Dubai: A Truly World-Class Cosmopolitan City

I have been in the UAE for almost six years, and have traveled all over it. Having lived in Abu Dhabi for two and a half years and in Dubai for almost three and a half years, I think I can fairly assess how it feels like living here in the UAE. It feels awesome! Dubai, in particular, is an awesome city to live in. It truly is a global, cosmopolitan city. I just LOVE living here. 

The great things about this place are its unparalleled and superb law-and-order, cleanliness, peacefulness, infrastructure, roads, shopping centers, dining options, cafes, 145+ nationalities living in tranquility with each other, government systems and processes, et al. Overall, just an awesome place to be in.

Last year, at the onset of the summer, lots of cloud-seeding exercises prolonged the lovely weather too. If those exercises continue going forward, they would make this place even more awesome. Moreover, pleasant weather is directly correlated with more business activities in the emirates. So, it is a win-win for all parties involved, including for the residents, tourists, business owners, and local governments.

This is the place where the East meets the West in all true senses. This is no exaggeration! 

However, I hope to see more developments in certain areas, such as setting up of more world-class educational institutions, hospitals, and R&D activities. Trading, organized retailing, tourism, hospitality, and aviation are already doing superbly well here.

So, I repeat; it feels awesome living here. May the growth and tranquility keep coming. Aamin.

The Proxy for the Imperative of Now: The Interest Rate Game

Today, the Reserve Bank of India hiked the Repo Rate by 25 bps, moving the Repo Rate to 8%. The Indian market was shocked at the RBI’s move! But, why was the market surprised? Wasn’t it blatantly obvious?

Here are the reasons why the market shouldn’t be surprised and should already have priced that in instead:

1) The CPI and the WPI have been riding high, even though the General Election is about to come. The ruling government would not like to piss the voters off at the eleventh hour of the General Election. Both Inflation Indices need to be reined in. Obvious, right?

2) The INR has, of late, been sliding down against the Greenback, touching 63.3, and making the Indian pain points – already-large fiscal deficit and current-account deficit -- worse off.

3) Of late, other emerging economies have also been witnessing a sort of exodus of “loose” foreign money back to the developed economies, as developed economies promise seemingly -- but arguably -- brighter future.

4) The Turkish Lira hit record low against the Greenback yesterday – TL 2.39 to the USD. But, on the back of confident market speculation, which was apparently based on an urgent meeting called upon, between the Turkish Central Bank and the Turkish Government, for discussing the interest rate, the Turkish Lira rallied to 2.29 to the USD. The market expects up to 2.25% hike to the current interest rate of 7.75%. Of course, Turkey has its own pain points – it has a USD 60 billion current-account deficit, has foreign-exchange reserves of meager USD 38 billion, and owes short-term, foreign-exchange debt of USD 168 billion!! Ooppss…. It’s really too much for Turkey to handle all at once, without raising the interest rate!!

5) The Brazilian Real slid to its lowest level -- in past 5 months -- against the Greenback. The prime reason for the sliding Brazilian Real was a promising interest rate in the developed economies, and this “promise” triggered a sell-off by foreign investors of Brazilian assets! The Brazilian reacted in a classic way by increasing the interest rate, and using foreign-exchange reserves as buffers to defend the local currency and to tame the increasing inflation. Awesome, isn’t it? :-) 

6) Last week’s surprising devaluation of the Argentine Peso, which was also the victim of the same global phenomenon – “loose” foreign money exiting the local economy for a promising future in the developed economies.

7) Almost the same kinds of market activities have also been witnessed in some other emerging markets. The pattern has, of late, been so, so obvious!

So, should the Indian market be surprised at the Reserve Bank of India’s today’s move? Of course, not! The global game of interest rate, which was started off by the US Federal Reserve for taming the Great Recession, is STILL full on! Enjoy “the party,” as it won’t last long…

The Never-ending Drama of the Euro Zone

I have, for long, been reading about the never-ending drama of the Euro-Zone and have quite been bemused with it too. Trust me; it really is amusing, for many non-obvious reasons. The drama has been unfolding itself since the onset of the Great Recession of 2008. Technically, the Euro Zone is out of the recession now, but the hangover of the recession is still there! It seems the Euro-Zone has fallen in love with the hangover itself :-)

The core factors at play for the ongoing drama are:

1) The Euro itself. The workings and the interests of the Euro are at loggerheads with the interests and purposes of the Euro-Zone economies! In a plain vanilla term, the widely differing Euro-Zone economies never needed a common currency in the very first place. It was the fear of the hegemony of the Greenback that rushed the creation of the Euro. The 17 Euro-Zone economies are very different from each other, as some (peripheral Euro-Zone economies) are import-driven economies -- that need a strong Euro to pay less for its bills -- and some are export driven economies (such as Germany) -- that need a weak Euro, for pumping its export up and for making its export much more competitive on the global markets. Hence, the straight-jacket-solution, the Euro, has, since its inception, been at conflict with the interests of the economies that use it as their local currency. The obvious consequence of this conflict is the prosperity of the German export during the Great Recession, riding the tide of the undervalued Euro. Whereas, the peripheral Euro-Zone economies have been struggling to pay their debts off, and have literally been "begging" around for bailouts -- these economies primarily are import-driven and a weak Euro is detrimental to their economic health. Undoubtedly, there are other strong factors at play for the sufferings of these peripheral economies as well. I will discuss those equally important factors later.

2) Germany is not playing its supposed leadership role. It's the strongest economy amongst the 17 members of the Euro-Zone. The reasons for Germany taking a back seat are many. For example, it's benefitting from a weak Euro as its export is growing by leaps and bounds; it is skeptical of its leadership role, thinking that the economically weaker Euro-Zone members will ask it for money, if it gets desperate to save the Euro by extending a helping hand to the struggling member economies; it still is feeling guilty of having dragged Europe into two world wars, and, now, it doesn't want itself to be the reason for the third disaster to Europe.

3) There is going to be a tightly contested election in Germany this year. So, all political parties and leaders in Germany are playing safe by not committing any national resources to the bailout of the struggling European economies. There is a widespread ill-feeling in Germany of the luxurious social benefits in the struggling Euro-Zone economies, and most Germans believe that their tax monies should not be used for paying for the lavish social benefits to the peoples of those struggling economies.

I believe that the Euro-Zone drama will not end until the upcoming election is concluded in Germany, and that Germany has to come to the forefront to bail its fellow members out, consequently saving the Euro, and ending the long drama. I guess that's the cost Germany has to bear with, after having enjoyed the weak Euro for long. After all, the struggling member economies will indirectly have paid Germany for bailing them out by giving the global financial markets enough reasons for shorting the Euro! Haven't they? :-)

The Inflation Problem in India

The Indian Government has long been struggling to tame the inflationary pressures that run in the excess of 6%. Since early 2010, the Reserve Bank of India has increased the interest rates six times, but, has still failed to meet the longing objectives. Why?

The simple answer is that they are trying to fix the wrong side of the problem. It's true that demand is high in the Indian market, but, more than just demand, it is the supply-side that is highly constrained! By increasing the base rates, the RBI has just been trying to bring down the demand, so as to tame the inflation. The actual, and thus the long-term, solution to the problem requires on the government part to invest billions of dollars in fixing the pathetic supply-side problems. But, fixing the supply-side of the problem requires guts, courage, discipline, honesty, accountability, high-standards of governance, and tons of money.

Instead of tackling the real-and-higly-challenging problem, the government is busy giving the world, especially to the global investors, an eyewash by frequently increasing the interest rates. Sad? Indeed.

The Global Currency War

The global fight to reducing the value of currencies is peaking up. It might reach to its zenith, with the Fed further printing crispy US dollars, and pumping those dollars in the global economy, either directly or indirectly. The Fed is thinking of buying the US Treasuries, with its new crispy greenbacks, and is going to keep the interest rates near to zero, for a long time. If this happens, the US dollar will get diluted, and US exports will become more competitive on the global markets. Thus, it is a direct, currency-war response to China. But, the challenge for China is to move its currency further down, in tandem with the greenback, against a basket of currencies. Thus, China needs to keep buying US-dollar denominated assets, especially US debt, extending its love-hate relationships with the greenback. For global investors, it is a no-bariner to guess the US treasury yield, and, for the global market, it's a no-brainer to guess the direction of the new money!! :-)

Another challenge for China is to weigh-in the costs and benefits of continuing its currency war, as it holds almost 10% of US debt -- the dollar asset the value of which goes down, every time the dollar is getting devalued. So, the ultimate question for China is to consider whether it is worth keeping its currency devalued so as to export more and more, and then keep buying US-debt with the money earned so to keep exporting even more and more, and, then, somewhere in the cycle, the US brings down the value of the debt down by printing new greenbacks!! Undoubtedly, it is a vicious circle!!! A vicious circle in which China has a huge chance of losing, rather than of winning!! Isn't it illogical to bet on someone else, especially when your entire fortune is at stake? But, it appears, for China it is not!! China has been keeping most of its economic strategies US-centric!! China really needs to come to grips with itself -- that it is a behemoth and it should now be inward looking rather than outward looking!

Although, it all started with the US and China, but, of late, some more countries have hopped on to the bandwagon in the currency markets to manipulate their currency in order to export more and more, such as Japan, South Korea, Indonesia, Brazil, etc., making the currency war global. It's a dangerous-and-quite-pointless fight the world is getting into, as it is purely a beggar-thy-neighbor policy, which is not only mean, but also cheap!! Why? In one way, this unequivocally proves that the world has run out of real innovations, or, at best, it proves that the world has really given up on real innovations, which are the real-and-awesome sources of renewed exports that bring livelihood to all, including the producers and the consumers alike. But, instead of focusing on this aspect, the whole world is getting into a dog fight!! May God save us all. Aamin!

The Global Outlook for 2010

2010 is going to be a mixed-kind of year. We are still witnessing major troubles primarily in Greece, Spain, Portugal, Ireland, UK, Dubai, Japan, and the US. But, on the other hand, undoubtedly, they all will fight back, because they ought to. There is no other choice. This is primarily a capitalistic world, which doesn't give in to pessimism. We have seen unprecedented efforts by the Central Banks and Governments worldwide. All those efforts will pay off, albeit slowly but surely. There will again be booms and busts, after all that's the cycle and that is its intrinsic nature. Isn't it? Let's be patient, and hold our grounds firmly. Good luck to all of us, as we see the waning of the modern world's second-worst recession!

There will be some pains and upsets in the globalized world, as economies try to "rein in" their Balance of Payments (BOP), especially with other economies, such as China, which cuts its manufacturing-costs at the expense of its competitors and of its buyers as well! But, that's a different story altogether.

Deflation in Japan is another concern. It has become so hard to make money in Japan. So, obviously, insane amounts of funds will outflow from Japan to economies -- especially emerging economies -- that promise robust growth, creating bubbles and then consequently sudden busts! But, is it something extremely wrong? No! It's not! But, inflow and outflow of funds certainly need to be controlled and be well monitored. EXTREME free-flow of funds is a very dangerous thing, because you just never know what's going to happen next! Economies become susceptible to the idiosyncrasies of few "funds managers!" They take the world economy as "HOSTAGE!" Isn't cartel a reality?

I just hope the policy-makers worldwide would fix the root causes of the problems, instead of beating around the bush -- that is trying to fix the symptoms of the problems. Good luck to most of us !

A very positive, comprehensive, inclusive budget for 2010

Finance Minister of India has unleashed the Indian Union Budget for 2010. The budget looks quite promising. As per the budget, the masses are going to be taxed lesser for their incomes in 2010. The personal tax breaks are prudently categorized as:

Incomes <= INR 160,000: No tax
INR 160,000 < Incomes < = INR 500,000: 10%
INR 500,000 < Incomes <= INR 800,000: 20%
INR 800,000 < Incomes: 30%

Additionally, investing up to INR 20,000 in infrastructure bonds will be tax-exempt, and this exempt is going to be over and above the exempt of INR 100,000 as per Section 80C.

It is hoped that almost 60 percent of tax-payers would benefit from this tax-relief program, which will definitely increase their purchasing power, which, in turn, will positively impact the businesses operating in the country. This is the strategy of taking the economy even more toward the domestic-consumption-driven growth-path – a very, very good strategy of being self-reliant, and highly proven strategy in this Great Recession.

The budget looks forward to compensate for these relaxations to the common people through marginally increasing excise-duties in certain sectors, such as tobacco products, high-end SUVs, luxury cars, petrol and diesel, just to name a few.

Moreover, the Minimum Alternative Tax (MAT), which was actually introduced to tax companies like Reliance, is raised to 18 percent, from the current 15 percent.

The fiscal deficit for 2010 is budgeted at 6.8 percent of the GDP, but has been guided to 5.5 percent of the GDP for the next fiscal year, to 4.8 percent of the GDP for 2012, and to 4.1 percent of the GDP for 2013. Overall this phased fiscal-deficit-reduction strategy looks pretty good, keeping in mind the current financial situations around the world.

So far, the government has raised USD 7 billion by divesting stakes in the public-sector enterprises, and there will be many more such moves in the coming days to fund the planned fiscal-deficits. Moreover, the government will issue more banking licenses for the private-banking sector, and will also auction telecoms 3G-licenses for raising funds to finance the fiscal-deficits.

Overall, the Indian Union Budget for 2010 appears to be a very positive, comprehensive, inclusive budget. Good job!

Bangalore or Buffalo?

I would like to share with you some newly "coined" governments' statements, and some new findings in the international-politics-cum-international-business. These are some power-pact excerpts from the Times of India.

Pitching for increased economic ties between India and the America, US Secretary of State Hillary Clinton has called for "advanced" linkages, similar to the existing ones, between "Manhattan and Mumbai," or between "Boston and Bangalore."

Unveiling new proposed tax reforms, Obama had said, "It's a tax code that says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York."

Terming the blooming partnerships between the two countries as "exciting", Clinton asserted that India's growing economic prowess is recognised the way, the law of gravity is accepted by people.

"We need bilateral cooperation between our governments to catch up with our people-to-people and economic ties," asserted Clinton.

"People know what kind of business and investment opportunities are there in India. According to Clinton, the America views India as one of the few partners worldwide who would help the country in shaping the "21st century."

The reason is as simple as anything! The trade between India and the US is worth over USD 43 billion and has more than doubled since 2004. Moreover, a study has found that corporate India created employment for 300,000 people in the US between 2004 and 2007. An India Brand Equity Foundation study release mentioned that the Indian industry contributed USD 105 billion to the US economy during 2004-07.

So, Bangalore or Buffalo? Is it gonna matter, anymore?

Avenues For The Aging Boomers

According to the McKinsey Global Institute, without an unexpected burst of productivity growth or a significant upsurge in investment per worker, the aging boomers' reduced levels of working and spending will slow the real growth of the US GDP from an average of 3.2 percent a year, since 1965, to about 2.4 percent, over the next three decades.

The report, overall, is a very well analysed one. But, my concerns are that won't there be implications of boomers prolonging their retirements on the growth of members of generation X, who would be in their prime time, then? If yes, then, what would be the degree of such implications on the generation X, as well as on the US economy? Are there any other malleable alternatives, because simply making boomers drag for a couple of more years would not solve much of the problems the America is witnessing today, or is going to witness tomorrow?

What I, personally, think of is that the US government should chalk out a national plan to retire boomers on time, AND to put them to better use, by using them in partnering with the millennials for some sorts of national entrepreneurial programs -- or programs devised to solve the bigger problems of the America than those meant to just provide a means of earning bread and butter for the should-already-have-retired boomers.

As boomers have seen the three completely different America, their life-long experiences will give the millennials, who have been, since childhood, fed on a staple diet of laptops, cellphones, iPods and PS3, a sense of urgency in shaping the future of the America. In general, on a lighter note, it's more fun working with grandpas than working with pas. Moreover, the energy of the millennials and the cautious experience of the boomers would be a great combination, so the partnership would be worth watching. Above all, doing so will not only keep the boomers employed and well grooved to the national interests, but also give the millennials, who are, in general, poor at skills, as proved by all the recent statistics drawn on them, the hightened senses of contributing to the national economy. The government might not need to focus on building houses for old people, rather it should focus on building "new houses" under the "supervision" of old people.

For evolving the aforesaid partnership, with the support and guidance of the government, the government can have various ways and means of implementing the same, depending on the feasibility and needs of the nation. This will help the boomers, the generation X, and the millennials. In turn, this will help the world.

How to Improve Energy Productivity?

Economies can improve energy productivity in two ways:

1) They can generate a given level of energy-related benefits with fewer inputs by using energy less intensively (with smaller appliances, for example), using energy in a more technically efficient way (car engines that use less fuel, say), or changing the mix of fuel they use (for instance, by switching from wood-burning stoves to electric ranges powered by coal-generated electricity).

2) They can increase output more rapidly than demand for energy by changing the composition of economic activity. Energy productivity rises, for example, when growth shifts from more to less energy-intensive sectors—from steel, say, to services, or to higher value-added activities within services.

Unfortunately, the gain of 1 percent a year in energy productivity over the past decade has been outstripped by global energy demand, which has risen by 1.6 percent a year. In the near future, that demand is likely to grow even faster—by 2.2 percent a year.

Things India Should Ponder On

India is currently a $1.2 trillion economy, and is likely to almost double in size in next six years, even if it grows at a modest 7 percent increase in the GDP.

This $2 trillion economy will need 64 million skilled workers. But, currently, we have only one million people that are a mix of skilled and semi-skilled people. How are we going to meet this shortfall? This is really astonishing to know that the second largest populated country in the world, with more than 1.1 billion people, has only one million skilled workers!!! Dudes, please study!!! Save the country!!