Book Review: To the Brink and Back

Here's the link to the book review of Jairam Ramesh's "To the Brink and Back":

http://www.telugu360.com/an-unsolicited-advice-from-pv-narasimha-rao-to-pm-narendra-modi/

Milk Wars in Hyderabad and the Winner is Consumer!

In the history of the real world economics as it plays out, the consumers rarely get to raise a toast to their own success. The history of business is all about mostly exploitation of consumers, in one way or the other. Which is why, I was intrigued to read the story in Times of India the other day about the ongoing milk wars in Hyderabad. The paper noted that price wars are escalating in Hyderabad because all the entrants that matter in Dairy Milk are now available as choices for Hyderabadi households. For starters, you have  Vijaya Dairy, Heritage, Maskati, Mustafa, Jersey, Tirumala. All of them were ruling the roost and dividing the cake with reasonably good margins until India's best-known and the only one to make it as one of the world's top 100 brands announced its ambitions to sizzle up the Hyderabad market - AMUL Dairy. "Asia's largest milk brand is now in Hyderabad" screamed the banner ads in January as I noticed after landing in Hyderabad from a holiday. Did it change Hyderabad forever? We will come back to it later. But more about more options as per the ToI article. Mother Dairy and Nandini Milk - the biggest brands in the West and Karnataka have also entered the fray in the heat of summer. The story talks about only price wars but they missed a unique angle which should have got highlighted - the disruption of the market by Amul and the brands it displaced from near monopoly - Jersey, Heritage and Maskati in different pockets. And the story of how the consumers of the twin cities have asked for better choices despite monopolistic practices by the producers and the distributors. That is something that should be celebrated and reported widely.

Here's how: It all started In January. Amul Milk enters Hyderabad. Releases ads across the media. Giving rich milk at Rs.38 per litre. This forced market leaders like Heritage and Jersey to drop prices to Rs.40 and Rs.38 respectively. Then followed a massive protest by distributors to block Amul milk. I remember we took an instant decision after I spotted the announcement to try Amul Milk, we were using Jersey Milk until then and many years before, Heritage milk. We had two toddlers at home and generally consume milk at an industrial level - with plenty of curds and buttermilk and byeproducts. The risk was on us but we wanted the switch to Amul and told our milkman. He refused first - then we threatened we will switch the agent. He relented. We got Amul Milk the very next day. And we observed the taste - it was distinctly yummy. The babies loved the change in taste, we noticed the thickness in curds and the quality of milk in beverages. And we never regretted the decision. Earlier, the milk from Jersey or Heritage used to deteriorate occasionally so we had to import set curds for  curdling. I have tried all the good brands -Maskati curd is my favorite followed by Jersey, Heritage and Tirumala. All of them are quite yummy but you can't keep buying ready-made curds - Amul milk had that extra thickness to curdle faster. Besides, what if the set curd cups of the brands had used harmful substances like MSG, and all that. I told my brother and friends and many took to it but some of my friends faced huge blockade by the vested dealers who got incentivised to maintain the status quo. Folks in Banjara Hills were not getting Amul Milk but those in Tarnaka were getting it on demand. It was very apparent that the dealers were cartelising the business and preventing a good brand from getting experienced by the consumer first-hand. 

But as more consumers got drunk in the goodness of Amul, the agents started running for cover and switched to Amul to hang on to their household consumers. Those who didn't lost out more - Amul announced a distinctly new bandwagon of distributors and outlets who sprang up in every pin code in Hyderabad. If you have not noticed an Amul  outlet, chances are you are still held in ransom by your distributor/home delivery boy. Of course, there is always an option of buying buffalo milk directly from your farmer friend but those options are not entirely fool-proof. In case of Amul, I read somwhere that they do an annual survey if the health and the trustworthiness of the brand is intact - year after year. The entire ecosystem of the farmers has been benefiting in a win-win way for decades since Dr Verghese Kurien shaped the best practices of Amul until his last breath. One of the story goes that at a collection centre not far from Anand, Gujarat, where the farmers assemble at 6 am to give their milk to organisers, an Amul truck lands promptly and puts a fat-measuring device in front of the farmer and the money is given at the end of the transaction. The model is also that Amul will buy all the milk from the farmers who come for the day - a practice that has been going on for decades before it gets collected and goes through more stages of milk processing and packaging. The most happening brand in Hyderabad has got the pull with consumers because of these best practices winning the support of a community of over 35 lakh farmers spread over 17000 village dairy cooperative societies - collated and processed closer to the final distribution point. Whereas in most other brands of milk, you do not know whether the milk is coming from buffaloes in Guntur, assembled in Suryapet and sold in Hyderabad. Plus the inconsistent quality checks. Otherwise, why would you notice Mother Dairy brand of milk which entered Hyderabad recently awash in controversies over Detergents mixed with milk? (Incidentally, this rumor from another family feeding milk to toddlers motivated me to write this piece, otherwise I am not getting paid to write for Amul, infact I pay Amul for buying my milk every day).

The lessons from Amul's entry into Hyderabad proves many things: 

One, you cannot prevent a strong brand from flying off the shelves just because you offer counter-incentives and commissions. You may not offer toxic products but whether it is milk or a mutual fund, if the consumer demands, you cannot deny it as a distributor without risking your own existence.

Two, the only way a brand can grow is to deliver the best quality, every time. Even a six-sigma error is going to cast its shadows. If you had to drop prices or raise commissions, maybe your product is an inferior choice. Conversely, if your brand is trustworthy, you may drop prices to capture mindshare but you have the pricing power to raise the prices as the customer gets used to your quality.

Three, a strong brand can get on first instance, predictable marketing and distribution responses but eventually, the bigger takeaway is the imitation game in upping the ante in quality. Either way, the consumer again wins. 

Four, the consumer is always the king or queen, on paper. It can really happen if the consumer demands good quality and punishes the bad quality producers. For years, Hyderabadis thought quality is what is offered to you, with blips here and there overlooked and under-scowled. It took a superior brand like Amul to disrupt the forces of competition and elevate the consumer to the status of calling the shots. 

Lastly, economics is not a dry and dismal science found in textbooks. Look around you, it is at play all the time. You may not get the jargon right all the time, like a monopoly, producer's cartel, price discrimination etc. but with alertness and observation, you can grasp the essence of its principles. Here, milk consumption has been effectively controlled for decades at prices dictated by a cartel of producers which includes a government player. But an emboldened consumer,  thanks to a strong-recall brand took the first call of disrupting the existing order creating unintended consequences for all other market players who took the consumer for granted. That is a news, utterly butterly delicious, in a dairy market that sees a daily consumption of 23 lakh litres.

Disclaimer: I consume Amul Milk but I am not incentivised by Amul or its agencies or distributors for its advocacy. This is only written in public interest of all consumers, especially of parents, with toddlers like me.

#Amul #AmulMilk #HyderabadDairyMilkProducers #DairyMilk #MilkbrandsinHyderabad

#ConsumerTheKing #ConsumerIsKIng #Hyderabad

Duvvury Subbarao's farewell speech puts RBI on top.

RBI Governor Mr Subbarao may not have earned the popularity that other Governors have earned but that maybe more because of the misgovernance of the UPA Government. Subbarrao's biggest follly is that he tried to fight the wrong dragon (inflation) while killing growth. But the dilemmas of Modern Central Banking in Emerging markets is getting tougher by the day. I have interacted with atleast two deputy governors (S.Venkitaraman, S.S.Tarapore) and one RBI Governor Dr.YV Reddy (I was travelling first-class next to him in a flight from Mumbai to Hyderabad). The minds of these people are quite different from the minds of businessmen and professionals and housewives and students in our midst. They have to track so many variables and have to take decisions that may not be pleasant to most people and yet be guided by impact on the society as well. While I will share my experiences of my interviews with such top-brains later, this one is to put in right perspective the achievements of Subbarao after his farewell speech recently.

1. He has extended the streak of fearlessness and autonomy set forth by the preceding Governor Dr.YV Reddy. He was always clear that for every step the RBI takes, the Government has also to match it with fiscal initiatives. Too bad, the UPA Government slipped on many counts in this ground and wants to blame everything on RBI for the follies of the slippages on GDP growth, the exchange rate, etc.

2. Mr Rao, I believe, carried a resignation letter in his pocket everyday. So, nobody could have arm-twisted him to do anything that was not in principle appealing to his perception of Central Bank sensibilities. Neither the nincompoop Shankar Sharma with his unethical market behaviour or his un"bear"able fixations, nor opposition leaders like Yashwant Sinha and Arun Jaitley nor businessmen like Ambanis and Kris Gopalakrishnan nor PM or his FM could influence Mr Rao to curry favors on easing of monetary policy.

3. The incoming governor, Raghuram Rajan, will have a lower base of expectations and a weakened currency regime and an economy that will eventually climb the wall of worries. But the times that Subbarao managed are the most difficult and will help him earn more than a footnote in history even if he is thanked less now.

4. Inflation, is clearly, under control but beyond a point, if it refuses to die down, there are many factors at play - supply-side bottlenecks, reckless fiscal policy, exogenous forces at play, Fed's exorbitant privileges, etc.

5. Mr Rao is the first governor to open the doors of transparency and increase the frequency of interactions with public. He started the practice of monetary policy review eight times a year instead of four-six reviews a year in the previous stints.

6. Subbarao also participated in the most enlightened debates on central bank policies and its transmissions on the broad economy besides opening the Pandora's box on corporates getting new bank licenses, role of CRR etc. Of course, the debates that RBI had with the top guns at SBI are stuff of legend now - but that is only to be expected because SBI always felt it is more senior (and hence more ancient) than RBI in age.

7. Subbarao, like Dr.YV Reddy, opened the culture of TV debates and informal talks and continued the respect of peers across G-20 countries. He has also acknowledged the complexity of having multiple regulators and created the framework for right debates between the relevant regulators. If the US has today got six regulators, RBI also has created room for co-ordinated maneuvres. 

8. Willingness to act tough and learn from the history of banking crises has helped Subbarao to earn credibility. You should read his prescient essay on Basel-III norms to understand the mind of the man. Ministers like Chidamabaram who sit on intellectual tags and cannot steer clear of personal and career conflicts will never be able to hold a candle to men in public institutions like Subbarao who have nothing but unquestioned integrity, broad experience, nonconflicted judgment devoid of pollitical partisanship and the will to act. 

9. One fatal flaw that undermined Subbarao's endearing appeal is the rapidity with which he raised interest rates while cutting the interest rates in a lazy manner. He has realised the mistake but with grave consequences for the economy. He would have loved the unleashing of animal spirits had he taken more than baby steps in cutting interest rates for the little leg room that showed up somewhere in the period from September 2012-June 2013 but that proved to be a remiss too costly to miss.

10. Subbarao, despite that one fatal flaw, has kept the flag of autonomy in a developing country Central Bank unusually high. Let there be no doubt about his competence, his sense of humor, his resolve to tame inflation which was touching double-digits, his integrity and his independence. If RBI has earned its spurs today as one of the most respected central banks on the planet - whose working papers, whose policies and methods have become beacon lights of textbook economic responses, then let's credit Subbarao for joining the ranks of the great institution-builders.

 Subbarao is one of the commonest names in Telugu, it means the lucky one in Telugu. Even though Subbarao's stint in RBI has proved unlucky for India, it is not uneventful. In another country, another time, there would be a testimony of sorts. But this is India, we are like this only. Goodbye, Mr Subbarao. I will end with the words of Paul Volcker that clarify on how to size up crntral bankers: "The Federal Reserve, after all, has only one basic instrument so far as economic management is concerned—managing the supply of money and liquidity. Asked to do too much—for example, to accommodate misguided fiscal policies, to deal with structural imbalances, or to square continuously the hypothetical circles of stability, growth, and full employment—it will inevitably fall short. If in the process of trying it loses sight of its basic responsibility for price stability, a matter that is within its range of influence, then those other goals will be beyond reach."

PM Manmohan Singh speaks on Doordarshan: Need for Economic Literacy

Keeping aside the follies of Congress-I and the pros and cons of bringing in FDI in retail, happy to see the s(p)inister Mamatha get beaten at her bluff. With 19 seats, You cannot dictate terms to a coalition partner of 205 seats. And for God's sake, when will the politicians get a tutorial in Economics? Doing a Bharat bandh and making the economy halt for a day makes life tougher for the common man. Some part of the output of the day Rs.12500 crs. plus is gone out of the mouths of poor people - daily laborers, shift workers, etc. BJP should understand that being asinine and idiotic in approach wont get them the votes in the next election.


While I am neutral to both the parties, can BJP give a declaration in writing that they will not raise fuel prices if they come to power? Can Mamatha have a bet with CPI that she will never take harsh measures against the common man? In Economic realities, you can never do it. BJP should realise that the toughest decisions in Economic policy were taken by Congress-I - they raised fertilizer prices more than 350 per cent, they raised fuel prices several times (out of compulsion not out of sadism because the crude oil prices never spiralled out of control during BJP regimes), FDI in other sectors.

BJP and the opposition in those times never did a roadshow against the raising of fertilizer prices. (Fertilizers is one of the key goods imported by India - apart from Crude oil, Coal, Gold etc.). So, the opposition is usually selective about the protests they want to do rather than fully understand the ramifications of any decision. India has become a democracy before its people became literate, as Nandan Nilekani said, which is not the case with other democracies in the world. So, neither the people nor their chosen representatives have found the time and maturity to ripen their knowledge of what drives decisions in the world - directionally and structurally. It is the responsibility of everybody involved to discuss threadbare the consequences of policy decisions.

If the ruling party hasn't done it, it is the responsibility of the media, the elite, the educated, the opinion-leaders, the state governments, the legislators, the opposition party members - everyone, has a stake in understanding and explaining how future is impacted - if we don't allow Fresh Foreign Capital, technology, management and resource inputs of other kind into Retail or any other sector where efforts to keep it indigenous have either failed or created issues of scale and profitability.

Agents who sold post-office deposits are selling mutual funds, actuaries (and everybody down the value-chain of technical qualifications) who used to be employed by LIC are today gainfully employed in private insurance companies, entrepreneurs who are happy to be small shop-keepers are going to find alternative ways of scale-up or be pushed out.

Change is inevitable and the last 10 years of window the retail has got has only seen few flourish but many stick with old ways of handling money. There are more issues at play here but the payoffs are going to be better than worse.

Tonight, when Manmohan Singh addresses the nation at 8pm, I hope we will all see the need for a healthy debate on policy reforms instead of stalling parliaments and disrupting economic activities. If you like this post, share it with as many. If you don't like this, lets talk more and discuss why. Let us develop more economic literacy.

Post-Script: Since this was posted, Prime Minister spoke on National Television. His speech was measured, informative, persuasive and hard-hitting: "Money does not grow on trees", "They did not succeed in 1991 and they will not succeed now." Here's the link to his full speech.

http://www.moneycontrol.com/news/economy/pms-address-tonationfull-text_760537.html?utm_source=twitterfeed&utm_medium=twitter&utm_campaign=Feed%3A+moneycontrol%2FiOjZ+%28Moneycontrol+Updates%29

How To Talk like an Economist

This year's top-selling book on flipkart is not a NYT best-seller of fiction and non-fiction. Its the most unreadable and eminently erudite book written by a D.Lit professor. Yes, I am talking about Oxford University Press's "Indian Economic Survey 2011-2012." edited and written by Dr.Kaushik Basu, the famed economist and PMO's trusted lieutenant who waxes eloquent on various data points of the Indian Economy, invented a game called Dudoku (like Sudoku, with 2*2 matrix), written and edited more than 30 odd books on Economics and its multiple constituents.

This is the last Economic Survey, as the preface states penned by Dr Kaushik Basu and the book is a raging hit on the online book stores. Priced at Rs.450/- it has the last word on the macroeconomical foundations of Indian Economy from Banking to Forex Markets, from Agriculture to Education, from Balance of Payments to Direct Taxes, and gives you a fascinating peep into the Indian Economy. I would say, reading the ES is like doing a diploma in Indian Economics. Its that profund and intense. I wish this becomes compulsory reading for everybody who uses statistics on Indian economy at the drop of a hat- from journalists, editorial writers, bureaucrats, bankers and politicians. We don't know who will replace Kaushik Basu who has been writing the story post-liberalisation reforms for several decades last. But this swan song is worthy of your time and rewards you with counter-intuitive datapoints that may help you win a debate or score a point or two.

Another good addition to give a panoramic view of statistics on India on everything from economic issues to socio-demographic issues, from which industries allow automatic approval for FDI investments, how many times was the Constitution amended, which state in India sends the maximum emigration workers (Okay, Kerala but how many?) and how much increase happened to the Chief Justice of India since, say 2005? Questions like these sound like objective questions from Competition Success Review or a Civils Prelims exam but the codification of data in 1400 pages over 32 chapters is quite a task which requires attention to detail, cogency of information and authenticity  - something that Publications Division is believed for. In a way, the first book above complements this second book. Both the books are to be kept at arm's length  - and may help you whether or not you are an Economics forecaster, politician, journalist, investment professional or a Member of Parliament. These two are the fast-track routes to gaining economical proficiency.

Don't worry, Economics At Work here!

Would have liked to post a longer note - exciting these times, but time also getting more dearer than petrol. I will make it as short and clear as possible.


Lets talk about Petrol first- I had been saying that we will never stop importing crude and therefore must prioritise that over Gold imports. Petrol price rise has been increased for number of reasons - Rising deficits, escalated rise in crude over the last few months, Rupee depreciation, and need to cut subsidy bills to give some relief to the Oil-marketing companies and also the import bill. This will continue to see rise, if you believe that crude oil prices will continue to be elevated over the coming years. The sooner you understand the economics of oil - the better our reconciliation with the reality, instead of raising ruckus over everything. Our politicians and sometimes, public dont realise that everything is not in the hands of government - your land prices and corruption deals, crony capitalism and MGNREGA schemes and Aarogyasri policies - may all be but eventually market forces will catch up with everything in life thats priced including the five elements - (air)gas, water, fire (energy), earth (sand) and sky (2G/3G).

Lets talk about Gold next. At current prices of gold prices in Rupees, if you invest now, and expect to make a return, beware.If international gold prices shoot up beyond the $1600 t/oz range and go back to $1800 levels and if Rupee appreciates back to Rs.50 to a USDollar, you make "zero" return. Current higher prices of Gold in India are due to Rupee depreciation. In any case, I am not yet done with my diatribe against Gold Merchants - so we will take that up separately. The Budget Bill hasn't cut customs duty but yielded to some other concessions.

Lets now talk about Sensex. At current levels of sensex, and Rupee-Dollar exchange levels, effectively, Sensex is literally trading at 12000-13000 thereabouts because of a 20% fall in Sensex and a 26% fall in Rupee exchange. Thats a colossal opportunity still. The less said, the better here.

Lets talk about the Rupee. There are more factors at work including the relationship between Euro/Dollar and Dollar/Commodities leading to a market decline in Rupee. Last Financial Year, we attracted $64 of NRI Remiitances - the highest in the world. I am sure everybody is watching even now. Similarly, if 50% of Corporate India hasn't hedged their dollars/euros, those in the export zone will make a bumper profit in the coming quarter. That should be good news. Besides, the RBI still has huge reserves to intervene - I am sure they have the smartest forex team in the world.

Lets examine facts and see things as they really should be seen. And for God's sake, lets understand how Economics really works in our lives. "Satyameva Jayate".

Nassim Nicholas Taleb's "The Book of Procrustes"

Taleb coined the term "Black Swan" and the phrase never ceased to be ringed out of our minds since. From Tsunami to Sub-prime crisis, from freak terrorist attacks to epic catastrophes, anything that's remote and rare to occur is being attributed to a Black Swan event - meaning a tail risk event whose probability is rarest of rarities to occur. A few years ago, apart from writing books such as "Fooled by Randomness" and "Black Swan" and other thick books on exotic hedging derivatives, Taleb assembled his lifetime of observations in a compact volume of aphorisms - both philosophical and practical. "The Book of Procrustes" is a joy and celebration of some funny and many fantastic insights into human behavior and the world at large.

No speculative gyaan, its pure reassuring wisdom - sometimes profane and sometimes profound codified into about 25 chapters. Each chapter is enticingly captioned. "The scandal of Prediction" or "The Implicit and the Explicit" or "Economic Life and Other Very Vulgar Subjects" are few examples of how cryptic and yet endowed with sutble humor they are. As Taleb outlines in the preface, aphorisms lose their beauty and cadence if explained to death. So, he retains the surgical length of an aphorism in its purest form - out of his ingenious mind and vast body of experience- both worldly and otherwise. "What I learned on my own I still remember", as one aphorism goes probably strikes a chord with all of us who remember what we learnt conceptually rather than by rote.

Some are downright emphatic and indisputable ("What I learned on my own I still remember"). Some appear to be uproariously reflective ("We ...amplify commonalities with friends, dissimilarities with strangers, and contrasts with enemies."). Sometimes, he leads you through clear concepts into something that sounds good but abstract. ("Knowledge is subtractive, not additive - what we subtract, not what we add." Taleb has an opinion on everything from Freud and Einstein to Education and Ethics, from stockmarket to banks - on which he makes lot of money for jam, bread and butter. Hear this nugget that seems to tell all without telling it all: "You can be certain that the head of a corporation has a lot to worry about when he announces publicly that "there is nothing to worry about". Or, this one on scams: "It is much easier to scam people for billions than for just millions." (inspired by Madoff episode).

You can make out he has scant respect for ideology, orderliness, equilibrium and prediction abilities of experts. He has a take on too big to fail banks too as well as on Government bailouts. "The main difference between government bailouts and smoking is that in some rare cases the statement - this is my last cigarette - holds true." On banks, he says ,"The difference between banks and the Mafia is that  banks have better legal-regulatory expertise, but the Mafia understands public opinion."

You cannot argue with a man like Taleb - he bares it all, warts and all,  and most of them have such  rhetorical rectitude resting on the fulcrums of logic, wisdom and timeless appeal that it becomes a gospel like a Pythagoras theorem or Aesop's Fables or Panchatantra. Greek Mythology goes that Procrustes used to be a slayer of people invited to sleep on a specially prepared bed - where if the sleeper's body parts are protruding outside the rectangle of the bed - those body parts - be they limbs or head or fingers were ordered to be chopped off. Finally, Procrustes was slain on his own bed by a courageous Theseus who beats Procrustes at his own game. Similarly, the truths and nontruths in this volume are made to fit logic, wisdom and knowledge and the bed actually is the reader. So, instead of fitting the wisdom nuggets in the wrong box, its made like an inverse operation of changing the "wisdom" to the bed-like situation in life.That, friends, that comeuppance or a chance to be proved wrong after what we accept as truth is the essence of what Taleb wants us to imbibe when we see life through our prisms, our paradigms and our ways of seeing. Its a blast of a book something I would like to read and ponder, re-read and wonder. It will keep us anchored to the unfathomable unpredictability of life and appreciate that life cannot be an equation to analyse. 

"50 Economics Ideas you really need to know" by Edmund Conway

Economics has of late become a popular topic for discussion, thanks to a series of apocalyptic crashes and news flows dominating our daily lives from crude oil to subsidies to budget, TARP, warts and all.In this book, m       Edmund Conway, economics editor of the Daily Telegraph, introduces and explains the central concepts of economics in a series of 50 accessible and engaging essays. The essays range from discussion on theories such as Adam Smith's "invisible hand" and the law of supply and demand, linkages between wealth and happiness and the shape of current thinking on economics. It takes some interesting topics and gives a crystalline glimpse on topics that influence every aspect of our lives from buying a house to what you ate for breakfast this morning - Which country will be the world's leading economy in 10 years' time? What exactly is a credit crunch? Irrespective of what you do for a living, this is one book that's sure to come handy when you are set among people conversing on the land prices, international airports, entertainment economy, or why subsidies won't go away.