MBA Vs. House

If you were to choose between owning a 2 bedroom house/flat in a decent locality (fully paid, no EMI/loans) and a 2 year MBA which one would you choose?

If you are wondering why I am asking this, then consider the tuition fees, add to it the boarding, lodging costs and the opportunity cost for lost wages, you could easily afford a house with the same money.

I do not doubt that education is important in one’s life and one should not put a price to it. However the life does not stop the day you enroll into a B-school. The loans esp. student loan for your under-graduation, home loan needs to be taken care of. The family obligations do not stop just because you have taken a sabbatical or vacation. What’s worse is that earning money makes us addicted to a certain standard of living and it is difficult to scale back. As a result it is harder for anybody who has worked for a few years to resume studies.

Your friends and colleagues who continued to work would have earned many accolades & laurels over the two years. Most of them would be promoted as well and would be well regarded in their streams. While invariably MBA graduates have to start afresh. Many of them are considered too old for fresher jobs and too inexperienced for the higher level jobs.

You get invited to the funding/sell-off parties of your colleagues while staring at your empty bank balances. Actually MBA makes it harder for people to pursue their dream as an entrepreneur. You have lost some precious years and capital due to the two year program and that’s put you in a catch-up mode. No wonder IIMs boast of many things, but IITs still have an edge over the number of entrepreneurs they have churned out.

I am not ranting, but cautioning the CAT/MBA aspirants that the world does not owe you a living. Take cold calculated decisions about the viability of your dream. MBA might make you book-smart, but are you ready to compete with a street smart in a knife-fight at the end of your program?

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.