Sunday, November 30, 2008

Predictions and articles

The follwing articles and predictions will appear/start appearing on mentioned sites/blogs

1. Predictions based trading fund trading only nifty/sensex equities ( buying/shorting) will start. It will be both prediction based and information based on www.kal.in and www.ckal.in

2. Can Terrrorist acts be predicted astrologically - an analysis with special reference to Indian situation( on www.ckal.in )

3.Economic Policy for preventing/countering terrorist acts ( on www.IndiaConsulting.in )

Because of data collection requirements articles (2 and 3) may be take time to appear and may be in short series format

Tuesday, November 25, 2008

Alternative to layoffs in recessionary situations?

Alternatives to Layoffs:

When faced with a recessionary like situation or prospect of one, most firms seem to find it easiest to start with layoffs.In the west this is acceptable but in India layoffs is not taken kindly even by government as seen in recent times.

There are options that can be explored with underlying principle for tackling recession as mentioned in our last piece- try to make as many expenditure items countercyclical as possible so that effects of recession are moderated.

Challenge is to provide firms with alternative to layoffs so that they can save costs but at the same time minimize cuts in spending that may add to recessionary pressures. Here are a few ideas

  1. Add cyclicity to PF contribution rule with some flexibility. So if 12% is contribution to PF with equal contribution by employee. Slashing this to 6% or more for a limited time (making it acyclical) will save firm 6% straight away. Secondly employee's wealth effect due to lower incremental addition in PF will be minimal. Thirdly salary in hand of employee will go down ( EDIT: SALARY IN HAND WILL GO UP NOT DOWN)by 6% and in after tax sense perhaps even less (MORE). Hence his/her salary available for spending will actually increase in recessionary times. However this may require legal changes. Employees will have the option to plough back "increased salary in hand" to savings such as PF
  2. Salary cuts of higher level staff is less painful than salary cuts of rest of labour force. And very likely when a given saving in cost is effected through salary cuts of highest paid staff negative effect on overall spending may be minimal.
  3. Explore trade off between salary cuts and job security where jobs are contractual of(OR) effectively so. Let employees be assured of longer job security in return for forgoing of benefits for a fixed time
  4. Where applicable load the compensation structure towards a higher commission/compensation based on sales/business increase without creating unhealthy competition ( through team based performance assessment as opposed to Individual performance).

Firms may think layoffs may save them resources but aggregate result may be opposite. Firstly layoffs will accelerate decline in spending for all firms defeating the very purpose of initiating trimming of workforce. Secondly fear of job losses could change saving/consumption behaviour adding to recessionary pressures. Thirdly layoff as last resort may add to company loyalty, productivity and brand image attracting better talent over time ( as opposed to ruthless employers)

Added and Edited:( nov 30)

  • With reference to point 4 above, one of the options that could be explored is not just trade off between longer secure contracts and lower pay( for limited time) but also those willing to exit workforce through VRS.( except that better and experienced workers should not take VRS entirely)
  • Lean economic season may be best time for encouraging skill upgradation.Under this conditions part of cost savings may be used for such purpose but such costs can easily be reduced further by sponsoring only part of employee's training cost remaining cost to be met by latter from his/her own pocket. This may( not necessarily will) differentiate more motivated/ambititious workers from the rest

Added ( dec 2)

  • One other alternative that can be considered is reducing work hours for a limited time- an option that Tata Steel is considering overseas

Friday, November 21, 2008

Part 9: Summary of Measures to avoid deep recession?


Summary: What India/World can do to avoid deep recession?

 

This piece is just meant to be summary but a few points have been added.

 

 

  • Measures suggested here are mostly meant for ongoing recession or possibility of it but others are more applicable for future recessions.
  • Current crises is result of mix of supply and demand side factors hence while both need to be taken care of ;demand side measures ( especially govt led) must lead the way and influence supply side adjustments because expectations of future of economy have dramatically changed for the worse
  • Measures must be proactive as macro economic models and simple economic theory can suggest direction of economy even before data starts coming in
  • Demand boosting measures include: speeding up current projects; higher spending in agriculture ( boost productivity) & rural sector because of higher expansionary effect; promoting during recession non for profit activities by corporate and charitable organizations which may include HH maintenance/repair/expansionary  activities; rate cuts supported by Central Bank/sovereign guarantee which is more applicable in countries hit by sub prime related crises; concerted fiscal stimulus by all countries; special funding by dollar surplus sources to invest in US and Europe. In India Railways with huge surplus and likely to be having a portfolio of approved but idle projects must accelerate spending; launching highly beneficial long term projects such as self contained model cities to boost real sector, stock markets and spending; capital infusion of Banks in US and elsewhere must be conditional; media management to change expectations on future of the economy and looking at alternatives to layoffs
  • Supply side: usual liquidity enhancing policy measures; easing terms of payment on large infrastructure projects; as in US Indian real estate Cos must offer variety of payment choices to increase upfront cash availability, increase demand for housing (demand side measure)

 

 

Tuesday, November 18, 2008

Predictions

As the market is generally bearish, we will be making predictions ( intra day, weekly etc) mostly when bullishness is expected till further notice.However absence of predictions is not to be taken as prediction of bearishnes by default nor all long calls can/will be predicted.
 
 
Imp: we have noticed albeit belatedly a posting on Direct selling ( not deleted so far) on www.ckal.in made on nov 4. This post was not put up by us nor authorized by us. please bring to our notice any unusual post on these blogs

 
 

Sunday, November 16, 2008

Predictions for coming week- nov 17-21



Posting of Predictions for the coming week ( on www.kal.in and www.ckal.in ) are uncertain due to long powercuts expected this week and in future.In addition predictions if any may be posted on mobile site ckal.mobi also

Meanwhile enjoy this sand sculpture of Mr Obama. If you have more of such sculptures etc of eminent persons you may post them to me

Coming next on www.Indiaconsulting.in : Part 9: What India/world can do to avoid deep recession? summary

Can we isolate impact of religion and spiritual practices on economic and material outcomes? to participate in this survey please send your interest at wwwkalin@yahoo.co.in

Thursday, November 13, 2008

Part 8: What India/World can do to avoid deep recession?

We mentioned about putting in to practice the counter cyclical measures to combat recession as is the normal practice. However timing is crucial. Infrastructure projects take time to get designed and approved but existing projects can be speeded up. (If govts are really trying to accelerate economic growth during recession, why not require govt departments to run higher inventory levels during such times as prelude to speeding up projects- a good way to quickly create demand in other sectors which obvioulsy comes at a cost)

However in this part we will mention another class of spending that could be useful as a counter-cyclical measure. Though no data is available as of now, there is a good possibility in India ( with corporate sector doing well) and perhaps some Western countries that "not for profit spending" or even "Green Spending" could be significant. If we club the activities taken by religious organizations this could be significant. So while normal investments are taken for profit motive and will increase in "good times", these philanthropic activities or activities bordering on this category which are not taken for " usual profit motive" can be increased during times of recession by govts taking a number of measures and providing incentives for the same. Obviously not all such activity can be postponed for such times but governments can declare 4-5 year incentive period on onset of recessions thereby clustering more of such activity during these bad times. Such activities could include construction of educational institutions, temples, ashrams, hospitals etc much of which could boost activity in other sectors

Wednesday, November 12, 2008

Part 7: What India/World can do to avoid deep recession?

Continued from previous unfinished article


As mentioned economy could be experiencing low interest regime and high liquidity, even so economy could fail to pick up steam- when economy is seen as looking down the barrel of slowing growth locally & globally. These are conditions that we seem to be approaching globally.

It seems that in these times changing expectations could go a long way in complementing "real measures" such as interest rate cuts, fiscal measures etc. Expectations, often used in economic theory, could play a real role in these times. Hence all "soft " signalling devices such as confidence index-( used and read perhaps more in western countries) need to be ethically "manipulated" ( mostly indirectly and almost unconsciously) to inject " a feel good factor" in the economy since personal and perhaps more likely corporate spending decisions is likely to be affected by changing value of these indices

Some of these measures - non exhaustive in nature ( already mentioned in previous articles) could help if they are properly rolled out in business media

1. Major countries acting and seen acting in tandem of which fiscal stimulus is an important component ( such as through G 20 forum)

2. As much as possible ,messages given to & through media about economy by government and corporates must be more positive ( without being misleading) , regular and clearly setting out measures and their likely impact. This will help to change people's and business perceptions about future of economy which has been hammered down by bank failures and all round losses.

3. Corporates must not depend on government to do everything but must invest in measures that are supportive. Laying off workers has a very negative signalling impact about economy . why not consider temporary' salary and benefits cut all around( or rescheduling of certain benefits to a future date). This may have less demoralizing effect than laying off workers. Companies must have teams that brainstorms through these issues and workers becomes party to all decisions

4. Public sectors companies with surplus funds must be encouraged to take up long term investments rather than wait for worsening conditions to get a better price.

5. As a long term measure ( could be implemented) , additional taxes on share trading that could be used in conjunction with governments equity to bolster stock markets in extreme situations ( this is tricky) since stock markets can send strong signals about people's thinking but is prone to exploitation by large funds and traders to aggravate volatility and depressed conditions. long run Profits could be used for social welfare causes

....may be continued

part 7: what india/ worldcan do to avoid deep recession

Part 7: What India/World can do to avoid deep recession?

It seems that there is some confusion regarding the economic fallout that is due to “normal” business cycles and what is being aggravated by aftermath of sub prime crises.

Conditions can exist and we seem to be approaching such conditions in certain parts of the world where even low interest rates and surplus liquidity cannot bolster investment activity and the reverse can happen too . This brings in to focus the importance of two factors - role of business and consumer confidence indices in the improving health of economy


…………..to be continued

Friday, November 7, 2008

Part 6: What India/world could do to avoid deep recession

1. It is being suggested that current crisis is because of combination of overlending to sub prime group, development of financial products without attention to their consequences. And that the problem can now simply be solved by recapitalizing FIs who have lost significant capital.

In my view the unfolding crises is not only due to the above cause or else why would many corporates around the world would be reporting lower profits for last few quarters whereas the full scale of financial crises has come out in open with its consequences only this year and its impact will unfold from here on. Secondly infusion of capital will not fully solve the problem as is being suggested- for the simple reason that FIs are likely to become more circumspect- overlending will be repalced by underlending with even credit worthy borrowers becoming casualties for some time. Hence the case for public works in one form or other.

The unfolding crises is result of two trains quietly hurtling downhill untill they both collided with a bang. First was subprime crises. Second was the overcapacity brought about by era of low interest rates and possible default here too with rising interest rates. Second explains the falling profts in many cases and overcapacity. It seems that FIs evaluate & lend for large -long gestation/long maturity projects factoring in only present interest rates.

2. It may be added and clarified that rural spending would have higher income multiplier effect because lower or exempt tax structure in rural areas/agriculture income and that would put a higher disposable income for spending in the hands of the rural income group. Ofcourse the risk is that unless primary articles are in good supply, inflation could be a worry again

Thursday, November 6, 2008

Part 5: what India/World could do to avoid deep recession?

1. It is clear to everyone that US does need to carry out reforms at every level to put its economy on track. However the less it relied on government funding the better. So the question is how US economy could be revived without government spending- without government increasing its debt level? One option could be, if world financial institutions and dollar surplus countries created a SPV with largely equity stakes by all stakeholders which could then take equity stakes in mostly strategic projects and/or on-lend under certain conditions & regulatory oversight to financial institutions and industry in US and other countries most severely effected by current situation. Part of this equity could be guartanteed by US to be converted in to debt after ten years or so- time enough for US to turn around economically. Reduction in Iraq war spending would not only allow US government to improve quality of its spending but all take stake in this SPV. Participating countries would not only benefit from projects that are undertaken but also earn a decent sum from largely idle dollars in their kitty. Inflation risks are negligible from this liquidity injection as much liquidity has dried up in US in wake of financial crises.

2. In the previous article it was mentioned government must encourage and accelerate development of small largely self contained model cities. It may be added that SEZ like incentives may be provided though they are unlikely to suffer from land related controversy in most cases. Such cities are likely to attract, relocate from overpopulated cities and house a large number of sectors like pharma, BPO, IT, educational products industry, part of renewable industry and so on with huge cost savings and better work and life standards

Wednesday, November 5, 2008

Part 4: what India/World could do to avoid deep recession?

Continuing on the above theme,

1. Measures by and large cannot be ad hoc but must fit in with each country's overall medium and long term priorities. Government in India would be well aware of the difference between urban and rural sector. One key difference is in different propensity to consume- being generally higher in rural/poorer sections or in more labour intensive sectors. Hence govt must speed up spending in rural sector- rural infrastucture and within rural infrastructure on rural roads. Th e reason is higher conumption propensity in rural areas would have higher income multipler effect while accelerating rural road connectivity would have high productivity impact ( as shown by World bank study comparing productivity impact of different forms of infrastructure like road, education, water ,heath etc) .

2. Much of urban infrastructure is in form of neutralizing rather than positive infrastructure- comes up to correct unmet demand, congestions etc and addition of these in urban areas has negative externality as such infrastructure may be accelerating rural -urban migration accentuating such problems. Taking a medium and long term perspective, it is high time that a more proactive effort to develop many more villages and small towns in to complete model involving partnership with private sector. The complete package involving provision of new forms of energy supply, housing and other solutions that is possible in relatively uncongested scenario with public private partnership will have a salutory effect on real estate sector if action is taken fairly quickly, on stock markets, environment, quality of life etc while providing a substantial boost through income multipler effect that is likely to be stronger in rural and semi urban areas.

3. US problems are compunded by its high rising fiscal deficit. However if President elect Obama withdraws troops from Iraq, US economy could see further recession unless compensating measures are taken. Three measures could provide boost to US economy with more positive effects in longer run- signing up Climate change treaty could boost demand for its renwable energy sector and improve falling industry competitiveness; boosting construction industry through participation by dollar surplus foreigners; and a wild thought perhaps if US could win hosting of one of the future Olympics to give a boost to its industry !!!!!!. Finally rather than rest of world looking to US economy to boost their incomes , some of the countries like China, Japan etc could provide fiscal stimulus in their own country to boost US economy to some extent
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