#BestBooks of 2016 According to EconFinance Twitter

5 12 2016

By @toby_n

EconFinanceTwitter is great. Here people refer me to papers and stories I  would never have otherwise read, and this happens many times a week. As we come to the end of th…

Source: I asked EconFinanceTwitter what their best books of 2016 were – this is what they said





Aswath Damodaran On Tata-Mistry Feud

19 11 2016

Aswath Damodaran, Prof of Finance at the Stern School of Business at NYU is considered an authority on valuation. He has written an interesting blog post on the Tata-Mistry feud.

Here is the link





Urjit Patel’s Signature in Rs 2000 Note

15 11 2016

After the demonetisation was announced, the newly issued Rs 2000 has come into circulation. The Rs 2000 notes currently being issued have the newly appointed RBI Governor Urjit Patel’s signature. urjit-patel-signature

PM Modi and FM Jaitley have claimed that the preparation and printing of currency notes were being secretly done for the last six months. This would mean the Rs 2000 currency notes should have been under printing for the last six months.

But, Urjit Patel was chosen as the RBI Governor only on August 21, 2016 and he took charge from Raghuram Rajan only on September 4, 2016, just two months before the November 8th announcement.

Something is amiss. Either, the government is lying when it says it has been printing currencies to prepare for demonetisation from the last six months or they had decided  Urjit Patel as the next RBI Governor, atleast four months before the official announcement.

It can be speculated that when Raghuram Rajan made an announcement on June 18, 2016 that he would not take the second term as Governor, already Urjit Patel’s signatures as the next Governor were being taken in the new Rs 2000 note. This could have well led to Rajan’s decision to return to academia.





Cash in the Wallet

14 11 2016

The announcement on November 8th by government to demonetise Rs 500 and Rs 1000 currency notes came like a sudden surprise to Indians. This announcement was followed by one day of banks ATM closure and an additional day of ATM closure.

Even the tax paying, educated middle class, who had nothing to hide by way of black money, was confronted with the challenge of how to pull through the next few days expenses with minimum cash using the lower denomination notes of Rs 100, Rs 50 and lower.

Even after the banks and ATMs opened from 11th November onwards, there were limits prescribed by RBI for exchange, withdrawals and ATMs. Also, the queues were very long and there was considerable pain to be experienced in withdrawing one’s own money.

That is the time, when I was faced with a question of how much cash to withdraw and keep in the wallet. In days when banks and ATMs would be functioning normally, I would draw a large amount in the beginning of the month for all the monthly payments and then I would withdraw a smaller amount sometime in the middle of the month for the  rest of the month’s expenses.

By withdrawing nearly 15 days expenses at one go, I was essentially losing out on some savings bank interest and also running the risk of losing money, if I lose the wallet. But this costs and risks were entirely mine. But in a cash crunch, if I overdrew, someone else was not getting the essential cash for their needs.

I knew that cash in the wallet or house is a psychological thing. So, I ran a straw poll among my friends on Facebook. I asked them, how many days expenses they would keep as cash in their wallet or house. There were 23 responses in all.

A. Less than 2 days – 3
B. Between 2 and 4 days – 2
C. Between 5 and 7 days – 8
D. More than 7 days – 10 

It is a biased sample of my friends so they are majority male, urban, salaried class, highly qualified people with families. The median age would be 45 years.

From this poll,it appears even when people have cards and electronic wallets, they find comfort in keeping 7 days or more expenses in the form of cash in their wallet. Many mentioned that they have 15 days of expenses in the form of cash with them.

My friends seemed to be quite like me. But it set me thinking, is this appropriate in this time and age ? Is there a need for so much cash in the wallet or home ?

Talking for myself, I reflected on why I was keeping 15 days expenses as cash at most times. I could think of the following reasons :

  • Habit –  Being a salaried person, most expenses are bunched at the beginning of the month. Going to bank in the beginning of the month and withdrawing money for monthly expenses has become a habit. The only change now is instead of walking into a bank branch, I visit the neighbourhood ATM.
  • ATM limits – As there are upper limits of daily withdrawal in most banks ATMs, I am compelled to go one more time at least during the month. This I normally time it in the middle of the month or when cash situation reaches below a limit.
  • Comfort of cash – Despite the cards and PayTM, when I set out of house I feel there should be enough cash. Just in case, I need it.No logic. I am gone past the age when I used to keep less cash in the wallet to avoid impulse purchases. These days, most spending is done on the cards and yet the cash continues to occupy the wallet. While travelling this fear multiplies, even when I know most airports and cities I go to have ATMs.
  • Emergency – As a family person, one wants to be prepared for a sudden health issue or be prepared to travel at short notice. But actually when they come, the 15 days expenses that you keep in the form of cash may be too less, so you end up rushing to an ATM immediately. Also, most hospitals and airlines would accept cards.

Most people of my age who started earning and spending money before the cards and ATM era, would continue to believe and hoard cash than is necessary because of old habits. This demonetisation exercise gives us a chance to recalibrate our cash requirement.

 

 

 

 





Linkfest on Demonetisation

10 11 2016

On 8th November, PM Modi announced demonetisation of Rs 500 and Rs 1000. Here is a selection of articles by various economists and commentators on this big decision.

  1. Demonetization – Witless and Anti People by Prabhat Patnaik in Citizen
  2. Surgical strike on old Rs 500, Rs 1000 notes by Ajay Shah in his blog

  3. NDA Demonetises Rs 500 And Rs 1,000: Modi’s Surgical Strike Against Black Money Stuns All by R .Jagannathan in Swarajya

  4. Here’s What Raghuram Rajan Thinks Of Currency Demonetisation in Huffington Post

  5. Introduction Of Rs. 2,000 Notes A Puzzle: P. Chidambaram in NDTV
  6. Note demonetisation: 86% of Indian currency has been frozen overnight by Anupam Gupta in Scroll

  7. India’s ill-timed paper chase by Andy Mukherjee in Bloomberg
  8. Modi move a huge blow to purchasing power, may backfire on PM : Swaminathan Aiyar in ET
  9. How long India will get all its cash back – Sahil Kini in LinkedIn
  10. Demonetisation : we are paying the price for loving cash too much – R.Jagannathan in Swarajya
  11. Theatrics on Black Money : EPW
  12. No proof required : Big Bang or Big Thud : Surjit Bhalla in Indian Express
  13. Wealth transfer from rich to poor : Bibek Debroy in NDTV
  14. You have been warned : Pratap Bhanu Mehta in Indian Express
  15. Demonetization is a hollow move : Pronab Sen in Mint
  16. Even as world changes under Trump, India’s currency shortage will stay for months : Saumitra Chaudhuri in Economic Times
  17. Wiping India’s blackened face : Gautam Pingle in New Indian Express
  18. Committing suicide also radical, says Arun Shourie on notes ban in NDTV
  19. Demonetisation to drag down FY18 Growth to 5.8 % : Ambit Capital in Mint
  20. Demonetisation is a game changer : Deepak Parekh in Quint
  21. Most sweeping change in currency policy in the world – Larry Summers and Natasha Sarin in his blog
  22. India’s currency exchange and the curse of cash – Kenneth Rogoff in his blog
  23. Demonetization in a booming economy is like shooting at the tyres of a racing car – Jean Dreze in Economic Times
  24. Former RBI Governor Y.V. Reddy on Black Money, Tax Evasion and Lawlessness in India – YV Reddy in The Wire

  25. Six battlefronts for the war on corruption– Vijay Kelkar and Ajay Shah in Mint
  26. The cashless economy of Chikalthana – P.Sainath in PARI

  27. Purging the poor – Mukul Kesavan in The Telegraph
  28. The chattering classes just don’t get this surgical strike – Swapan Dasgupta in TOI

  29. 10 Pieces That Dissect Threadbare Demonetisation And Its Aftermath – Huffingtonpost
  30. Demonetisation: The good, the bad and the ugly – Montek S.Ahluwalia in Mint
  31. Revenge No Development Strategy: Populist nationalism cannot paper over economic chaos unleashed by demonetisation drive – Ruchir Sharma in ToI

  32. Subir Gokarn hails monetisation, needs to be done frequently – Economic Times
  33. S.Gurumurthy explains why demonetisation was needed and how it will help the India growth story – Swarajyamag

For following all the news and views as it is happening on demonetization, you can also follow the Liveblog in Medianama.





Money Changers of Dalhousie Square

9 11 2016

Money changers will have a field day from today for exchanging larger denomination notes with smaller ones, after the govt announced the demonetisation of Rs 500 and Rs 1000 currency notes.

I am reminded of Kolkata in the 1990s. In Dalhousie square, Kolkata, the RBI and the GPO are very close by. Outside of GPO, I used to find a lot of vendors, some standing and some sitting with a wooden desk carrying wads of crisp currency notes.

I was curious to know what service they were offering. I asked one of them. He was not eager to talk to me, because he knew I was not a potential customer of his. I approached another one and he was kind enough to explain to me.

Their service was converting smaller denomination old notes to Rs 100 and Rs 500 new crisp notes( Rs 1000 currency notes came only in 2000). This service was offered to the migrant labour from Bihar and eastern UP. These labour used to remit money to their family in villages. They did not use a cheque or Money order. They used to send crisp currency notes in insured letters from the GPO. The money changers would also offer the service of putting the currency inside the envelopes and writing the addresses for the illiterate labour. I heard, occasionally, by a sleight of hand they would insert one or two currency notes less.

My friends from Kolkata tell me these money changers and their unique service continues to this day.





The Wealth Effect of Gold

25 11 2009

Among many contradictions that India is famous for, one is its appetite for gold. In spite of being poor, Indians have always had an almost irrational love for the yellow metal. This obsession seems to be now having a beneficial impact as gold prices touch new highs.

India is one of the largest importers of gold in the world. As per World Gold Council, a total of 158,000 tonnes of gold have been mined till date. Out of this Indians’ private holdings is considered to be the highest at 15,000 tonnes. American citizens’ holdings is a mere 4000 tonnes. Indian government’s gold reserves ranks 10th among all countries at 757.7 tonnes.  

 

The prices of gold in India have increased from Rs 13,520 at the start of the year to Rs 17,300 currently, a gain of 28%, reports Business Line.

 

Domestic prices have merely followed global gold prices, which rose from $827/ounce to $1,139/ounce (a 38 per cent gain) over the same period. Price gains in India have, in fact, not kept up with global trends, mainly because of the rupee strengthening by about 8 per cent against the dollar for the year.

 

The weakness of US $ is considered to be one of the most important factors leading to the rise in  gold prices. 

 

 

Gold prices are expected to go up further in 2010. Some reports suggesting the gold prices will touch US $ 1,400 per oz shortly. As is the case with all asset classes, views of the various analysts differ as this report mentions.

Several bullion analysts like Jim Rogers and Jim Sinclair have predicted that gold price would continue to boom. While Jim Rogers says gold price will zoom to $2000, Jim Sinclair has been arguing that the next stop for the yellow metal price is $1650 per ounce.

 

But not every bullion analyst is bullish on gold, the hottest commodity traded in the world. Legendary investing guru Marc Faber says gold price is rising without any fundamental factors and thus the price of the yellow metal will plunge to $900-$800 levels.

 

The rise in the gold prices, have made the value of private holdings go up from 400 billion US $ to 540 billion US $ an increase of 140 billion US $ in the last one year. India’s GDP is of the order of US $ 1 trillion. The increase in wealth due to the rise in price of gold is a whopping 14 % of India’s GDP. So, whatever damage the economic slowdown  may have done to consumer demand, has been more than made up by the wealth effect due to gold prices. Not dissimilar to the effect of crude oil price increases on Russian and Middle-East economies.

 

If the gold prices continue to rise next year, as is being predicted, then this wealth effect will continue. For every 100 $ increase in price of gold, value of India’s gold holdings goes up by 48 Billion US $. However, if Indians continue their obsession for gold even at high prices, then instead of the wealth effect being favorable for the consumer markets, it may have a negative effect.

 

–  G. Mohan

 








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