(February 6/7, 2016, No. 6/2016)
Feel free to mail your views on this edition of WL to mgwarrier@gmail.com
Obit, SS Tarapore(1936-2016)

S S Tarapore passed away on February 2, 2016 in Mumbai. T C A Srinivasa-Raghavan, writing in Business Standard, rightly concluded his tribute, mentioning that Tarapore’s departure is a national loss. Let us join in the prayers and condolences to the bereaved family.
For me, as one who has been lucky to work in Reserve bank of India when Tarapore was Executive Director and Deputy Governor and to receive his blessings continuously so far, irrespective of where both of us were physically,  he is more than a ‘Guru’, which position he will continue to adorn. During the last week of January 2016, with reference to a review of Tarapore’s latest book “Reforming Financial Reforms” by Aarati Krishnan in The Hindu Business Line, I said:
 “Whether inside the RBI, handling sensitive areas such as monetary policy or management of forex reserves, or as a regular columnist SS Tarapore drew one hundred per cent on his resources which comprised mainly knowledge derived from work experience and own research, to guide policymakers, always keeping the Indian context in view. He never tried to please the establishment. His suggestions and pleas were always prescriptions for healing the wounds suffered by the financial sector due to diversions taken by authorities to make compromises with stakeholders. Just think about the benefits the Indian economy would have derived had the RBI moved forward with the proposal he made in the early 1990s to establish a gold bank. Now, the Centre and the RBI are trying to learn ‘gold management’ from first principles.”
Governor Dr Raghuram Rajan acknowledged Tarapore’s contribution to financial sector reforms, saying “His contribution as a member on the two Narasimham Committees set the tone for first generation reforms in the financial sector”, while C Rangarajan, who headed Team RBI when Tarapore was part of the Top Management, described him ‘a crusader in the fight against inflation who did not mind being called a hardliner for that’.
RBI and India’s financial sector will benefit from his writings, preserved in book form, for several years from now.
The reminiscences about Tarapore by Usha Thorat (The Hindu Business Line, February 4) goes much beyond a routine obit. For a person whom Tarapore trusted for carrying on his legacy within RBI and in the financial sector in general (He mentioned sometime during early 1990’s that in the hands of a team which had people like Usha Thorat in leadership role, the future of sensitive work areas like forex reserves management was safe), to write about him in a 700 word precis could have been a tough and painful task.
Usha Thorat has done justice to the task and economists and policy makers have enough clues in this short article on why Tarapore wrote what he wrote in his ‘Maverick’ views(his regular column) in the Hindu Business Line. The reward the departed soul would expect for a lifetime of relentless struggle to protect central banking from its owners would be retaining RBI strong and equipping the central bank with the policy support he was begging for. Tarapore was particularly perturbed about the depleting reserves level of RBI and had gone on record saying:
“The building up of the contingency reserve is particularly important as the government is in no position to pick up the losses once the reserve is wiped out. One of the saddest events that can occur is the death of the central bank. This has happened in some countries and the RBI can never be too careful”
A second reading of this article by one who has seen the RBI balance sheet in close quarters for a long period testifies the fears expressed by him are real.
Moneylife, February 18, 2016

This is with regard to “No Diaries this New Year!” by Yazdi Tantra. All these innovations are ‘revolutionary’ and welcome. My comment is from a different angle. Last week, I came across a diary from CRY (Child Relief and You, an NGO). I loved the idea of diary as a gift, if CRY’s format is used. The diary has months and dates. For February, after the date 28, there are two blank pages on which no date is printed. The year and week days are conspicuous by their absence. The advantage is that the person who gets it can start using the diary any year. The diary can be used for more than one year.
MG Warrier
This is with regard to “Will the RBI Governor’s Letter Make a Difference?” by Sucheta Dalal. I share almost all the anxieties expressed. Let me admit, I have not had the kind of opportunity to watch businessmen, bureaucrats and men who matter on the Indian political scene at close quarters. Still, as one who has been keeping eyes and ears open for the past 50 years, I am tempted to be a little more optimistic about the winds of change in India during the current decade. 

The generation, which is now in the age group of 20 to 50, is making their voice heard. I plead guilty of having belonged to a generation which believed that once Independence came, political leadership, corporates and bureaucracy will manage the nation’s economy to the country’s advantage. On a personal note, let me also admit that the majority of us were misled into believing that ‘politics’ was a forbidden fruit for employees. 

Until “We, The People” become responsible, no (Raghuram) Rajan, (Arvind) Kejriwal or (Narendra) Modi can take us out of the mess. Corrective measures have to begin from the ground level. If people express their desires clearly, governance and regulations will change. I consider the Reserve Bank of India governor’s New Year message as thoughts of a citizen who has been watching the happenings in the country for the past 30 months or so, with an open mind. As I have already gone on record elsewhere, the document can become the basis for debates on future changes in the system.
MG Warrier, online comment

February 2, 2016
Of Rupees and Paise*

The cut in the selling prices of petrol and diesel by 4 paise and 3 paise by public sector oil marketing companies on February 1 has attracted more ridicule than acceptance or praise. Earlier couple of revisions in fuel prices were also in ‘paise’ terms only.
Coins up to 25 paise have been withdrawn from market and 50 paise coins have been pushed out of circulation by market. In the circumstances, GOI and RBI should consider making absence of coins with denominations below one rupee official and guide the market to fall in line by pricing all products in rupee terms only.
Now that dollar is accepted as the name of the currency accepted in international market, and we are in the process of ‘branding’ India, GOI could think in terms of introducing an Indian New Rupee(INR) worth the present value of Rs50 or so which could be named Indian Dollar or Bharat Chakra or any other attractive name that could be decided after conducting a competition.
M G Warrier, Mumbai

*Letters, Business Standard, February 3, 2016


Excerpts** from the C.D. Deshmukh Lecture by Dr. Raghuram Rajan, Governor, Reserve Bank of India at NCAER, New Delhi on January 29, 2016.
 “Before I turn to the main body of this talk, a word on interest rates. Industrialists grumble about high rates while retirees complain about the low rates they get today on deposits. Both overstate their case, though as I have said repeatedly, the way to resolve their differences is to bring CPI inflation steadily down.
Let me explain, starting with the retiree. The typical letter I get goes, “I used to get 10% earlier on a 1 year fixed deposit, now I barely get 8%”, please tell banks to pay me more else I won’t be able to make ends meet”. The truth is that the retiree is getting more today but he does not realize it, because he is focusing only on the nominal interest he gets and not on the underlying inflation which has come down even more sharply, from about 10% to 5.5%.
To see this, let us indulge in Dosa economics. Say the pensioner wants to buy dosas and at the beginning of the period, they cost `50 per dosa. Let us say he has savings of `1,00,000. He could buy 2,000 dosas with the money today, but he wants more by investing.
At 10% interest, he gets `10,000 after one year plus his principal. With dosas having gone up by 10% to `55, he can buy 182 dosas approximately with the `10,000 interest.
At 8% interest, he gets `8,000. With dosas having gone up by 5.5%, each dosa costs `52.75, so he can now buy only 152 dosas approximately. So the pensioner seems vindicated: with lower interest payments, he can now buy less.
But wait a minute. Remember, he gets his principal back also and that too has to be adjusted for inflation. In the high inflation period, it was worth 1,818 dosas, in the low inflation period, it is worth 1,896 dosas. So in the high inflation period, principal plus interest are worth 2,000 dosas together, while in the low inflation period it is worth 2,048 dosas. He is about 2.5% better off in the low inflation period in terms of dosas.
This is a long winded way of saying that inflation is the silent killer because it eats into pensioners’ principal, even while they are deluded by high nominal interest rates into thinking they are getting an adequate return. Indeed, with 10% return and 10% inflation, the deposit is not giving you any real return net of inflation, which is why you can buy only 2,000 dosas after a year of investing, the same as you could buy before you invested. In contrast, when inflation is 5.5% but the interest rate you are getting is 8%, you are earning a real rate of 2.5%, which means 2.5% more dosas. So while I sympathize with pensioners, they certainly are better off today than in the past.”

**Source: RBI Website.
Note (not part of Dr Rajan’s speech): Dosa is a South Indian delicacy eaten with chutney and sambaar world over. Cooked at home, one Dosa will not cost more than five rupees including chutney. The name Dosa has no connection with dosha which word has a different meaning. I think the name Dosa has its origin in the fact that while cooking one Dosa, the sound sa… comes twice (do baar), once when liquid aatta (prepared by grinding soaked rice and udud daal in 3: 1 proportion) is first spread on the heated Dosa Tawa and second time when the half-cooked Dosa is reversed with spatula (a flat metal or wooden spoon).

My response to the published excerpts of the speech referred to above:

This refers to the article "The retiree is better off today than before" (Guest column, Business Standard, February 7, 2016). The occasion, it seems, has made Prof. Rajan win over RBI Governor Dr Raghuram Rajan who is more aware of the impact of inflation on prices of consumer articles including food items and the reluctance of retail prices to move down, once they go up.

As regards the dosanomics, admitting it was only an illustration to drive a point, in the Indian context, the example chosen was cruel. Majority of the Indian pensioners, with the exception of those who retired at high levels in government and organised sector, would opt to cook dosas at home and the cost per dosa will not exceed Rs5 even today. Hope this will not be used as an argument to punish pensioners further.

M G Warrier

 *Ratan Tata, an ANGEL!

There is a blood bank inside the Tata Motors premises inJamshedpur (there are blood banks in other plants as well).

If you donate a bottle of blood, not only you are given off for that day but you can also avail an extra leave within 7 days of donating the blood. Employees use it to extend their holidays.

So, there is no shortage of leaves ever!! Needless to say,
Tata loses several man-hours through this policy.

Once while having a conversation with the employees of the company, Ratan Tata was asked a question (by a senior official),"People take undue advantage of the policy.
We lose several man-hours due to this. The blood is replenishedwithin 24 hours, you know. Why to give that extra holiday within 7 days of donating blood?"

Ratan Tata smiled. He always does.
And then came a calm reply.
"Encouragement is something I don't need to teach you.
Only a few people donate because they want to. (Talking about man-hours)

We may be losing some man-hours doing that but have you ever thought the number of man-hours that gets added to the person's life who receives that blood in necessity? I am ready to sacrifice 16 man-hours for the better good.

*Copied from a group email(Exrbites) forwarded by Raju-anthony Devendran


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