Ben Bernanke closes happy hours - Straight from the Hip by J Mulraj
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Investing in India - Straight from the Hip by J Mulraj
Ben Bernanke closes happy hours A  A  A

PRINTER FRIENDLY | ARCHIVES
23 FEBRUARY 2013

Global stockmarkets fell 2-3% on Thursday when the US Federal Reserve announced an easing of its Treasury bond buying programme, or QE 3. It feared that a continuous pumping in of liquidity enhanced the risk of inflation and/or formation of asset price bubbles, which ultimately burst.

Lord love a duck!! Who would ever have thought that inflation and asset price bubbles were a consequence of excess liquidity!

Sarcasm aside, the job of a Central Bank Governor is a pretty tough one, trying to draw a line between growth and inflation. He is damned if he does, and damned if he doesn't. Countries like Spain, Greece and even the UK, who are not trying to print their way out of trouble, are facing unacceptably high rates of youth unemployment. Spain's youth unemployment is about to cross 60%. Such a scenario is horrible for the country's future. Frustrated youth lacking jobs would take either to drugs or to crime, or both. UK has just been downgraded by Moody's despite following austerity measures.

The excess liquidity pumped in by Central Banks globally has gone less into building factories, roads, power plants etc, and more into assets. Stock exchanges are up as investors who are happy to take risk to get an extra return invest in them. For investors who want to play safe, they are pumping money into US T Bills, whose yields have fallen to abysmal levels. The US T bill market is an asset bubble that, when it bursts, will cause mayhem. Banks as well as corporate are sitting on piles of liquidity but do not find it a conducive time to invest.

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Entrepreneurs need to have confidence to invest. Alas, our Government does not inspire that confidence, largely because its policies are always subject to flip flops. All the major drivers of growth earlier are faltering. The power sector because of a shortage of coal, and of myriad clearances that are still required to start an enterprise, even after 22 years of economic reform. The road sector because of difficulty in obtaining land. The telecom sector because of the controversy arising after one of the coalition partners tried to manipulate policy to benefit a favoured few.

All these can be fixed by honest and competent governance. The UPA has not demonstrated either. Perhaps one has to wait for the general elections, due 2014, to hope for one that can give good governance. As results of various state elections reveal, those who have delivered good governance are being re-elected. Once this message percolates through to all political parties, and they stop messing around with their divisive policies, seeking to divide the electorate on lines of caste, creed and religion, it would be for the better of the country.

The challenges are many. Technology is a double edged sword. Consider the technology of 3D printing, also called additive printing, for, instead of the normal manufacture of subtraction, where material is cut into the shape required and the rest is wasted, additive printing adds layer upon layer. 3D printing is expected to become more efficient and less expensive and the US hopes it will give it the manufacturing edge to beat countries like China, which depend on low cost labour to give them the edge.

But this technology can also have hugely beneficial effects. 3D printing can, for example, manufacture a kidney thus obviating the need for a transplant! It could do so for other organs as well.

Technology will shape and affect many industries. Consider the impact on medicine of the use of smartphones. This is a must see video. A smart phone, e.g., can be used to do an ECG, or echo cardiogram. There are 20 m. ECGs done every year in the USA, costing $ 800 each, for a total of $ 16b. Many of those could be done using a smartphone. For the US Government, cutting healthcare costs, which are a major reason for its budget deficit, would be a priority. Eminent cardiologis, Dr Eric Topol, interviewed in this video, says that a third of the $ 350b. prescription drugs are a waste and could be avoided with a better understanding of, and with updated tests via a smartphone, the individual patient's needs and body.

All this would mean a huge potential for smartphones and for development of the software apps to make such diagnostics possible. Smartphones could be used to test not only the ECG, but also blood, saliva, glucose levels etc. whenever needed.

Technology is also being effectively used for a long overdue rethink on the shape of the auto industry. This industry, built at a time when fossil fuels were plentiful and cheap, has resulted in a product, viz. the automobile, that is criminally inefficient in the use of the fossil fuel. Barely 1 percent of the energy in the fossil fuel moves the passenger; the rest is wasted in moving the (far heavier) automobile and in conversion to mechanical energy.

The Tata Nano was India's attempt at reducing the disparity between relative weights of the passenger and the vehicle, and is to be lauded for that effort. Last week the company announced that it would use light weight composite material to reduce the weight further. Since this would replace steel, it would lower the demand for steel, and hence of ore.

China has moved ahead in this race. Next year it is set to introduce a $600 car, designed by Volkswagon, that would give 258 mpg. It would be for one person and be made of composite material.

Our policy makers are, woefully, nonchalant about bringing in more fuel efficiencies in automobiles. They are inexplicably kind to auto makers. Whilst other countries in the world have mandatorily imposed fuel efficiency standards on auto makers, and have tightened them over the years, India is still 'considering it'. What rot!

Automakers in other countries are thus innovating to meet the tougher standards. In order to reduce weight so as to meet the higher fuel efficiency standards, automakers are experimenting with using aluminium, composite material and magnesium to replace steel in the body, and plastic instead of glass in the rear window. In the absence of such standards, India encourages the production and sale of gas guzzling SUVs which is against all common sense and environmental consciousness. SUVs are good for the egos of the gun toting people who buy them.

Another innovation is folding cars which are to be used for urban transport and short distance commute. Basically these, too, work on the principle of reducing the passenger versus vehicle weight mismatch. Soon we would have driverless cars, and even pilotless airplanes. Equally fascinating is the Ryno motor, a one wheeled scooter that is self balancing (watch video) and which can be taken/ridden on pavements, in trains and also on roads.

Why are we not innovating enough in India? For one, the large domestic market breeds complacency. For another the Government does not pressure industry to innovate, with such legislation as CARP.

Or consider the mess we have made in the telecom sector, once touted as a success story of economic liberalisation. The roots of the mess lie in the way we dealt with spectrum. The Government used it as a scarce resource, whose value it sought to immediately extract by auctioning it. Buyers of the spectrum got squatter's rights which some used to establish networks and others used to encash on by selling the licence or the company.

Why is it not possible, both technologically and practically, one wonders, for the Government to own all the spectrum, and then auction the use of it, on a daily, weekly or monthly basis. This is so as to avoid a wastage of idle spectrum, called 'white spaces'. Such a system, if it were technologically and practically feasible, would also avoid all the problems associated with a fight over spectrum ownership rights. New technologies such as cognitive radios, can be used to locate free spectrum and use it ("see page 3").

Last week the BSE-Sensex dropped 151 points to close at 19,317, thanks to the 317 point drop on news that Ben Bernanke had shut happy hours. The NSE-Nifty ended the week at 5,850, down 37.

The RBI has issued guidelines for issue of new bank licences. Though India definitely needs more bank branches to proliferate into unbanked areas, it is doubtful whether we need more banks. We have too many. There ought to be a consolidation, especially amongst public sector banks, to ensure that India has at least one bank of global size. We don't. The guidelines also allow banking licences to be granted to brokers and to realty firms, and one hopes that this would not pose a future problem as indeed it may.

The coming week will see the presentation of the Union Budget. This is now more of a television event than an economic one and one does not expect any major changes either positive or negative. One hopes that a roadmap to introduction of GST will be announced, and that would be bullish.

If the sensex were to pierce the 21,000 ceiling, it would start a new bull run. What can cause it to so pierce? The answer is simple; better governance and policies tailored for the nation and not for the political party. Whether this message is heard or not would impact the results of the next elections.

J Mulraj is a stock market columnist and observer of long standing. His weekly column on stock markets has run for over 27 years. An MBA from IIM Calcutta, he has been a member of the BSE. He is Conference Head - India, for Euromoney. A keen observer of events and trends, he writes in a lucid yet readable style and takes up issues on behalf of the individual investor. Nothing pleases him more than a reader who confesses having no interest in stock markets yet being a reader of his columns. His other interests include reading, both fiction and non-fiction, bridge, snooker and chess.

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5 Responses to "Ben Bernanke closes happy hours"
rj
Feb 26, 2013
All that the Indian govt is doing is emulating the US. Same is the case with the Indian industry.
Look at all the huge cars on the roads in Bombay. Overflowing with the large Japanese cars and SUV's.
We need more Nano's and such.
As for the US healthcare problems, you may have read the latest Time magazine that has a 20 page cover article titled "Bitter Pill". Which is the story of how an affluent nation can go down the drain because of unchecked greed.
Hope India doesn't go down that road.
And you can't make body parts with 3D printing.
Like 
ilyas
Feb 24, 2013
Good one. Like 
Anupam Garg
Feb 23, 2013
totally cool videos!! Like 
SHAH RITA
Feb 23, 2013
AN EXCELLENT AND TRUTHFUL ARTICLE AS ALWAYS PUBLISHED BY THE AUTHOR IF THIS IS READ BY ALL COMMON PEOPLE INDIA COULD CLIMB ONE STEP IN A STAIR CASE OF REALITY AND FINANCIAL UNDERSTANDING AT DEPTH IN A SIMPLE AND LOGIC WAY AS IT IS ALWAYS HATS OFF TO MY MOST FAVORITE AUTHOR ALL TIME WHO KNOWS UNDERSTANDS AND EXPRESS REAL ECHO OF INDIAN ECONOMIC REALISM Like 
LOVEPAREEK
Feb 23, 2013
THANKS SIR FOR THE INFO. IT WAS VERY INFORMATIVE REGARDING THE ALL NEW TECHNOLOGY U WROTE BOUT. I WAS SURPRISED TO NOTE THAT 3D PRINTING IS ALSO KNOWN AS ADDITIVE PRINTING.....I NEVER KNEW THAT...THANKS A LOT - RGDS - LOVEPAREEK. Like 
  
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