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Tuesday, June 21, 2016

Why do we need RBI? What is the issue between Raghuram Rajan vs GoI

Raghuram Rajan
image courtesy:

"Emergency declared after Raghuram Rajan says no to 2nd term: the sun will not rise for next 15 days" read a heading in Unreal times. That faking news is kind of how paranoid and extreme the reactions have been. Of the 50,000 people who have tweeted about the issue 49988 don't seem to know what they are talking about! I see this as an opportunity for another "Made easy" article! Indian Economics and RBI made easy. I will write another piece on Stock markets. For now let us stick to RBI.

Why exactly do we need something like an RBI? For a variety of reasons. Say, you have earned 5 lakh Rs. Being a middle class guy you go and put that in an FD in ICICI Bank. What if the manager is secretly traveling to Kashi and dumping your money in Ganga ? Or worse, what if he is using this money to produce Himesh Reshammiya's next film("Hamaarrrrrraa Surroorrrr" with as many "R"s stuffed in as possible). There should be someone to question and regulate these banks. Enter Reserve Bank(Loud Music).

Think of this. Say, some prankster spreads a rumour that the State Bank of India is bankrupt and it is going to close by Next Tuesday. What do you think will happen? Panic will set in before you blink and 3 crore 45 lakh 23 thousand people will be standing in queue near the bank demanding their FD money back. This is called as a bank run. They would have given loans and all the money won't be in their vault. State bank or any other bank in the world cannot return the money if everyone were to come together ask for it the same day. Bank may actually become bankrupt because of such panic! Who can save the day if that happens? It is the RBI. RBI can actually print money, Raghuram Rajan can hop into an Ashok Leyland lorry, enter the scene and start throwing sacs of money to the crowd. People will realize that their money won't go anywhere and 90 % of them will head back home knowing that RBI will not allow the State Bank to go bankrupt (Most people would have gone back looking at the long queue anyway.)

That is not actually how RBI functions by the way. RBI imposes strict rules on CRR and SLR instead. CRR(Cash Reserve Ratio) is the cash banks need to keep with RBI: RBI can say that if bank has accumulated FDs worth 1 crore it has to keep 10 lakh with the RBI. This way if the panic sets in bank can take this 10 lakh and confidently give money to the first 100 people in the queue. Looking at this confidence will be restored for other people and they will go home. SLR is the amount of deposits banks need to be putting in Government Securities (G-Secs). Idea is the same.

This has another consequence. If the ratio is cut banks have more money to play with. If the banks have 1 crore and CRR is 10% they will have 90 lakh left for lending. If the CRR is only 2% they have 98 lakhs leftto play with. If they have 98 lakh they might give more loans. More loans will trigger more businesses. Rajan Bhai controls the flow of money by controlling this CRR and SLR.

Now the thing about interest rates. What if suddenly 40000 people arrive at an auto rickshaw stand wanting to go from Majestic to Basavana Gudi? Within ten minutes, most autowallahs will start demanding 10000 Rs for the trip. Or what if suddenly 50000 parents stand in queue with their kids for admission into the business centres(Schools!)? Schools will soon start demanding 1 Crore Rs for admission into LKG (Some might argue that the schools are already doing it!)

What is happening in schools and Rickshaw stands is called as Inflation. Inflation is something becoming costly. What if the interest rate is 0? Every Ganesh, Sateesh and Suresh will borrow money because it is cheap. With the borrowed money everyone will try to get their kids admitted to the posh schools, as a result there will be a queue of 50000 in front of the school. Admission price will increase because of this. Did you see the connection? Less interest rate = More money supply = More demand for schools = Price increase = Inflation. If the interest rate is less every Tom Dick and harry will borrow money and start a business. Umesh, Praksh, Gireesh, Ramesh everyone will start a hotel maybe. These hotels will hire workers. Workers will get salary.They will all try to buy a cell phone with the salary. Suddenly there will be more demand for cell phones. Prices will increase. Inflation!! Low interest rate = high inflation.

RBI influences the interest-rates through repo and reverse repo, rates at which RBI lends to and borrows from the commercial Banks. This is what people mean when headlines read that RBI has cut the rates. Why will banks borrow from the RBI? Remember the CRR? If CRR is 10% banks should keep 10 lakh in RBI. What if they have only 9 lakhs? They will borrow 1 lakh from RBI for short term.

Consider another case. What if Rajan Bhai increases the rate to 40%? Not a single person will borrow money, no businesses will start. No money will circulate. Nobody will buy anything. Economy will halt. Everybody will keep the money in FD. Even Pakistanis, Americans, Nepalis etc will park their money in India since they can get 40%. Now suddenly there will be great demand for Rupee, a bit like 40000 people going to auto rickshaw stand and creating high demand for auto. Rupee will appreciate just like the autorickshaw fare. See! A high interest rate lowers inflation as it makes people want to spend less and save more in FD. A high interest rate also attracts foreign investment(Pakistans trying to deposit money here) and increases the demand for local currency, which is all favorable for the exchange rate.

This way Rajan Bhai is like a Don who can manipulate Rupee conversion rate, Inflation, economy, business etc just by playing with Repo rate, CRR and SLR and few other such things. We neither want 40% interest nor 0 %. There should be a balance. We want a good economy, stable exchange rate, good foreign trade, less inflation etc. Touching one will impact another. When Rajan entered there was high inflation, so he increased the interest rate, SLR, CRR etc. Rupee was at an all time low, so he made an attractive FD type of offer for NRIs. Suddenly some 20 billion poured in, so exchange rate recovered. Things like that. Rajan Bhai tamed both.

The debate is about should he reduce the interest rates further? Less interest = More cheap money = Easy borrowing = More business. Guess What Modi wants? He wants more business, so he wants less interest rates. Rajan thinks that Less interest rate = More inflation(As described earlier). One point is that Inflation is not always controlled by interest rates. What if Oil suddenly costs 1000 USD? Petrol and Diesel prices will skyrocket. If Diesel is costlier everything from Milk to vegetable to paani puri will be costlier. This is an inflation that has nothing to do with interest rates. Food grain prices in India also depend on Monsoon.

So Swaami probably thinks that cases like this show that Rajan Bhai is wrong, inflation is not always dependent on Interest rates. Modi thinks that Make in India is good. Rajan thinks that depending too much on Manufacturing is bad. Govt and Rajan Bhai do not agree on some things like that. And NPA. Cases like loans to Mallya where they do not pay the money back are called as Non Performing Assets. Many biggies like Adani, Reliance etc have such bad loans. Banks were hiding such NPAs. Rajan Bhai like a strict headmaster made it compulsory for banks to show these NPAs. Big companies might not like that. Borrow 10000 Crores and not pay it back, who wouldn'twant that ?!

Another thing is that these banks are like sons who have joined underworld. Parents do not kill the son because he has joined underworld. Say, these banks have paid 50000 Crores to Reliance, Adanis, Mallya and all. Say Nobody pays back. What next? All the bank managers can buy one kerchief each, go to Modi and cry for half an hour. What can Modi do? He can line them up and shoot them one by one or he can announce a 1 lakh crore bail out package to save the banks. Most people do the latter. There can be no economy without banks. Even if they do something wrong Govts will try to save them. Rajan wants to be strict on these banks which is the right thing to do, Modi might want to be a little lenient which also is required if businesses have to flourish.

Such differences of opinion are common, Chidambaram and Subba Rao have had big fights for instance. Not giving a 2nd term is also not unheard of. Obama rather than giving Ben Bernanke an extension(which many in market wanted) chose Yellen. Some RBI Governors have resigned in the past because of difference of opinion. What next? Will Indian economy collapse? Rajan is definitely highly qualified but he is not the only one. We have had many highly qualified and able people like Man Mohan Singh, Bimal Jalan, C Rangarajan, YV Reddy, Subba Rao who have steered RBI in challenging times. We will definitely find a replacement for Rajan. Rajan was good and he achieved many things. Someone else will continue the good work. The show must go on. And it will !!

Monday, June 20, 2016

Redmi 3s ని విడుదల చేసిన Xiaomi

Redmi 3s
Image Courtesy PhoneArena

  • 2GB RAM ఉన్న ఫోన్ ధర 7000 
  • 3GB RAM ఉన్న ఫోన్ ధర 9000

Xiaomi Redmi 3S అనే కొత్త సెల్ ఫోన్ ని మార్కెట్ లోకి విడుదల చేసింది. ఈ ఫోన్ రెండు మోడల్స్ లలో లభ్యం అవుతోంది. మొదటి రకంలో 2GB RAM తో పాటు 16GB అంతర్గత స్టోరేజ్ ఉంటుంది. దీని ధర చైనా లో CNY 699 అంటే మన దగ్గర దాదాపు 7,000 రూపాయలు. మరొక రకము 3GB RAM తో 32GB అంతర్గత స్టోరేజ్ ఉంటుంది. దీని ధర చైనా లో CNY 899 అంటె మన దగ్గర దాదాపు 9,000 రూపాయలు. ప్రస్తుతం ఇది కేవలం చైనా లో మాత్రమె అందుబాటులో ఉన్ది. ప్రపంచ విపణి లోకి ఎప్పుడు వస్తుంది అనే దాని పై ఇంకా ఎటువంటి సమాచారం లెదు. 

Redmi 3S స్నాప్ డ్రాగన్ ఎనిమిది కోర్ లతో పనిచేసే 430 ప్రాసెసర్ ని వాడారు. గ్రాఫిక్ విభాగం గురుంచి Adreno 505 GPU ని వాడారు. ఇందులో స్టోరేజ్ ని 128GB దాకా పెంచుకొవచ్చు. ఇందులో రెండు సిమ్ కార్డులను వాడుకునే సదుపాయం ఉంది(Micro + Nano). కాకపొతె ఒక సిమ్ స్లాట్ లో మెమొరి కార్డ్ లేదా సిమ్ కార్డ్ ఏదో ఒకటి పెట్టాల్సి ఉంటుంది.

ఇందులో గొప్పగా చెప్పుకోదగ్గ విషయం ఏమిటంటే fingerprint scanner అంటే మన వేలు రేఖలను ఆఅధరంగ చేస్కొని ఫోన్ ని లాక్ చేసుకోవచ్చు .. లాక్ తియ్యవచ్చు.  Redmi 3S తాకే తేరా పరిమాణం 5 అంగుళాలు (5-inch HD 720×1280 pixels) IPS  డిస్ప్లే. ఈ ఫోన్ కి వెనక 13-megapixel కెమరా మరియు 5-megapixel ముందు కెమరా సేల్ఫీ గురించి ఉన్నాయి. 

ఈ ఫోన్ గురుంచి మీరేమి అనుకుంటున్నారో కింద కామెంట్స్ లలో వ్యక్త పరచండి. 

Thursday, December 10, 2015

What is National Herald Case all About?

Its a long post ... have patience to read it completely...

I'll divide my answer into points and it might be long.
So, lets start with some History.
  • Its the pre-independence era. There was a company formed and named Associate Journals Limited (AJL). This was a publishing house which published newspapers in Hindi and Urdu portraying views about the importance of freedom, etc.
  • The National Herald was the English newspaper which was published by AJL. Jawaharlal Nehru was the chairperson of AJL at the time it was established.
  • During the Emergency, this paper stopped its publication. It revived itself in 1986 but fully stopped its publication again in 2008 with a debt of about 90 crores.

Now, let's come to what the "scam" here is.
  • So, AJL is running in loss. The Indian National Congress(INC) decides to give it a loan of about 90 crores to cover its losses and pay it debts.
  • In November of 2010, a new company called The Young Indian Limited (YIL) was floated. Sonia Gandhi and Rahul Gandhi were owning 76% of the equity in YIL and the remaining were owned by Congressman Mothilal Vora, Oscar Fernandez, Sam Pitroda and Suman Dubey
  • It is alleged that YIL paid 50 Lakhs to INC take over the process of collection of the 90 crore loan given to AJL.
  • Just a month after YIL being formed, in December 2010, the directors of AJL (one of whom was Mothilal Vora - A Congressman AND Treasurer of INC AND A part owner in YIL) decided that the 90 crore debt was not payable.
  • So Basically, Vora the Chariman and MD of AJL, told Vora the treasurer of INC that he will not be able to repay the loan of 90 crores to Vora the stakeholder of YIL. (wut)
  • This debt of 90 crores, which was given interest-free to AJL by INC who later transferred the loan recollection to YIL for a mere sum of 50 lakhs was declared not payable by AJL which had properties worth 2000 crores for its assets.
  • Now, AJL unable to repay the 90 crore loan to YIL, decides to transfer all its ownership (and hence assets) to YIL. So now, YIL has paid 50 lakhs to recover a loan of 90 crores and in return recovered(gained) assets worth 2,000 crores. This doesn't make sense to me and you, but it makes total sense to the Congress Party.

Now, What are the issues?
  • AJL was catagorized under the Section 25 of the Companies Act,1956 which means it was a typically non-profit organization used for promoting commerce, art, science, religion or charity. But AJL, now under YIL was not doing that at all.
  • It is Alleged that Nehru used his then powers to get properties in the name of AJL at a subsidized rate from the government. Today, this property is worth about 600-2000 crores and it goes to YIL.
  • YIL is also registered as a non-profit company. But the building in argument which consists of eleven stories, is rented out to companies and passport seva kendra with an alleged earning of 30-60 lakhs a month, which makes YIL not a non-profit organization.
  • INC was first of all not authorized to grant the 90 crore loan. According to Income Tax Act, no political party can hand out loans.
  • Why did AJL (with assets worth wayy more than 90 crores) decide to grant its ownership to YIL to pay a mere 90 crore loan when it could have liquefied the assets, paid not only the debt but also its shareholders?
  • AJL had 1,057 shareholders at the time it granted ownership to YIL. Were the shareholders approached for their opinion still remains a mystery.

 If there are any faults or corrections, please let me know! Any additions are welcome. This is what I understood from the numerous articles I read about this.

Wednesday, September 16, 2015

Why Pattiseema Project?

Annually, approximately 3000 TMC of Godavari river water is wasted into the Bay of Bengal. In a bid to direct that water to arid regions in Rayalaseema, CBN conceived the idea of Pattiseema project.

Image courtesy: South Report

The Pattiseema lift irrigation project would lift the surplus flooding water from river godavari into the Right Canal of Polavaram which is nearly complete. Under the Bachawat tribunal and inter-state agreement, 80 tmc of water can be diverted from River Godavari to River Krishna.

 The water from Pattiseema project will travel 160 kms. and will join River Krishna at Vijayawada in the up waters of Prakasam barrage. Water will then be supplied to the Rayalaseema through Pothireddypadu head regulator for its Irrigational and Domestic needs making it a drought free region.

Watch the video to learn more about the project…

Tuesday, September 1, 2015

Difference between milk storage in the US & India

Redditor asks about difference between milk storage in the US & India

My friend in US says they buy big bottles of milk and use it over weeks. I'm from India and we buy milk in pouches. It gets stale in 2-3 days. How does milk in US stays fresh for weeks? "

Then an Engineer who designs Dairy Equipment and has specifically studied milk distribution in India showed up on the thread and he explained the difference between milk storage in the US & India. Here is the Answer:-

The vast majority of Indian milk distribution is usually carried out at "ambient temperature" meaning it isn't cooled in any way, and isn't distributed in pouches.

Usually, it takes about 4 hours for milk to be transported to your doodhwallas (milk delivery people), who then add water to it, and sell it on to their customers. Average time for milk to go from cow to the customers is 6 hours. By most dairy standards, this milk is already unfit for human consumption.

Customers in India usually know that their milk is mixed with water, and are happy about it because the day's milk is boiled before each use. At the end of the day in the average household, the last bit of milk has been boiled about 4-5 times. It's used to make paneer and ghee

By this time, the milk has a slightly burned/sugary taste, and is a little brown in color.

The milk that IS distributed in pouches only counts for about 15% of milk in India. From experience, I can tell you that finding a "clean" dairy is rare (the cleaning chemicals are not cheap), and that the pasteurization process used isn't always as good as it can be. Also... the distribution of the pasteurised packs is Ambient temperature again. This gives the milk a good head-start on the way to "going off".

At this point, It is important to understand what Pasteurization does.... it kills active bacteria - stuff that damages the milk, and eventually takes over the milk causing it to "spoil" and "go off". Taste is important too. Pasturised milk tastes very like milk from a cow. Approximately 10% of Indian milk is buffalo milk. This stuff is hard to deal with, and the pasteurization process is less reliable. Pasteurization does NOT kill the bacterial spores. These are like bacteria "seeds", and will produce more bacteria if the conditions are right. In India, the conditions are nearly always right.

The alternative is UHT treatment. "Ultra High Temperature" pasteurization is a very precise process that isn't used much at all in India, mostly because it "tastes wrong" and is very very white. both the color and taste are not trusted by the average Indian. If you tell someone that the milk will last in the package "for over a year" they usually assume that there are nasty chemicals in it.

UHT treatment - very importantly - kills the spores. If you then put your milk in the right kind of container, it will last for a very very long time.

For Indian customers, Taste is very important. Also, Tradition is very important. You have a trusted doodhwalla, you're going to get your milk from him. Daily.

IF you're a your "new generation" Indian, chances are you buy your milk in a plastic pouch and put it in the fridge. The problem is, your pasturised milk has already had plenty of opportunities for the spores to produce bacteria, and your pouched milk is a ticking clock.