Clearing the muddle of Rising Food Prices

Many column centimeters in leading newspapers, including your paper combined with interesting sound bites in all TV channels have put before us multiple reasons responsible for the spiraling price rise. Out of these a few stand out which has to be tackled by policy makers on a war footing.

The planned increase in agricultural production shall meet the increasing population, the additional demand created by new generations aspirations and affordability. This is best achieved by careful planning and timely implementation of irrigation projects, making available at the retail level advanced improved seeds, tested soil enriching techniques to improve the yield and above all easy rural credit with minimal collateral to the rural agriculturist. In the absence of such a coordinated approach there will be gaps which will leave us exasperating at the slow agricultural growth rate.

On the other hand diversion of land from wheat to Bio fuels in developed economies is one more self centered approach of the developed economy which we need to understand to live with. Financial centers have established and put in place procedures & mechanisms that make it easy for the non informed to bring in their savings in to commodities and make a fast buck on scarcities. We should have sufficient negotiating clout to bring them around to stop such a move which we sadly lack (as proved in various WTO forums).

Further, given the depth of scientific community available with in the country and the financial resources available with us (we have invested hundreds of billions of dollars in other country's instruments for a rainy day!) it is really surprising that a concerted approach is not being taken to solve this fundamental problem.

Politicians should take note that their continued neglect of this fundamental issue will shake them up and even dislodge them from their exalted positions.

US Sub Prime Mortages

Much is written about the fall out of US Sub Prime mortgages and the impact it is likely to cause on US economy and the world at large. But an important lesson in it for India is that Sub Prime Mortgages served to prop up the US economy for the last 5 years at the expense of the Developing economy who had at the guidance of the developed economies, (had) developed a growth model which was predominantly driven by US consumption!

None of the planners outside US could foresee that such a model is not sustainable even in the medium term leave alone for ever. So the savings of poor countries like India, were being parked as foreign exchange reserves in US Treasury bonds which fueled the liquidity which boosted wasteful consumption. One must acknowledge the ingenuity of the US financial brains who planned this out and implemented it to the tee.

The hard lessons which we in India learn from this futile exercise, is that it is necessary to fund across sections to ensure growth and through growth consumption.

In the US with the treasury backing, funds have been extended on over valued assets to individuals who do not earn enough to even support their living expenses leave alone meet mortgage repayments and own assets. As reported in the press the abuse of credit facility, has been so rampant that even basic norms such as insisting on minimum down payments for availing mortgages have been waived off. All these to maintain excessive consumption!
Take a leave out of Sub Prime mortgages and cox banks to fork out up to a nominal 5 % of their advances to fund persons in poorer section of society, whose repayment capabilities are limited, but willing to commit to repay. Such an effort will spur consumption and through consumption inclusive growth. Such advances shall be refinanced by the RBI through long term instruments directly and eventually provided for in the budget.

Planners in India are staring at growing disparities caused by excessive urbanization and phenomenal growth of white collared jobs and compensation. While our financial systems are robust and fund these sections of society, it is time that we addressed the poorer sections across the board.

India is unique in many ways and needs novel solutions to maintain its growth path and achieve inclusive growth. It is necessary to be bold and the time is ripe to take such populous steps given the fact that this is an Election year.

Question waiting for an Answer !

Question waiting for an Answer !

A thought provoking column from one of your regular columnist and a senior distinguished bureaucrat. The answer is obvious, but like the Roman citizen nobody wants to say the King is naked. If a Senior bureaucrat after so many years of distinguished service to the country is still waiting for an answer what will poor soul like us will do?

The reform process has not even approached the bureaucracy leave alone prepare a plan for changing the organisation and its people. Enough proof is available to all, on the capabilities of our entrepreneurs from the airlines and telecom sector. Scientists & technocrats of Indian origin, have made startling inventions and contributions which have been acknowledged world over. Some of these individuals have studied in India, but have been lured to the foreign shores by the ease with which they can pursue their passions abroad.

Even now it is not late. Let us encourage Venture capitalists to move in instead of hedge funds. They should be allowed to come in and move out freely and allowed to encash their inventions as is done in the valley. The risks which these venture capitalists bring in is negative compared to the chaos which the hedge fund operators and fair weather friends bring in.

If enough seed capital is there to pursue individual's passion I am sure the day is not faraway when we can boast of some radical inventions. We need to reinforce these efforts through greater autonomy for higher institutions, tax subsidies and inverted duties etc.

Let us think out of box and still not grapple with the question.

Stock Market Volatality & need to curb it

Mature markets in the developed world seldom show intra day variation in excess of 1% in the major indices tracking companies across sectors like the S& P 500. This goes to reflect the maturity of the market and reflects that the players are in it for the long run. This is helps the long term players to plan their actions and book profits.

Any volatality in these indices is clearly interpreted as a sign of some of the players need to show more than actual profits in the short term. This results in manipulated trades with out sound fundamental forces guiding the action (other than plain hood winking) resulting in Rapid-fire Trades. This may either bring loss to him or gain at other participants loss. This though an essential part to guide in price discovery at extreme situations, can not be allowed to continue for extended periods lest the serious players loose interest in the market. New entrants will also shy away; Or become gullible with the distorted view that money can be made in the market in a short period and look for such opportunities.

It is obvious now that the build up in some scrips prior to mega IPO issues was due to such unhealthy trades.Since then our markets have been extremely volatile and the regulator has done little to cool it. Given the low volume of free float and the concentrated action on the bourses from some sections of the stake holders, our tendency to believe in new stories and theories (read rumors) we are allowing a few to distort the market. This exposes the retail investor to greater risks. For the retail investor even the Mutual fund route is not with out risks for the mature operators also fall prey to such large scale manipulations.

We are now becoming aware of another new threat through FII like the Bear Stearns, who are compelled to exit our market to save their day in their home base. We are not aware how many more are to follow! That the local Derivatives segment helps them in clouding their actions is another story.

It is therefore essential for the regulator to step in quickly to stop such actions.