Monday, July 27, 2009

Next Destination: Heaven on Earth

Had talked about the cocoon in the last post before leaving Chandigarh. After that 2 small cocoons have again been formed and the last one is about to break again… Initially it was 2 weeks of effortless life at Gurgaon amongst the easy environs of the training center. Free food, free and excellent accommodation, Gym and Swimming facilities – overall preparation for a smooth transition. Met some old friends and had a good time making new ones.
Then again after 2 weeks half of the batch was uprooted and sent to the eastern part of India – the land of the left – Kolkata. Again the facilities were provided and it took no time settling in a routine here. Some more friendships were formed and it was quite a fun time in the past 4 weeks – the highlight was first learning and then endless sessions of Poker. And well the official learning part too. (just a relevant example - came to know that just opening the windows when a LPG leak happens in the house doesn’t really help because all the Gas settles down on the floor as it is heavier than air. Sealing the cylinder with the cap should be the first step).
Having roamed about almost all of India, I was comparing the no. of states and UTs visited with a friend. Both of us had the figure of 22 out of 35 (28 states + 7 UTs). I remarked about not having visited J&K especially because it is in north – in close proximity to where I live. Somehow it was missed. And as luck would have it, a couple of hours later I was informed of my next posting – Jammu.
This time it won’t be the same. No free food and AC accommodation with housekeepers on call. It’s something like going to Infy, Mysore after training at Hyderabad (though there were 9 of us then as against only me here). So time to prepare – mentally and physically for some more change.

Sunday, July 12, 2009

Possibilties of Stagflation

The budget has brought in mixed reactions from different quarters. The task for the FinMin was to balance the problem of economic reforms (read fiscal deficit) and the social reforms. While there is no doubt (as already argued here) that focus on social expenditure is necessary for the growth of the country in long term but seeing away from the problem of fiscal deficit has in built problems of possible Stagflation in the country.
The logic is simple. Increasing fiscal deficit (Govt Expenditure minus Govt Earnings which is around 6% of the GDP) means the government has to borrow more(around 400,000 crores) to meet its expenditures. Now when the government is borrowing a huge amount, the banks don’t have much more money to give out to other companies. As the demand for money increases to more than the supply of money, it results in increase in the cost of borrowing money i.e. interest rates. This results in 2 possible effects.
a. Less borrowing by the industries, which results in less expansion plans, hence less growth
b. As cost of borrowing increases, the cost of production increases and the company passes on these costs to the consumers resulting in increase in prices or inflation
Already we are facing a drought like situation in India due to lack of monsoons, resulting in increase in commodity prices. Though the inflation measured by the WPI index is less but the consumer price Index (CPI) which is a more relevant figure from the point of view of ‘aam aadmi’ still hovers around 10%.
Hence we can see a possible halt in growth and increase in inflation – in other words Staglflation.