Foreign Currency Encashment

My parents used to hoard foreign exchange. That time the Rupee was not convertible as freely and hence they saw no sense in liquidating this asset. Even today a lot of people from India & China invest in gold coins & bars because of the liquidity it offers internationally.

Luckily for our generation this is not a pressing need to bypass the RBI. Yet most of my friends do not convert back the few hundred dollars that they have saved in every business trip back to INR for multiple reasons.

1. Many do it because INR is a depreciating asset and hence they feel protected in a liquid asset that their wealth is more protected this way.

2. Some do it for tax planning purposes due to differential tax treatment for interest/returns earned abroad

3. Many people do it for global lifestyle purposes. Having a USD card enables them to shop abroad without having to worry about conversion charges, exchange rate etc. Also $1 looks a lot cheaper than INR65/-

4. I do it for vacation travel purposes. A family trip abroad can dis-balance most carefully planned budgets. Having a $1,000/- handy can absorb bulk of the shock. Also I book the air tickets 3 months in advance, hotels a month in advance to spread the fiscal shock by making the local expenses in a credit card. This way the travel expenses comes in manageable 4-6 installments rather than one crude shock.

My argument: A asset or money is of any value to me only if I can liquidate/encash it when I need it. I don’t get high by flashing the property papers or bond certificates of illiquid investment. Due to some recent real estate transaction, I need to make withdrawals and my $2,000/- Forex hoard has my eyes.

Wife’s argument: These are funds earmarked for travel. Hence parting with them is equal to parting with a dream of a posh vacation abroad. It will take a year of planning before we can have the next vacation and then also home loan EMI will scuttle at least the first 1-2 attempts.

To me my illiquid investment are ranked as follows: Sentimental assets, gold, kid’s education/marriage fund and Forex.  So a little pressure might enable me to encash them, but should I? After all the family deserves some luxury and holding on to it will not kill her hope. But the brain says the cash under mattress earns nothing and will not be probably used for a year. It will be cheaper to break in your piggy bank than to take a loan.

What will you do?

Burn the farms

That was one of the controversial remarks I had made recently on suggestions of how to make a prosperous India. I am using this forum to defend myself.

Let me start with a few data points:

For simplicity let us assume that there are 1 billion working Indians and the size of economy is $1 trillion.

GDP by sector agriculture: 13.7%, industry: 21.5%, services: 64.8% (2013)
Labour force by occupation agriculture: 49%, industry: 20%, services: 31% (2012 est.)

So it takes 490 million Indians to produce $137 billion worth of agricultural produce, while $648 billion worth of services are produced by 310 million individuals. Essentially1 service sector worker produces 7.5 times more wealth. No wonder, on an average, they are paid better and are better educated.

Secondly right from the birth of industrial revolution in 18th century United Kingdom to post world war 2 development the only common factor is fall in the workforce employed in agriculture as the country prospers. Urbanization is inevitable for the country to develop and only dictators like Pol Pot would try to reverse the trend.

Thirdly, the extent of disguised unemployment is so high that in US less than 2% of the workforce is employed in farming. Yet the value and quantity of agricultural produce exceeds that produced by India. Considering that India has 50% of the workforce employed in agriculture and our workforce size is 3-4 times larger, the inefficiencies are staggering.

With the help of technology almost every farm can reduce its workforce by 50-60%. Schemes like MGNREGA are designed to weed out this disguised unemployment without impacting the productivity of the farms.

No child of a farmer, rich or poor wants to pursue farming as a career if they have a choice. The hard work, uncertainties of weather and long gestation period often don’t result in commensurate compensation. The rich farmers are modern day zamidars who live a lavish lifestyle without even touching the soil. Most of them are trying to buy political influence so that either their land gets acquired for highway/canals or some infrastructure projects or they can sell the land to a property developer. The taxes from farming is minuscule while subsidizes staggeringly large. The faster our country’s farmer let go of their ploughs, the faster we could prosper as a nation.

Start-up vs Product company

As per business standard, Paytm which is valued at $1.5 billion has only 150 employees (mostly field sales responsible for marketing & enrolling merchants).

So value of the company per employee = 10 million dollars.

Zomato shares the same story and so does most of the startups.

 

 

Typical IT companies with 100,000 employees are valued at 10 billion dollars

Value per employee = 100,000. Or 1% of the start-up.

 

People crib about the risk & crazy salary structure of the start-up which is linked with the stock options etc. However end of the day a start-up employee is able to generate 100 times more wealth for their employer. Hence it is likely they will be valued more (maybe not 100 times but respectably good number). End of the day, a employee is happier & more respected in a scenario where they are able to maximize the wealth they can create for their stake-holders.

This means a complex matrix mapping of one’s aptitude & the wealth they can create. The myopic view of many freshers to go for the job that pays the highest starting salary might not serve them best in the long run. Instead one needs to find out a way to maximize the wealth they can create and ensure that a good share of that flows to their bank account. (Assuming that the work-life balance is almost equal among all options)

 

egg| bachelor best friend

Orthodox Indian families often don’t consume egg or meat. Yet the longer one spends time in hostel or as a new recruit away from family, the more is the chances that the person would be eating egg regularly. Why is the egg a bachelor’s best friend?

1. It is almost fool proof. In whatever form that you want to consume, it is very difficult to get the recipe wrong. Even when you are tired and half asleep. A friend of mine over-boiled the egg, just to prove the point.

2. It has a long shelf life & even after it goes bad, unlike vegetables/meats it does not stink till the shell is not broken.

3. It can be boiled, scrambled, fried, made into pancake/omelette. It can be the main dish of your meal, a side dish or used as garnishing the food. In whatever form you consume it enhances the taste.

4. You can eat it warm or cold, it does not matter. If you have oil, onion, tomato, chilli or bread, Great! If you don’t have it, it does not matter. You can eat it for breakfast, lunch, dinner or even a midnight snack.

5. Even though it is a ready to eat meal (takes <5 minutes to cook), it has none of the preservatives or ills of processed food. It is a rich source of proteins, vitamins, minerals & energy.

6. Weather you boil it in water or cook it over in a pan, it does not need too many utensils or cleaning

7. Last, but the best part, even in cooking places with questionable hygiene (most bachelors don’t have a workable kitchen or sinks that is not overloaded with dirty dishes) it still manages to remain wholesome.

From the earlier post on half fried egg, some might think that cooking is not layman. But egg seems to defy all logic.

Cattle & economic development of India

Ever wondered if the milk producing ability of indigenous Cows was far inferior to buffaloes both in quantity & quality/fat content, why are cows sacred and buffaloes not? In India, it is probable that the elimination of meat eating came about in a slow, practical manner.  In an agricultural society, crop failures are common and the success of the civilization depends on how quickly one could recoup and take advantage of the favorable conditions that follows. After a period of drought or natural disaster, the farmers who decided not to eat their cattle, were the ones who had oxen left. They were the ones who were able to cultivate their land to the fullest and save most grains for the hard days ahead. The ban on slaughter of cows came from the practical need to maximize the ability of the village to cultivate their farms. Today tractors have taken up this role. Do you think it is time to revisit our old practices that have been codified through religion?

Recently I read an interesting article on “Role of Lactose Tolerance in Pre-Colonial Development”. Essentially the author says with statistics & proofs that ability to digest milk allowed some civilizations a huge advantage over others. The babies whose diet was supplemented by cattle milk were stronger (less prone to infant mortality) and grew faster. The mothers could safely wean off their kids earlier, hence allowing for larger families & faster resuming of household duties. All this allowed the lactose tolerant societies to replenish their population faster & support larger numbers on any piece of land.

The author’s premise is that animals were raised primarily for draught (heavy work/muscle power) and meat. The ability of some civilizations to use them also for milk (a much smaller and less valuable by-product) was good enough to give these civilizations an edge. In China, the symbol of house is a roof over a pig. It highlights the importance of cattle as a ready source of converting inedible organic waste into useful proteins and fats. (Both of which are scarce and valuable throughout the history of mankind)

The mangroves of the Coastal India does not have the luxury of strong timber trees, but they more than compensate by effectively using what they have. I have a Mallu friend that cannot stop appreciating the Coconut tree. According to him the entire coastal economy is dependent on coconut tree & its products. From water, oil, firewood, husk, shell and leaves no part of the tree is wasted. As a result Kerala and coastal India is probably more prosperous than the rest of the nation. Three of the four largest cities of India are on the coast.

Societies that flourish are able to maximize the productivity of the resources at their disposal. Today the country has malnutrition rates that are more serious than the poorest part of the Sahara deserts. Yet rather than solving the problem of protein, iron & fat deficiency of the country, we are contemplating banning even slaughter of goat. The rising food prices could be solved by allowing the country to better use its cattle. Rather than having aging cows roam the streets of the country, can we use them to provide affordable proteins & iron?

Girl Parenting & hypocracry

All I want to do is to equip my daughter for her life journey. As a parent it is my duty to give an exposure to various realms of possibility, moderate the excesses & empower with a mind strong enough to handle the stress of life. I have a 2 year old daughter and my parenting objectives are very simple

  1. She should respect the values, culture, relationships (understand the nuances rather than blindly conform to the norms)
  2. She should be well educated & independent
  3. She should have an ability to communicate in a constructive manner what is good for her and the people close to her
  4. Help her discover her own personality rather than imposing my own. But intervene only to teach her honorable values, morals and ethics.

In other words, I don’t want my daughter to grow up docile and submissive. She needs to have a mind and an ability to think and express. This way, in my own mind, raising a girl is no different from raising a boy.

Having grown up in a cosmopolitan environment, dietary and religious choices were never important in judging a person. However, lately it has been impressed upon me that the two are quite interlinked. Especially in a conservative society like Aggarwal, eating meat (forget beef) is considered as a vice next only to smoking & drugs.

Society often fails to distinguish between an independent person & a person without morals and values. A girl, who is too independent, assertive & outgoing, often is not treated as a marriage material (not sure if there is anything like that). They might achieve success professionally, but it often comes at a cost of maintaining a meaningful long term relationship. What further hurts me is that the norms imposed by society on the both sexes are different. Refer to my earlier post on triple standards. The lifestyle choices (clothes, food, drinking, smoking, clubbing etc.) lead to prejudice & pre-conceived notions more often for a girl than for a boy.

I never want to make choices or take decisions for my daughter or relive my dreams or ambitions through her eyes. However as a parent, I guess it is impossible. We not only sub-consciously steer our wards towards what we think is right and often under the pretext of experiences we even justify the necessity of the interventions.

The society evolves over time and what is relevant today might not be tomorrow. Is it justified for me to make religious & lifestyle choices on behalf of my kid? Maybe tomorrow the society would have evolved to a level that people stop poking their nose into other’s life & respect their choices.

Considering that I eat meat (all kinds), drink socially but am imposing a different set of morals on my daughter: “Am I being a hypocrite?” Unfortunately my daughter is too young to answer this question.

Inflation & real estate

What is more expensive property under construction on ready to move in property? Ideally under construction property will have the risk of construction, getting all the approvals, plus interest (capital cost) for advance payments, plus it takes 6-12 months from construction to get the property fit for occupation with all stabilized amenities & no noise/nuisance due to construction/repairs/woodwork/modification. As a firm believer of bird in hand is better than two in the bush, I would believe that people should be paying a premium for ready to move in flats. Unfortunately it is opposite in Bangalore.

What has dawned on me that Inflation is actually a bigger driving factor in these property purchases. Call it speculation, but high inflation and low interest yield (post-tax deduction on interest income) has created borrow now and pay later economy.

Essentially a builder will come up with a scheme: Pay 10-20% now and nothing till possession. Some builder even offer to reimburse the EMI/interest expense during construction. People believe that in 3 years their salary would have jumped by 35% (10% p.a.)  so by going for an under construction property they are essentially locking in a good rate early one. Also the milestone based payment ensures that on a 100Lakh property, you only need to pay 10L or so upfront/on each milestone. Allowing you to leverage high & hence reap more profits.

With rental yield ~3% of apartment value, and maintenance in tune of 6-7k per flat, living in a 1cr flat is worth paying 35k in rental/accommodation. 0.25% of the value of the property + maintenance + 1/12 property taxes (etc.). However people with multiple EMIs often face issues in servicing them esp. when market is down which makes liquidation difficult. Also often it induces an undue pressure to postpone family planning or taking time off to raise them.

There is an English proverb “Fools buy property for and wise men live in them.” In the quest for getting rich soon, a lot of people often take in too much debt with the hope that the prices will increase faster than the EMI. However if the rising prices dries the liquidity, people have to end up selling these assets at a distress incurring losses.