My experience of my environment.

They say, " old cultured people resists change happening around" believe me it's true.
This honest feelings is limited to only my views and it's not a sampled survey.

" The world is moving at a rapid pace, but lower sections of society in India, as a matter of fact few upper middle class people resist to  change the culture they are brought up with, resistance here is to such an extent, the people who wants to change, are forced to live in a similar way that the environment demands it to be".

I live in an apartment that has 12 families and I am the only bachelor, paying a rent of 6k that is total worthless, but because of IT, the rents of the homes have shot up to such an extent, where I believe 6k is the least for 1hk. I have stayed at this place for almost about 2 years and rent was increased 25% initially for 4k and den again 20% on 5k, reason stating the emergence of new mall in the corner and IT companies, which pays a lot better than other professions, which gives a deeper disposable income, large mass stupid hirings, which increases the demand and with supply responding to the demand very slowly, the rates of the flats shoot up. The funny part is here, I asked why 20% and why not 15%, he had no clue, end of the day he needs 20% because some fool from the IT company is ready to pay that. Which resulted in me having lower disposable income, lower consumption and lower contribution to gsp and in turn gdp.

Here is the math:

Salary -24k
Rent- 4k
Had to send to home- 5k
Two sides bus fare- 60/- ( per day and considering 4 weeks and 2 days  and 8 holidays,it'll turn out to be 1320/-)

Updated fare- 1.3k

From the bus stop to office it's 6-7kms and auto charge 30/- to my office on 3 people shared basis which has stoppages and auto guy earns somewhere in between 45-60 based on number of people at each stage ( first stage - 15/- that is for three, if two gets down at second stage it is 20/-,  hence it is 55/- and if two gets down at first stage and one moves out to next stage it is 30, hence it is 60/- and if all move on to second stage it is 20/- which is again 60/- and the distance between first and second stage is 3kms and distance between bus stop to first stage is 4kms)

Hence auto fare - 1.9k ( 30/- on one side and 60 on the another side as nobody was taking auto in the evening at the time I used to complete work, I.e at 9pm, considering 22 days of work)

Food I used to skip bf to save, lunch was costing 60/- for couple of chapati, small bowl of rice and two small quantity bhajis

Lunch expenditure - 1.3k

Night dinner on an average would cost me 60-100

Dinner expenditure - 1.8k to 3k

Phone recharge etc would cost me 95/- for monthly 2g, yes 2g I have never used 3g until now and 50+28 weekly roaming and talkative recharge

Phone expenditure- 400/-

Total comes out to be 16.4k /-

This is on narrow side.

I would save 8k and one time dinner outside, late night office result to ola missceloenous etc would comes out to be 3-4k

Hence I save 12% on 24k salary.  My gross income is 290k annually and I save 36k which gives me very less room to perceive my adaptation skills for ex sap, other certifications whose prices are sky high.

Now this is with rent 4,000/- and now I pay 2k more and salary has increased by 4k, so has the prices of food, etc which leaves even lesser room with level of prices increasing with respect to home, food etc increasing at a faster rate compared to increase in salary.

This detailed explanation was to show that 20-30% of total expenditure is home rent and it keeps on increasing with no sensible reason. This is for homes not painted on regular basis, criticisms etc.

I tried to rationalize the increase, I said mall has not increased the demand for homes in the locality I stay because still the vacancies are pretty much visible and it has only increased the traffic to malls, what has increased is land prices and owner did not own the land his response was, " we have increased way before you came and will increase way after you go" which was the most foolish answer I have ever heard.

This detailed explanation was to show the first resistance to change from the way the house rent increases and this goes on to his pocket as the transaction is with cash and no accountability.

Hence the first question I put up is how will introduction of 2k notes and newer 500/- notes is going to abolish this,  as there are no incentive policy to stop this neither there is penalty to stop this.

Now culture:-

People in my apartment are from gutka, tambaku eating legacy. Here is the kicker-

1- I wear shorts and move, they criticse
2- I put on music, they criticse
3- I stay at home with closed doors from morning to evening, they criticise
4- I speak on phone, criticise etc
5- Funny part was I spoke in English it was criticized, as I Marathi is common language and from karnataka where kannada is primary language. This made them conclude which was dangerous that, " south Indian people show off"
6- they used to say, I see ladies in the apartment as if I want to rape them. Now with average age of ladies being 35-40,  and I work from 9-9 and night sit in library to study and come back at 11, I Do not have time, infact am 24, why will I see a lady aged 40, makes absolutely no sense. I asked what is this baseless allegations, they said I wear shorts and walk around.

Lemme math out:-

Average age of people in my apartment is 30-40 years. 

Income is only from renting out, small grocery shop and selling of home made bf in the morning. All unaccounted wealth. I was infact surprised to see that a husband of age early 30's,   children of age 10 and 4, has no work other than income from above mentioned sources takes an iPhone 7 on personal loan with guarantor

It doesn't take a rocket science to tell the kind of education his children's will get. And the legacy will follow.

The problem here is I was kind of alien, I tried to educate the children's in this apartment which came against me stating am giving them wrong education and is not in need of these education.
I tried to tell them the importance of change etc, I wad bullied upon and threatened every time to be thrown out of room.

I used to talk on phone, they used to say you shouldn't talk on phone for long with girls, I was like shocked without even knowing who am I talking to.
I walked on terrace for evening relaxation,later on they closed the terrace because I used to walk.

This blog will be a lot bigger if I mention all the miseries I went through, the pain I faced and I firmly believe these are the primary reasons why India is still behind,  why people leave in poverty, why education level is so low, and why on HDI we still drown at the bottom, why people are still okay with u employement and prefer chilling out.

And I stayed here amidst these for 2 years is because I thought I could change, as I had strong convincing skills and am not bragging,  but strong culture following and resistance to change from normal, peaceful, unchallenged perceptive way of leading life and which is going to be transferred to children's and grand children's, made me fail and made me feel I am not as good convincer as I thought I was.

I believe a survey on these would lead to same outcome and same underlying reasons as to why people are reluctant to change. And negative effect on these are, criticism, unaccounted wealth piling up leading to cushioned life, growth pattern subdued among the family and children see what they Learn and they learn that no work is the best work.

But hey, I quit the room today, leaving a note of. " change with the changing tides, or else you'd be washed away", and yes I wrote it in Marathi, Google helped me through.

Short term effects of demonitisation

Prime minister Mr.Modi checkmate move to curb down black money was appreciated by common people, even though they where the epicenter where the policy burst open.

As 86% by value and 20-30% by volume are the 500/- and 1000/- notes circulated, from the day of surgical attack on black money till date, almost 2 lakh crore has been deposited at the bank and counting. So all the talks about India GDP figures are inflated, I believe if the black market is added to the GDP calculation, the figures as of now is highly undermined.

Now coming to short term effects, I believe here are some:-

1- Filling the void created by banning the notes, is a behemoth task for the logistics division is transporting the money to the destination.

2- short term inflation would be seen as people are creating scarcity as seen in Salt etc. Other day I was at the Chinese stall, looking for a quick bite, the shezwan rice which normally is sold at 50/- was sold at 80/-,  reason citing, " weak business and home rent payday is nearing I have to make business atleast to breakeven".  So the CPI figures for the November month would be a great metric to watch out for.

3- I am too curious to see how the ppf of the country would have turned out to be, for the present month as herculean task as be centered around to transmit the money to the destination.

4- Real estate would be badly effected. As the sector was seeing a notch up growth after FDI regulation and better exit policies for investors, the one time effect would be felt and it would be fascinating to follow how the business would turn out to be in the following months. Now the safe heaven after the surgical attack on black money would be financial assets such as gold which did see being sold at 30-35% inflated price than the normal and real estate where most of the black money is stacked up.

5- Share market did see a uptick in investment, but the real reason was vanished when sensex tumbled. Coming days would make it clear

6- Now 2000/- note, would that Create a uptick in inflation as it is having higher value than 1000/- is to be known, as higher money sometimes leads to people compromising for higher value for a product.

7- Day to day wages would be hit for short period of time. But the way the weakness in knowledge of daily wages workers was misused was a saddening sight, and the outcome was sudden bump in Jan Dhan banks,  where the account was stagnant with very minimal savings, suddenly had 49,000/- in the account, below the pan card requirement threshold, and the size was almost 30% of the present accounts, which almost all the account holders where daily wages.

8- there would be one time effect on fmcg goods, as sudden scarcity in money ( limit being 2000/- per day, the cap would be raised in the coming days of the month) via atm and banks withdrawl creating a chaotic situation, people would save more for short term, which puts a cap on marginal propensity of consumption and increase in marginal propensity of savings and decrease in velocity of money. So the expenditure on fmcg goods like High end shampoos etc might be treated as luxury. This scarcity is created because of long que before the atm, and most of them Return empty handed and by evening all the atm runs out of money.

CONCLUSION:-

The degree of black money tapping that would happen would be interesting to watch out for. But this is the bold move by our beloved Prime minister, which would be first step towards the cashless economy ( other steps might be infrastructure facility, cyber security upgrading and creating awareness along with knowledge as to the importance of going cashless and how to go cashless) and towards hammering down the black money hoarders one by one.

India being emerging economy,  first needs to unearth all the money stuck in black market which can be used to create employement, increase the per capita income and propel the GDP,  which attracts the investors and instills confidence in them.

I feel proud to be present in the generation to witness the demonitisation ( last one being in 1978 and in 1946),  but this time the cycle where technology is, the pace with which paytm, freecharge, ola wallet etc are being used to put up money which is a step towards cashless, the speedy implementation of payment banks and putting up right infrastructure to make this happen, I Do not think, there would be another demonitisation.

I believe demonitisation move was at the right time and would reap results in the long run and would help India in improving corruption index and be a beacon to the investors.

Jai Hindh! 

Negative nominal interest rates

             NEGATIVE NOMINAL INTEREST RATES

Since the great recession a large number of advanced economies have been stuck in low growth, low investment (government, GFCF) and low inflation which in turn lead to unemployment. Attempting to regain growth, the central banks have increasingly taken forceful monetory policy measure and most criticised and lesser known amongst them are negative interest rates.

The central bank of Denmark was the first to go below zero in 2012 and surprised many that this negative interest rate policy did not put pressure on financial system. After this a series of negative interest rate policies followed i.e. from U.S. FED, Bank of England, and Bank of Japan.

Interest rate below zero is often viewed as unconventional policy, but it is actually the continuation of normal monitory policy practise of moving short-term interest rates in response to fluctuations in economy. It is obvious that there is a limit as to how much negative the interest rates can go, but as of now it’s been to -.75% in Switzerland.  The working of negative interest rates is as same as positive rate hikes or lows, though there are some differences in their effects on banks, and the psychological impacts on plunging interest rates into negative territory.

HOW DO INTEREST RATE CUTS BELOW ZERO WORK?

Commercial banks park their money in central banks and if the interest rate goes into negative zone then central banks charge for the interest on commercial banks money. The commercial banks can cut the interest rate that they charge their customers by the same amount and make their money back, although there are some crucial exceptions for some bank deposits such as retail deposits. Imagine a pension fund, who has invested in the commercial banks, if the risk free rate is charged or lower down, then they would invest in financial assets like the bonds ( which are like long term loans), increases demand for financial assets, hence the price for the bond shoots up and this is how rate cut is transmitted to broader financial market.


These summaries the aim of central bank that is to reignite growth in the country, consumer spending, rise in demand which in turn rises inflation, rate cutes from banks transferred on to companies, increases the money supply hence rises the supply of goods & services, which in turn helps in reducing unemployment. These are the few ways where this can happen
1- Fall in demand for currency, hence the value of currency depreciates, which fuels export and reduction in import
2- Consumer spending more
3- Business investing more
4- Banks lend more to households and companies as holding cash has become costlier now

The flipside of the above mentioned ways:
1- Currency depreciates, hurts the margin, which was clearly visible in Japan as some of the exporters showed unhappiness as the razor thin margin was already eroded and coupled with weak demand in advanced economies such as Europe, U.S. and weakness in China dimmed the advantage of weakening of currency
2- Countries whose demography showed aging population, incentives to spend more will fall on deaf ears. Faced with negative interest rates, savers and retired people would be seen spending less and save more, which lowers down the velocity of money, could likely to reduce the spending because they either have fixed deposits or because they live on interest on capital.
3- As the spending power or people go into saving mode, the velocity of money is fractured, which in turn leads to business investing less in meeting the demand.
4- With the weakening of economy and central banks not making holding cash as costly as it had to be, banks turn reluctant to pass on the advantage as it happened in India: as the repo rate was reduced by 25bps, banks never passed on to customers, as the deposit rates were too high and they could not lower it down because of competition.

REAL VERSUS NOMINAL INTEREST RATES:

Negative nominal interest rates coupled with higher inflation, leads to lower real interest rates, which lowers down the value of money and purchase power parity (PPP). Countries where the inflation is higher than the nominal interest rates, real interest rates are negative and savings fall in value. In countries where inflation is lower than the nominal interest rates, real interest rates becomes positive which in turn increases the value of savings.

In U.S. today, short-term real interest rates are negative, because inflation is in positive trend, but nominal interest rates are still negative. If you have a savings or bond denominated in dollars it is losing value as we speak.

Switzerland on the other hand, inflation is negative and nominal interest rates are negative too, and two largely cancel out each other. In Switzerland the saving or bonds are losing value at a lesser rate than in US

The danger of negative rates and the most important concern is about at what point the retail investors, financial corporations will want to sell all bonds to get the cash. The lower bound is not known. Other risk is long period real interest rates, rather than negative nominal interest rates, might lead to financial instability and investors might look out for other options to invest because of low returns on bonds and some financial institutions are also charging a fee for holding cash. This is what the definition of monitory policy: stimulate risk-taking and economy. But if the investment goes into real estate whose prices rises in time, creating a bubble, which might burst one day, like the one in China right now.

SO WHAT IS THE RIGHT TIME TO RAISE RATES?

Increasing the nominal interest rates before the economy has returned to growth, risks delaying the return to growth. Hence we see the Federal Reserve delaying the rates hike in U.S. One of the risks being the Trump victory has caused a cloud of uncertainty. Second the U.S. is so big that most part of the currency traded in the world is dollar denominated and raising the rates cannot be done without considering the world’s economic shape

SO IS THE NEGATIVE INTEREST RATES ONLY WAY OUT?

Monetary policy is not the only strategy to stimulate the economy. Government spending on infrastructure, tax cuts to boost export, running deficit accounts would boost the economy by generating employment, and increasing the spending power.