minister. There is no direct indication that the Indian banks had huge exposure to the subprime problem in the USA but I am sure they will find it difficult to get capital from international market and this will build huge pressure on the liquidity of the banks. Reserve Bank of India is trying its best and injecting more liquidity in the market through reducing the CRR rates etc. But the moral of the customers is too low and low confidence might result in higher rate for the interbank interest rates. This is happening and has been reported in some reports in the Indian media.
Many of the young people working in high paying sectors in India will see large layoffs or recruitment will freeze. This young generation that has taken loans for home, bikes and cars will find it difficult to pay back as per the original plan. If they start defaulting for any reason, Indian banks will have no other option but to declare that they are also facing financial crisis.
Till now nothing bad has happened and we can just hope that it remains so and we don’t face the reality of integrated and open economy started in 1991.
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