My Learnings

Sunday, June 14, 2015

India GDP growth graph of the day

India's revised GDP numbers have been variously called as puzzling and confusing. Now, Andy Mukherjee draws attention to describes it as a statistical illusion. He constructs a proxy indicator for growth by combining three parameters - corporate earnings (reflects private investment), auto sales (proxy for consumer demand), and software imports (captures productivity gains) - and compares it with the actual GDP growth rate.

The divergence in the two trajectories, especially since Q4 2012, is striking. In fact, by this indicator, atleast one-third of the GDP growth appears a statistical illusion.

Investment-demand constrained economy

The latest macroeconomic data releases for India show that the gross fixed capital formation continues on its downward trend, non-food credit growth has dipped to single-digit, and corporate bottom-lines are at their weakest in a long time. Pointing to concerns that the turnaround may not be around the corner, Livemint highlights the capacity under-utilization problem,

Key industries have huge capacity underutilization. In steel, from a maximum of 88% in 2012-13, utilization level is expected to be 84% in 2015-16. In cement, from a peak of 74% in 2011-12, utilization is down to an estimate 71% in 2015-16. In automobiles, this number is down from a peak of 80% in 2011-12 to an estimated 63% in 2015-16.

Apart from this, real estate market inventories have been piling up. The RBI's own survey shows manufacturing capacity utilization at 71.7% for Oct-Dec 2014, with no signs of a reversal. These trends do not point to any resumption of the investment cycle.

Signatures of consumer demand, for capital goods and consumer durables, too are not promising. As the RBI survey shows, order books of capital goods manufacturers has been declining. And in any case, businesses and banks are hobbled with bruised balance sheets.Business sentiment, as captured in the Business Expectations Survey of March 2015 conducted by the think-tank National Council for Applied Economic Research which tracks over 500 firms of varying sizes, had fallen 6.9% from previous quarter.

All this appears to point towards currently India being an investment-demand constrained economy. If this is true, monetary loosening, for all the hype surrounding it, would be pushing on a string! In any case, all this makes these numbers even more puzzling.

Increasing the utilization of JDY accounts

The biggest concern with India's Jan Dhan Yojana (JDY), in which no-frills accounts with zero-balance are opened to achieve financial inclusion, is with its actual utilization. A large majority of accounts have not been transacted on and very few have had meaningful enough transactions.

In fact, acknowledging this possibility, the government had designed the JDY with multiple incentives. In fact, the scheme has atleast five incentives as top-ups - a zero-balance facility (against the Rs 1000 minimum deposit requirement in regular accounts), a RuPay debit card, a Rs 1 lakh accident insurance, and Rs 30,000 medical insurance for the poor, and an over-draft facility of upto Rs 5000 per household. It was premised that these incentives would promote the bank account utilization. Now that incentives have not proved sufficient, the next dimension is being pursued is to enable access - through increased banking correspondents and even mobile telephones.

Both incentives and access are doubtless essential to improving account utilization. But if experience from across the world is any indicator, this is unlikely to bridge the last mile gap and get households to use the accounts. Such persistent last mile gaps are more amenable to nuanced behavioral interventions or nudges. Here are atleast three nudges that have the potential to complement incentives and access and bridge the last mile gaps, thereby increasing the actual utilization of JDY accounts.

1. Multi-tier accounts - Behavioral psychologists highlight the importance of mental accounting, whereby people mentally categorize their incomes into different use-directed buckets. Accordingly, people are more likely to save when they desperately want to save for something and have a mechanism to save for it - eg. people use piggy-banks or lock-boxes to save for buying a bicycle or mixer-grinder. In fact, at any time, most poor people use some version of this to save for certain highly valued purposes. Therefore, a multi-tier savings bank account, where people can customize tiers based on their needs, has the potential to be a powerful nudge to get people to start using bank accounts.

2. Lotteries - People, poor and rich, are instinctively attracted to gambling. Lotteries find great attraction among poor people, in particular. In fact, the vast majority of lottery customers come from the lower half of the income ladder. Lottery schemes, like chit funds, which offer investors in recurring payment savings schemes with defined tenures the possibility of windfall payouts are wildly popular among poor people. A periodic lotteryoffered to active users, through prize-linked savings bank account, can be a powerful nudge to get them to start using the JDY accounts. There is growing evidence of lottery schemes being successful in increasing savings.

3. Commitment contracts - People have a time inconsistency problem whereby they have different preferences on current and future choices on the same issue. Accordingly, while the current-self attaches a high-value to exercising tomorrow morning, the future-self discounts it heavily when tomorrow morning arrives. Consider this example. When they receive their lumpy harvest income, farmers are committed to saving enough to buy fertilizers for the next crop and not fritter it away on festivals or temptation goods. But come the festival or another temptation need, this resolve breaks down, leaving the farmer with too little to buy the fertilizers or make ends meet till the next harvest arrives. So how about a harvest annuity scheme or fertilizer savings account, with attractive enough savings returns, attached to the JDY account, that helps farmers amortize atleast a part of their incomes till the next harvest thereby optimizing their income management or pay for fertilizers for the next harvest. These are examples of commitment contracts that help tide over the time inconsistency problem. Successful outcomes from some such commitment contracts are summarized in a recent report in Science journal highlighted by this WSJ report.

These are not to be seen as stand-alone strategies, but part of a menu of choices linked to the JDY account and readily available for the account holder to choose from based on their preferences and needs. Their enrollment/subscription processes should be extremely simple and user-friendly, so as to lower the access barriers and costs. Finally, they have to be aggressively marketed through information and education campaigns that reach these customers. Though the potential for their abuse is considerable, the predominantly public nature of banking sector, especially those servicing the poor, should mitigate those risks.

None of this is to argue that this can be a guarantee to increasing the utilization of JDY accounts. It is just that this approach, coupled with incentives and access that is being promoted by the government, stands a greater likelihood of success with promoting real financial inclusion.

Steel sector, stressed assets, and asset sales

Livemint writes about the struggles of steel sector in India,

The country’s consumption in April-March 2015 was at 76.3 mt, 3.1% higher from a year ago... in fiscal 2015, India imported 9.3 million tonnes (mt) of finished steel, 71.1% higher from a year ago, while it exported a mere 5.5 mt.... As of 16 April, Indian hot-rolled steel prices stood at Rs.39,681 per tonne or $627 per tonne. Prices of HRCs from China and Russia were significantly lower. According to Bloomberg, HRCs from China were priced at $387 per tonne. Even after adding shipping and transportation costs and export duty, the price added up to around $520 a tonne...Prices of Chinese flat steel products, which now meet the quality standards of established Indian companies, are usually 15% lower than Indian steel prices, thereby making imports very attractive... Russian prices were similar to those of Chinese imports for the past few months.

And this about the domestic steel industry's finances,

According to data from the Corporate Debt Restructuring (CDR) Cell, as on 31 March 2015, of the Rs.2.86 trillion in loans being restructured, 19.7% or Rs.56,443 crore worth of loans came from the iron and steel sector.

Apart from this, 41 steel sector projects worth Rs 4.6 lakh Cr formed 10% of all stalled projects being monitored by the Project Monitoring Group (PMG). In light of the above and the strong likelihood of the trends persisting, it is highly unlikely that too many promoters will be interested in taking forward these projects. These stalled projects may therefore be as good as cancelled.

In the quest for deleveraging, Indian corporates, including steel companies, are taking desperate measures. Livemint has another story about firms selling their core assets (mainly to infrastructure funds and infrastructure-focused leasing companies) and leasing it back through a 'sale-with-a-right-to-use' model. Firms sell the asset and enter into long-term contracts to use the equipments for their production. The deals mentioned in the story involve heavily over-leveraged firms, clearly revealing the motivating factor for such deals. However, while such sales help firms monetize non-liquid assets and reduce debt, especially important for debt-laden firms, they also raise operating expenses and thereby production cost. When deleveraging is completed, these firms are likely to face up to the reality of higher production cost and look for buying back the assets. But why should their new owners relent?

It makes very attractive commercial sense for investing in such assets. Given the assured incomes that come from the contracts, with minimal downside risks (albeit limited upside too), investors with patient capital like pension funds should be queing up. It is therefore no surprise that infrastructure funds and leasing companies and jumping into the market. But do these firms have the expertise to manage the operational risks? Or is is just another one of the fads that suddenly strike because of a market opening trigger (deleveraging by firms, here) for capital to rush in head-long and burn their fingers? Further, is the contracting likely to be clean, which minimizes the possibility of contracting disputes? Is it possible to effectively ring-fence asset-ownership and operational sides?

Fundamentally, this raises the issue of whether the Coasean bargain is attractive enough to pursue such a business model in manufacturing sector, one which has not gained traction even among the largest and most reputed manufacturing firms across the world. Does the profits from the production outweigh the transaction costs associated with manufacturing with leased assets? I am not sure.

Consider this. The leasing firm has locked-in production supply commitments made to long-term clients, from which they would be loath to renege. In contrast, the asset owner's incentives are far less strongly aligned towards ensuring such rigorous reliability. He does pay a penalty for reneging on contractual terms, but it is unlikely to be anywhere commensurate with the loss suffered by the manufacturer. Further, in order to limit disputes, a tighter ring-fencing of ownership and operation may, perversely enough, by making the owner a lazy rent-seeker, increase the cost for the operator and make his production commercially less viable. Or, is this another Indian jugaad business innovation model?

Friday, June 5, 2015

20 Simple Ways To Relax And Unwind When Life Has Been Rough

Do you occasionally feel like a cartoon character with a finger in an electrical socket? Stress is such an integral part of our lives nowadays that we seldom realise it isn’t something we’d classify as normal. Not all stress is abnormal, though. There is such a thing as good stress, which keeps us going and motivates us to complete tasks on time. But bad stress or chronic stress is what you should be wary of. This is the kind of stress that can cause physical, mental, and emotional discomfort, and make you feel all kinds of wrong.

The time to relax is when you don’t have time for it. Now is the time to manage the good, the bad, and the ugly faces of stress. Here are a few ways to help you do just that.

1. Identify your stressors

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We are often so lost in our self-acclaimed stressful lives, that we never really sit back and see what EXACTLY is stressing us out. Sure, everyone says that they have stress in their life…but has anyone ever listed down concrete things/situations that stress them out? Do exactly that. Sit down and ask yourself what exactly is making you so stressed; and you’ll often find the solution right here.

2. Craft

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Adopting a new hobby; something that gives you the chance to craft or create something is always pleasurable since it gives you the feeling of being productive. Also, repetitive motions - like the fine motor skills used to knit or make jewellery -- can soothe a stressful mind and help you calm down, since it makes you mindful of the present. Speaking of which….

3. Being Mindful

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It cannot be stressed enough, the importance of being mindful. We’re always plugged in on two hundred devices at once, and are under so much pressure to reply to every tweet, email and ping that comes our way. When was the last time you actually tasted the food you ate? Are you aware of how many sips it takes you to finish a glass of water? If not, it’s because you are too busy being staring at a screen. Most of our jobs today involve that, anyway, so it’s best to avoid the screen when performing normal everyday tasks and instead be mindful of what you’re doing.

4. Do Something Pleasurable

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Anhedonia is something we know all too well. It’s when the things you used to enjoy now leave you cold, as if there is a barrier between what you enjoy doing; few things seem rewarding any more. You can counteract this feeling by taking baby steps towards the things you used to enjoy. Some ideas include

(a) Be kind to your body: take a shower, lather on your favourite lotion and realise that you smell amazing, you feel clean. Drink lots of water, have lots of cold fruits and drink fresh juice.

(b) Other activities that seem mundane: meet up with a friend you haven’t contacted in a while, maybe go out with them to grab lunch; bake a cake and share it with your neighbours or colleagues.

Feel free to think up your own ideas; anything that makes you feel accomplished and pleased with yourself is a great way to begin..

5. Turn To Your Memories

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This one has personally worked for me very well. When you feel overwhelmed by all the criteria you feel the need to fulfil, or the constant need to be perfect at every task you ever attempt, and if you fail, which you inevitably will, you will feel the stress of being a grown up, and the stress that comes with taking all the responsibilities that you have WILLINGLY taken up. What you should do then, is turn to all the memories that are your safe haven. A memorable trip you took with friends, or the time that you faked a sickness to get out of going to school and actually succeeded (we never did), or even the time you got praise for something you successfully completed. The present will seem less intimidating, and you’ll realise that it’s okay to be stuck sometimes. With that acceptance comes peace of mind.

6. Create a Relaxation Room

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It doesn't have to be a "room" per se. It can be a space in your bedroom, or in a quaint coffee shop down the street, but the key is having an area solely devoted to relaxing. Where you can sit and actually take a breath without having a hundred and one things trying to get your attention. This should be your device-free zone, where all you can carry is probably a book or magazine or just your imagination. The idea is to give you a place to decompress with very little stimulus.

7. Buy A Plant

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This is the pet-equivalent for those who’re always on the go and working non-stop. Having a plant is seemingly a very unimportant thing to do, but they’re more than just indoor air purifiers. The colour green has a positive effect on the brain and simply having a plant around will make you feel much more connected with nature. Also, mindfully done, the act of watering a plant can be very relaxing and rewarding.

8. Be Grateful

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Wanting to be your best is normal, especially in teenagers. However, we seldom ever stop and feel satisfied with who or where we are. Of course, feeling way too satisfied would mean we would stop working to be better; but the constant pressure to be better than we already are is ruining a lot of us. We’re never happy with the job we have or the marks we got. But there’s absolute joy that comes out of waking up early in the morning and being happy that you managed it. Be happy for once, even for a little while, because it will calm those fidgety nerves.

9. Sleep Is Your Kryptonite

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Sleep is magical, really. When all your emotions are going haywire, and you’re feeling all the negative emotions it’s possible for you to feel, sleep is the way to go. When you wake up after an hour or even five, you’ll feel better. And if you miss out on your work, or on life in general, tell yourself that your mental health is important. As we said before, sometimes, it’s okay not to be in control.

10. Change your clothes

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As soon as you get home from a stressful day at work or school, change your clothes. You’re doing yourself a huge favour, because you’re telling yourself that you’re now out and AWAY from the stressful environment, and this will automatically calm your nerves. Don't be lazy about this; it takes practically no time!

11. Go To A Bookstore

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No, you don’t necessarily have to be a bookworm or even an avid reader to do that. The idea is to go somewhere public but private at the same time, and feel lost. And there’s something for everyone in a bookstore, so why not? Being surrounded by something other than electric devices is a strangely delightful feeling.

12. Indulge in Guilty Pleasures

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Once in a while, it’s alright to do this. Watch 'The Notebook' three times in a row and cry your eyes out, watch 'Keeping Up With The Kardashians' and laugh at the things you wouldn’t get to experience very often. Guilty pleasures exist to make you feel guilty for indulging in them; but we’d choose guilt over debilitating stress any day!

13. Do Nothing

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We all know what Winnie the Pooh said – don’t underestimate the value of doing nothing! Although this seems like an everyday thing, we’re always doing something, either physically or mentally. It’s important to know how beautiful it is to do nothing, and rest afterwards. Have an emergency exit for every day; you never know when it gets too much to handle.

14. Will This Matter When I’m Dead?

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Admittedly, this sounds more than a bit morbid, but visiting a graveyard -- whether literally or figuratively -- can help you reframe a stressful situation. No, seriously. This is so important and its funny that, although it seems ridiculous, it actually works! There’s just a slight possibility of going overboard and literally becoming stress-free, but if that’s what you’re aiming for, then seriously, ask yourself this question. And give yourself the answer.

15. The Internet Is A Friend

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We all know the important of plugging out of all forms of connectivity to feel better, but for those of us who have desk jobs, we can’t really afford to look away from our screens every 5 minutes. What’s the solution? A few of these websites that will turn your mood around!

Calm Make everything okay

Rainy Mood

Nicest place on the internet

Do Nothing

Noisli

The quiet place

Soundrown

Automatic

Flattery

Look at

something

Disgruntle me

16. Meet Your Happy Person

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Everyone should have this one person, their chill-pill, who can tell them to calm down and it just magically happens. People who light up after seeing you, or always have some comforting things to say are extremely important people who need to stay in your life, unlike the walking, talking black holes that suck the life out of you.

17. Water

Image credit: Alex Deckard

Try the Japanese Water Therapy (Drink 4 glasses of water immediately upon waking up in the morning); or you can be a bit more ridiculous and drink water upside down. That helps relieve stress and avoid hiccups. Swimming or any other water activity helps in lowering your stress levels. Being 70% water has its benefits, people.

18. Blow Up A Balloon

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No one can be stressed and grumpy while blowing a balloon. Try it. There’s just something humorous about having a sack of air lying around. Consequently, you can just try to balance a balloon, and not let it touch the ground. Hey, it’s a game for kids, but you can put two and two together and realise why kids always have a smile plastered on their face.

19. Distance Yourself From Triggers

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Being self-absorbed in your own world is a fantastic way to stress yourself out over things which are plain irrelevant. Simply stop being around thoughts or places or even people who make you anxious. Mini-vacations or 5-minute vacays are extremely helpful for those who cannot take the time out to personally work on individual stressors.

20. Find What Works For You

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Finally, don’t just take in the tips you read everywhere. Your body and mind are unique to you. What works for others isn’t guaranteed to work for you, but the road to self-discovery requires experimentation. These are all very relaxing but maybe your kind of de-stressing involves pushing walls and tiring yourself out physically. As long as it's healthy and it works, it's good enough for you.

What do you do when you're having a tough time? Tell us some of your de-stressing tricks in the comments below.

Wednesday, June 3, 2015

The Great Decoupling

I have blogged earlier about skill-biased technical change and widening inequality. In an HBR interview, Erik Brynjolfsson and Andrew McAfee point to the 'Great Decoupling' since the 1980s between economic abundance (as captured in rising percapita GDP growth and productivity) and worsening income and job prospects for typical workers.

This trend has paralleled the divergence between wages, which have been declining, and corporate profits, which have been rising.

Brynjolfsson and McAfee blame it on technology - as advances in information and communications technology made plant, machinery, and equipment prices to drop, companies shifted investments away from labor and towards capital. Even as low-skill workers have been replaced by machines or off-shored away, big data, analytics and high-speed communications have enhanced the productivity and value of skilled workers. The consequences of such skill-biased technical change include widening inequality, with all attendant social and political distortions.

As regards preparing the society for this changing world, they point to the need for fostering an environment that is conducive to innovation, new business formation, and economic growth. In this endeavor, they highlight five focus areas for governments - school education that treaches kids relevant skills, including creativity, inter-personal skills, and problem-solving; world-class infrastructure; more entrepreneurship; more liberal immigration; and investment in basic research (as businesses focus on applied research). Unfortunately, countries like India slip badly on all the aforementioned.