US Economy- Some random thoughts

US Economy -The way to come out of the present mess- Some random Thoughts
The US economy, the leader of the world economy has been in trouble since 2008 after the breakdown of its financial system. Unfortunately for Mr Obama, the president on whom lot of expectations were there with his message Yes, We can Change, things have not gone in his favour both domestically and internationally and the Change he wants to see in US and the world over has been elusive for some reason or other. The full potential of the economy remains untapped and for no reason, the country is facing an embarrassing situation. It is avoidable and needs to be avoided. Mr Obama has the mind and the commitment and he should be in a position to bring the changes.
The Fiscal and the monetary policies pursued particularly after the financial turmoil in 2008, have not brought the desired impact in the economy and the fear of US facing a deep recession if not depression is looming large. The fiscal deficit and the debt incurred to save the economy from the crisis have aggravated the problem and the monetary policy inducements have also not helped to salvage the situation. The downgrading of its debt from AAA+ to AAA by S&P followed by European crisis has deepened the crisis further. Problems will always come in battalion is literally proved in the case of US. More than the disease, the remedy has turned out to be a major head-ache is said to be the situation in US now. To make the situation worse, regulatory measures on the financial system are often blamed for the banks' poor performance particularly in the area of deployment of credit.
To come out of the situation, it is advisable to pursue some simple theories than to depend on major economic theories and then face criticism from all around. As an observer from outside and without any deep knowledge of the economic theories and the economic crisis faced by the US now, I would like to suggest a few measures worth attempting.
The country is very vast and any amount of infrastructure to link east to west and north to south would prove to be only inadequate. The present approach to connect these places by vast stretches of road is good no doubt, but it is proving to be costly and energy consuming affecting the fiscal health of the economy. The dependence of the economy and its people largely on road and air needs to be reviewed and these need to be equally supported by expansion of rail and water transports. The money spent on oil and electricity needs to be saved by introducing massive rail and water transport system. The acceptance of this, may have resistance but in the long run, the economic benefits derived in terms of employment generation, reduction in fiscal deficit, improved consumption, saving and demand would justify such an action.
Public spending needs to be augmented considerably and private savings need to be encouraged to derive real strength for the economy. Demand, Consumption and investment should basically come from improved savings and prudent public spending. Expecting only enhanced consumption without any inducement for saving, for increased investment and employment opportunities would prove to be a disaster for the economy and this needs to be avoided. This approach will tantamount to building a house without adequate foundation.
Taxation policy pursued should ensure equitable distribution of wealth and income. Allowing one segment to accumulate wealth and another segment to consume more through induced credit without savings will have its own adverse impact in the economy. Development of the economy is the responsibility of both the haves and have nots and taxation policy should ensure that as per the capacity, people contribute for the economic development.
Too much of dependence on capital market to earn and accumulate wealth is not a healthy trend. Capital market cannot be taken as a substitute for Casinos. Its function is basically to aid capital formation and provide adequate liquidity and return to those who provide capital by way of investment. Too much of Speculation is not envisaged in capital market. This is perhaps where more regulation and supervision are called for to prevent casualties. Introducing exotic products in the guise of fighting against risks in speculation is inviting all round trouble and this tendency needs to be completely eradicated. The economy can function well even without any of these products.
The need of the hour is to improve the functioning of the economy through generation of employment opportunities, well managed public spending, induced private savings, improved fiscal deficit and well intended taxation policies. Infrastructure development connecting the entire length and breadth of the country through railway and water net work system can help to improve the economy with all its multiple side benefits. The other areas of development can however keep going as per the major proven economic theories true to pattern.
T.V.Gopalakrishnan ( Personal views)

Auditors, Banks and Accountability

DrT.V.Gopalakrishnan (Fort worth, Texas)
30 Aug, 2011 04:09 AM

The editorial reads well and the suggestion that auditors should be paid from a pool of finance is welcome to prevent frauds and provide better accountability. However, this will not prove to be a foolproof method as long as the Boards of Directors are not made accountable and corporate Governance is rated in a transparent manner. The banks have also a major role to ensure that the corporates they finance conduct the accounts satisfactorily and the NPAs do reflect correct position. The auditors of Companies and auditors of banks have to have some inter action to ensure that all the Companies' dealings with banks and conduct of accounts, balances with banks, current assets, working capital position and NPAs reflect a true and correct position in terms of banks books and companie's books. Such an approach would itself reduce the nature of irregularities as seen in Satyam's books.
The ethics and values adhered to by Auditors in both banks' and corporates' accounts need to be independently assessed by their respective regulators viz; the Reserve Bank and the SEBI. There should be adequate checks and balances to ensure that the accounts reflect the correct position and there is no room for concern for investors. The Auditors unfortunately have not been enjoying the confidence of Regulators, investors and the Government is a fact to be taken note of by the Institute of Chartered Accountants of India while fixing their compensation and mode of payment.

This appeared in ET E paper dated 30/08/11.

Time to set up a National Gold Bank

The article highlights the benefits that Indian Economy can derive from the recessionary trends witnessed in US and Europe. The fact that prices of all commodities except Gold have been on the decline and India is favourably placed to import goods, particularly oil, and improve its economy has been well brought out by the author. It is the best opportunity to attract funds for developing our economy provided the Government finds time and concentrates on the management of the economy. Gold stocks are available in plenty in India and the economy should know how to encash the gold and divert the resources for infrastructure development. It is time to think of a National Gold Bank and mobilise gold holdings of families and institutions and convert the assets into cash for economic development. Opportunities now available should not be lost sight of. By the time, the international scenario changes, India can build its economy strong and become the super-economic power early.

from: Dr.T.V.Gopalakrishnan
Posted on: Aug 25, 2011 at 02:31 IST
(This appeared in The Hindu Business Line)

Issue of Banking Licence to Corporate Sector

Dr.T.V.Gopalakrishnan (Fort worth, Texas.)
25 Aug, 2011 09:00 AMThe editorial is very apt and to the point. The Governor's concern on the issue of banking Licences to corporates is genuine and justifiable. As it is, the banking sysytem in India is fairly sound, healthy and competitive. Ownershipwise, banks are reasonably well distributed and owned by government, public and private sector, private sector and Cooperative sector and their working has been by and large satisfactory catering to all segments of the economy. In case corporate sector steps in, it may distort the functioning and the present laws will not be adequate to regulate it effectively. Besides, in case Corpo rate sector enters the field,Financial inclusion which has not taken off well in the absence of active involvement of private sector,will become a major casuaty and agricultural sector will continue to suffer further. Tax payers money will have to come to the rescue of many segments if corporates enter banking . Prevention is better than cure should be the approach. Hope wisdom will prevail. The Govt cannot afford to ignore the lessons from past history of banking in the 1960s and the compulsions for nationalisation of banks in !969 and 1980. Let us not experiment again by allowing corporates to set up banking.

(This appeared in ET,dated 25/08/11)

Multinational companies and Consumer Forum

The author has beautifully presented the problems of Indian Customers grievances despite the safeguards available under consumer proptection Act 1986. The inadequacies of Consumer Forum have also been well covered. The ultimate result is that consumers suffer and multinational companies get away with deleivery of substandard items.In my own case, I had to replace the clutch plateof my new car at my own cost within a few months and the Company had the audacity to argue the case before the District Consumer Forum stating that the Road conditions and drivers' skill are responsible for defective functioning of the clutch. Though the District Consumer Forum gave a verdict in my favour, the Company has filed an appeal in State Consumer forum after inordinate delay and put forward the same argument that Indian Roads are in bad condition and driver has no skill to drive.Due to frequent change of Gear,the cluth goes defective and the company is not responsible. Cos thrive in India at the cost of consumers.

from: Dr.T.V.Gopalakrishnan
Posted on: Aug 22, 2011 at 22:27 IST

(This appeared in The Hindu-Businessline)

Corporates, Real estate sector and irregularities

T.V.Gopalakrishnan (Fortworth, Texas)
23 Aug, 2011 04:37 AM
The editorial is apt and timely and calls for an immediate action from authorities. The real estate sector needs a comprehensive law and an Ombudsman exclusively to protect the interets of home buyers. The corporates involved in real estate business have umpteen ways of extracting money from prospective buyers of properties and practically there is no accountability for the funds raised by them. Transparency in accounting and auditing is virtually absent and buyers have nowhere to look forward to register their complaints. Money is raised towards corpus funds without any standardised approach towards maintenance, funds for car parking are raised again without any standardised guidelines, terms and conditions are altered without the knowledge of customers, final terms included in the deeds are not maintained and undivided share of land included in the deed are subsequently sold without the knowleddge of customers,etc. are some of the very common mal practices the companies resort to. It is time an audit by a Govt appointed agency is conducted in all multinational companies who indulge in real estate business along with other business and mix up all accounts. Corruptive practices in multi national companies are perhaps worse compared to those in Government and needs to be closely monitored. It can help to bring down the real estate prices and minimise black money transactions also. Such checks and balances definitely bring some order in the transactions.
(This appeared ET E paper on 23rd august).

India and grammar of anarchy

Your strongly worded editorial 'India and the grammar of anarchy' unfortunately fails to identify the genuine reasons why Mr Anna Hazare has to fight the elected Government taking the public support against widely prevalent corruption which make the life miserable for the common man in India. (August 20,2011) It is incorrect to interpret that Mr Hazare demands parliament to create the unelected post of ombudsman, chosen by a panel of worthies, with sweeping powers to haul up any public official on graft charges, without having a full grasp of the whole issue.
The issue of corruption and the suffering of common masses in India have been there since decades and the successive Governments in power have failed to find proper solution to eradicate / minimise the problem. The movement by Anna Hazare against corruption got its momentum in the recent past because of indifference of the Government and casual approach to take action against series of scams detected at Government level and put in place a meaningful system to prevent mal and corruptive practices. The suffering of the masses In India for their day to day life because of corruption at various levels is perhaps unimaginable in US and hence such an editorial.
It is right to say that the remedy to fight corruption through an institutional set up as per the well established Constitutional procedure is more ideal and appropriate. But the Government's response and intentions are not convincing. The bill proposed by the Government to fight corruption is only an eye wash as per the civil Society headed by Mr Anna Hazare and will not serve the purpose. The only way available for the public to fight for an anticorruption bill passed through Parliament is through this movement led by Mr Hazare. The insensitivity and inaction of the Government to understand the suffering of masses due to rampant corruption has forced the public to resort to this sort of agitation. Anarchy in Government's functioning is the cause and Anna Hazare's fight is the effect. Exceptional situation demands exceptional solution and Hence Anna Hazare's most appropriate method to seek solution for the perennial problem.

Dr.T.V.Gopalakrishnan,

( This was sent to The Wall Street Journal).

Neglect of the Economy by the Government

This refers to your editorial politics playing spoilsport which is very apt and timely. The very fact that the economy is not progressing well despite the presence of several positive factors like favourable demographic dividend, talented and worldly recognised scientists, economists, bankers,IT strength and abundant natural resources,etc is a matter to be seriously debated and accounted for by our politicians and bureacrats. The economy needs to be run by professionals and politians should keep for themselves administration and social welfare bereft of corruption of course. The present international scenario is an ideal opportunity to attract both FII and FDI investments as India is perhaps one of the emerging economies whose fundamentals continue to remain strong except perhaps on inflationary front.The Government should come out of its false ego and arrogance and concentrate more on the management of the economy efficiently and effectively. It is time for Govt to act.

from: T.V.Gopalakrishnan

(This appeared in Business Line E paper Dated 19/08/11).

Insensitive Government and the masses

The editorial has a clear message that the governmeent has lost its' sense of collective judgement of issues, sensing public mood and perception. Having won the elections, does not give the power to ignore the public and their sensitivity to issues dearer to their survival. The Government forgets that they have to continuously take care of common man's requirements and their welfare and they are elected for that. The present predicament of the Government is its own making and it is unfortunate that th Government does not realise its follies and commits one blunder after another. It is time for the Government to introspect and come to the rescue of the common masses who suffer from the worst system of corruption and miss their rightful entitlements and comfortable living. They do not want to amass wealth. They just want to lead a peaceful life and free from harassment for day to day living.

from: T.V.Gopalakrishnan

(This appeared in Business Line dated 18th August 2011).

Independence in India and PM's speech

15 Aug, 2011 07:40

This is another year of Independence Day celeberation. Unfortunately, 64 years of independence, have not been helpul to remove the poverty from the Country and PMs have made wonderful speeches soothing only for the ear. If speeches can remove poverty and problems of this great nation, people can be happy as all the speeches since the 1st independence day to the lat one ie yesterday's will not lag behind. How long can the nation fool the masses is a big question that remains unanswered and our rotten polics, poor governance have only helped to create black money, corruption, and degeneartion of society and its values. It is time for all Indians to introspect and see whether we are in the right track in our nation building efforts. Let us believe in actions based on morale, ethics, values and principles to achieve a welfare society. Speeches can wait.

This appeared in ET E paper dated 15th August 2011.

Dr.T.V.Gopalakrishnan

Rating and the Regulator's Dilemma:

The recent downgrading of US long term debt by S&P has created a scare among those particularly bankers who hold these assets in their portfolio as it may erode the realisable value of these assets in the short run and to that extent the soundness and safety get adversely affected. This rating, which has more of a psychological impact than that of a realistic situation, should not and need not affect banks soundness as the banks investments in such assets may not be that significant among its various other assets to worry about. The regulators interest generally is to ensure safety of each and every bank and it is for individual banks to diversify its assets based on its own assessment of various risks including market risk keeping in view and complying with regulator's guidelines. Overall stability of the financial system is the concern of both the Government and the Regulator.

The US economy can always bounce back from its economic crisis caused by heavy external debt fiscal deficit and poor GDP growth and it has all the potential and strength to put up a better show. The present downgrading should be viewed only as an eye opener and should help to review the economic policies so far pursued and initiate fresh policies in the areas of savings, infrastructure development, employment and taxation. The present approach More public Spending would stimulate demand needs to be replaced by more savings would lead to better investment, more employment opportunities, more spending and better GDP in the long run. It is a time consuming process, but end result would be lasting and enduring. It requires structural reforms in the area of taxation, income distribution, incentives for investment and generation of employment opportunities through creation of improved infrastructure in particular etc. Too much of debt would sound death-knell even if they are backed by assets.

Dr.T.V.Gopalakrishnan

Sensible Decision of the Government of India.

The editorial is well written and the decision of the Government to extend the term of Dr Subbarao for a couple of years more is perhaps an indication that it cannot afford to ignore the economy any more. The Reserve Bank despite its limitations has been fighting a lone battle to contain the inflationary pressures and maintain some semblance of stability in economic growth for the last couple of years although, both internal and external conditions have been and continue to be a major constraint. Dr Subbarao has displayed his determination to challenge the odds which he has been facing since his inception as Governor. This extension is well deserved. Hope, the Government will continue to concentrate more on the management of the economy and come out with such decisions to enable the instituitions to perform well.The present international crisis is an opportunity to attract external funds and concentrate on infrastructure development badly needed for Indian economy to grow.

from: T.V.Gopalakrishnan
Posted on: Aug 11, 2011 at 06:10 IST (The Hindu Business Line)

Uncalled for scare- aftermath of Rating by Standard and Poor of the US.

Standard & poor's decision to bring down the US of its triple A rating has created a scare in all international markets about the health of the US economy and its repercussions world over. The rating should not be taken to view that everything has gone wrong in US and there is no scope for revival of the economy in the immediate future. No doubt, the 2008 financial turmoil had forced the authorities to go in for some economic policies which failed to bring in the desired recovery, but it should not be construed that all decisions taken were wrong and the economy has gone from bad to worse. As the saying goes, problems always come in battalion, the crisis in Europe, Japan and other parts of the developed and developing countries as well has added fuel to fire and made a mess of all well intended policies pursued meticulously in US. The rating given by S&P at best can be taken to mean that the policies pursued need a relook and fresh efforts are needed to revive the economy . The two major issues faced by the economy are debt ceiling and fiscal deficit.
Both debt and fiscal deficit which are complementary to each other, however, failed to help the GDP growth and aggravated the economic problem. Standard and Poor, without presumably going into the reasons for the lower rate of growth of GDP taking into consideration other world contributory factors for poor performance and inherent strength of the US economy which has successfully weathered earlier crises, has come out with a rating at an inappropriate time when serious thinking and measures are in progress to take the economy out of the present predicament.
The damage such a rating has done to the global economy in general and US economy in particular is something enormous and the rating agency has to be made accountable for such an unwarranted untimely rating and making it widely transparent. Advance warning by rating agencies are welcome but bringing damage to an economy and creating widespread losses and attendant consequences in the form of higher interest rates, loss of credit market and erosion of values in various securities is something undesirable and perhaps avoidable in the overall interest of the economies. Rating an instrument and rating a country are two totally different matters and there should be some standardised norms in assessing and making transparent the rating of a country. Since negative assessment compared to positive assessment has more of an adverse impact, it is advisable for rating agencies to have a different approach to caution the rated economies in the case of a negative assessment even if the assessment is very objective and accurate.

Dr.T.V.Gopalakrishnan

Enhance the Confidence level in US

It is essential that in the interest of the whole world economy the US economy needs to grow and for that the only immediate solution is all round development of public transportation system in entire US through encouragement of construction of needed infrastructure involving more of private participation.

It is time for US to have a relook on its energy spend particularly on oil and power and divert the resources saved therein to develop state wide transportation system in particular without in any way losing its glamour for private transport system presently in vogue.

The US economy has all the potential to attract international tourists and ways and means should be found to exploit its potential to the optimum level to make international tourism an opportunity and reality to support its further growth.
Employment opportunities will get an immediate boost and consumption and demand would increase necessitating fresh investment and production. Massive tourism to US from all over the world particularly from fast emerging economies like BRIC countries will help both the emerging economies and the US to mutually exchange trade, technology and other expertise for everybody's benefit. The avenues for revenues of the Government will automatically increase once the tourism picks up considerably.

Special incentives to industries who create additional employment opportunities can perhaps be another solution to tide over the present crisis. The need of the hour is to give a boost to the confidence in US economy and this country has fortunately everything to give that much needed boost.

Dr.T.V.Gopalakrishnan

US Debt Pangs - Response to the editorial on Business Line

US problem of debt has only been postponed and the solution arrived at will have its own adverse impact for the future unless the US Government comes out with some innovative new economic policies to give a boost to its economic growth and enhance the confidence in international markets. Deficit and debt burden caused due to the banking crisis continue to haunt the US economy and the crisis management has only aggrevated the problem indicating the urgency to have a relook on the policies so far pursued and bring in a totally new approach keeping in view of the changes witnessed in international economic scenario particularly in emerging economies like China and India.
It is again an opportunity for India to take advantage of the position and go in for massive economic and financial reforms but unfortunately the present Government has been in a paralysed condition as rightly pointed out in your editorial and is unable to concentrate on economic issues faced by the nation.

from: T.V.Gopalakrishnan
Appeared on Hindu Business Line e-paper on: Aug 3, 2011 at 04:47 IST

The black money and corruption

Black money generation takes place through umpteen ways. Corruption is prevalent literally from cradle to grave. Except politicians and bureaucrats, every body knows how to prevent corruption and minimise geration of black money. The simplest method is to track high value transactions through insistence of PAN card and payment by means of plastic cards and Cheques above Rs 5000. If this is introduced on a trial basis the result can be visible within a period of six months. Through out the world Indian IT strength is well recognised but unfortunately In India,It has not been put into optimum use to keep track of all transactions,tie up with the transactions with their origin,destination and link them ultimately to tax revenues, GDP growth etc intelligently. If there is a will there is a way. Readiness to trace black money and prevent corruption is all that matters. Will the authorities viz Politicians and bureaucrats bell the cat?

Dr.T.V.Gopalakrishnan

(This appeared in The Hindu Business Line E paper dated 2nd August 2011).

RBI's solution for inflation

No doubt the solution offered is bitter but unavoidable to contain the high level of inflation,but the question as to whether this hawkish measure of RBI will contain inflation still remains unanswered.Growth will come down with such measures is a reality but containing inflation requires more measures other than monetary is a fact which is being ignored for long.This sort of hide and seek game keeping the problem of inflation at high level only shows lack of real concern for the masses who suffer from poverty and unemployment /underemployment.

This appeared in ET's blog dated 2nd August 2011.


Dr.T.V.Gopalakrishnan