Time

One of the biggest illusions ever is the thought that "time is linear."

Entrepreneurs and their pain

Yesterday I had a very interesting conversation with a budding Marwadi Entrepreneur from Chattisgarh. He has opened a new steel manufacturing unit. We were discussing about Indian economy and it's future, when suddenly he started mentioning about his personal experience.
He has set up a medium scale steel manufacturing unit in Chattisgarh which basically serves the purpose of mining companies by providing equipment for crushing of mining output. I was under the impression that after the BJP government came into power, things were much easier for the young entrepreneurs specially in the MSME section. I also used to think that the red tape has decreased. But he gave me certain facts which made me rethink what was actually happening on the ground.
According to him, to get a finance for his project he has to first get a certificate from the government for diversion of his land from agriculture to manufacturing. The Chattisgarh government had provided this facility for free and the owner of the land has to just give a written information that he is diverting his land. But our Marwadi friend had to run after the officials and ultimately pay "under-the-table" to get the certificate.
To get the finance he has to also get an electric connection to his site. Before some years the Chattisgarh government used to provide subsidy to get the connection. But now the cost was very high. As if this was not enough, the officials again had to be "fed" to get the connection. On a whole he told that about 30% of his cost was for the "expenditures" of the beaurocrats. I was shocked to know that even the Collector asked for something.
When I told him that now everything will stop (because of demonitisation), he told that its still there and the problems of the entrepreneur has increased. The officials still ask the black amount in cash and the entrepreneur has to get the amount from  multiple accounts and in the process come in notice of the IT department.
This experience of mine cleared my misconception that this government has changed things for the entrepreneurs. Our youth have to depend on jobs created outside the country. With people like Trump, our country has to start creating jobs and to do that it has to create an environment where entrepreneurs are not afraid or exploited.
I hope that Modiji starts complementing systemic reforms with beaurocratic reforms, so that our entrepreneurs (specially MSME entrepreneurs) start growing.

Demonetization Facts

As promised to my friends, relatives, colleagues, etc, I am putting my views on recent demonetization which happened in India. I am not against or for it, but I would like to share some facts. I am going to put up some graphs below which will show some facts. Although, I have tried to explain the graphs but the intention behind the explanations are facts and not non-neutrality.

We can see from the above graph that the currency circulation started falling from the second week of November. The currency in circulation is still low. The fall in November and beginning of December may be due to demonetization but in the second half of December may be due to the push of the Government of India for digital economy.

As the public started depositing their cash, the banks' deposit with RBI increased. Why will the deposits fall after 2nd Dec.? I think as RBI increased its supply of currency the deposits started falling.

This is a very interesting graph. I may be wrong in interpreting it, but it looks like RBI claims on government reduced since 2nd December. Does this mean that there has been an adjustment, which many have been talking about, in the balance sheet of RBI? Does the government now owes less to RBI? If it is so, as shown in the graph, then this is a big thing. Most conspicuous is the silence of the media on this matter.

This graph may seem a repetition of the Bankers' Deposit graph. As demonetization began the banks got increased capitalization and RBI's claims on banks reduced. But as RBI started increasing the supply of currency, RBI's claim over banks started increasing.

Even after demonetization, the currency liability of the government towards public kept on increasing.

All the graphs above are related to the banking system but the graphs below are not directly connected to the banking system, although the effect of demonetization can be seen on them too.

The turnover of government dated securities seems to have risen after the announcement of demonetization. Its logical as the excess capital will be invested by the public. But the downfall since 25th November is difficult to understand. It may happen due to two reasons: either the public which had excess capital (or may be unaccounted money) invested in government securities and then dis-invested from them, so as to  convert the unaccounted money to legal capital, or either the excess cash coming into the banks was invested by them and then subsequently sold off when there was need for capital. 

The above graph shows another probable outcome of demonetization. After the first week of November, the foreign currency assets have continuously reduced. This may be due to the dis-investment (or selling off) by foreign investors.

After the first week of November there is clear indication of fall in the price of stocks. The sensex did try to make up but is still failing to reach the 27k mark. The intention behind demonetization was applauded and if similar, systematic and well planned measures are taken then it may ensure long term benefits for the Indian corporate world.

When demonetization was announced there were reports of huge increase in the demand of gold. But if we see the above graph then it speaks a different story. It shows continuous fall in the price of gold till 26th December and then a rise in it.

RBI reported that about 90% of the value of scrapped notes were back in the system by 2nd week of December. If this amount would have been less then the government and the public would have gained from it. The IIP, CPI and GDP figures are still not out for the time period. Once they are out we can know the intensity of the impact and the other side of the story.