tag:blogger.com,1999:blog-68865482024-03-07T14:30:52.239+05:30Gut FeelingI write because it helps me to sort out my thoughts in my mind. What I write here is just "Gut feeling" and may not be 100% correct. It is "food for thought" which I plan to refine with your input.
To appreciate my Gut power don't forget to check the ‘I told you so’ section under archive.Neeraj Gutgutiahttp://www.blogger.com/profile/13154574939177790453noreply@blogger.comBlogger96125tag:blogger.com,1999:blog-6886548.post-33415226203165293582016-05-10T15:36:00.000+05:302016-05-10T16:46:17.386+05:30Right2Vote – Our attempt to change the world<div dir="ltr" style="text-align: left;" trbidi="on">
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Introductory video: <a href="https://www.youtube.com/watch?v=Q8WIvmkMnWw">https://www.youtube.com/watch?v=Q8WIvmkMnWw</a><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiHuvjwOqDl78po3pwgDqENFUxFawnxspgNYhhiLs96ecXrtWWOrO3fF9MKOhTYVsPpCKMCDtSYQmBiEC7Q4lKxXhSYpOlRpEGEK2qLemFJR7y_v9pkDxmIHgDExHyzT3EFpF3t/s1600/Right2Vote_black29Mar2016.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiHuvjwOqDl78po3pwgDqENFUxFawnxspgNYhhiLs96ecXrtWWOrO3fF9MKOhTYVsPpCKMCDtSYQmBiEC7Q4lKxXhSYpOlRpEGEK2qLemFJR7y_v9pkDxmIHgDExHyzT3EFpF3t/s320/Right2Vote_black29Mar2016.jpg" width="292" /></a></div>
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In the last 15 years we have regularly seen India being
compared with China. We all are ashamed that our growth rate has been nothing
compared to China. Every-time we try to find a reason for the same the
conclusion is – India is a democracy, unlike China.</div>
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Another regular refrain we here is – ‘Is desh ka kuch nahi
ho sakta’. When we discuss why? The common response we get is, because of the
politics in this country. We believe that good people cannot survive in Indian
politics the way it is structured. In the last 2 years we saw that changing.
Narendra Modi and Arvind Kejriwal raised the hopes of people and we saw a very
higher level of participation by people. (How much our expectation has been met
after initial euphoria is a separate debate for some other time).</div>
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We learnt that if we have to change the country for good we
have to change the politics in this country. And we will have to do it by remaining
an outsider as the best of people once they get into the political system they
become ‘u-turn’ politicians.</div>
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Democracy looked like a perfect system in theory and we kept
failing to understand why it is failing so miserably in practice. Then we tried
to identify what are the key structures which is making the democracy to fail
so miserably. The top three reasons we managed to identify were:</div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">1 1. <span style="font: 7.0pt "Times New Roman";"> </span></span></span>Low voter turnout (lack of active participation
of people in the democracy process)</div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">2 2. </span></span>Funding of election expenses</div>
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3. Vote bank politics</div>
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We concluded that this is what we need to change to change
the country. And Right2Vote is targeted to change that forever.</div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">1 <b>1. </b></span></span><b style="mso-bidi-font-weight: normal;"><u>Low
voter turnout: </u></b>Of all the reasons we identified this appears to be the
biggest reason for lack of efficient democracy in the country. Democracy is
meant to be –Government <b style="mso-bidi-font-weight: normal;"><u>of</u></b> the
people, <b style="mso-bidi-font-weight: normal;"><u>by</u></b> the people and <b style="mso-bidi-font-weight: normal;"><u>for</u></b> the people. If people keep
cursing the Indian politics sitting in their drawing rooms and not actually
coming out to vote then we can never have an efficient democracy. In the last
national elections only 2/3<sup>rd</sup> of the eligible voters actually voted.
This excludes people who didn’t even get themselves enrolled in the voter list.
We identified following to be key reasons for low voter turnout. </div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;"><span style="font: 7.0pt "Times New Roman";">
</span>I.<span style="font: 7.0pt "Times New Roman";">
</span></span></span>Laziness / time constraints / weather / long
queue: We saw a large population which was very active on social media and
other political debates, did not go out to vote just out of laziness with an
excuse from the ones listed above.</div>
<div class="MsoListParagraphCxSpLast" style="margin-left: 0.75in; text-align: justify; text-indent: -0.75in;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="color: red;">We intend to solve this problem by
bringing the booth to them. They can sit in their comfortable home / offices
and vote on their mobile in seconds. No time constrains / weather issues / long
queue.</span></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: 0.75in; text-align: justify; text-indent: -0.75in;">
<span style="color: black; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-themecolor: text1;"><span style="mso-list: Ignore;"><span style="font: 7.0pt "Times New Roman";">
</span>II.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span style="color: black; mso-themecolor: text1;">Geographical
location / distance to booth: Second biggest reason we identified was that the
voter was geographically far away from the booth where he is supposed to vote.
This was due to several reasons including:</span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 1.25in; text-align: justify; text-indent: -0.25in;">
<span style="color: black; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-themecolor: text1;"><span style="mso-list: Ignore;">a.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span style="color: black; mso-themecolor: text1;">NRIs
and others who are based out of India for employment reasons</span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 1.25in; text-align: justify; text-indent: -0.25in;">
<span style="color: black; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-themecolor: text1;"><span style="mso-list: Ignore;">b.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span style="color: black; mso-themecolor: text1;">Migrants
who are located in district other than their home district for employment,
education, marriage or other reasons.</span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 1.25in; text-align: justify; text-indent: -0.25in;">
<span style="color: black; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-themecolor: text1;"><span style="mso-list: Ignore;">c.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span style="color: black; mso-themecolor: text1;">People
travelling on voting day due to professional, employment, business, recreational,
social or other reasons.</span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 1.25in; text-align: justify; text-indent: -0.25in;">
<span style="color: black; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-themecolor: text1;"><span style="mso-list: Ignore;">d.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span style="color: black; mso-themecolor: text1;">People
with disability, health issues, or simply <span style="mso-spacerun: yes;"> </span>lack of transportation facility</span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 1.25in; text-align: justify; text-indent: -0.25in;">
<span style="color: black; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-themecolor: text1;"><span style="mso-list: Ignore;">e.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span style="color: black; mso-themecolor: text1;">Soldiers
and other government employees including election staff who are posted to
district other than home district. </span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 1.25in; text-align: justify; text-indent: -0.25in;">
<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="text-align: justify;">
<span style="color: red;">We intend to solve
this problem again by bringing the booth to them no matter where they are. They
can use their mobile to vote from anywhere in the world</span></div>
<div class="MsoListParagraphCxSpMiddle" style="text-align: justify;">
<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0.75in; text-align: justify; text-indent: -0.75in;">
<span style="color: black; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-themecolor: text1;"><span style="mso-list: Ignore;"><span style="font: 7.0pt "Times New Roman";">
</span>III.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span style="color: black; mso-themecolor: text1;">Voter
list enrollment, verification, missing names, lack of knowledge of location of
booth: There is another set of people who were not able to enroll in the voters
list in time. Or there name was not correctly mentioned, or were not able to
get their name transferred to right district in time. Or simply, they didn’t
receive their voter id card or were not aware of the voting dates, time and
location. </span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0.75in; text-align: justify; text-indent: -0.75in;">
<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="text-align: justify;">
<span style="color: red;">We intend to solve
this problem by giving the voters real time notifications and reminders on
their mobile. Government is already working on linking all voter id cards with
Aadhaar numbers and the mobile numbers. We will be sending regular
notifications and reminders to voters not only for voting but also in case of
any formalities need to be completed by them to be eligible for voting. </span></div>
<div class="MsoListParagraphCxSpMiddle" style="text-align: justify;">
<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="text-align: justify; text-indent: -0.25in;">
<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">2<span style="font: 7.0pt "Times New Roman";"> </span></span></span><b style="mso-bidi-font-weight: normal;"><span style="color: black; mso-themecolor: text1;">2. </span><u><span style="color: black; mso-themecolor: text1;"><u>F</u>unding of election expenses: </span></u></b>It’s
a well-known fact that all candidates spend much more than the permitted amount
in elections. The result is people need substantial funding to fund their
election expenses and as these expenses are beyond the permitted limit it has
to be done with black money. </div>
<div class="MsoListParagraphCxSpMiddle" style="text-align: justify; text-indent: -0.25in;">
<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="text-align: justify;">
<span style="color: red;">Election expenses
increases exponentially because election happens over months in India. All
advertising campaign on national Medias like print, television, social media
need to be carried on again and again for months. With Right2Vote the manpower
required to manage the election is negligible and hence election can be held on
the same day all over the country. This would substantially reduce the campaigning
budget. Also, with complete voter population connected and registered for
e-voting reaching out to them by electronic means and during targeted advertisement
would be much cheaper than print and television and much more efficient then
outdoor mediums like posters, banners, door to door visit and election rallies.</span></div>
<div class="MsoListParagraphCxSpMiddle" style="text-align: justify;">
<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="text-align: justify; text-indent: -0.25in;">
<b style="mso-bidi-font-weight: normal;"><span style="color: black; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-themecolor: text1;"><span style="mso-list: Ignore;">3 3. <span style="font: 7.0pt "Times New Roman";">
</span></span></span></b><b style="mso-bidi-font-weight: normal;"><u><span style="color: black; mso-themecolor: text1;">Vote bank politics:</span></u></b><span style="color: black; mso-themecolor: text1;"> Indians still vote based on the candidate’s
caste and religion rather than based on national issues that affect them. Due
to this reason most parties come up with promises which are to appease certain communities
and get their vote. National interest takes a back seat.</span></div>
<div class="MsoListParagraphCxSpMiddle" style="text-align: justify; text-indent: -0.25in;">
<br /></div>
<div class="MsoListParagraphCxSpLast" style="text-align: justify;">
<span style="color: red;">With Right2Vote a
huge population of migrants including international and national migrants would
be added to the voter list. These are people who have moved out of their
protected communities and living in a cosmopolitan environment and are less susceptible
to vote bank politics. These migrants are generally averse to caste or religion
based vote bank politics and would generally avoid candidates who seek vote
based on caste and religion. This will force political parties to rethink their
election strategies and avoid vote bank politics. Also, if elections are held
in a day rather than over months, the political parties would be forced to talk
on common national issues during elections rather than focusing on regional
vote banks. </span></div>
<div class="MsoListParagraphCxSpLast" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="color: black; mso-themecolor: text1;">What we have
mentioned above is only during elections. But beyond elections also, in an
effective democracy public should be able to get involved and voice their
opinion on key policy decisions like net neutrality, Gay rights, odd even etc.
Right2Vote platform aims to make Indian democracy more participate. </span></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="color: black; mso-themecolor: text1;">We look forward
to your participation to realize our common dream of effective and efficient democracy
in India. Please download the app <b style="mso-bidi-font-weight: normal;"><u>Right2Vote</u></b>
from Android’s play store or Apple’s app store. </span></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
</div>
Neeraj Gutgutiahttp://www.blogger.com/profile/13154574939177790453noreply@blogger.com0tag:blogger.com,1999:blog-6886548.post-33254769083110306722014-12-25T16:52:00.002+05:302014-12-25T16:54:07.257+05:30Gutsunlimited.blogspot.in (my new blog focused on start-ups)<div dir="ltr" style="text-align: left;" trbidi="on">
<br />
After spending 13 years working in infrastructure space, working on billion dollar start-ups. I have decided to focus on start-up space which have potential to make many billion dollar companies with almost negligible investments.<br />
<br />
I am starting a blog ( http://gutsunlimited.blogspot.in/) which would be totally focus on start-up space. Here I plan to discuss various start-ups I would be meeting in the process, the people behind these start-ups and everything about the ecosystem which is very vital for its success.<br />
<br />
My first post talks about why I believe the next decade belongs to India and how these start-ups would contribute to make that happen (http://gutsunlimited.blogspot.in/2014/12/next-decade-belongs-to-india-acche-din.html)</div>
Neeraj Gutgutiahttp://www.blogger.com/profile/13154574939177790453noreply@blogger.com0tag:blogger.com,1999:blog-6886548.post-59220498110631406862014-07-30T10:31:00.000+05:302014-07-30T17:10:00.415+05:30Greed, Fear, infinite loop & Real Estate<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal">
<br />
<br />
<div class="MsoNormal" style="text-align: justify;">
The stock market prices are ruled
by Greed and Fear. Prices go up when the market sentiment is predominantly that
of GREED while it falls when the market sentiment is predominantly that of
FEAR. CNN has FEAR and GREED barometer on its website <a href="http://money.cnn.com/data/fear-and-greed/">http://money.cnn.com/data/fear-and-greed/</a>
to gauge the emotion that is ruling the market at a particular given point.<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
However, there is an asset class
where both the emotions leads to increase in prices and due to this it is only
going up and up for the last decade. The asset class is Real estate.<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
There is a class of investors who
believe this is the best asset class due to following reasons:<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: .75in; mso-add-space: auto; mso-list: l2 level1 lfo1; text-align: justify; text-indent: -.25in;">
<!--[if !supportLists]-->1.<span style="font-size: 7pt;">
</span><!--[endif]-->Leveraging opportunities are very high in this
sector as government and banks provide incentives to people to borrow 5-6 times
of their annual income<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .75in; mso-add-space: auto; mso-list: l2 level1 lfo1; text-align: justify; text-indent: -.25in;">
<!--[if !supportLists]-->2.<span style="font-size: 7pt;">
</span><!--[endif]-->This is one of the only asset class (distant
second might be gold) where parking of black money is very easy and considering
the size of India’s black economy, there is substantial amount available to be
deployed<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .75in; mso-add-space: auto; mso-list: l2 level1 lfo1; text-align: justify; text-indent: -.25in;">
<!--[if !supportLists]-->3.<span style="font-size: 7pt;">
</span><!--[endif]-->There is tax incentive on investment in real
estate and also on capital gains (with a requirement of further investment into
property)<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .75in; mso-add-space: auto; mso-list: l2 level1 lfo1; text-align: justify; text-indent: -.25in;">
<!--[if !supportLists]-->4.<span style="font-size: 7pt;">
</span><!--[endif]-->Real estate is one of the best bet against
inflation and devaluation of currency<o:p></o:p></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: .75in; mso-add-space: auto; mso-list: l2 level1 lfo1; text-align: justify; text-indent: -.25in;">
<!--[if !supportLists]-->5.<span style="font-size: 7pt;">
</span><!--[endif]-->The sector provides opportunity to make big
ticket investments<o:p></o:p></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: .75in; mso-add-space: auto; mso-list: l2 level1 lfo1; text-align: justify; text-indent: -.25in;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
There are equally compelling logic
which suggests real estate is not a good investment:<br />
<br />
<div class="MsoListParagraphCxSpFirst" style="margin-left: 0.75in; text-indent: -0.25in;">
<!--[if !supportLists]-->1.<span style="font-size: 7pt;">
</span><!--[endif]-->Rent realization to property prices ratio is as
low as around 2%. Additional 0.5% is spent on property taxes, security,
insurance etc. Comparing this with around 10.5% interest rate, there is a net loss
of 9% which need to be earned by increase in property prices before any actual
gain can be made. Considering tax saving of 3% (generally actual tax saving is
much lower), still 6% year on year growth is required to ensure break even. For
a 3bhk of carpet area 1250 sqft being sold in Mumbai suburbs at Rs. 5 crore, to
give a 9% return it need to be worth Rs. 43 crores post tax in 2039 when your
25 year loan would be completely paid off. Which mean per sqft carpet area cost
need to increase from Rs. 40,000 per sqft to Rs. 3,45,000 per sqft!!!<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0.75in; text-indent: -0.25in;">
<!--[if !supportLists]-->2.<span style="font-size: 7pt;">
</span><!--[endif]-->There is a transaction cost of around 8% every
time you buy or sell property in form of government taxes, brokerage etc. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0.75in; text-indent: -0.25in;">
<!--[if !supportLists]-->3.<span style="font-size: 7pt;">
</span><!--[endif]-->Property is generally illiquid and when you
actually want to sell it takes 6 to 12 months to actually do the deal<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0.75in; text-indent: -0.25in;">
<!--[if !supportLists]-->4.<span style="font-size: 7pt;">
</span><!--[endif]-->Property prices in secondary market are at a
discount of around 20% then what a builder is quoting. (If you don’t believe me
get a quote from builder and then compare the price on websites like magic
bricks, 99 acres etc.)</div>
<div class="MsoListParagraphCxSpLast" style="margin-left: 0.75in; text-indent: -0.25in;">
<!--[if !supportLists]-->5.<span style="font-size: 7pt;">
</span><!--[endif]-->Property depreciates over time. People end up
taking 25 year loans on property; however nobody wants to buy a property more
than 15 year old. Over time apart from depreciation in form of water leakages etc.,
the technology and trends also change. 15 years back very few properties used
to have club house, swimming pool and similar facilities. 15 years back power
cuts were so prevalent that very few people would go for higher floor. 15 years
back people used to prefer individual units over apartments. Today we can find
in the same locality old property selling at Rs. 7000 per sqft (carpet) while
new property selling at Rs. 15,000 per sqft (carpet).<o:p></o:p></div>
</div>
<!--[if !supportLists]--><o:p></o:p><br />
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 1.0in; mso-add-space: auto; mso-list: l1 level2 lfo2; text-align: justify; text-indent: -.25in;">
<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l1 level1 lfo2; text-align: justify; text-indent: -.25in;">
<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l1 level1 lfo2; text-align: justify; text-indent: -.25in;">
<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l1 level1 lfo2; text-align: justify; text-indent: -.25in;">
<o:p></o:p></div>
<div class="MsoListParagraphCxSpLast" style="mso-list: l1 level1 lfo2; text-align: justify; text-indent: -.25in;">
<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
That was the calculated analysis
of pros and cons of real estate investments. But as we all know investments are
made on animal instincts, based on emotions of Greed and Fear and not based on
such calculations alone.<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
So what is the current mood of
market – Greed or fear?<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
Well, in real estate market
unlike stock market Greed means buy at the same time fear means buy. There is a
class of investors who believe that post tax return offered by real estate
would beat all other form of investments including equity and hence are
investing in real estate. There is another class of investor who has need or
perceived need of property in form of place to stay for the family today or in
future. He is scared that if they didn’t buy today the prices would keep
multiplying while his income would not keep pace and it would become impossible
for him to buy property in future. Hence he is willing to leverage himself to
the hilt to make sure that he buys it now rather than at a much higher price
later. Of course, once he has met his requirement he need a bigger house, then
a second home and then a home for his kids and one for his parents…..<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
In the real estate market there
is a faith that property prices never fall. It going through a phase of
self-fulfilling prophecy and today if there is one person desperate to sell
there are enough buyers who would lap it up for fear or greed. The market has
70% pure investor, 20% investors who have perceived future use, and 10% real
user demand. And there is enough cash being printed in the world to fund these
investors. These investors have holding power, but how long. Unlike other asset
class, real estate is a depreciating asset. <o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
One day people would be more
fearful that prices may fall than being fearful that it would become
unaffordable. Till the day Bull and bear are dancing in a tango music would
continue to play for real estate. The day bear starts fighting with bull the scene
would become really interesting. <o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
The faith/bubble that property
prices never fall has seeds of its own destruction. Till the time people have
this faith people will keep on buying real estate at higher and higher price.
Longer this last the stronger faith people will have that prices can never fall
and that would drive the prices higher even faster. It’s like a driver who
would keep on increasing his speed because he knows that he will never crash.
He would be right most of the time and which will give him more confidence to
keep increase the speed. Can a driver endlessly increase speed of the car? How
will this infinite loop end?<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: .75in; mso-add-space: auto; mso-list: l3 level1 lfo3; text-align: justify; text-indent: -.25in;">
<!--[if !supportLists]-->1.<span style="font-size: 7pt;">
</span><!--[endif]-->The car would reach its maximum speed and then
it will have to run at a constant speed<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .75in; mso-add-space: auto; mso-list: l3 level1 lfo3; text-align: justify; text-indent: -.25in;">
<!--[if !supportLists]-->2.<span style="font-size: 7pt;">
</span><!--[endif]-->The car would break down and it would need some
time for repair<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .75in; mso-add-space: auto; mso-list: l3 level1 lfo3; text-align: justify; text-indent: -.25in;">
<!--[if !supportLists]-->3.<span style="font-size: 7pt;">
</span><!--[endif]-->The car would hit a bad patch, slow down for a
while and hit the purple patch again<o:p></o:p></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: .75in; mso-add-space: auto; mso-list: l3 level1 lfo3; text-align: justify; text-indent: -.25in;">
<!--[if !supportLists]-->4.<span style="font-size: 7pt;">
</span><!--[endif]-->The car would crash <o:p></o:p></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: .75in; mso-add-space: auto; mso-list: l3 level1 lfo3; text-align: justify; text-indent: -.25in;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
Your guess is as good as mine<span style="font-family: Wingdings; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-char-type: symbol; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin; mso-symbol-font-family: Wingdings;">J</span>. The fourth option
looks scary at the same time 1 to 3 are not that bad. Isn’t it? But is he aware
that the vehicle he is driving is similar to the bus Keanu Reeves was driving in the
movie Speed. If he lets the car go down below a particular speed it will blew
off!<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
Real estate is funded by 4
different sources:<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: .75in; mso-add-space: auto; mso-list: l0 level1 lfo4; text-align: justify; text-indent: -.25in;">
<!--[if !supportLists]-->1.<span style="font-size: 7pt;">
</span><!--[endif]--><u>The banks funding the property buyer</u>: The
rate of interest is around 10.5%. Banks fund only 75% of the cost of the
property and maximum up to 6 times of the annual salary. As there is enough margins
and in India people rarely loose job, chances of default in these loans are
very low. In worst case scenario if the prices increase too much very few
property buyers’ salary would be high enough to meet the criteria of banks and
hence the number of transactions would substantially come down. <o:p></o:p></div>
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<!--[if !supportLists]-->2.<span style="font-size: 7pt;">
</span><!--[endif]--><u>Banks fund the real estate companies:</u> The
real estate companies are funded by banks at the rate of interest ranging from
13% to 18% for meeting the cost of construction. Banks get land as security and
if the projects keep getting completed in time and buyers keep buying at higher
and higher prices the sector can afford this rate of interest. Only issue is
when the sale quantity falls substantially and banks and real estate companies
are stuck with illiquid assets. <o:p></o:p></div>
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<!--[if !supportLists]-->3.<span style="font-size: 7pt;">
</span><!--[endif]--><u>Private equity funds the real estate
companies:</u> The private equity guys investing in real estate expect a return
of 18% to 24%. They do a structured deal with the promoters where it looks like
equity contribution, however actually it is a high cost debt. Generally investors
of this class have a time horizon of 5 to 7 years. As this Bull Run started
around 2004, since 2009 onwards few exits have happen, mostly at loss. To
continue to attract this kind of money, the sector needs to live up to its
promise. <o:p></o:p></div>
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<!--[if !supportLists]-->4.<span style="font-size: 7pt;">
</span><!--[endif]--><u>Debt from unorganized market:</u> Builders
also raise debt from unorganized market at the rate of 18% to 36% and then put
into the business as equity. This money is raised as a desperate measure and is
done only on faith without any security or against the security of promoter’s
shares. <o:p></o:p></div>
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Now the driver has to ensure that
he is continuously increasing speed at a rate higher than the debtors car
speed. If the average cost of fund is 15%, his property price increase should
be more than 15% to ensure he does not default. Which means maintaining
constant speed is also not an option. Can a car keep on increasing speed
indefinitely? When & how will this infinite loop stop?<o:p></o:p></div>
<br />
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Neeraj Gutgutiahttp://www.blogger.com/profile/13154574939177790453noreply@blogger.com1tag:blogger.com,1999:blog-6886548.post-25670914199416884882014-03-10T19:49:00.001+05:302014-03-10T20:03:06.138+05:30Obituary to Arvind Kejriwal: The hero who promised to change the system and then became part of the system<div dir="ltr" style="text-align: left;" trbidi="on">
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I am ashamed at the speed at which my opinion has changed
about Arvind Kejriwal. But then this man has changed at such a speed if I do not
change my opinion it would be my ego what would be stopping me from seeing the
truth. <o:p></o:p></div>
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When Arvind Kejriwal emerged from the national outrage
against corruption, we thought our hero has emerged who would lead to change
the system itself. We were scared that the political system is very strong and
would never let a clean person win an election. We used to believe that
politics is the last resort for criminals and crooks and a clean person would
never make it. When AAP almost won the Delhi elections and AK went on to become
the CM, it was like a miracle moment. That moment we thought: a good person can
stand up, fight and change the system. A man can stand up and win against this
system. It was the best moment in our AAP journey. That moment a Kanjoos like
me also went on their website and donated my hard earned money so that from now
on elections would be fought with clean money, without vote bank politics, in a
transparent manner.<o:p></o:p></div>
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But we were wrong. The system was much more powerful than we
thought; it had Aces up it sleeves. The speed at which the system managed to
convert the man fighting against the system to man part of the system is mind
boggling. He became part of the system and started doing everything what other
politicians have been doing all the while. Overnight he became what we were
rooting against. We have not seen a bigger Paltu in our lifetime. His U-turn
list is endless:<br />
<ol style="text-align: left;">
<li><span style="text-indent: -0.25in;">Government cars</span></li>
<li><span style="text-indent: -0.25in;">Taking Government housing and not vacating it</span></li>
<li><span style="text-indent: -0.25in;">Personal Security</span></li>
<li><span style="font-size: 7pt; text-indent: -0.25in;"> </span><span style="text-indent: -0.25in;">Charter Planes</span></li>
<li><span style="text-indent: -0.25in;">Support of Parties like Congress when he has
pledged in his children name against it</span></li>
<li><span style="text-indent: -0.25in;">Asking for proof against Shiela Dixit when he himself
has been before elections claiming to have enough proof against her</span></li>
<li><span style="text-indent: -0.25in;">Vote bank politics</span></li>
<ol>
<li><span style="font-size: 7pt; text-indent: -0.25in;"> </span><span style="text-indent: -0.25in;">Power bill relief to select few who supported him and break the law by now paying the bill</span></li>
<li><span style="text-indent: -0.25in;">Talk about reservation in Delhi University</span></li>
<li><span style="text-indent: -0.25in;">Painting private sector in bad light</span></li>
<li><span style="text-indent: -0.25in;">Using the communal card against BJP, using Jhadoo symbol to appease lower class etc</span></li>
</ol>
<li><span style="text-indent: -0.25in;">False propaganda against good work done by
Gujarat government when his own party members have previously praised that</span></li>
<li><span style="text-indent: -0.25in;">Selling of tickets or giving out tickets to the ‘Khas
Aadmi’</span></li>
<li><span style="text-indent: -0.25in;">Defending his law minister even when enough
proof against him was provided by people</span></li>
<li><span style="text-indent: -0.25in;">High command system against internal party
democracy</span></li>
<li><span style="text-indent: -0.25in;">Funding by Ford foundation & corporates</span></li>
</ol>
</div>
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He became a habitual liar. (Now I think he was always a
liar, we are able to see through him only now). The ultimate was his deal with
media where the leaked video clearly shows him admitting that he is creating a bad
image of private sector for getting votes. The success got into his head and he
got blinded by the ambition to become PM, rather than making good of the
opportunity provided to him in Delhi to make the change he has promised. From a
leader of a revolution he became a Nautanki using the people’s hunger for
change to fulfill his own ambition. From a revolutionary who promised a totally
new system, he became a leftist*2, a Mamta Banerjee who know only two words “cholbe
na…cholbe na”. Rather than changing the system, he started painting everybody
else corrupts except himself. From Businessman to Police to courts to media to
Aam Aadmi , now everybody is corrupt. Neither he refrained from generalization
nor did he tried to find root cause or solution for the same. Just “cholbe na…cholbe
na”.<o:p></o:p></div>
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He forgot that the middle class and lower class has
contributed their hard earned money to make him win the elections. He forgot
that people have left their high paying international jobs to become part of
the revolution with the hope to change the system. He left the opportunity
given by people to create a model for change in Delhi and jumped into national
elections asking people for more donation and more sacrifice of their livelihood.
<o:p></o:p></div>
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What is he dreaming? Does he believe that he can get 272+
seats all by himself? Or this time he is not swearing in his children name that
he will not take support of Congress or BJP? Whose support then he will take –
Lalu Prasad Yadav? Karunanidhi? Mayawati? Mulayam Singh? He justified his
resignation in 49 days in India Today Conclave by saying that “itna seat mein
itna hi milta hai”. What is he expecting in Lok Sabha? I am sure 75% of the people
in India have not even heard about AAP leave alone voting for them. He at best
might get 10 seats. What he aims to do with that. Horse trading? Buy a plump
portfolio? AK I want to ask Lok Sabha me kitna seat mein kitna milta hai. 5
seat mein kya milega and 10 seat mein kya milega? Tell us what you will deliver
rather than finding faults with everybody.<o:p></o:p></div>
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One good thing of this ‘hope of revolution’ is that we have
come out of our lethargy. Many of us at least put in the effort of getting
ourselves registered as voters. Lot more like us are now actively taking part
in political debate on at least social media. This itself is a change. Change
cannot happen overnight. It is not a 20-20 match which we would have preferred
and what AK was making us believe. It’s important that disappoint with AK &
AAP does not make us go back to our earlier belief that everybody in the system
is dirty and good people should have nothing to do with politics. Politicians
thrive on that. Let’s not wait for the ideal candidate and let’s vote for the
best among them. If we do not vote, we will have to live with whatever others
choose for us. Let’s vote for somebody who is at least of sound mind, has shown
decent performance in the past. Politicians appease the voter who is willing to
come to vote and have the ability to get together and demand something. Let’s
become the largest vote bank demanding change. Let’s list down the change we
want and demand that as a vote bank:<br />
<ol style="text-align: left;">
<li><span style="text-indent: -0.25in;">Criminals not allowed to contest elections</span></li>
<li><span style="text-indent: -0.25in;">Right to directly elect our PM rather than
through 543 MPs who change after we have voted</span></li>
<li><span style="text-indent: -0.25in;">Investment in infrastructure (roads,
electricity, education, medical, sanitation, transportation etc.) and better
quality of living</span></li>
<li><span style="text-indent: -0.25in;">Judiciary system that work within defined time
lines</span></li>
<li><span style="text-indent: -0.25in;">E-governance & answerable government</span></li>
<li><span style="text-indent: -0.25in;">Development, Growth and jobs</span></li>
<li><span style="text-indent: -0.25in;">Women safety</span></li>
<li><span style="text-indent: -0.25in;">……….</span></li>
</ol>
</div>
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Modi is symbol of change while continuing in the system; AK
was a symbol of changing the system itself. We will have to do with Modi, till
we find a new hero who is willing to fight the system and change the system.
Our democracy rule books of multiple party etc won’t change overnight and it
will have to be changed from inside. We will have to give clear majority for
Modi to effectively deliver. We cannot afford another five years of Congress
rule supported by crooks like Lalu, Mayawati, Karunanidhi and Mulayam Singh. We
have to change last 10 years of mis-governance. Let’s not forget that we wanted
this revolution because we are fed up with Congress.</div>
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Modi has one black spot
but we need to understand the situation. Riot was result of an equally wrong
incident. We all get blinded when revenge blinds us. Country like USA drops bombs
on civilians in Afghanistan because of wrong deads of select few. We never boycotted
USA. Yes, he should have found out the exact people who burnt the train and
should not have let everybody in the community suffer due to misdeed of few. At
the same time we should not let Congress win, because they not only do not take
any action against terrorists but also shift blame on others for vote bank
politics. Congress is thriving on the fact that we vote against one unfair action
rather than 1000 no action. We have to give Modi the credit that after that
incident no riot has happed in that state. On the other hand places like UP we
end up having riot every day because everybody is playing politics of appeasing
certain vote bank. Unlike them Modi has been following a policy of ‘Development
for all, appeasement for none’. All communities have benefited from the
development of Gujarat and he has not been selective in development. </div>
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We will
have to select a not so perfect candidate, with a good track record of development
and governance and then we will have to demand the changes we want by becoming
the biggest vote bank. We will have to force him and incentivize him to make
the changes we demand. If we don’t give his clear majority he will have to
partner with likes of Mayawati and Jayalalita. They will take their pound of
flesh. If we want him to be effective we have to be unanimous what the best
option in front of us is and go all out to make him win. In real life we will
never get a ‘perfect’ candidate, if we keep waiting for him another 5 years of
Congress rule we will have to suffer.<o:p></o:p></div>
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Neeraj Gutgutiahttp://www.blogger.com/profile/13154574939177790453noreply@blogger.com2tag:blogger.com,1999:blog-6886548.post-64840133066437716642014-02-22T18:44:00.001+05:302014-02-24T12:58:22.131+05:30Gas Pricing - Reply to Kejriwal<div dir="ltr" style="text-align: left;" trbidi="on">
<br />
Yesterday Mr. Kejriwal asked Mr. Modi "<span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;">Would you bring down the gas price from 8
dollar per unit to 4 dollar?"</span><span class="apple-converted-space" style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;"> </span><br />
<span class="apple-converted-space" style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;"><br /></span>
<span style="font-family: Arial, sans-serif; font-size: x-small;"><span style="line-height: 15.333333015441895px;">As I belong to Natural Gas sector, I have drafted a reply on behalf of Mr. Modi. This should clarify all the myths relating to Gas Pricing issue being created by Nautanki Party. Mr. Kejriwal, I hope you have the guts to reply to this one. (please note this is my reply and not the official reply from BJP/Modi)</span></span><br />
<span style="font-family: Arial, sans-serif; font-size: x-small;"><span style="line-height: 15.333333015441895px;"><br /></span></span>
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<span class="apple-converted-space"><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;">Mr.
Kejriwal, our party believes, as you mentioned in the CII meet that “government
has no business to be in business”. We do not want to be into the business of
determining gas price. The Gas price should be determined by transparent
bidding system and precious natural resource like gas should be sold at the
highest price possible. Your ‘Nautanki party’ might interpret the answer simply
to say that the gas price might be higher than even $8.4. Yes, it might be as
high as $14, the price Indian customers are paying for imported and regassified
natural gas in the country. <o:p></o:p></span></span></div>
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<span class="apple-converted-space"><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;"><br /></span></span></div>
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<span class="apple-converted-space"><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;">But you
have to go beyond headline sound bites and understand basic economic
principles. I know you have mentioned that you people do not know and want to
learn by making mistakes in the next 5 years. Indian economy is not a toy car
where you can learn from playing. One bad move can be fatal for the whole
country. We have more than 15 years of experience of running government in
Gujarat and we know what we are saying. Ask any expert they will tell you that
when it comes to using Gas as source of energy, Gujarat state performs better
than all Indian states put together. So we do not only have good intentions but
our good intentions are backed by sound knowledge and extensive experience of
execution.<o:p></o:p></span></span></div>
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<span class="apple-converted-space"><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;"><br /></span></span></div>
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<span class="apple-converted-space"><b><u><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;">Point 1: Scarce natural resources should be sold to the highest
bidder at the maximum possible price through a transparent bidding mechanism
like Telecom spectrum.<o:p></o:p></span></u></b></span></div>
<div class="MsoNormal">
<span class="apple-converted-space"><b><u><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;"><br /></span></u></b></span></div>
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<span class="apple-converted-space"><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;">When the
spectrum was allocated by government and not auctioned you complained (and
rightly so) that there is corruption. Why the same logic does not apply to gas.
Gas is also scarce natural resource like spectrum. Due to high spectrum prices,
telecom service prices also increases for end customers. As the latest round of
spectrum auction has proved, transparent action is the best method of
allocation natural resources and this leads to higher revenue for the
government to meet its social objectives.<o:p></o:p></span></span></div>
<div class="MsoNormal">
<span class="apple-converted-space"><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;"><br /></span></span></div>
<div class="MsoNormal">
<span class="apple-converted-space"><b><u><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;">Point 2: Government allocation leads to corruption<o:p></o:p></span></u></b></span></div>
<div class="MsoNormal">
<span class="apple-converted-space"><b><u><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;"><br /></span></u></b></span></div>
<div class="MsoNormal">
<span class="apple-converted-space"><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;">If scarce
resources like natural gas are sold at below the market price, there would be
more demand than supply and then government would have to step into the role of
allocation of resources which would lead to corruption. Government nominees
would bend rules to favour people they want. Why should we sell these scarce
resources at below market prices to private parties who would make super
profits at the cost of government revenues?<o:p></o:p></span></span></div>
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<span class="apple-converted-space"><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;"><br /></span></span></div>
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<span class="apple-converted-space"><b><u><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;">Point 3: Increasing prices does not means that all goes into
Mukesh Ambani’s pocket. In fact government earns more.</span></u></b></span><span class="apple-converted-space"><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;"><o:p></o:p></span></span></div>
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<span class="apple-converted-space"><b><u><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;"><br /></span></u></b></span></div>
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<span class="apple-converted-space"><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;"> One needs to understand how a Production
Sharing Contract (PSC) works. (These are complicated things and I suggest you
get some expert to help you understand this. For your maturity, it might be
difficult. But still I would give it a try).<o:p></o:p></span></span></div>
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<span class="apple-converted-space"><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;"><br /></span></span></div>
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<span class="apple-converted-space"><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;">When Gas
blocks are bid out, the bidder bids for the percentage share of the produce.
The bidder who agrees to give highest share to government wins the bid. RIL has
won the bid on this basis. In RIL contract the structure is as follows:<o:p></o:p></span></span></div>
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<span class="apple-converted-space"><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;"><br /></span></span></div>
<div class="MsoListParagraphCxSpFirst" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span class="apple-converted-space"><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;">a.<span style="font-family: 'Times New Roman'; font-size: 7pt; line-height: normal;">
</span></span></span><!--[endif]--><span class="apple-converted-space"><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;">Till the time RIL finds any oil or gas in the fields all expenses
incurred is risk capital and if they do not find any Oil or gas the whole investment
is lost. RIL gets no recovery of the same. Generally exploration cost billions
of dollars and chances of success is as low as 10%. You need to appreciate that
companies who have technical know-how to handle such projects would take such
risks only if there is sufficient incentive built in on success. Otherwise our
natural resources would never reach the hands of people<o:p></o:p></span></span></div>
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<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span class="apple-converted-space"><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;">b.<span style="font-family: 'Times New Roman'; font-size: 7pt; line-height: normal;">
</span></span></span><!--[endif]--><span class="apple-converted-space"><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;">Once the company finds Oil & Gas, they have to submit a budget
for development and production from the field. Once the budget is approved,
that budget acts as a basis of cost recovery. So suppose, RIL spends $10
billion on total exploration, development and production then cost recovery is
allowed upto 2.5 times. The ratio of produce sharing would be as follows:<o:p></o:p></span></span></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<span class="apple-converted-space"><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;"><br /></span></span></div>
<div class="MsoListParagraphCxSpMiddle">
<span class="apple-converted-space"><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;">Till cost recovery reaches 2.5 times of $ 10 billion i.e. $25
billion, RIL’s share is 85% and Government share is 15% of the production.<o:p></o:p></span></span></div>
<div class="MsoListParagraphCxSpMiddle">
<span class="apple-converted-space"><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;">Once the cost recovery crosses 2.5 times of investment, RIL share
becomes 15% and government share becomes 85%.<o:p></o:p></span></span></div>
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<br /></div>
<div class="MsoListParagraphCxSpMiddle">
<span class="apple-converted-space"><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;">So suppose earlier price was $4.2 and total sales was $50 billion.
RIL was getting $28 billion and government was getting $22 billion. When the
price is doubled to $8.4 total sales would double to $100 billion. In that case
RIL would get $35.5 billion and government will get $64.5 billion. Hence RIL
revenue would increase by only 26%, while government royalty income would
increase by 193%. And this 26% is before income tax. After income tax, income
increase would be only around 18%.<o:p></o:p></span></span></div>
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<div class="MsoListParagraphCxSpLast">
<span class="apple-converted-space"><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;">Now you should be able to appreciate that when price of gas is
increased it’s the government who gains more in form of royalty. This is apart
from the increased revenue in terms of income tax, sales tax etc. Please note
that this 2.5 times ratio is does not takes into account time value of money.
So if somebody invests $10 billion today and gets $25 billion after 10 years,
and that also after so much skilled efforts and risk, he is not reaping super
natural profits. And that is obvious from limited interest shown by
International Oil and gas majors in taking up such projects in India. And you
would appreciate that we need to invest to be able to get our unutilized
natural gas up on the ground and we need to attract best oil and gas companies
to do that. Resource is of value only if reached the ground. Your Nautanki
can’t get this gas to the ground.<o:p></o:p></span></span></div>
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<span class="apple-converted-space"><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;"><br /></span></span></div>
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<span class="apple-converted-space"><b><u><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;">Point 4: Government should take its share of gas produce in kind
and allocate it to industries as per the social priorities.</span></u></b></span><span class="apple-converted-space"><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;"> </span></span></div>
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<span class="apple-converted-space"><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;">Alternatively, Royalty, income
tax and other taxes collected from Gas sales can be kept in a separate fund to
fund the subsidies to meet the social objectives. This would be more
transparent, corrupt free and efficient method of distributing subsidies. We do
not want to act like congress government who are black marketing the gas at
subsidized price to private companies for their personal gains.<o:p></o:p></span></span></div>
<div class="MsoNormal">
<span class="apple-converted-space"><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;"><br /></span></span></div>
<div class="MsoNormal">
<span class="apple-converted-space"><b><u><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;">Point 5: Indian should end this system of “retrospective
regulatory changes” started by Congress government.</span></u></b></span><span class="apple-converted-space"><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;"> </span></span></div>
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<div class="MsoNormal">
<span class="apple-converted-space"><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;">That does not only effect the
foreign investment into the country but also affect adversely Indian Banks,
domestic investors and overall investment climate. It leads to uncertainties
which are not good for long gestation projects like Infra projects. And I
believe you would agree that India needs to invest heavily in infrastructure
over the next 10-15 years to provide better life to our citizens. <o:p></o:p></span></span></div>
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<span class="apple-converted-space"><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;"><br /></span></span></div>
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<span class="apple-converted-space"><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;">The PSC
was signed long time back through a bidding system. We should always try to
improve contracts going forward and make the bidding more transparent and
competitive. But let’s not put into question agreed commercial philosophy of
such contracts. You are giving a wrong picture of your mental health when you
compare an Oil & Gas company entering into Production Sharing Contract
(PSC) with a servant. Kindly appreciate; the relationship is that of a
partnership and not that of a servant. We need to partners Oil & Gas
companies because these are complex projects requiring great technical and
management skills. Without these skill the resource will never reach the ground
and will go waste.<o:p></o:p></span></span></div>
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<span class="apple-converted-space"><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;"><br /></span></span></div>
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<span class="apple-converted-space"><b><u><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;">Point 6: Why should we force Government-RIL partnership to sell
the gas at below market price and let countries like Qatar to sell us gas at
$14. Why don’t you use your Nautanki to force Qatar to sell gas to us at $4.2?<o:p></o:p></span></u></b></span></div>
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<span class="apple-converted-space"><b><u><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;"><br /></span></u></b></span></div>
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<span class="apple-converted-space"><b><u><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;">Point 7: We also believe there is fraud on the nation done by RIL
and Congress combine. But the fraud is not in terms of lower pricing, but in
terms of gold plating of investments.<o:p></o:p></span></u></b></span></div>
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<span class="apple-converted-space"><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;">Assuming,
RIL has shown the cost of development of these fields as $ 10 billion while
actually it is only $ 5 billion. In that case, they should be getting revenue
share of only $15.5 billion rather than $28 billion. When we form the
government, we will get the accounts audited by CAG to make sure that there is
no gold plating and would disallow RIL any excess cost they have built in. Automatically
their revenue share would fall and government share would increase. The
increased government revenues can be deployed to meet social objectives. <o:p></o:p></span></span></div>
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<span class="apple-converted-space"><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;"><br /></span></span></div>
<span class="apple-converted-space"><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;">Mr. Kejriwal, we request
you to kindly detest from making comments without basic knowledge on things.
Everybody loves to get things cheap and when you say you will reduce power
prices or gas prices everybody claps. But then people clap during Nautanki
also. Let’s not mislead the nation. What you are not telling them is actually
you will not reduce prices but you would reduce power supply and gas supply
itself. You would send India back to license raj days when we used to stand in
queue for years for basic things like telephone connection, power connection
etc. And then your team intends to black market the limited supply to fill in
your pockets. India’s inflation problem is due to supply side problems and not
due to pricing problem. For a developing country like India the government
needs to focus on increasing supply and let price be determined by competitive
forces. Increased prices would take care of pricing issues. But you would not
understand that. You want to use Indian Economy as a toy car. Indian voters are
intelligent enough and would not handover the wheels of this great nation into
hand of novices like you. Spend time in the system, read & learn more
rather that doing Nuatanki, once you have matured enough then ask for the
wheels of the country.</span></span><br />
<span class="apple-converted-space"><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;"><br /></span></span>
<br />
<span class="apple-converted-space"><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;">Link to model Production Sharing Contract (PSC) on petroleum ministry website: </span></span><span style="font-family: Arial, sans-serif; font-size: x-small;"><span style="line-height: 15.333333015441895px;">http://petroleum.nic.in/nelp3.pdf</span></span><br />
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<span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;"><span class="apple-converted-space"><o:p></o:p></span></span></div>
</div>
Neeraj Gutgutiahttp://www.blogger.com/profile/13154574939177790453noreply@blogger.com4tag:blogger.com,1999:blog-6886548.post-47321407095098731392013-12-13T18:05:00.000+05:302013-12-13T18:05:05.933+05:30It is still advantage BJP: Let Congress worry about AAP<div dir="ltr" style="text-align: left;" trbidi="on">
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Everybody is talking about AAP and Arvind Kejeriwal. It’s
like Bangladesh beating India in the 2007 Cricket World Cup and few Bangladeshi
fans & media start believing that Bangladesh would go on to win the World Cup.
Winning a tournament requires much more than flashes of brilliance. It is more
about stamina and mental strength, which come only after being in the game for
decently long time. I believe if AAP invests few years in building the team at
grass root level, getting the chemistry between the team members right,
understanding the fine line between right and practical, holding on to the
standards it is preaching, it can one day become of the leading parties in
India. But that will not and cannot happen by May 2014. Real contender for May
2014 world cup is still BJP under the leadership of Modi. In fact, the second
rank team after the beating by AAP is looking very weak and that only increases
chances for BJP.<o:p></o:p></div>
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National elections in a country as big as India cannot be
won only on basis of sentiments. It requires years of work at grass root level before
a party can really stake claim at the national level. I am coming across
article where people are taking that AAP can win the Lok Sabha Election. According
to me AAP will not be able to field 272 candidates leave alone winning 272
seats which is required to form a government at Centre. And as AAP has made it
clear in Delhi that it would not form a government without clear majority, it
would be really difficult for them to compromise with the high standards they
have set for themselves in May 2014. And I am sure AAP also know that people
likes of Mayawati, Laloo, Mulayam Singh, Sharad Pawar, Jayalalita, Karunanidhi
are much more corrupt than BJP and maybe even Congress. In best of dreams, AAP
can win 50 seats in the 2014 Lok Sabha elections and with that number of seats
and a vow to not participate in government without clear majority they are irrelevant
for the purpose of deciding the next government at Centre. At best they can
force the country for yet another election at Centre like Delhi. That would
only frustrate the voters, donors and workers of AAP and make them more irrelevant
in the repeat elections. <o:p></o:p></div>
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<br /></div>
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Modi and BJP should avoid giving too much attention to AAP
at this stage. They should be mindful of their presence but nothing more than
that. Modi and BJP should continue with the strategy they were working with for
the last few months and should not look to change the strategy suddenly. Modi
should avoid speaking anything about AAP, both negative and positive, at this
stage. He should continue his attacks on ‘Shejada’ and Congress. During Lok
Sabha elections 2014 AAP is not a real threat and by giving them importance BJP
should not lose their own plot. Their strategy is working really fine and
giving them great result. Of course BJP should be mindful that there is a major
Anti-corruption wave in the country and they should not be seen in the same
group as Congress, which AAP will try hard to portray.<o:p></o:p></div>
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AAP is getting lot of airtime in media right now because
everybody is interested to know about the fate of Delhi elections and who would
form the government. Once President Rule is declared and couple of day passes, media
would get something else to focus on and AAP will have to fend for themselves.
They would have to go back to strategy room to decide what resources they have
in terms of time, money, dedicated workers, top leadership team’s bandwidth and
what they can focus on in the next 4 months. They will have to take a call
whether they would like to focus on Delhi and try for a clear majority or
spread their resources thin between state elections in Delhi, Haryana and Lok
Sabha elections. Considering they focused on only Delhi state elections in November
when they could have fought elections in Rajasthan, MP, Chhattisgarh, and
Mizoram also, I believe they would be practical about their resource
limitations. <o:p></o:p></div>
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<br />
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If BJP is able to get
the Lokayukta bill passed in the parliament which is acceptable to Anna and
Kiran Bedi it would be a good opportunity to disclose the real intentions of
AAP party. AAP party would not like Lokayukta bill to be passed right now as
they will lose the main election plank. AAP would try to claim that the version
of Lokayukta bill that is being passed it watered down version and something
unacceptable. Most of the supporters of AAP are not very clear of the details
of the bill and if the bill receives the acceptance of Anna, AAP would come
across as just any other political party crying foul for vote bank politics.
Both BJP and Congress will fight to take credit of the bill and AAP would fight
to discredit the bill. That would be advantage BJP. </div>
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Right now BJP should let Congress worry about AAP. BJP should just maintain its focus on its own game and stick to its original strategy.<o:p></o:p></div>
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Neeraj Gutgutiahttp://www.blogger.com/profile/13154574939177790453noreply@blogger.com0tag:blogger.com,1999:blog-6886548.post-7513414444875164572013-12-09T17:47:00.000+05:302013-12-09T17:47:13.260+05:30Anti-Congress and Anti-corruption is the theme for 2014 elections<div dir="ltr" style="text-align: left;" trbidi="on">
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No doubt the 4 state elections is a game changer specially
Delhi with Aam Adami Party (AAP) super debut. AAP is claiming it is wave
against the established parties. BJP is claiming it as Modi wave. Everybody is
laughing when Congress claims that this is not Modi wave. I believe it’s more
of ANTI-CONGRESS and ANTI-CORRUPTION wave. People have given a decisive vote
against corruption and congress. People are looking for change at centre.<o:p></o:p></div>
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<br /></div>
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In all the four states the anti-congress wave was very
clear. Although Chhattisgarh tally of Congress was not very bad, results in Rajasthan,
Delhi and Madhya Pradesh is nothing short of disaster. Looking at these numbers
one can be forgiven to believe Modi’s jingoism that the oldest political party of
the country will be wiped out (Modi would not like the term swept away now
after AAP success) after the national elections in 2014. 21 seats in Rajasthan
out of 199 and 8 seats in Delhi out of 70 shows how big is this Anti-congress
wave that is sweeping the nation. Privately even the congress party is agreeing
to it ask Sheila Dixit and Ashok Gehlot. Even before the elections they were
aware that Congress performance at Centre can cost them dearly in state
elections. However, their party’s Gandhi worshipping culture does not allow
them to do openly communicate that.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
Many people do not realize that success is generally
stepping stone to defeat and Congress is doing the same mistake. Congress
managed to unexpectedly win 2009 Lok Sabha elections due to last moment populist
measures like farm loan waiver, National Rural Employment Guarantee Act, sixth
pay commission etc. They have been under the impression for the last 5 years
that they can get away with any crime by doling out similar populist measures before
the elections. Ashok Gehlot has realized the hard way that you cannot fool
people with the same trick every time. Sonia Gandhi got the full credit for
Congress party’s success during last Lok Sabha elections and hence she is
looking to blindly repeat the old tricks. This time they have added National Food
Security Bill, Right to Fair Compensation and Transparency in Land Acquisition,
Rehabilitation and Resettlement Act, 2013, early announcement of seventh Pay
commission and many others. In her speech yesterday she mentioned price rise as
one of the reason for Congress party’s bad performance in the state elections.
This shows that she has not taken off her populist goggles and is not willing
to wake up and smell the coffee. Rahul Gandhi as usual was on a different plane.
Although some bright mind in his team has managed to educate him that Congress
party needs a transformation, the word he was able to catch on to. I really
doubt that he understands the meaning of transformation or has given a thought on
‘what transformation’. However, he sounded very confident of being able transform
congress in next 6 month!! <o:p></o:p></div>
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The problem is that the Congress is structured in such a
fashion around Gandhi Family, that the think tank can’t give a true and fair
advice. I don’t see Sonia giving up on her populist goggles or Rahul Gandhi being
able to decide on direction for transformation. Even between mother and son
there is no agreement on which direction they want to take the party and I
doubt they are even discussion that. Congress would fight the 2014 Lok Sabha
elections with only ‘non-communal’ and ‘subsidy’ card and hope against hope
that it gives Congress the same result like the last time.<o:p></o:p></div>
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One big difference these State elections would make it that
Congress would become untouchable. Unlike Congress think tank, rest of the parties’
think tank must have realized by now that there is a massive wave against Congress
and corruption and nobody would like to be seen with Congress. Nitish Kumar
must be regretting his decision to break away from BJP. There would be considerable
pressure on him from his own party to realign with BJP and that would be a good
development to watch. Unlike in past when BJP was made untouchable by these
parties based on communal plank this time they would not succeed. Congress has
been trying to use the communal card specifically against Modi but voters still
want to give him a chance. The new generation of voters who are coming out in
big numbers do not care about Mandir or Masjid. They care about toilets,
schools, hospitals and jobs. Modi understands this very well. After these state
election results BJP would be able to get many more allies.<o:p></o:p></div>
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BJP needs to go all out and form alliances especially in
states where they have negligible presence like North east and Southern India.
BJP ends up fielding less than 400 candidates in a Lok Sabha where 572 seats
are there to contest. The Hindi
heartland he can more or less conquer on his own but in south and north east he
needs good partners. Partners would also
gain as they would be able to ride on the anti-Congress, anti-corruption and
pro-Modi wave. BJP just need to be sure that they have clean partners and
should avoid likes of Mayawati, Mulayam, Laloo etc. In Hindi heartland partners
need Modi more than Modi needs partners and BJP should not worry going into
elections without partners in UP and Bihar. In south and north east it would pay
to have alliances upfront. They have to ensure that anti-Congress and
anti-corruption votes are not divided like it happened in Delhi. In Hindi
heartland it is less likely as parties of Mayawati, Mulayam, Laloo etc are all
seen as almost as corrupt as Congress if not more. If BJP top team went about
making right alliances, I believe before the Lok Sabha voting day itself it
would be clear that BJP is forming the government at Centre. <o:p></o:p></div>
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<br /></div>
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One thing BJP needs to guard against is diluting its image
when it comes to corruption. They would be temptation to do ‘horse trading’ to
form government at Delhi but they should resist it. Anti-congress vote in Delhi
got divided just because AAP was seen as a much cleaner party then BJP (and
rightly so). If BJP manages to break AAP or Congress candidates they might be
able to form government in Delhi State but lose out on making government in the
Centre. If they do that they would be seen as a party very similar to Congress
which AAP is all the while trying to project with the objective to monopolize
on ‘anti-corruption’ & ‘anti-congress’ wave.<o:p></o:p></div>
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<div class="MsoNormal">
AAP had a dream debut but it is just the beginning. People
have given them a chance to prove what they are claiming – the new generation
of clean & transparent politicians. Right now there is anger against
corruption which they have encased, but at the same time people want to see
results. Anybody can stand outside and say “cholbena cholbena” like Mamta
Banerjee, the challenge it to produce results without getting involved in corruption.
People do not want politicians who are so scared of doing the wrong things that
they do not do anything. People are equally fed up with ‘policy paralysis’ and
everybody is looking forward to the next elections hoping that government will
start taking actions then. People are rooting for Modi because he is seen as result
oriented person.<o:p></o:p></div>
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AAP might choose to take a high moral stand that they would
not get involved in forming government in Delhi because they have not received
majority. I feel it would only disillusion their voters. People have not only
supported them with votes but also with effort, time and hard earned money. Nobody
would like to see that going down the drain and state forced into another
election. That’s why developments in Delhi would be interesting and can have a
big impact on national elections. If BJP tries to make government using all
good and bad tricks they would be seen as a party similar to Congress which
they cannot afford to. On the other hand if BJP offers to support AAP and
Lokayukta Bill in Delhi and implement the same in other BJP states, BJP can
score points with voters. AAP would not like to take BJP’s support as they
would not like to share the ‘anti-corruption’ plank with BJP. The challenge in
front of AAP is that they might lose their differentiating factor if they allied
with BJP. On the other hand if they force the state into re-election then also
people might see them as waste of votes, time and money. People will believe
that their experiment with AAP has failed and will vote for stability next time.
People would be very vary of voting for them in Lok Sabha elections as there
they do not have any chances of getting a majority and they do not believe in
issue based alignment. The best route for AAP is to form an issue based government
at Delhi with BJP, make sure that all major promises like Lokayukta is
implemented in first three months itself so that when they stand for Lok Sabha
election they are not only seen as an idealistic party but also a result oriented
party. This would also give them much needed experience of governance.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
One of the politicians
made a very good remark: in couple of months, school admissions would start in
Delhi and voters of AAP would be approaching AAP candidates for school
admissions and reference. All votes believe what happened in 2G, coal scam, CWG
etc. was corruption, but how many of these voters consider taking help of
politicians for school admission, gas connection etc. as corruption is for AAP
to find out.<o:p></o:p></div>
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<br /></div>
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One more evident fact
is that people want to know whom they are voting for. In fact it is in Indian
DNA that we worship Sachin Tendulkar and his centuries more than India team and
its performance. We worship Rajnikanth and his antics more than the quality of
the overall movie. All these years India has been voting for ‘Gandhi’ more than
the congress party. We like hero worshipping. BJP’s appointment of Modi as Prime
Ministerial candidate has helped BJP. It helped BJP in all state where they had
clear leader. In Delhi they lost votes to AAP because they took too much time
to come up with the Chief Ministerial candidate and there also they had a light
weight candidate. On the other hand AAP also had a clear candidate from day 1.
Even Sonia Gandhi has realized that and she mentioned that they would announce
their Prime Ministerial candidate at ‘appropriate’ time. The problem with
congress is that they have nobody who can fill those shoes. Two candidates have
‘Gandhi’ surname but more and more people are not able to see then in the same
light as earlier ‘Gandhis’ at the same time they themselves are not willing to
commit to a full time job of a PM candidate. Others like Digvijay Singh, Sibal
etc do not have any self-respect, which is evident from the senseless comments
they make and hence expecting public to respect them is a tall ask. Everybody
in Congress is seen as sycophant without their own identity including our PM.
Until unless somebody has a spine to stand up and make Gandhi family to smell
the coffee it is very difficult for them to come up with a candidate whom they
can project as PM candidate for 2014 elections. Rahul Gandhi is the other option
after Manmohan Singh but he does not even have spine to take responsibility of failure
leave away the leadership responsibility of a party that is facing a big
anti-incumbency wave. I am just not able to think whom Sonia Gandhi would
select at the ‘appropriate’ time. <o:p></o:p></div>
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Neeraj Gutgutiahttp://www.blogger.com/profile/13154574939177790453noreply@blogger.com8tag:blogger.com,1999:blog-6886548.post-22472306121983095272013-11-29T18:20:00.000+05:302013-11-29T18:23:47.145+05:30How to buy a Life Insurance Policy / Best life insurance policy<div dir="ltr" style="text-align: left;" trbidi="on">
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<br />
Before starting you need to understand your need and how Life
Insurance is useful for you.</div>
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<br /></div>
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<o:p></o:p></div>
<div class="MsoNormal">
<u>What is Life Insurance? </u>Life insurance is a cover to provide <b><u>financial security</u></b>
against your <b><u>untimely death</u></b> to
people who are <b><u>dependent</u></b> <b><u>on your income</u></b>.<o:p></o:p></div>
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Please note:<o:p></o:p></div>
<div class="MsoListParagraphCxSpFirst" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]-->1.<span style="font-size: 7pt;">
</span><!--[endif]--><b><u>Financial
security:</u></b> Insurance can provide only financial security and cannot save
your life or fill the void created in life of your dependents due to your
death.<o:p></o:p></div>
<div class="MsoListParagraphCxSpFirst" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]-->2.<span style="font-size: 7pt;">
</span><!--[endif]--><b><u>Dependent
on your income:</u></b> The person getting the benefit of insurance should be someone
who is dependent on your income (note "dependent on your income" and not "dependent on you") . Your kids and wife who are financially
dependent on your income for education, food, housing and other necessities and
comforts of life. You will come across idiots who take insurance on life of
their minor children or dependent wife, do not ape them.<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]-->3.<span style="font-size: 7pt;">
</span><!--[endif]--><b><u>Untimely
death:</u></b> Insurance is required when sudden unexpected event can impact
the normal life of the dependents. In early years of your life when you have
limited savings and lot of responsibilities like education of kids etc., life insurance
is more important although chances of your death is also remote. When you start
approaching your retirement you has enough savings and most of your
responsibilities like child education etc. are taken care off and hence there
is limited utility of life insurance then, although chances of your death
increases substantially. Around your retirement or post retirement you need
medical insurance more and not life insurance. <o:p></o:p></div>
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<br /></div>
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I know everybody knows this but as they say
common sense is uncommon. Even when everybody knows this you will come across
the following follies by the best of people:<o:p></o:p></div>
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<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .75in; mso-add-space: auto; mso-list: l1 level1 lfo2; text-indent: -.25in;">
<!--[if !supportLists]-->1.<span style="font-size: 7pt;">
</span><!--[endif]--><b><u>Life
insurance saves life:</u></b> Everybody know that life insurance only
compensate in terms of money in case of death but deep down people believe that
life insurance cover saves life. And if you see most advertisements would also
project that to you. Remember ICICI using ‘sindoor’. Frankly if you die you
wife might get enough money to remarry but not your ‘sindoor’.<o:p></o:p></div>
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<br /></div>
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<!--[if !supportLists]-->2.<span style="font-size: 7pt;">
</span><!--[endif]--><b><u>Life
insurance of kids:</u></b> I know you are laughing that how can someone believe
that life insurance policy saves life. Then tell me why people buy life
insurance of their kids? God forbid if your kid dies your financial
responsibility will only go down. Ask yourself what you would like to do with
the money you receive on death of your kid, you will get the answer.<o:p></o:p></div>
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<br /></div>
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<!--[if !supportLists]-->3.<span style="font-size: 7pt;">
</span><!--[endif]--><b><u>Life
insurance of wife:</u></b> Are you dependent on your wife’s income? If yes,
then it makes sense to buy insurance on her life otherwise not. There might be
few cases where couple have stretched themselves to buy a house and contracted
big EMI which can be paid only if both incomes are intact. In most cases it is
not required. Remember if your wife is not there your monthly expenditure might
also go down. (Please don’t give an argument that you will have to then hire
maids, cook, crèche facility etc. if your wife is not there that would only
display your mindset). Again ask yourself what you would like to do with money
you receive from life insurance in case of your wife’s death. Of course, there
might be ladies who might say why no insurance on my life, is my life not
important. Well, tell her insurance cover won’t save her life. <o:p></o:p></div>
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<!--[if !supportLists]-->4.<span style="font-size: 7pt;">
</span><!--[endif]--><b><u>Life insurance
for tax benefit: </u></b>Life insurance premium is money down the drain (at least
you hope it’s down the drain). People fool you when they tell you that by
taking life insurance you are saving 30% tax. Infact you are putting 100% down
the drain. Section 80C provides tax exemption of maximum Rs. 1 lakh and various
investments including PF, PPF, child education etc is covered under this limit.
Hence, in most cases you would be investing more than 1 lakh in PF, PPF and
child education to cover this limit of Rs. 1 Lakh. If you have cash surplus and
can afford you should maximize investment in PPF irrespective of tax benefit (I
will cover this in separate blog later in details). Investment upto Rs. 100,000
is allowed in PPF and that is enough to take care of Section 80C exemption. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .75in; mso-add-space: auto;">
If you donot have cash surplus to
invest in PPF, PF, child education then think whether you can afford life
insurance. And in that case either you are not earning enough to be paying
taxes or you are spending way beyond your means. Bottom-line: Never take a life
insurance for tax planning.<o:p></o:p></div>
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<br /></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: .75in; mso-add-space: auto; mso-list: l1 level1 lfo2; text-indent: -.25in;">
<!--[if !supportLists]-->5.<span style="font-size: 7pt;">
</span><!--[endif]--><b><u>Life
insurance is investment: </u></b>As I mentioned earlier, Life insurance premium
is money down the drain (at least you hope it’s down the drain). Do not mix
insurance and life insurance. Pure term policy provides the maximum cover at the
lowest cost and one should go for that. Tax free bonds, FDs, PPF, VPF etc. all
provide better rate of return & security than any ‘life insurance investment
scheme’ can ever provide. So if you are paying say Rs. 50,000 per annum under
some ‘life insurance cum investment scheme’. I would suggest close that policy,
but a term insurance with a premium of around Rs. 12,000 and invest 38,000 in
PPF / tax free bonds. I can assure you will get higher cover and higher rate of
return in this combination.<o:p></o:p></div>
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Now that concept of what is life insurance and why you need
life insurance is clear lets discuss which policy, where, When, how and how
much.<o:p></o:p></div>
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<b><u>WHEN?</u></b></div>
<div class="MsoNormal">
<b><u>When you have dependants: </u></b>Life insurance is required only when you have dependents.
So if you are a bachelor and your parents are not dependent on you it does not
make sense to buy a life insurance cover. People will tell you that it makes
sense to start insurance policy early as you lock in at lower premium. You will
end up sending money down the drain for many more years without any utility. In
those years it’s better to invest and full advantage of power of compounding.
Anyway due to increased life expectancy, better records, cheaper channels etc.
life insurance premium have fallen substantially and if you are having an old
policy it might make sense to buy a new policy and surrender the old policy. <o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
<b><u>WHAT?<o:p></o:p></u></b></div>
<div class="MsoNormal">
<b><u>Pure term
insurance:</u></b> First of all, as I mentioned earlier go for only “pure term
insurance”. Do not mix investment and insurance. If you keep that separate you
would not only get better cover but also higher return. <o:p></o:p></div>
<div class="MsoNormal">
<b><u>Term of Life
insurance:</u></b> Generally life insurance term should be limited to your
working life or till people are dependent on you. Generally people retire at 60
and hence beyond 60 there is no need of life insurance. Beyond 60 your
dependent kids should be independent enough. For your dependent wife and
yourself you should have enough savings to take care of the retirement years.
In fact after retirement, when you are not earning, the premium payment,
however small, is a total waste. So do not get lured by insurance companies that
offer life insurance up to age of 90. If you are having such a policy, you
would be forcing your now independent kids to look forward to your death.<o:p></o:p></div>
<div class="MsoNormal">
<b><u>Fine print check:</u></b>
Check for exclusions like terrorist activity, nuclear activity etc. Ensure such
exclusions are not there. Considering the neighbors we have and their activity like
26/11 you never know. Suicide exclusion
upto 2 years is a fair clause (Anyway I hope this is not a consideration for
you). <o:p></o:p></div>
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<b><u><br /></u></b></div>
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<b><u>HOW?<o:p></o:p></u></b></div>
<div class="MsoNormal">
<b><u>Online term
insurance policy: </u></b>Buy online term insurance policy as generally it’s
cheaper because the insurance company is saving cost on agent commission,
channel cost etc. An insurance agent might tell you that claim payment record
in these policies is bad, but do not believe them. Anyway unlike medical
insurance, car insurance etc., denying life insurance payment is difficult for
an insurance company as it’s a definitive event and is not open to
interpretations of so called experts. One should go to sites like policy bazaar
to compare policies and select one for oneself. Then go to company website to
apply. Stick to bigger companies which have been in operations for a while like
Bajaj Allianz, HDFC, ICICI, SBI etc. I would advise not to go for aggressive newcomers
like Religare, Reliance etc. just to save 200-300 rupee in premium. State run
insurance companies are good but generally for online term insurance policy
they are not competitive enough. Generally for a Rs. 1 crore policy for a 32
year old male, the premium would be around Rs. 12,000 inclusive of taxes.<o:p></o:p></div>
<div class="MsoNormal">
<b><u>Medical test is
good:</u></b> Many insurance companies advertise that ‘medical test not
required’. I would suggest it’s better to undergo medical test. If you have
anything to hide I would suggest that you spend more on doctors, physicians and
gyms. Medical test not only give information to insurance company but also to
you and would help you improve your life style. Also when you undergo medical
test it becomes very difficult for insurance company to later claim that you have
hidden something from them while taking policy. Most of the policy donot
provide for this excuse beyond 2 years. It’s important you check that in your
policy.</div>
<div class="MsoNormal">
<o:p></o:p></div>
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<b><u><br /></u></b></div>
<div class="MsoNormal">
<b><u>HOW MUCH?<o:p></o:p></u></b></div>
<div class="MsoNormal">
<b><u>Insured value:</u></b>
You are insuring against loss of income due to your death and you hope by this
insurance your dependents won’t have to compromise on their current lifestyle.
Hence it’s important for you to know what is your current annual expenditure
(cost to maintaining the current lifestyle). As today rate of return on tax
free bonds and FDs are around 9%, I would suggest that your cover should be
enough to provide annual interest equivalent of your annual lifestyle cost @9%.
So if your annual expenditure is say Rs. 12 lakhs, then your term policy should
be around Rs. 1.35 crores. If you do not know your annual expenditure (which
shows how irresponsible you are in your personal financial management, and I
would suggest you calculate it today) and do not even have the will power to calculate
it, you can use the thumb rule that your insured value should be around 10
times of your net annual income. So if your net annual income is Rs. 15 lakhs then
your insurance cover should be around Rs. 1.50 crores. In most cases both methods would give similar
results, but method 1 is a better method. We have presuming 20% savings on
income. If you are doing better than that, good job, keep it up. If you are
doing less than that, you need to tighten your belt and seek help of
professional financial planner. Remember it’s important that you are not under
covered. However, it’s equally important that you are not over covered. If you
are over covered not only you are putting extra money down the drain every
year, you are also creating threat to your life!<o:p></o:p></div>
<div class="MsoNormal">
<b><u><br /></u></b></div>
<div class="MsoNormal">
Last but not the least you should properly inform your
dependents the life insurance cover you have, where the policy document is
kept, what is the process of claiming it etc. You won’t be there to claim it
and insurance company would not pay on its own. Do you want your family to live
a miserable life after you just because you forgot to tell them where you have
kept the policy document?<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
I hope this was helpful. Feel free to write your comments
and ask for clarifications, if required.<o:p></o:p></div>
<br />
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<br /></div>
</div>
Neeraj Gutgutiahttp://www.blogger.com/profile/13154574939177790453noreply@blogger.com1tag:blogger.com,1999:blog-6886548.post-90785646502880640142012-07-24T16:38:00.000+05:302012-07-24T16:48:06.898+05:30My article in Business World magazine (22nd July 2012)<div dir="ltr" style="text-align: left;" trbidi="on">
<br />
How To Prepare For The Inevitable Financial Crisis<br />
<br />
<a href="http://www.businessworld.in/businessworld/businessworld/content/How-Prepare-Inevitable-Financial-Crisis.html">http://www.businessworld.in/businessworld/businessworld/content/How-Prepare-Inevitable-Financial-Crisis.html</a><br />
<br />
<br />
</div>Neeraj Gutgutiahttp://www.blogger.com/profile/13154574939177790453noreply@blogger.com0tag:blogger.com,1999:blog-6886548.post-64764823152978836432010-06-12T14:26:00.005+05:302010-06-12T20:03:10.470+05:30RIL's broadband Bet: Broadband subscriber base in India to increase 8 times in 3 years<div align="justify"><br />In my blog dated 6th June 2005 <a href="http://neerajgutgutia.blogspot.com/2005/06/next-revolution-is-broadband.html#links">NEXT REVOLUTION IS BROADBAND</a>, I predicted that Reliance would lead a broadband revolution. In my <a href="http://neerajgutgutia.blogspot.com/2005/05/open-letter-to-mr-anil-ambani.html">OPEN LETTER TO MR. ANIL AMBANI </a>dated May 27, 2005, I predicted that data revenue would surpass voice revenue and Reliance Infocomm’s optic fibre infrastructure is a potential gold mine. Mukesh Ambani’s big bang entry into broadband reconfirms – Broadband is the next revolution and RIL will lead that. Fight between Ambani brothers delayed it by 5 years but now the time has come!!<br />RIL has bid around Rs. 13000 crores for all India broadband spectrum. My back of the envelop calculation suggest that India’s broadband penetration needs to increase 8 fold in the next 3 years for RIL to break even. </div><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 414px; DISPLAY: block; HEIGHT: 303px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5481893826851870290" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhWpaHCm8OKKlqHWwTYcvPhwFitA4uhFdMPFRskHqrsBj5b5T-IqDkfPeY4O_c693dabAY1xtgio0G4gjhJrL61pGWdI8Dge67oESETixgmEbaLTLrK5A3eqrBh1aAfsZwthEUt/s320/New+Picture+(1).bmp" /> <p align="justify"><br />Sr. Ambani would again try to create a “Monsoon Hungama” kind of Hungama and this time wireless broadband launch would be a ‘big bang’ launch. It might take him 12 months to source the equipment etc. They might leverage Reliance Retail network to reach the maximum number of customers.<br />RIL would expect atleast 30% of its revenue to come from corporate clients and RIL is really good at this. For the first 12-18 months they might focus only on corporate clients and high pay capacity circles like Mumbai and Delhi.<br />The real challenge is to launch broadband in the interiors of India. The wireless technology is a big enabler, however RIL need to get the decentralized customer focused mindset for that, which till date have proved illusive for RIL.<br />If RIL is able to get it right this time, it would be no less than a revolution. Interiors of India although today connected by mobile phones are still not great in terms of connectivity of roads, rails etc. Unlike many other developed country, India has the advantage of high density of population which brings down the per capita capital cost of broadband and makes the operation very economical. Secondly, like in mobile revolution India again has the opportunity of skipping 2-3 stages of development in broadband infrastructure and directly moves to the latest technology.<br />India suffers from grave disparity in land prices, salaries, opportunities due to lack of connectivity infrastructure (like rail, air transport, roads etc). Broadband revolution can change all that. It can improve governance, education, information flow. It can also cure some of ‘constrains to growth’ created by lack of transport and other infrastructure. IT/BPO revolution which is limited to cities till today can move to town and villages. The possibilities are endless. Online shopping, gaming, education, services….. Size of the market will increase and it would be easier to target ‘able to pay’ customers in the hinderland who are today uneconomical to reach due to small size.<br />Sunil Mittal once mentioned that telecom is like packman. It keeps eating various businesses and growing. Broadband is one such packman it will eat many businesses like retail, banking, transportation, entertainment etc. Broadband revolution, if implemented well, has the capability of pushing India into high growth trajectory which will help it bridge the gap between developed and developing nations. All the best Mukeshbhai! We wish you all the success!! </p>Neeraj Gutgutiahttp://www.blogger.com/profile/13154574939177790453noreply@blogger.com4tag:blogger.com,1999:blog-6886548.post-62932512193859793122010-05-21T18:06:00.002+05:302010-05-21T18:11:20.829+05:30"Double Dip" comingAlcoholism can't be treated with alcohol similarly the problem of excess debt can't be treated with more <span class="blsp-spelling-corrected" id="SPELLING_ERROR_0">sovereign</span> debt. World should prepare to spend couple of painful years in rehab.<br /><br />All these bailouts can only defer the problem, it can't cure the problem.Neeraj Gutgutiahttp://www.blogger.com/profile/13154574939177790453noreply@blogger.com6tag:blogger.com,1999:blog-6886548.post-59683542920808421892009-06-01T17:12:00.001+05:302009-06-01T17:15:00.034+05:30Reliance: Staying sane during insane times (excess liquidity times)<div style="FONT-FAMILY: times new roman, new york, times, serif; FONT-SIZE: 12pt"><br /><p style="TEXT-ALIGN: justify; MARGIN: 0in 0in 0pt" class="MsoNormal">The economic slowdown had hit everybody hard and RIL is no exception. Many of its projects like Reliance Retail, SEZ etc have been affected. But if one looks around RIL has managed to control itself really well during the <i style="mso-bidi-font-style: normal">Insane Years of 2005-2009. </i>Not only it managed to focus and complete its major <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" /><st1:city st="on">Greenfield</st1:city> projects – KG D6 oil & gas project, <st1:city st="on"><st1:place st="on">Jamnagar</st1:place></st1:city> 2<sup>nd</sup> Refinery project, East west pipeline project in time, but it also managed to stay sane and avoid the lure of mega international acquisition unlike its peers. And staying sane in such insane times is no mean achievement. If you don't agree, ask Tata, Birla or Mittal.</p><p style="TEXT-ALIGN: justify; MARGIN: 0in 0in 0pt" class="MsoNormal"><?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /><o:p> </o:p></p><p style="TEXT-ALIGN: justify; MARGIN: 0in 0in 0pt" class="MsoNormal">Last few years had been really mad years. Factor of production (land, labor & capital) prices had hit the roof and most businesses were unviable at market value of factor of production (not to be confused with historic value). The only way people could make money was by selling out stake or the business to public through IPOs, to private equity firms, to strategic investors or to competitors. <span style="mso-spacerun: yes"> </span>The best and the biggest company in <st1:country-region st="on"><st1:place st="on">India</st1:place></st1:country-region> fell for the lure of international acquisition including Tata group, Birla group and also the Mittal group. Ratan Tata had been bold enough to admit in public that they ended up buying Corus, Jaguar & Land Rover at peak prices and it had been a big mistake.</p><p style="TEXT-ALIGN: justify; MARGIN: 0in 0in 0pt" class="MsoNormal"><o:p> </o:p></p><p style="TEXT-ALIGN: justify; MARGIN: 0in 0in 0pt" class="MsoNormal">Others like Birla, Suzlon and Mittal had been equally foolhardy and now realize that they made a mistake although they might never admit in public. On the other end of the spectrum had been players like Ranbaxy who managed to exit the business at a very good price. We may keep arguing that selling out completely made sense or not but we all will agree that timing was amazing.</p><p style="TEXT-ALIGN: justify; MARGIN: 0in 0in 0pt" class="MsoNormal"><o:p> </o:p></p><p style="TEXT-ALIGN: justify; MARGIN: 0in 0in 0pt" class="MsoNormal">So why did it happen? Do these companies don't have smart people who can advise the management properly? I don't think it's a skill set problem (Finance Problem). I believe it's an individual's interest Vs Company's interest problem (HR Problem). I see a systemic problem here. The system has a built-in bias towards occurrence of the deal. The system incentivizes people who vote for the deal and penalizes who vote against the deal.</p><p style="TEXT-ALIGN: justify; MARGIN: 0in 0in 0pt" class="MsoNormal"><o:p> </o:p></p><p style="TEXT-ALIGN: justify; MARGIN: 0in 0in 0pt" class="MsoNormal">Today corporate world is designed in a fashion where you are paid incentives and bonuses for making deals and not for voting against it. Investment bankers make money when deal is done; consultants make money when deal is done. Even the company's in-house managers reap benefits in form of bonus, recognition in the organization, additional responsibility when the deal is done and a sane advisor who advises the management against it is a looser both ways. If the management goes ahead with the deal the one who advised in favor of the deal get the recognition, responsibility of the new company and all associated benefit. In case management decides against it for any reason, nobody gets anything. Hence, <b style="mso-bidi-font-weight: normal"><u>advising against the deal is a lose – lose strategy.<o:p></o:p></u></b></p><p style="TEXT-ALIGN: justify; MARGIN: 0in 0in 0pt" class="MsoNormal"><o:p> </o:p></p><p style="TEXT-ALIGN: justify; MARGIN: 0in 0in 0pt" class="MsoNormal">From Investment bankers to Media, for everybody occurrence of the deal is beneficial and hence in most cases the deal happens. Again, higher the value of the deal, higher is the commission (for I-bankers, consultants and experts), higher is the interest of the public (for media), and higher is the recognition & responsibility (for in-house managers). And to top it all the excess liquidity in the system, thanks to Mr. Alan Greenspan & company made sure arranging funding for it was never a problem.</p><p style="TEXT-ALIGN: justify; MARGIN: 0in 0in 0pt" class="MsoNormal"><o:p> </o:p></p><p style="TEXT-ALIGN: justify; MARGIN: 0in 0in 0pt" class="MsoNormal">So what helped RIL stay sane when others could not resist the temptation? This is despite Mukesh Ambani declaring in two consecutive AGM, the company's ambition for international acquisition and change of strategy towards inorganic growth. It seems there were few in RIL who were ready to take lose-lose strategy for self in the interest of the company. I hope RIL if not rewarded, at least recognized these selfless employees.</p><br /></div>Neeraj Gutgutiahttp://www.blogger.com/profile/13154574939177790453noreply@blogger.com1tag:blogger.com,1999:blog-6886548.post-4170567006261044912008-12-29T12:28:00.001+05:302008-12-29T12:36:10.867+05:30How the Financial crisis could have been handled better by the Bush Government<div align="justify"><br />The way USA government is handling the Financial crisis is blasphemous and I believe they are living in fool’s paradise. A country which is threatened by outsourcing of jobs to country like India & China is able to dole out bailout of a Trillion dollar with such frequency!! To put things in perspective India’s GDP is around $ 1 Trillion per annum and that of China is around $ 4 Trillion per annum. (USA GDP is around $ 14 Trillion per annum). According to my estimates USA government has doled out around $ 8 Trillion as bailouts in the last 12 months. It works out to 8 times India’s GDP, 2 times China’s GDP and almost 57% of USA’s GDP!!! If USA government is made to payout 12% interest (rate of interest in India) on the bailout amount, USA would be paying interest equivalent to India’s GDP each year!!!<br /><br />I believe everybody agrees that the financial crisis had been handled very poorly by USA and they have managed to survive due the Dollar Hegemony, otherwise they would have had the fate similar to that of Zimbabwe – mindboggling inflation rate with domestic currency rendered worthless. (I believe eventually USA will have to pay for it and dollar will crash soon).<br /><br />I believe the Financial crisis could have been handled by following simple steps listed below. Why it was done the way it was done puts in question both - Bush government’s intelligence and the vested interest:<br /><br /><strong>1. Guarantee total current, saving and fixed deposits in banks for 5 years:</strong> (currently FDIC guarantees deposit upto $ 200,000 per customer per bank). This would have taken care of the confidence crisis and people would have deposited money in banks without fear. It would have helped increase liquidity with banks and increased their deposit : lending ratio<br /><strong>2. Make all deposits in banks tax free for 5 years:</strong> This would have given incentive to save to US nationals. Currently savings rate in USA is almost negative and is one of the biggest reasons for the current crisis. This would have also reduced the cost of funds for the banks as deposit rate expectations of customers would have decreased. It would have also made bank deposits more attractive investment option in comparison to other options.<br /><strong>3. Provide banks with tax holiday on interest income for 5 years:</strong> This would have reduced the cost of funds in the economy and would have increased investment activities in the economy. This would have also made the banks balance sheets stronger.<br /><strong>4. Let the weak bank to fail and file for bankruptcy under Chapter 11: </strong>No bailout should be provided to any bank or company before it files for Chapter 11. Chapter 11 has been designed to provide businesses an opportunity to reorganize and survive if the possibility exists. If the banks / companies donot have inherent strength to survive they should be allowed to die. Contrary to the myth created by the Bush government, closing of few banks will not destabilize the system if depositors are protected. Jobs are not lost or created by such bailouts. If the business makes sense somebody will buy out in part or whole of the bank otherwise some other banks will grow to fill the void left by the failed banks – creating more jobs and business activity.<br /><strong>5. Strictly penalize wrong doers:</strong> The current US government plan is rewarding the wrong doers by giving out bailout. It should be doing exactly reverse. Negligent and reckless traders and bankers should be strictly penalized to create examples for others.<br /><br />The above plan is superior to the plan used by USA government due to following reasons: </div><div align="justify"><br /><strong>1. Incentivizes savings rather than expenditure:</strong> USA government has created a myth that an economy grows by spending more rather than saving (& investing) more. And hence they had been spending recklessly specially during the last 8 years. Sooner they get rid of this false notion the better.<br /><strong>2. Takes care of the confidence crisis:</strong> Full security of deposit creates confidence in banking system. People will park their saving in banking system without any fear as it would be as safe as US government security. We can see that there is so much fear currently that people are willing to park their funds in US government securities at almost 0% rate of return.<br /><strong>3. Makes banking fundamentally stronger:</strong> Tax holiday of 5 years on both deposits and advances makes the banking business fundamentally stronger. The spread for the banks improve, thus improving their profitability. It also reduced the cost of fund in the economy, which would stimulate investment and demand.<br /><strong>4. Fair and equitable:</strong> One of the most important reasons why this system is better than the Bush government’s plan is that it’s fair and equitable. It doesnot protect only the banks which are “too big to fail”. It spreads the benefits to depositors, borrowers, mortgagees, small and medium enterprise & businesses. Who should survive and who should not is decided by the market forces and not by Mr. Paulson.<br /><strong>5. No moral hazard:</strong> The proposed system doesnot provide any incentive to wrong doers. It also doesnot create a feeling of being cheated to people who had been handling their finances properly. It stops the practice of expecting bailouts on the pretext that others have got the same.<br /><strong>6. Lets the market decide:</strong> The incentive (in form of reduced taxes) is fairly divided among people who are saving and people who are borrowing for justified causes. On the other hand banks which are reckless and negligent are thrown out of the system. It’s the survival of the ones who manages their business well and Chapter 11 for the one who can’t.<br /><strong>7. Substantial less cost to the taxpayers:</strong> The cost to taxpayers in form of reduced tax collections from deposits and advances and from protecting of deposits would be substantially less than the billions of dollars of bailouts currently being doled out.<br /></div>Neeraj Gutgutiahttp://www.blogger.com/profile/13154574939177790453noreply@blogger.com1tag:blogger.com,1999:blog-6886548.post-70401843602188040632008-12-02T21:44:00.000+05:302008-12-02T22:01:48.523+05:30Terror Attack: What India should do now?<p align="justify"> </p><p align="justify">Everybody agrees its time to take hard decisions and our soft approach is costing us dear. At the same time world economic situation is grim and we should not loose focus on Economic growth. We should remember that the terrorist were targeting our economic growth and we should not let them win.<br /><br />So what should we do now?<br /><br /><strong><u>Diplomacy – Foreign Ministry</u></strong><br /><br />The need of the hour is tough diplomatic stand by India. The world is in far worse financial condition than India and they too can’t afford an India – Pakistan face off. Its time we assert ourselves and claim our rightful position in the world. I suggest following diplomatic steps:<br /><br />1. <strong>Stop all diplomatic talks with Pakistan as Pakistan is a divided nation without a single command.</strong> The elected representatives are just lame ducks with no control over armed forces, ISI and other organizations. We should communicate to the world the futility of any talks with such lame duck government. We should cite example of Kargil war where Nawaz Sarif admitted that army / ISI acted without informing the elected government. The coup that followed is enough proof of that. Condition is no better today.<br /><u>Declare that India will not enter into any talk with Pakistan until we have 24 terror free months.</u> No cricket, no sadbhavna buses and trains and no trade.<br /><br />2. <strong>Take a hawkish stand in front of the world.</strong> Tell USA that we supported them when they needed us and now its time for them to return the favor. Play back the video to them with Bush’s famous lines like “either you are with us or against us. There can be no fence sitters.” Tell USA, Israel etc that we have common enemy and we need to destroy them. Anyway USA is bombing Pakistan border which is a proof enough that we have ‘commonality of purpose’.<br /><br />3. <strong>Show to the world that we have enough proof of Pakistan hand in the terror attack.</strong> Ask US and other intelligence agencies to come and work on the case with India team and see the proof themselves. Satellite phones, level of training, sophisticated weapons will provide enough proof of its origin. We don’t care which part of Pakistan – elected government / Armed forces / ISI is behind the attacks. For us all three is Pakistan and we need to ‘neutralize’ them. Tell the world that proof is much more than ‘weapon of mass destruction (WMD)’ proof provided by USA government and failing to support India this time would be a proof of ‘double standards’. (Famous lines of Obama where he admitted that he didn’t understand why USA attached Iraq during election campaign should be used to rub the point in)</p><p align="justify">4. <strong>Force the world to deny any bailout package for Pakistan.</strong> Recently IMF gave a bailout package of around $ 8 billion to Pakistan to tide over the economic crisis. India should fight hard against any such financial support to Pakistan. We should clearly communicate that Pakistan is using these funds to fund terrorism against India and financial support to Pakistan is equivalent to supporting terrorism. Similarly force USA to stop all financial and equipment aid being provided to Pakistan armed forces on the pretext of war against Al-Qaida / Afghanistan. Tell them that indirectly they are providing sophisticated weapons to India’s enemy which is promoting terror attacks in India.<br /><br /><strong><u>Internal systems - Home Ministry<br /></u></strong><br /><strong>1. Modernize the security system:</strong> Need to make use of best technology available. Make sure we atleast have equipments better than those of terrorist like Satellite phones, AK – 56 / MP 5 etc. We should be investing in sophisticated weapons & armored vehicles for our forces and not luxury cars for bureaucrats.<br /><br /><strong>2. Transfer 50% VIP security budget to anti-terrorism security:</strong> Transfer 50% of the budgeted amount meant for VIP security to security of public places. This would show that politicians are concerned. It’s important that politicians feel more venerable to terror. Otherwise we will breed RR Patil (Maharashtra’s home minister) like thought process that “in big cities such small things happen.”<br /><br /><strong>3. Have a single Anti-terrorism body with enough decision making powers during emergency:</strong> We all must admit that the way we handled operations after the attack happened left too much to desire. The time taken by NSG to come to Mumbai, decision time to send them, availability of aircraft for them, weapons and training, communication systems, everywhere we were lacking. There was obvious lack of coordination between different forces which was evident from handling of general public and media at terror sites, sharing of information between different forces etc. Again we here that information relating to terror attack was available in parts with different government bodies. We need to have a single body where all such information flows so that we can solve the zig-saw puzzle in time.<br /><br /><strong>4. Spend more on intelligence gathering & information systems:</strong> Every country has intelligence system which generally is beyond the petty politics. We also need to invest in a high-tech information system. We need to place more CCTVs in public places / have central control rooms to monitor these cameras placed at railway stations, markets, malls, hotels etc. Al five star hotels have CCTVs. We should team up with communication companies and use their unutilized optic fibre to have option of transmitting these feeds to central control centre in times of need. We also need to guard our borders better. Accepting bribe to allow any kind of traffic across border should attract highest level of disciplinary action.<br /><br /><strong>5. Cut support to terrorism:</strong> Terrorism can’t survive without support from insiders. We need to make sure that all funding to terror organizations is nibbed from the bud itself. These organizations collect contributions in name of religion from people who are generally unaware of the purpose for which these funds would be used. We need to communicate in clear terms to people that any direct of indirect support to these organizations knowingly or unknowingly would be treated as act of supporting terrorism and would be dealt with strongly. Ban all organizations like SIMI etc. that support taking law in their own hands in name of militancy / freedom etc. Any donation in cash or kind to these organizations should be considered as an act of supporting terrorism. Also make strict laws against other sources of funding for these organizations like drug trafficking, etc. Generally drug trafficking and other such traffic across international borders and terror traffic use the same routes. <br /><br /><strong><u>Concluding remark<br /></u></strong><br />First step towards solving a problem is to understand the problem and admit the nature of the problem. We need to admit that Pakistan is no more a single nation with single head of state. Pakistan is a fragmented divided nation where various government and non government bodies are trying to exercise control. We also need to admit that they are getting support from Muslim fundamentalists inside India and they are prospering due to our vote bank politics.<br /><br /> Once we admit and understand the problem solution would be simple. As done in a war first cut the supply lines of the enemy and then strike when they are weak. We need not go into war against Pakistan immediately although we should act hawkish and should be mentally ready for it.<br /><br />We should kill Pakistan by isolating them & cutting all their supply lines. We should make sure that they don’t get the promised IMF package and any other bailout. We should go for war only if the world tries to act soft on Pakistan, in which case we Indians will have to take an assertive stand. And if and when we go to war we should make sure that then there is no looking back. We should divide Pakistan into bunch of primitive tribes which would keep fighting among themselves with primitive weapons and let us live in peace.<br /> </p>Neeraj Gutgutiahttp://www.blogger.com/profile/13154574939177790453noreply@blogger.com0tag:blogger.com,1999:blog-6886548.post-58222667626212686562008-11-21T23:25:00.000+05:302008-11-21T23:35:18.601+05:30Admit it! The root cause of current crisis is OVERVALUED DOLLAR<div align="justify"><br />….and the only solution is to devalue it.<br /><br />The world leaders are giving the current crisis different name like “Sub Prime Crisis”, “Liquidity Crisis” etc etc. But any person with basic common sense can tell that sub-prime or liquidity can’t be a big enough issue to put the world economy in doldrums. The root cause needs to be diagnosed. Until we admit to the problem, we would be taking wrong medicine.<br /><br />Let’s diagnose the disease. We have divided the symptoms based on the partial diagnosis made by leaders till date:<br /><br /><strong><u>So called “Sub-prime Crisis”</u></strong><br /><br />1. US consumers are defaulting on housing loans & other loans in big numbers<br />2. Per capita consumption of US nationals has been 2x-3x in comparison to that of nationals of other developed nations. (per capita consumption of cars, steel, cement, crude oil etc)<br />3. USA’s fiscal deficit for the last few years is in excess of $ 400 billion each year<br /><br /><strong><u>So called “Liquidity Crisis”</u></strong><br /><br />4. The world holds their savings / foreign currency reserve in USA securities. As it’s the world’s standard currency. And as the return on govt. securities has been falling other the years, nations have started investing in quasi-government organization’s securities like Feddie Mac and Fannie Mae.<br />5. The world has been buying these debts having faith in USA’s credit worthiness and credit worthiness of its institutions<br />6. USA financial institutions have packaged and repacked housing, credit card and other debts in form of CDOs etc and sold it to the world. Now these financial institutions are going bankrupt<br /><br /><strong><u>So called “Outsourcing” problem</u></strong><br /><br />7. USA is dependent on China and other countries for most of its consumption. USA is importer of almost everything. Salary and cost differential in USA is leading to outsourcing of major chuck of goods and services from developing countries<br />8. Most of USA manufacturing industry is dead. US automobile companies are about to go bankrupt. Japan & others are able to build better cars at lower cost. IBM has sold out the hardware business to Lenovo.<br />9. Salary level in USA is substantially higher than in developing countries, which is leading to brain drain problem for developing nations and job loss problem for USA.<br /><br /><strong><u>So called Consumption led "growth”</u></strong><br /><br />10. Standard of living is higher than rest of the developed world. Per capita consumption of US nationals has been 2x-3x in comparison to that of nationals of other developed nations. (per capita consumption of cars, steel, cement, crude oil etc)<br />11. Consumption has been growing without increase in jobs. Salaries are high despite of limited skill advantage. Imports has been growing and exports have been falling<br />12. China & other countries had been investing their foreign exchange reserve in US securities against nominal return of 2-3% when opportunity cost of the fund is much higher<br /><br /><strong><u>Diagnosis:</u></strong><br /><br /><span style="color:#ff0000;"><strong><u>Point 1-3:</u></strong></span> USA as a nation and US nationals has been living beyond their means. Consumption led growth has been financed by debts which has started to haunt USA<br /><br /><strong><u><span style="color:#ff0000;">Point 4-6:</span></u></strong> World has been duped by the financial engineering of US financial institutions and misplaced faith in USA’s credit worthiness. However, now the world is slowly realizing the risk & mistake<br /><br /><strong><u><span style="color:#ff0000;">Point 1-6:</span></u></strong> The world economy growth in last few years was led by unsustainable debt driven consumption by USA. Problem in servicing of debt is leading to world economy going into financial crisis.<br /><br /><strong><u><span style="color:#ff0000;">Point 7-9:</span></u></strong> USA has become inefficient and high cost economy. They are unable to compete even in traditionally strong sectors like automobiles, IT hardware etc.<br /><br /><strong><u><span style="color:#ff0000;">Point: 10-12:</span></u></strong> Consumption in USA has been growing despite of fall in production activities because developing countries had been subsidizing USA consumption by investing in dollar denominated securities with nominal return.<br /><br /><strong><u>Actual Disease:</u></strong><br /><br /><u><span style="color:#000000;"><strong>Dollar is Overvalued</strong></span></u><br /><br /><strong><u><span style="color:#ff0000;">Point 1-12:</span></u></strong> USA currency is overvalued. Due to overvaluation imports are cheaper and exports are costlier. Hence import led consumption is increasing while manufacturing is falling. Overvalued dollar has killed domestic industry and has made US economy inefficient.<br /><br /><strong><u>“Invisible hand” is absent </u></strong><br /><br /><strong><u><span style="color:#ff0000;">Point 1-12:</span></u></strong> If it was any other country the demand and supply of Dollar would have corrected the currency imbalance. However, as Dollar is the world’s standard currency of trade – the excess supply of dollar had been leaking away into foreign currency reserves of other countries in form of US securities. As other nations were ready to lend to USA against its nominal rate securities USA has accumulated unsustainable amount of debt which it is not in a position to pay back.<br /><br /><span style="color:#ff0000;"><strong>SOLUTION – DEVALUE DOLLAR!!!!!!!!</strong></span><br /><br />Therefore the only solution to the current problem which we prefer to call ‘Dollar Hegemony’ is to devalue dollar. My estimate is: 40 to 50% devaluation in dollar is required to bring it to parity. And of course dollar should loose its “World’s standard currency of trade” status.<br /><br /><strong><u>The implications:</u></strong><br /><br /><strong><u>Positive for US:</u></strong><br /><br />1. <u><strong>Fall in real value of outstanding debt:</strong> </u>As dollar value will fall by 50% the value of debt in real terms will also fall by 50%. Again value of houses in dollar terms would double. This would be a big relief for the mortgage market and can help turn it around. It will help US nationals deeply in debt.<br /><br />2. <strong><u>Manufacturing will become competitive: </u></strong>Salaries in USA will adjust automatically. They are at unsustainably high levels which is making USA uncompetitive. Once dollar is devalued by say 50% automatically salary in USA would fall in 50% in real terms. Making USA industry competitive again. Companies like General Motors etc will be able to compete against Japanese and German cars. Salaries & other retirement benefits of US employees is the major issue pulling these companies down.<br /><br />3. <strong><u>Imports will become uncompetitive:</u></strong> Imports from countries like Chine etc are undervalued due to overvalued US dollar. Once exchange rate is readjusted imports will become uncompetitive restricting unsustainable level of import driven consumption<br /><br />4. <u><strong>Job creation:</strong></u> Increased manufacturing activities and reduced imports will lead to job creation in the economy. Foreigners like Indian nationals who are taking up large chunk of US jobs in IT, technology research, doctors, nurses etc will find it no longer viable to move to US as in rupee terms their salary is US would be reduced substantially. Outsourcing problem would be solved to a great extent.<br /><br /><strong><u>Negatives:</u></strong><br /><br /><strong><u>International Impact:</u></strong> Devaluation of Dollar will have a huge international impact. Countries like China which hold substantial foreign reserve in dollar denominated securities will suddenly see their reserves depreciating by as much as 50%. Devaluation of dollar will make their exports to USA uncompetitive leading to large scale unemployment and bankruptcy in their country. This will create social unrest through out the world. It can lead to war between nations for resources.<br /><br /><strong><u>Crash of financial system & global trade:</u></strong> The whole financial system which is today based on faith in US dollar will come crashing down. The world will need to devise a new order for trade and financial settlement.<br /><br /><strong><u>Elasticity of import & exports:</u></strong> Not all exports and imports are perfectly elastic. Oil imports will not fall substantially in volume in short term. Similarly replacing IT talent of India would be difficult in short term. Similarly for exports, even if the prices fall substantially volume of exports might not increase for arms and ammunition etc.<br /><br /><strong><u>Savings & Retirement fund:</u></strong> People who had been saving rather than going for debt driven consumption would be penalized due to wrong doing of borrowers. It will create a moral hazard. Their saving would depreciate by 50% overnight in real terms and they might not have enough retirement funds to take care of their old age.<br /><br /><strong>Conclusion:</strong><br /><br />The international repercussion of Dollar devaluation is so grave that it can’t be done overnight. It has to be a slow process with enough time for nations to adjust. Countries need to be given time to liquidate their dollar denominated foreign exchange holding. World also need time to device and operate new financial and trade order.<br /><br />But what need to be done immediately is to recognize the real Disease. The world currently suffers from Dollar Overvaluation. Admitting to the disease is the first step. Denial will only aggravate the disease and create other complications due to wrong medicine. Unless we come out of denial mode world will not start moving in the right direction. Bush & Paulson of the world might say that ‘fever’ called sub-prime crisis / liquidity crisis has been cured but it will come back again and again in some form or other – Bear Stearns / Lehman Brothers / AIG / Citi Bank / General Motors / Ford / Chrysler / …………………………………………<br /></div>Neeraj Gutgutiahttp://www.blogger.com/profile/13154574939177790453noreply@blogger.com0tag:blogger.com,1999:blog-6886548.post-38299948639733994042008-09-19T21:26:00.000+05:302008-09-19T21:32:51.535+05:30Open letter to Prime Minister of India (Sh Manmohan Singh)<div align="justify"></div><p align="justify">Dear Sir,<br />The financial crisis faced by the world is a graver situation than that of managing the stock market. What Finance Minister Sh P. Chidambaram is doing currently is pushing the dirt under the carpet and hoping it is not uncovered before the next elections.<br />To be fair to you the current problem is US making and not of your making but this Financial Tsunami is not fair in its impact any would destroy everything that comes on its way. In 1991 you built the dam of Globalization that powered & irrigated our fertile land for almost two decades. But today this dam is in risk and it can destroy the fertile land. You being the architect of the dam knows better than anybody else how to save the dam of globalization destroying own lands.<br /><strong>We need to do two things urgently to avoid importing the US financial crisis:<br />1. Diversify the foreign exchange portfolio and move out of US treasury bonds and other dollar denominated financial instruments.<br />2. Start trading in Crude and other major foreign trade items in Euro and other currencies rather than dollar. At least diversify<br /></strong>As you know law of demand and supply applies to all currencies except dollar due to dollar <a href="http://www.house.gov/paul/congrec/congrec2006/cr021506.htm">hegemony</a>. The dollar is already over valued due to this even after years of fiscal deficit and relentless borrowing. However, the current financial crises pose a real risk to dollar and dollar hegemony. All the billion dollar looses that US government is nationalizing has to be paid somehow and ultimately it would be paid by printing more dollars. And as you know very well, printing more dollars means distribution of USA loses to the world.<br />The printing of dollar, inflation and depreciation of currency is a very slow process and something that can be handled in the long run. The risk current situation poses is sudden devaluation or crash!!<br />The world is currently standing on thin ice which is melting with each passing day and everybody is wishing that it never reaches a situation when we go down under. The current crisis is sign of crack on the thin ice floor. If we all keep standing till the end we all will go down into great depression soon. As the cracks become big, grave panic would be created and one or few of the members would try to run to the safer place. And we should remember that goliath named China is also standing with us on the same thin ice and if he moves, due to its weight the ice floor will surely break. We have to make sure that we more to a safer place before the goliath begin his move.<br />(The thin ice here is Dollar based financial system where all major international trade is done in dollars including crude & petroleum products and major share of foreign exchange reserve is kept in dollar denominated securities. People standing are nations who are part of the international financial system and the cracks are the financial crisis. Going down under is Great Depression & the safer place is a world of neutral currency with no single currency hegemony).<br />China has more than trillion dollar of foreign currency reserve and most of them are parked in low interest paying dollar denominated securities of US institutions like Freddie & Fannie. Sooner than later China will realize that US government with its increasing nationalization of loses would not be in a position to return back these reserves. The only option for US govt is to print more currency to pay back China and others and that would create excess dollars in the world economy leading to collapse of the currency. China to reduce the loss would start moving out of dollar into other currencies or Gold. Or if it’s a fools and doesnot understand the risk of thin ice would force US government to increase the interest rate on these securities. Either ways, the US will be faced with increased financial crisis and the current financial system will collapse.<br />Again shift of oil trade to other currencies would reduce the demand for dollar required for oil trade and hence the currency will collapse.<br />Believing that not moving can save us all is foolhardy. One: sooner or later somebody will panic and run across the cracking thin ice floor. (in fact few countries have already started the move). Otherwise the foolhardy US financial management will ensure that the ice melts so much that the whole world goes down into great depression. USA is rooted in his own system and it can’t run. Its time that we desert him otherwise we all will go down with him.<br />Its time the world decide to move to a world of neutral currencies where value is derived from demand and supply and no single country has enough power to govern the world financial system.<strong> The only thing that is stopping us all is the ‘fear of change’.</strong> In the long run, the new world would be better than the current one for all of us.<br />Sir, I hope as in 1991 you will be bold enough to drive the change rather than closing your eyes to the thinning ice hoping that we don’t go down under before the May elections.<br /><br />Regards,<br />Neeraj Gutgutia</p><p align="justify"><br /> </p>Neeraj Gutgutiahttp://www.blogger.com/profile/13154574939177790453noreply@blogger.com3tag:blogger.com,1999:blog-6886548.post-22838632351559450962008-09-14T15:44:00.000+05:302008-10-02T20:13:42.573+05:30“Distress Sale” is keeping Dollar Strong temporarily<p align="justify">The US financial companies are falling like bunch of cards, the economy is in recession, and import bill is rising still Dollar is becoming strong. What’s happening? </p><p align="justify"><em>“As our U.S. trade problems worsen, the probability that the dollar will weaken over time continues to be high. Running a huge trade deficit is costing us money, sooner or later. Already the prediction I made last year about one fall-out from our spending binge has come true: The ‘investment income’ account of our country - positive in every previous year since 1915 - turned negative in 2006. Foreigners now earn more on their U.S. investments than we do on our investments abroad. In effect, we’ve used up our bank account and turned to our credit card. And, like everyone who gets in hock, the U.S. will now experience ‘reverse compounding’ as we pay ever-increasing amounts of interest on interest.”</em> – Warren Buffett<br /><br />The USA economic performance and current financial crisis should and will lead to depreciation of dollar. My bet is this crisis would dethrone Dollar from being the “standard currency” of the world and this phase would go down in history as end of dollar era. (Read: <a href="http://www.house.gov/paul/congrec/congrec2006/cr021506.htm">End of Dollar Hegomony</a>)*<br /><br />Against the general logic dollar is appreciating due to fire sale or distress sale by US companies. US companies are selling out their investments (equity investments in developing markets, bonds etc), subsidiaries (Citibank, Lehman Brothers) to strengthen their balance sheets. They are also selling out stakes (Citibank, Merrill Lynch etc) to Temasek and Saudi funds of the world at ‘fire sale’ price in distress attempt to survive. This temporary phase of ‘fire sale’ is leading to fall in buyer country currency and appreciation in Dollar. The temporary upside blip is due to unsustainable capital inflow.<br /><br />For the time being this may lead to appreciation in Dollar but it is also reducing the future income of USA from abroad. Temasek and Saudi investors of the world will be taking out dollars from USA every year in form of dividends, salaries and expenses.<br /><br />Apart from future income this fire sale is also reducing the US aura that was derived from these financial institutions. USA is no more ‘the land of endless opportunities’. Soon US B-Schools won’t be as attractive place to study as finance institutions retrench jobs. The fall of these might corporations like Bear Stearns, Lehman Brothers, General Motors, Merrill Lynch, Citi group would end the awe that people have for USA. And with the awe “Made in America” brand would loose its premium.<br /><br />Biggest Export of USA is neither Intel Chips, nor Boeing Aircrafts, nor McDonald burgers nor Microsoft Windows. The biggest export of USA is Dollar (as investment good). As a result of this financial crisis the world will stop seeing dollar as an attractive investment and that would be the demise of Dollar. And then Dollar depreciation would lead to further depreciation of dollar as US exports & imports are fairly inelastic. </p><p align="justify"><br />*PS: <a href="http://www.blogger.com/profile/18072917511554775975">Sanjay Kaler</a> thanks for sharing this <a href="http://www.house.gov/paul/congrec/congrec2006/cr021506.htm">Ron Paul speech</a>. This is the best piece of info I have read on this topic till date.</p>Neeraj Gutgutiahttp://www.blogger.com/profile/13154574939177790453noreply@blogger.com1tag:blogger.com,1999:blog-6886548.post-53897014808450387022008-08-21T21:03:00.000+05:302008-08-22T21:20:21.196+05:30‘Confidence’ is the underlying asset for Dollar. Do your own valuation of ‘Confidence’<div align="justify"></div><div align="justify">I have lost confidence in US Dollar and I am betting that Dollar will soon crash. These sorts of things don’t happen very often and therefore so called ‘experts’ (Microsoft Excel operators) will not be able to predict it. But once in a looooooong while these things happen as it happen with Russian Rouble. Russia was looked upon as superpower when that happened and predicting crash in their currency was nothing less than blasphemy then. Eventually it happened and then people marked those events as end of USSR era. I believe the current period will go down in history as end of USA era.<br /><br />As I had mentioned 3 years back here in <a href="http://neerajgutgutia.blogspot.com/2005/05/what-if-dollar-bubble-bursts.html">my blog </a>the underlying asset to Dollar is Confidence and not Gold as it should be. And as you know the confidence is a very fickle asset, you don’t know when it disappears.<br /><br /><a href="http://www.newsweek.com/id/135380">Newsweek</a>: "Americans are glum at the moment. No, I mean really glum. In April, a new poll revealed that 81 percent of the American people believe that the country is on the "wrong track." In the 25 years that pollsters have asked this question, last month's response was by far the most negative. Other polls, asking similar questions, found levels of gloom that were even more alarming, often at 30- and 40-year highs………… "<br /><br />Dollar is the prime currency today and is the standard for international trade. Almost all of international Crude Oil trade happens in Dollar. Most of the trillion dollar reserve held by China is in Dollar and same is true for more than 300 billion dollar reserve of India.<br /><br />For decades now dollar has been the acceptable standard and nobody ever questioned it. After the Bretton Woods Agreement in 1944 when dollar became the international standard for trade, USA was supposed to keep Gold as underlying asset. However, in 1971 USA, unilaterally, has done away with that practice and has been happily printing Dollar ever since with Confidence as the only underlying asset. Till date Confidence has been an appreciating asset all the while with USA companies ruling the world economics. But with the turn of events over the last 12 months – Housing price crash, subprime, Credit crisis, bankruptcy of banks and financial institutions, bankruptcy of automobile companies - USA looks much more venerable today. This bubble has built up over the years as USA kept borrowing from the world to meet the domestic consumption bill of its nationals. CDOs etc had managed to delay the inevitable by creating fake confidence, but then it can only delay.<br /><br />I believe the current government will continue to delay the inevitable will all kind of financial jugglery just to keep Republican chance alive in the next election. But the new government will have to clean the house and we can expect Dollar Crash prediction coming true around that period. In the meanwhile like Indian Government, USA government will keep on increasing the deficit bill (by off balance sheet items) impact of which will be felt with a lag only after the elections.<br /><br />Frankly all countries will get adversely impacted by the Dollar Crash in the short term but for the long term general good it’s high time that World practices some “currency diversification”. Few major impacts against which countries & companies should guard against are:<br /><br />1. Holding all or substantial part of Foreign exchange reserve in Dollar or Dollar denominated US government securities. India and China both are running this risk and I believe many more country is doing the same. It’s high time that we diversify.<br />2. International trade in critical items like crude only in dollar is another big risk. You don’t know when exactly the music will stop and you should guard against being caught with the parcel when the music stops.<br />3. Financial instruments which increase your exposure to Dollar. In the current world of financial derivatives, carry trade etc there may be many financial bombs hidden in your treasury department which you might not be aware. Its time to check your cupboards.<br />4. There are other risk like too much dependence on USA for exports which is difficult to diversify in the short term (IT companies face major risk here)<br /><br />Sudden move by countries like China and India to diversify there foreign exchange reserve risk or move towards crude trading in currency other than dollar can trigger the crash but we don’t have any other option but to walk the thin ice. Sooner than later the ice will melt.<br /><br />USA Government and especially Fed are trying to avoid the inevitable. Now it’s a matter of your confidence in their capability to tide over this crisis. I don’t have the confidence and hence I suggest diversification. (Note even if the dollar crash doesn’t happen there is nothing to loose by diversification. Diversification to currency like Euro will only help in the long run).<br /><br /></div>Neeraj Gutgutiahttp://www.blogger.com/profile/13154574939177790453noreply@blogger.com3tag:blogger.com,1999:blog-6886548.post-65887994137203019952008-06-23T21:15:00.000+05:302008-06-23T21:20:12.687+05:30When will the stock market bottom out?<div align="justify"></div><p align="justify">At last the crash I had been waiting for such a long time seems to be here. I must admit the market remained irrational for longer time then I expected. But then it’s impossible to exactly time the market. By fundamental analysis you can just say what is logical and what is not. And now readers of my blog will admit that all I said is coming true.<br /> Still doubt my capabilities? Lets have a bet on what would be the extent of correction of when can we say that the market has bottomed out. Game??<br /> My bet is - the stock market will bottom out only after there is a steep correction in the real estate market. By steep I mean 40 – 50% correction!! We will see builders defaulting on loans and banks taking over projects. We will see few builders defaulting on their project commitment and customers running from pillar to post to protect their savings. We may see a couple of suicide or crime related to property prices crash.<br /> People say analysts are generally not specific with their recommendations so that they have an escape route later. Well I will get as specific as possible. Running rate in Bandra East is Rs.12000 – 15000 per sqft and in Goregaon East is Rs. 8000 – 10000 sqft. Wewill see prices in Banda East falling to region of 6000-7500 per sqft and in Goregaon East to 4000-5000 per sqft. My bet is correction would be around 50% in these areas. And these are the prime areas – areas like Kharghar, other parts of Navi Mumbai will see steeper correction. People will realize that Airport, SEZ and Sea-link story are too far in future to price in today.<br /> Logic: The logic behind it is simple. Cost of factors of production – Land, labor & capital has today become so high that most of the projects are intrinsically unviable. Specifically land.<br /> The sunrise industry of this boom of 2005-2008 was – Real Estate & Retail, Airlines, Power and Financial Sector. Retail is already in losses. People are putting in more and more money in hope of future profits; same is the case with Airlines. 3 or 4 with deep pockets will survive rest will sell out or die. In real estate I have already mentioned that it’s all set for sharp correction. In power sector most of the upcoming projects have been based on fossil fuels. It’s a grave mistake and we will soon realize it. Financial sector has already seen correction world-wide and effects will be felt in India soon.<br />If the best earning guys take the maximum loan to finance their expenditure rather than investments the economy is in trouble and that what happened to India due to the consumerism rush. (note: car and house is expenditure and not investment). Salary corrections, job stagnation, no-bonus announcements will lead to lower future earning expectations and hence loan taking capacity. Added to this looses in the stock market and real estate market will make the customers/investors much more reasonable and cautious.<br />People say – India Story is intact. I too believe in India story but for that Indians need to invest & work hard not speculate. Last two years earning money had been so easy that people and started resisting working in their regular business with 12-15% return. It was a common belief that it’s better to put the money in stock market or real estate and earn 40-50% return per annum. Everybody can see the result now.<br />India story has been spoiled by our Mr. Bubble maker – Mr. P Chidambaram. Things which lead to current state are:<br /><strong>Zero capital gain tax:</strong> By having zero capital gain tax on long term capital gain from stock market Chidambaram forced common hard working people to ignore their jobs and businesses and rather speculate in stock market.<br /><strong>Forcing Indian Financial Institutions to invest in market to support prices:</strong> Not only he made these FIs weak he also created bubble in the market by not allowing periodic corrections<br /><strong>Tax benefits on house purchase and high income tax rate:</strong> High tax rates and rebate on house purchase forced people in their twenties to take up 20 year housing loan. A recipe for disaster.<br /><strong> Farm loan waver:</strong> Not only it added to fiscal deficit & made the banks weak it created moral hazard. Farmers and other borrowers will always look for waivers rather than paying up in time. Oil Bonds and fraudulent accounting practice: On the one hand he promised to keep fiscal deficit low and on the other hand “off-balance sheet” he dole out oil subsidy in form of oil bonds. Oil price is a difficult problem. But he should not be using such fraudulent accounting practice. <br />If you see all the 5 points above are clear case of living for today and spoiling the future. India Story can’t remain intact with such fools in power. (I had mentioned these points in my blog several time in the past, I hope in the changed scenario I am making more sense).<br />There have been other party spoilers like Anil Ambani, Real Estate players and these I-banks for the valuation game they played. But at the end of the day the rule is – “Caveat Emptor” – ‘Let the buyer beware’. It’s only we customers are to blame for falling in their trap and not looking at the fundamentals.<br />So, willing to take the bet? Tell me when you think the market will bottom out. My bet is after there is correction of around 40% in real estate market. </p><p align="justify"><br />PS: Bottom out doesnot mean that market will see a ‘V’ shape bounce back after that. It would be ‘U’ shaped. It might take few years to go back to mount 21K again.<br /> </p>Neeraj Gutgutiahttp://www.blogger.com/profile/13154574939177790453noreply@blogger.com1tag:blogger.com,1999:blog-6886548.post-1550668158188079702008-02-23T15:11:00.000+05:302008-02-23T15:24:27.575+05:30Has the Bubble Burst? No not yet<div align="justify"> Readers of my blog know that I had been predicting burst for quite a while now. And to be very frank the current correction in the stock market can’t exactly be called a burst – it’s too soft a landing to be called a burst, it’s just a correction.<br /><br /><strong>What is a “Burst?”</strong> </div><div align="justify">Burst is something that is followed with lot of pain for example:<br />1. <strong>Crash / Substantial fall in prices of all asset class including shares & real estate.</strong> (Has fallen a bit but not substantial)<br />2. <strong>Huge cash loss to speculators and erosion in value of portfolio</strong> (happened to an extent but still not at a scale as experienced during a burst. Generally lead to liquidation of long term assets to pay off. Even lead to couple of suicides).<br />3. <strong>Realization that many projects taken up in boom time are not actually viable.</strong> This generally happens when people bid more aggressively then one should actually bid (good examples may be Reliance Power’s Sashan Project, Reliance Energy’s Sewree – Nava Seva Sea-link, IPL etc.). Many projects get scrapped, delayed or ‘restructured’ after burst.<br />4. <strong>Fall in prices of factors of production – Land, Labour and Capital.</strong> (Currently cost of capital and land has corrected a bit but labour cost is still moving north).<br />5. <strong>Inability to pay debts relating to housing loan etc.</strong> This is generally accompanied by lack of willingness to pay because of substantial fall in market value of property. (It has happened in USA but not yet in India)<br />6. <strong>Another remarkable feature of all burst is fall of something which was considered in fallible.</strong> For example: big companies like Enron, Worldcom etc. (This time it might be one of the big banks like – Citibank.)<br />7. <strong>Growth engines hitting the wall and come down crashing </strong> – this bull runs growth engines have been – Financial engineering (banks), Real estate prices and Power sector. Crash should be more evident in these sectors.<br />Again the Piped Piper of the last two bull runs were Harshad Mehta and Ketan Pariekh – this time it’s Anil Ambani. Anil Ambani’s fall from grace can lead to end of Bull Run. Last two bulls used ‘not so legal methods’ to use Banks cash to manipulate the market. This time it might have been cash from Mutual funds through ‘not so legal methods.’ International banks financial engineering (read sub-prime) is of course there.<br /><br /><strong>So what are the factors which should be looked forward to which can accelerate the pace of correcting into a Burst / Crash.</strong><br /><br /><strong>1.</strong> <strong>Coming to light of ‘not so legal’ means of using public money</strong> (mutual funds / banks) by certain individuals to manipulate the market. Mutual fund is a big risk area. General public is not following the basic ground rule of investing – ‘Never invest in something you don’t yourself understand’<br /><strong>2.</strong> <strong>Impending elections in two of the biggest democracies</strong> of the world and sudden realizations things are not as stable in terms of policy etc as it was assumed to be<br /><strong>3.</strong> <strong>Realization that many of the declared or bid for project are not actually viable at these prices<br />4. Sudden change of policy or tax rules</strong> (for example currently stock market earning are almost tax free – Short term capital gain (STCG) attracts only 10% tax rate with Long term capital Gain (LTCG) is tax free. Dividend is tax free in hands of shareholders and Mutual fund investments attracts tax benefits under section 80C – It’s almost perfect for investors and as Aamir Khan said in <em>Dil Chahta hai</em> – <em>it’s difficult to improve something which is already perfect</em>. So tax changes most probably would have negative effect. Even decrease in tax on other avenues of savings like for fixed deposits would have negative impact on stock market due to flow of money to other avenues.)<br /><strong>5.</strong> <strong>More glaring sub-prime related mess in the international economy<br />6. Fall of a heavy weight (like Citibank etc)</strong><br /><strong>7. Crash in real estate prices and Oil price fluctuation<br />8. Currency adjustments</strong> – ( change of parity in important currencies like Chinese Yuan & American Dollar)<br />9. <strong>Decease in capex by China.</strong> China the world's growth driver would breathe a bit easy with Capital expenditure after the Olympics. This would slow down demand for Steel, cement, and construction goods around the world.<br /> </div>Neeraj Gutgutiahttp://www.blogger.com/profile/13154574939177790453noreply@blogger.com2tag:blogger.com,1999:blog-6886548.post-2550604125644877522008-01-14T17:40:00.000+05:302008-01-14T17:52:57.723+05:30Reliance Power Limited (RPL) IPO: All about Brand Power<p align="justify"><br />Fair price per share = Rs. 130<br />Brand power per share = Rs. 320<br />Price per share = Rs. 450<br /><br />Most brand valuation methods are biased towards ‘sales generation’ potential of the brand. Lux brand is to be valued by the no of units of soaps that can be sold under the brand and the premium price it can command because of the brand.<br /><br />Now there is “RELIANCE” brand. Unlike other brands it’s not about the no of units of product it can sell but no of shares it can sell and the price premium it can command. And then you need to be a financial wizard like Anil Ambani (ADA) to be able to actually convert brand power into cash. He has created an unprecedented buzz around the IPO. The whole power sector has been re-rated after his big ticket IPO announcement. He had played his cards amazingly well – from making the Investment Bankers (IB) to toe the line to grabbing headlines he has done everything right. The <em>“Power On. India On”</em> campaign is also neatly done. The advertisement has that ‘energy’ about it which generates excitement.<br /><br />However, there is a problem. Although he shares the ownership of the ‘RELIANCE’ brand with his brother Mukesh Ambani (MDA) he alone is reaping benefits through RPL IPO. In fact bad performance of RPL IPO can seriously dent the valuation of RELIANCE brand and that would affect both the groups. MDA in his speech to employees on the occasion of father’s 75th Anniversary stated that the group has always believed in doing first and talking about it later and will maintain the same in future. It made me wonder whether he was hinting to the reverse strategy being followed by his brother in case of RPL IPO.<br /><br />The most admirable part of ADA’s wizardry is how he made the IBs toe the line. Deep inside everybody knows that the issue is highly priced but nobody has the guts to speak up.<br /><br />One of my investment banker (IB) friend remarked <em>“I had never felt so ashamed of my profession like this time. None of the investment bankers have the guts to stand up and tell ADA that pricing is ridiculous. Everybody is hoping that somebody else will bell the cat”.<br /></em><br />Another remarked <em>“I always thought I understand the markets well and then something like this (RPL IPO) happens and I realize that markets are too irrational to understand”.<br /></em><br />Another remarked <em>“Since Reliance IPO announcement, Power sector prices are not marked to Earnings but to Vision!!”<br /></em><br />The world of IBs, where people have the competence to see beyond the brand wrapper has been silenced by awe of ADA and greed of business / money.<br /><br />But beyond the IB world there is a world of small investors who swear by the “RELIANCE” brand name. I am not sure if even half of them understand that ADA and MDA groups are two different groups now. They don’t understand the nuisances of valuation business. What they understand is that Reliance group has given mind blowing returns to its shareholders in past and expect it to do the same in future. For them RELIANCE is magic wand which turns to gold everything it touches. A RELIANCE IPO can really drive the whole market crazy. Already there is a mad rush to open new demat accounts as was in the case of Reliance Petroleum IPO. ADA mentioned in one of the press conference that if regulation had allowed he would have offered full 100% to retail investors. However, deep inside he knows that getting retail section over subscribed would be the biggest challenge considering the Rs. 100,000 cap per applications. Around 6 lakh applications (assuming historic avg. of Rs. 50,000 per application) would be required for retail section to get fully subscribed. There are around 1 crore dmat accounts in the country and many of those are in-active. Hence retail section is not expected to get over subscribed by more than 3-5 times in the best case scenario. With huge amount of international money waiting to flow into India getting other sections over subscribed would be easier and most probably would be done in minutes of issue opening.<br /><br />ADA would require some real hard selling. But few will dare bet against him. I believe he knows the game well and will be able to get his issue subscribed. Great market is already quoting a premium of around Rs. 400. Period starting 15 January would be really exciting. I suggest small investors to keep an eye on the subscription figures on the NSE website and wait till the last day before applying.<br /><br /><strong><u>Valuation</u></strong><br /><br />Present value of future cash flow (FCC) method gives a unbelievingly low valuation. I believe ADA’s valuation has been based on the thumb rule – 1 MW = 4 crores. Hence for proposed installed capacity of 28200 MW he is expecting a valuation of Rs. 1,15,000 Crores. Well for installed capacity that valuation might be ok but for proposed capacity??!! Major chuck of the projects would not start operating before 2013.<br />Valuation marked to vision!!<br /><br /><strong><u>Implementation Skill & Feedstock Issue</u></strong><br /><br />And how many years it will take ADA to install 28200 MW capacity?! Reliance track record for in power sector has never been great. Check out history of Hirma power project in Orrisa and such other projects proposed in late 90s and early 2000s. Apart from captive power projects Reliance doesnot have a track record of building profitable power projects. 40% of the proposed capacity is dependent on Reliance Industries Limited (RIL) supplying gas from its KGD6 fields. The case is under major dispute and resolution cannot be expected soon. (The relations between MDA and ADA is like India-Pakistan now. Even after 60 years firing would continue at the borders and this gas agreement is one such border. After resolution, ADA would require at least three years to build the plant and other infrastructure like pipeline etc. And although I salute ADA for his Financial Wizardry, I still doubt his implementation skill (<a href="http://neerajgutgutia.blogspot.com/2006/07/anil-sir-dont-mind-but-i-doubt-your.html">click to read my previous blog on his implementation skills</a>).<br /><br />Yes, Reliance is famous for its implementation skills. But which Reliance? – ADA or MDA? – it’s the MDA’s Reliance which has the implementation skill as its core-competence. Please don’t confuse between the two.<br /><br />Secondly, I personally believe the future belongs to ‘green power’. Rather than betting on coal and gas for power, sources like Wind and Hydro power should be banked upon. Considering the spiraling oil prices the cost competitiveness of fossil fuel as feed stock in future is doubtful.<br /><br /><strong><u>Verdict: Subscribe for Listing Gains. Re-enter at Rs. 325 – 350 range.<br /></u></strong><br />1. This issue is highly overvalued but RELIANCE brand and ADA’s financial wizardry will see it through.<br />2. ADA to protect his equity/ reputation in the market will make sure that at least during the first few days market price would be higher than issue price.<br />3. I would suggest retail investors to wait till last day before putting in money. Check the subscription figure on NSE website. Put in money only after retail section has been subscribed at least 1 time and issue over all has been subscribed 5 times. Remember FII’s can withdraw their money at the last moment, if subscription figures are below expectations as they did in Cairn India issue.<br />4. Apply under full price option. Dont go for part payment option. It would provide an opportunity to sell out at the time of listing itself. Otherwise would be stuck with the stock for more than a month.<br />5. Sell on listing, making as much listing gain as possible. At least free your capital.<br />6. If you are compulsive Reliance shareholder re-enter the stock at around Rs.325-350 range. I can bet it will touch that level atleast once between listing date and completion of installation of 28000 MW </p>Neeraj Gutgutiahttp://www.blogger.com/profile/13154574939177790453noreply@blogger.com4tag:blogger.com,1999:blog-6886548.post-31764104099004802382007-12-31T15:00:00.000+05:302007-12-31T16:05:34.343+05:30Are you out of the Rat Race yet?<div align="justify"><br /><strong><em>“The problem with the Rat Race is - Even if you win the Race you still remain a <u>RAT!!</u>”</em></strong><br /><br />Yesterday I read the book '<em>Rich Dad Poor Dad'</em> and I must say this is one of the best (in terms of direct benefit to me) books I had ever read.<br /><br />I have the best two finance qualifications my country can offer. But still the book was a ‘great value add’ for me. Think what value it can add to people who have never studied finance or money as a subject.<br /><br />It’s not what it says (I believe I knew most of it), but how simply it communicates it. And frankly it helped me clear thoughts in my minds. It revised some basic concepts that I knew but was not using.<br /><br />The best think about the book was that it gave me my immediate next target (something that always drives me to excel but somehow after IIM & Reliance, I had been missing one such driver) – <strong>To get out of the RAT RACE.<br /></strong><br />Its not that I didn’t knew that I need to get out of the Rat Race but I was not clear about the timing. I had been impatient that I need to quit job and do what I really want to but was not clear when and how. I knew I need to accumulate money before quitting job but I didn’t know how much money. This book just helped me do that.<br /><br /><u>The answer is simple</u> – You can quit when your money (or investments) earns enough to meet your expenses. And the money you need to accumulate is investments that can earn you enough to meet your expenses.<br /><br />So, assuming your monthly expenses is 30,000 p.m. (3, 60,000 p.a.) and you expect to earn 20% p.a. on your investment (post tax). You need to save Rs. 18,00,000 (36,00,000/ 20%).<br /><br />I believe this is not a big sum for today’s DINK (Double Income No Kid) families. Young professionals if they plan & save early can be out of the Rat Race by the age of 30 – 35. And then they have enough time & experience to try their hand on entrepreneurship or do what they really want to do.<br /><br /><strong>But how many of us will really do this? Most of us will still go on and buy a Rs. 50,00,000 house, mistaking it to be an asset rather than a liability, with 20 year loan making sure that one is stuck in the Rat Race forever.<br /></strong><br />Do yourself a favor – read ‘<em>Rich Dad Poor Dad’</em> by Robert T. Kiyoski<br /></div>Neeraj Gutgutiahttp://www.blogger.com/profile/13154574939177790453noreply@blogger.com4tag:blogger.com,1999:blog-6886548.post-51540379172843919482007-12-14T14:51:00.000+05:302007-12-14T18:03:36.612+05:30Spectrum dispute: My solution<div align="justify"><br />The spectrum dispute is here again and quick resolution is required to make sure that growth in the sector is not effected. At the same time solutions should not be a ‘quick fix solution’ which would lead to new dispute after sometime. Lets first define the problem/ objective - what we want to achieve<br /><br /><strong><u>Objective</u></strong></div><div align="justify"><strong><u></u></strong><br />I believe, an effective solution should meet following 7 ground rules:<br /><br />1. Solution should help accelerate the growth in the sector and should increase <span class="blsp-spelling-error" id="SPELLING_ERROR_0">telecom</span> density.<br />2. There should be effective utilization of spectrum (being a scarce resource). There should not be any hoarding of spectrum.<br />3. It should not cause revenue loss to government by benefiting one or few <span class="blsp-spelling-error" id="SPELLING_ERROR_1">telecom</span> operators. At the same time focus should be on growth rather than revenue maximization<br />4. The solution should be equitable. At the end of the day all players should be at equal footing and nobody should get unfair advantage<br />5. There should not be any entry barrier for new players<br />6. Existing players should not be at a disadvantage. Due consideration should be given to high cost incurred in past by existing players in terms of revenue share, license fee, taxes etc<br />7. The solution should not create legacy problem. History can’t be changed but it should not become a weight which keep pulling the sector growth rate down. Solution should have flexibility to adjust to changing scenario in future.<br /><br /><strong><u>Solution</u><br /></strong><br />Following is the 3 step solution which I believe meet the ground rule laid above.<br /><br /><strong>Step 1:</strong> Existing players should have only 4.4<span class="blsp-spelling-error" id="SPELLING_ERROR_2">Mhz</span> spectrum in each circle irrespective of technology used. All players who have spectrum in excess of 4.4 <span class="blsp-spelling-error" id="SPELLING_ERROR_3">Mhz</span> to surrender the spectrum. In circles, if any, where existing players have already exceeded feasible subscriber spectrum ratio additional spectrum limited to the excess subscriber base (in the same ratio), should be allowed to be retained – I believe there is no circle where it has already exceeded. The no of subscriber / <span class="blsp-spelling-error" id="SPELLING_ERROR_4">Mhz</span> of spectrum ratio should be very strict and set at highest level considering the best practices and best technology available. It should lead to efficient utilization of spectrum. There should be single standard for all technology so that there is an incentive to use the most efficient technology.</div><div align="justify"><br /><strong>Step 2:</strong> No distinction should be done between <span class="blsp-spelling-error" id="SPELLING_ERROR_5">GSM</span> and <span class="blsp-spelling-error" id="SPELLING_ERROR_6">CDMA</span> technology. Players like Reliance who want to start <span class="blsp-spelling-error" id="SPELLING_ERROR_7">GSM</span> service should be provided single 4.4 <span class="blsp-spelling-error" id="SPELLING_ERROR_8">Mhz</span> spectrum for both technology. They might be provided option of surrendering the existing spectrum in case they want to switch technology and the new technology requires another spectrum band. Should not be charged 2<span class="blsp-spelling-error" id="SPELLING_ERROR_9">nd</span> license fee. Rs. 1651 <span class="blsp-spelling-error" id="SPELLING_ERROR_10">crores</span> paid by Reliance should be returned. </div><div align="justify"><br /><strong>Step 3:</strong> Excess spectrum lying with Govt. should be auctioned with both the existing players and new entrants having right to bid. New entrants would have to pay licensee fee over and above the spectrum bid amount. Existing players can use the spectrum to enhance their network while new players can use the same for setting up new network. This would provide existing players’ fair chance to get additional spectrum if they need it at the same time there would be no incentive to hoard the spectrum. It will also make sure that non-serious players don’t enter the business and hoard the spectrum.<br /><br /><strong><u>Impact</u></strong><br /><br /><span class="blsp-spelling-error" id="SPELLING_ERROR_11">GSM</span> players might resist step one while <span class="blsp-spelling-error" id="SPELLING_ERROR_12">Anil</span> <span class="blsp-spelling-error" id="SPELLING_ERROR_13">Ambani</span> would resist step 2. But seen as a whole the 3 steps make it fair for all the players including new entrants. Third step is providing new players an opportunity to enter at the same time existing player are getting the advantage of free first 4.4 <span class="blsp-spelling-error" id="SPELLING_ERROR_14">Mhz</span> spectrum to compensate for the past efforts, risk, cost etc. this also takes care of the policy legacy problem.<br /><br /><strong><u>Conclusion</u></strong><br /><br />Couple of years back when the same spectrum dispute was going on<a href="http://neerajgutgutia.blogspot.com/2005/05/charge-rs-1500-cr-for-spectrum.html"> I had supported <span class="blsp-spelling-error" id="SPELLING_ERROR_15">Ratan</span> <span class="blsp-spelling-error" id="SPELLING_ERROR_16">Tata</span>’s views </a>on paying for spectrum. Here again I am suggesting need of market forces to decide value of scarce resource like spectrum. At the same time I would repeat what I stated in <a href="http://neerajgutgutia.blogspot.com/2004/06/telecom-sector-artificial-barriers-to.html">my blog regularly in past </a>– <span class="blsp-spelling-error" id="SPELLING_ERROR_17">telecom</span> is highly taxed sector and focus should be growth maximization rather than revenue maximization. Govt. should look at reducing other taxes like service tax, revenue share etc. to accelerate growth in the sector. </div>Neeraj Gutgutiahttp://www.blogger.com/profile/13154574939177790453noreply@blogger.com3tag:blogger.com,1999:blog-6886548.post-1572010375282572302007-11-26T15:57:00.000+05:302007-11-26T16:23:49.665+05:30New game at Dalal StreetThe Bubble Maker’s (Mr. Chidambaram) decision of making long term capital gain tax free has led to another black to white game at stock market. Here is how it’s played.<br /><br /><strong><u>Origin:</u></strong><br /><br />As you all must be knowing that all Long term capital gain is 100% tax free while short term capital gain is charged to tax @ of 10% only. How can a government that came to power by advertising itself as the Messiah of “AAM ADAMI” can be so against the “AAM AADMI”. In today’s tax regime speculators and gamblers are not supposed to pay tax on their winnings while people who work hard to earn their living are supposed to pay 30% tax on their hard earned money. Hence even people who used to work hard has joined the speculation and gambling bandwagon. Mr. Chidambaram, are you getting any cut from these stock brokers / promoters etc?<br /><br /><strong><u>Structure of Play:</u></strong><br /><br />The operators in the market search for stock which has limited liquidity (stock in which public holding is very less and most of the stock is locked with promoters). Then they collude with the promoters. Operators inform the promoters of their intention to play in the stock and requesting them not to start selling their promoter stake in open market. Now the operators slowly and steadily pick up substantial chunk of the stock from the open market leading to reduced liquidity and buzz around the script. They start buying aggressively at very high price in small lots creating a frenzy in the market leading to small investors entering in the stock. The small investors who are feeling foolish to have missed out on the Bull Run rush to buy the share and lead to further increase in price.<br /><br />Once price have increase to 2x – 3x of the original price promoters transfer their original holding in the company from one holding company to another. In the process the original holding company makes substantial Long term capital gain which is not taxable. Hence promoters are able to build up substantial white money in their books. This also help promoters who have black money parked outside India get this money back in India in this falling dollar regime.<br /><br /><strong><u>Gainers:</u></strong><br /><br />a) Promoters<br />1. Able to convert his back money in white money without paying any tax<br />2. Able to create enough white money in his accounts even if actually he doesnot have the money (super money). This helps in showing promoter contribution in new projects. (Most of you must be aware how promoters escalate the project cost in business plan to get large amount of bank finance and their actual equity contribution is nil).<br />3. If the promoter is planning to come up with FPO / right issue / IPO for subsidiary or a group company / share swap for takeover etc increased valuation helps.<br />Promoter can now raise higher bank loan by pledging shares help by second promoter company. As the cost price & market price of these shares is much higher, banks are willing to provide higher loan against higher valuations.<br /><br />b) Operators<br />Operators cash out by selling the shares they accumulated at lower price, at high price making substantial short term capital gain. (People must be aware how these days short term capital gain transactions are being traded between businessman who want to convert their black money into white by paying minimal tax and operators who don’t want to pay any tax. These businessmen show these transactions in their own books and pay 10% short term capital gain tax. Rest 90% becomes their white money. They save straight 20% in tax (30% - 10%) which otherwise is payable for business income. On the other hand these operators are not even required to pay 10% tax as the transactions are made in others accounts).<br /><br /><strong><u>Losers:</u></strong><br /><br />Small shareholders: Small shareholder fearing missing the train buys shares at all price and hold on to it once operators have left believing those shares are really worth that much.<br />Government of India: Huge revenue loss. Everyday we read newspaper where experts calculate and show the expected revenue loss due to tax benefits provided to SEZ. Why no expert provide a figure to the revenue loss suffered due to charging capital gain at 0% or 10% tax rate instead of 30%?<br /><br />To test the above theory, try to see the market behavior over last couple of years (since capital gain tax laws have changed). Look at those scripts that have increased the most during this time. And look at the movement of promoter holding between various companies of the promoter. Look at the amount of loan raised against the pledge of shares by promoters. I am sure you will find the connection. Another good test would be whether promoters have made these transaction through market or off market. Capital gain tax advantage is applicable to only market transaction. I cant think of any other reason to do a market trasaction for promoter share reorganization as due to STT its works out costlier than off market transactions.<br /><br /><strong><u>Probable example:</u></strong><br /><br />Reliance: Due to separation of Ambani brothers both group has ‘reorganized’ their shareholding structure. They have done away with the maze of holding companies and have made it more transparent. This entailed several transaction of transfer of shares from one holding company to another. Can anybody work out amount of white money created in the process.<br /><br />Essar: The group has done lot of reorganization over the past two years. It has also raised substantial loan by pledging promoter holding in various companies. And the Essar Oil and other group stock prices sky rocketed in a very small span of time recently. Smells fishy.<br /><br />Well, this is just food for thought. Please do let me know your arguements if you believe the above is not possible.Neeraj Gutgutiahttp://www.blogger.com/profile/13154574939177790453noreply@blogger.com4tag:blogger.com,1999:blog-6886548.post-70403823399476227672007-10-13T15:05:00.000+05:302007-10-13T15:13:22.429+05:30Open letter to the Finance Minister – Mr. P Chidambaram (the bubble maker)<div align="justify"><br />Dear Sir,<br /><br />Recently I read you comment <em>“The rather steep rise in Sensex sometimes surprises me, sometimes worries me”.</em> Well sir, I hope you realize that this bubble is of your own making and with such comments you can’t absolve yourself from being held responsible if there is a burst in near future.<br /><br />Recently there were also media reports that you have asked bankers to review interest rates downwards as it is hurting demand and growth.<br /><br />Sir, both the problem (steep rise in Sensex and rising interest rates) are result of a ‘market friendly’ tax policy you announced few years back. Since then stock market is moving in only one direction and you have received lot of credit for that but now need to look deeper.<br /><br />By removing Long Term Capital Gain (LTCG) on equity market deals you have made investment in stocks as the only viable savings & investment options for tax payers who fall in higher tax bracket.<br /><br />If an investor invests his savings in fixed deposit he has to pay income tax of around 33% while an investor who investor who invests in stock needs to pay nothing (apart from negligible around 0.4% STT) on capital gain made on stock. Hence small investors who are not very open to equity market risks are also forced in to invest in equity market as bank fixed deposits offer rate or return equal to inflation rate (9% less 33% tax = 6%).<br /><br />Sir, in interest of protecting small taxpayers who would prefer to invest their savings in risk free fixed deposits I request you to have “level playing field” for both the investment options. You are requested to make interest on Fixed Deposits (FDs) tax free if period exceed 1 year same as the case with equity investments.<br /><br /><strong><u>This will solve the following purpose:</u></strong><br />It will make deposits cheaper for banks and hence lead to reduction in lending rates<br />There would be a healthy correction in the stock market to more realistic levels<br />Society / small & venerable investors would have a safe investment option which is not tax unfriendly<br /><br />I hope you will look beyond your favorite kind (stock market) and stop this step-motherly treatment to other saving options.</div><div align="justify"> </div><div align="justify">Regards & Thanks,</div><div align="justify"> </div><div align="justify">Neeraj Gutgutia</div><div align="justify">M: 9867614375</div>Neeraj Gutgutiahttp://www.blogger.com/profile/13154574939177790453noreply@blogger.com0