Compassionomics

I'm sad today. Actually very very sad. And I'm confused cause I dont know where to go !! Hold on, I'll explain exactly what I'm going through soon, but before that let me narrate the first time I 'felt' socially responsible.

I was a kid myself, travelling with my father on one of his official tours. My father was driving his car through a remote village in Madhya Pradesh. We stopped at a local joint for a cup of tea... The joint was too shabby for me to get out of the car & I remained inside... While I was in my car a dirty little girl, probably all of five years, (Sadly, that is how the poor & homeless children in India are) started knocking on my car window to sell me some peanuts. I looked away pretty disgusted with the persistent brat (I am ashamed for being such a snob). That is when the joint owner, annoyed with the girl for troubling his customers, decides to take some action. He holds the girl's shoulder & drags her away. Then he spanks her buttocks a couple of times & ruthlessly throws her on the ground. Wailing she gets up and walks away while rubbing her back where he hit her. Tears welled up in my eyes. I felt ashamed for being so proud of myself. I felt guilty cause I was responsible for that girl being hit. Had I had a little bit of compassion I could probably have obliged the girl & bought some peanuts. It would've cost me nothing but it could have saved that baby some precious tears. This incident affected me deeply. My heart wanted to adopt the girl & take her with us immediately... But I knew it was not me but my parents who would have to take her responsibility. So I resolved to build a home for destitute children whenever I grow up...

Time passed... Years went by. I'm not a kid anymore. I finished schooling, college, professional education & am now working for the past two years. I do think of the little girl time & again. But never enough to do something about it. I always had other priorities.... Then I got a fantastic excuse... I will earn some money, be able to afford it and then I will build a home for them... The thought made me feel good...

Sometime back I decided to leave India. I had great plans to join my aunts & cousins in beautiful Australia. I was thrilled with the idea. My parents agreed & started making arrangements. I told my closest friends about my plans. My dream about building a home for these kids was conviniently forgotten. It just didnt fit into my scheme of things. And of course I haven't been able to earn enough money yet to afford it. But last night I couldn't sleep. I saw a wonderful movie - Rang De Basanti. It was about this bunch of collegians who wanted to enjoy life. They are however aware of the state of affairs in our country, the corruption, the poverty, the lack of basic amenities. They criticise the nation for it & have a simple solution - leave the country cause they cant expect anything out of it (I used to think pretty much on the same lines). One of their friends is an air force pilot who dies in an air sortie cause his jet plane was fixed with old & defective parts. There is a political furore over his death & it is announced that he was a rash pilot who caused his own death. This is a rude shock to this bunch of youngsters who decide to avenge their friend and awaken the nation to fight corruption. All of them fight for justice and are brutally murdered by the system - but not before they stir the sea of humanity in the nation - including my soul.

All of a sudden I remembered those days when I wanted to do something for my beloved country, when I wanted to join the police force to prevent crime, when I wanted to be an air force pilot to protect our homeland, when I wanted to give homeless children a better living, when I wanted to form a political organisation to fight corruption. I am filled with remorse that I plan to leave my country with all these unfinished dreams. I am consumed with guilt when my practical mind tells me that I dont have the funds to do anything. I have decided I need to do something. I know I need to make a difference. I love my country. I need to make her a better place to live.

But I am not able to find the courage to stay. My heart says I cannot leave. My mind says I can always come back. I want to stay... But my dear readers...... if my determination fails me, if my soul proves weak, if I harden my heart and close my eyes, if I refuse to stay back... please hate me for it!

Love

G.

Explain Economics.........

Hey...... Can someone explain to me how an economy works.... I've tried but everytime someone gives me one logical explanation my mind seems to delve deeper into confusion....

Take for example the current hot topic - Rising Interest Rates in the Indian Economy.....

We say our economy is growing at a rate of 8% p.a. We all claim that it is great news and soon we will be the second largest economy in the world (Second perhaps only to China). Then why does this have our Central Bank worried? The Central Bank claims that there is too much liquidity in the market and goes on increasing interest rates to 'suck out' liquidity.... I'm confused as to how this helps...

Ok, lets try and address from where does liquidity come from.... Is it through Foreign Investors? We all know that the stock markets booming. Hey our Sensex crossed 10000 for the first time ever! Much of it is being blamed on FII inflows... That is good news too cause now we say that the Indian markets are coming of age...

It is perhaps also through direct investments being made in India (Not necessarily through stock markets).... Companies setting up facilities in India...

It could also come from the Central Bank by a lowering of interest rates....

But how do we define 'excess' liquidity... Hey that's a question I have absolutely no clue about......

Anyways... I'll just try and figure out what does liquidity do to an economy

More liquidity means more money in the hands of people.... In the hands of the industrialist to expand..... In the hands of the consumer to spend..... Thus more liquidity means more demand...

The Finance minister argues that more liquidity will cause inflation... His claim is that if there is more money in the hands of people then they are willing to spend more on available products... Seeing this spurt in demand manufacturers are more willing to raise prices and thus will lead to a rise in inflation... So the finance minister decides that liquidity is not good and he raises the interest rate making money more expensive..... Thus borrowers do not borrow and bankers start parking excess money with the Reserve Bank.....

But my views go thus...... I am a manufacturer. I have a business plan under which I am about to invest X Million in a plant. My project will go green in 3 years..... Most of the funds required for investing will come from my friendly banker.... But suddenly the finance minister goes ahead and hikes the interest rate by a huge 2%.... Now I go green in 3 1/2 years... So I am faced with three choices a) Abandon my Project totally b) Tweak my business plan a bit by raising revenues so I go green in 3 years as originally planned or c) Be a bit more patient and wait for 3 1/2 years! What am I more likely to do - Definitely not a). For the simple reason that I believe that the Indian market is to grow in this way in the near future.... I do not foresee any declining trend in the economy... So if I need to invest, I might as well do it now rather than wait till the Indian growth story is over. I however believe that high interest rates are here to stay..... So I might as well take advantage of this phenomenon and increase my selling price marginally so that I still go green as planned.. There is a rise in inflation caused by my increase in prices and I believe this is the strategy most of my fellow manufacturers will follow...

So where our Hon'ble Finance Minister is trying to contain inflation... what he ends up doing is a rather round - a - bout way of increasing inflation!

But I agree with one thing.... Inflation needs to be contained... Raising interest rates is not the solution (though it may work temporarily).... Going back to why inflation may be caused. Because people are willing to spend more on existing products? So I guess this is where the Goverment needs to do some thinking. Either, encourage a wider range of alternatives for individuals to spend. Or, ensure that the 'excess' money reaches more 'hands'. In a country where a vast majority is still below poverty line I think that is a better focus.... (I'm sorry, I dont really know how to achieve this for now... Maybe my next paper will give more ideas on how to ensure excess liquidity reaches right hands!)

Another alternative could possibly be the Government trying to ensure that 'excess' money comes in only those areas where such money is required... Say infrastructure...... In a developing economy like India where most of the states are reeling under deficit budgets... I am sure excess liquidity could do more help than harm!

Well... these are my views after all.... Unfortunately they are not supported by enough data.. (I am no statistician or research analyst).. So I can't prove that my theories are right... but from my limited viewpoint I can't understand how rising interest rates can help the economy!

Love

G.