AAGANAN: Budget Analysis 2010 - Keynote Address by Adhvith Dhuddu

at Reva Institute of Technology and Management on 13th March, 2010

AAGANAN Budget Analysis 2010

The recent budget was well received in many quarters as it assuaged the concerns of deficit hawks, helped the rural masses as social sector schemes continued and satisfied urbanites as tax slabs were revamped and there was renewed focus on infrastructure development. Although no speech, presentation or document can fully capture the essence of a budget, I recently spoke to 250 MBA students from different colleges about various aspects of the budget. The presentation I shared with students is given here for viewing and downloading. Comments, suggestions and criticisms/appreciation are always welcome!!

A few notes for the students.

1. You may visit the Ministry of Finance website by clicking here.

2. If you want to read the first chapter (and other chapters) of the Economic Survey, it is accessible here.

3. The Union Budget 2010 website with many resourceful links is given here.

4. A brief document that summarizes important Budget initiatives is given here.

New Rules of the Global Marketplace - Hindu Business Line Op-ed

By Adhvith Dhuddu
(Op-ed as appeared in the Hindu Business Line on January 13th, 2010)

A decade of boom and bust has culminated in a new set of global standards even as India's image has soared as a credible survivor of the financial crisis.

The first decade of the 21st century has been unprecedented in many ways with the tech bust in the early 2000s, the rise of the BRICs and other emerging economies, the commodity boom and of course, the global financial mess in the recent years. As we enter the last lap of this decade, there are many “new normals” that have been scripted in the Indian and global context.

There is a new normal in the global economic playing field: Regulatory shackles have resurfaced prominently in the western world and government is back amidst “free markets.”

Developed economies, led by the US, rewrote the rules of global finance during the crisis, which will have ramifications in the American, European and Asian continents. As countries, companies and individuals emerge out of this crisis, everyone can be sure that it's not going to be business as usual at least in the near future.

The Sunny Side of Climate Change - Hindu Business Line Op-ed

By Adhvith Dhuddu.
(Op-ed as appeared in the Hindu Business Line on December 8th, 2009)

In the US, discussions about climate change are often partisan and impassioned. While the Democrats, who control Congress and the White House, largely accept the potentially insidious consequences of climate change, Republicans continue to deny the climate change phenomena. I mention this political bickering about climate change in the US because, as they struggle to reach a consensus on this volatile issue, we in India have largely accepted that climate change is something to confront, but have perceived it as a threat to our economy rather than an opportunity.

What's Next for Gold? - Hindu Business Line Op-ed

By Adhvith Dhuddu
(Op-ed as appeared in the Business Line Hindu on Oct 21st)

Gold recently broke through the $1,000/ounce psychological barrier, generating interest among investors, traders and even the common man. Currently there are many factors abetting the price rise in gold. Although no concrete prediction can be made about the price, the outlook appears bullish. There are nine crucial factors that affect the price in the short and long term.

LONG-TERM DRIVERS

Forex reserve allocations: The Asian Financial Crisis in 1997-98 resulted in an accumulation of forex reserves over the last decade. After amassing forex reserves in US treasuries, many Asian economies and export-oriented countries have exhausted their appetite for US debt.

The slow divestment from US treasuries to gold and other precious metals will impact the price of gold. An increasing proportion of forex reserves is being held in gold as countries realise that this could also be a sensible hedge against a slumping US dollar.

Make use of forex reserves - Mint-WSJ Op-ed

By, Adhvith Dhuddu
(As appeared in Mint-WSJ on Sept 14th, 2009)

RBI’s primary use of forex reserves is twofold: As an emergency fund in case of a fiscal crisis or food crisis, and to help mitigate any significant volatility in the rupee

Recently, surpassing $2 trillion, China’s foreign exchange (forex) reserves make up close to one quarter of the total reserves in the global economy. Though a pittance compared with China’s reserves, India’s forex reserves have grown healthily over the last decade and a half and are in many ways a reflection of our success as an economy. With close to $260 billion—approximately 25% of our gross domestic product (GDP)—in forex reserves, our coffers are extremely well padded to tackle a crisis. But what’s disappointing is the Reserve Bank of India’s (RBI) reluctance to deploy these funds in creative and resourceful ways.

In his book, Making Globalization Work (2007), Nobel Prize winning economist Joseph Stiglitz dedicates a whole chapter to explaining how the global reserve system should be reformed for the greater good of the world economy. After analysing how Asian countries have accumulated significant reserves following the Asian financial crisis, Stiglitz says: “The money put into reserves is money that could be contributing to global aggregate demand; it could be used to stimulate the global economy. Instead of spending the money on consumption or investing the money, governments simply lock it up.”

TV9 COMMENTARY ON GOLD

Main points made:

1. The price of gold should continue to rise as there are many factors that are abetting the rise.

2. As inflation fears plague the US economy, and as the true reality of the economic recovery is known, a safe haven like gold should see higher demand.

3. Unprecedented debt issued by the US government will result in inflation now or later, and this will devalue the US dollar significantly. As gold is a dollar-denominated asset, even if supply demand numbers are stable, a weakening of the dollar will mean a rise in the price of gold.

4. The recent economic crisis have forced many export oriented countries, and countires with bulging forex reserves to divest the US-dollar holdings (at least partially) and funnel them into gold both as a hedge and as a safe haven.

5. The supply of gold will only rise constantly and steadily. But the demand for gold can suddenly shoot up in times of crisis as a safe haven.

6. General commodity cycles last about 20-25 years; this one began in early 2000 and could last another decade or more. Of course 10-12 more years of bullish sentiment in commodities will be associated with some bearish periods.

7. Temporary seasonal factors (like the festival season in India for the next 2-3 months) also mean the bullish sentiment in gold is validated.

THE PRINCIPLES OF ECONOMICS!! AWESOME 5 MINUTE VIDEO ABOUT EVERYTHING YOU WANTED TO KNOW ABOUT ECONOMICS!! MUST WATCH!

Fuss over private education

One of the main functions of the government should be to marry human capital with physical capital

By, D. Muralidhar

As appeared in Mint

Any developing country has a short supply of financial resources to provide even basic amenities. Though the current Indian government has been claiming to be a welfare one, the basic requirements of millions of people continue to be unmet.

Most of the developing countries are endowed with a large human capital, but any forward-looking government should leverage this capital in an efficient way. One of the main functions of the government should be to marry human capital with physical capital. This has to be done so that the country’s resources can be leveraged in the most optimal way. This transformation can occur only if human capital possesses sufficient education. The mercenary zeal of private enterprise can accelerate the process.

There is a marked shift in the demography of our country. The exponential growth of population in the band of 5-20-year-olds demands exponential investments in education. This has primarily not materialized due to the continuous demand on limited government resources for other purposes. In fact, government resources will never be enough. So there is an urgent need for the government to accept this reality and formulate policies for channelling private capital into this crucial sector.

It is relevant to draw a parallel with China here. The present Chinese population is what the Indian population will be in 2020-25. Apart from the various measures China adopted to augment continuous growth, education and skill development received a tremendous fillip. India must do the same.

The historical mindset of the Indian is to expect the government to undertake the responsibility of education. However, as incomes are inching up, paying for education is slowly gaining acceptance. The government must complement this change of mindset by freeing the education sector and allowing private capital. Private capital, by definition, smells profitable opportunities and gushes in; the pace of change is very brisk, thus gaining valuable time.

Having accepted the need for private capital in education, the next question posed by the naysayers is about cost, quality and control. We must start with a premise that some education is better than no education. As private capital flows in, many of these issues get sorted by simple market forces.

Education must be considered as any other amenity, without attaching any baggage. Factors such as reservations, source of capital, merit and beneficiaries should be kept out of the discussion in a country where millions have no access to basic education. We hear of many engineering colleges shutting down programmes in rural areas due to student shortages arising out of lack of infrastructure, teaching staff and other facilities.

So benchmarking must be done not against other countries, cultures, or systems, but against our own needs. This has to be the only yardstick to improve the availability of education.

Education being a part of the Concurrent List in the Constitution, Union and state governments must act as catalysts rather than controllers. The statements made by human resource development minister Kapil Sibal are indicative of the shift in the policy approach. But it’s not just the Centre: States that are progressive in their outlook on education will steal a march over others. Like private schools, states can also compete to get the best.

Having already lost decades, India has a long distance to cover. No further time should be lost; changes must be effected on a war footing. The only way out of this quandary is to use private resources with attractive policy incentives. The present inclination of the states to attract investment in industry should become a model to attract investments in education. Enlightened state governments can also leverage their demographic advantage.

D. Muralidhar is on the board of governors at the Indian Institute of Management, Bangalore, and member of the Planning Commission, government of Karnataka.

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