Archive for the ‘India’ Category

Covid19 – potential exit strategy

2020/04/24
Disclaimer:
Please note that things are changing very fast on Corona virus. Scientists are working hard to find a vaccine. Hence, the content of this blog could become out of date very soon. This blog is for information purpose only and does not constitute as medical advise. Always follow the advise from your doctor and relevant medical authority in your country.
How can lock down be lifted?
The key question for most part of the world is now how to end the lock down without a massive risk of life of citizens.

As of this writing, there is no known cure for Covid19.

If nothing is done, entire population will eventually catch the virus and around 1% of them will die.

If we could confirm who are immune to the virus then we can easily identify the vulnerable and ask everyone else to carry on with life as usual. However, the problem is, other than identifying aged people (e.g. those with 65 years and above) and those with existing health conditions (e.g. obesity, cardiac issues, diabetes etc.) there is no finer way to identify the risk group. Even them, some young and healthy people are randomly affected in a serious manner, even resulting to death!

Millions of people around the world have got infected with Covid19. Some have suffered no or mild symptoms only. However, due to very little testing carried out, majority of people who think they have got Covid19 and recovered, have no way to confirm that that is actually the case!

The crux of the problem here is how to identify people who got Covid19, then recovered and thus assumed immune to it. These people can then come out of lock down and start leading a pre-Covid19 life.

So how do you confirm this? This is where the difficulty lies.

Presence of the virus can be confirmed in 2 ways – swab test and antibody test.

The swab test shows if the virus is present at the point in time (when patient is tested).

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The antibody test can detect patients who suffered and recovered but up to a certain period of time. The big unknowns are [1] how long antibody will remain in the body [2] whether the antibody is due to Covid19 only or for some other viruses.

Although there are cases for person being affected again after recovery, but in this writing we are assuming subsequent infection would not be fatal .

Now if we take a person A, who got infected by Covid19 but suffered only mild symptoms and recovered after 21 days, then the question remains how to prove it? He can be tested for antibody and if IgG antibody is found, a reasonable conclusion can be drawn that person A is immune from Covid19 going forward.

But this approach has a major hurdle. Firstly, antibody test is not yet available to everyone. Secondly, by the time antibody test is available to everyone, the concerned person may have lost the antibody from his blood stream. In this case, it is back to square one!

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This person is now in same position like one who has never caught Covid19 before (say person B).

To the public, person A is having same risk of person B. But in reality person A is possibly immune and carry far less risk than person B. But there is no way to prove it.

For person B, there is a risk that he could suffer mild symptom or sever symptom and could even die.

If the immunity can be proved beyond doubt, then it is a valid exit strategy.

Without proper tests, we have to adopt any of following situations.

[1] Lives saved but economy damaged

Continue lock down indefinitely. If everyone remains isolated, no one will get infected, hence no one is contagious and no new person gets infected. But this will destroy the economy and livelihood of billions of people. This is not acceptable solution to public – even though this is actually best solution for saving maximum amount of lives. After sometime public may revolt and might just start their normal life anyway.

[2] Economy survives but high number of casualties

Allow people to carry on as usual and achieve so called herd immunity. This means allowing everyone to catch the virus and accept 1% death of overall population. Effectively a situation a very large number of random people will die. This scenario does not try to prevent infection, rather relies entirely on individual’s body immunity to tackle the virus.

What is the future then? Well, only time will tell.

Thanks to Dr Somnath Mukherjee and Dr Shyam Das for their inputs.

Post pandemic economic recovery

2020/03/26

1. The Problem – micro view

1.1. Theory

Let us explain very basic economic theory first. Below is Cost Volume Profit graph.

Pandemic1

Figure 1

Every business has cost, with 2 main components – fixed cost and variable cost. Fixed cost includes things like cost of machinery, premises, staff salary etc. Crucially, it also includes interest payment on loan – assuming all businesses have some debt which is loan taken from bank and/or investors to raise the capital. The variable cost is often proportional to revenue or sales.

Here we shall use the term sales and revenue interchangeably, to denote earning of the business.

If a business procures more number of product units, higher quantity raw material needs to be purchased – so this is how it linked with revenue. So this is the variable part of the cost.

The earning is shown by blue line. The expense is shown by red line the above graph.

We know the simple formula, Profit = Revenue – Cost

If profit is negative, then it becomes loss. This is same as saying, Savings = Income – Expense.

A business needs to pay tax on profit – so tax is also a cost. But for simplicity, we leave tax out of our discussion.

The point, where revenue becomes more than cost, is known as breakeven point. Until the business reaches this point, it is loss making. Once business is way past breakeven point on the right, it is profitable. In fact, all business tries to move as much right as possible for sustained growth and profit.

A business can borrow more (cost goes up as interest payment) to increase revenue (more sales), resulting in more profit. Now, how much a business needs to borrow in order to increase profit is a complex calculation which depends on type of industry, business strategy, market condition and many other factors.

At normal time, all businesses operate in an equilibrium. Business pays interest to bank, buys the raw materials from suppliers, manufacturers product in factory, pays salary to employees and sells products to customers who pay the price and so on. For a service based business, the theory is still the same. Here, instead of producing items in factory, the company sells intellectual expertise of their employees.

1.2. Recession

Let us see what happens in a recession. The pandemic has led to people being fearful and cities have been locked down to encourage social distancing. As a consequence, all sales have gone down (except very few like supermarket shopping where people are stockpiling for the Armageddon).

Due to very low (or nothing at all) sales, the revenue curve will flat out. However, the fixed cost component will remain mostly the same. This means, for a long time, the business will not make any profit.

Pandemic2

Figure 2

This is shown in above figure. Note that we are now showing time on horizontal axis.

While cost of the business also falls due to less sales, the revenue falls rapidly as people are scared away from purchasing. This will drive down the businesses into further loss.

How quickly a business comes to grinding halt, again depends on industry, geography, mitigation factors etc. For example, airline industry, which has a high fixed cost (as the cost of flying a plane with one passenger vs 300 passengers almost the same) are already near bankruptcy.

For a person, disaster does not strike as soon as he or she loses job (i.e. salary stops coming). This is because the person can still sail thru troubled times using own savings. Here savings is the money in bank saved during good time.

However, a person becomes bankrupt when his/her savings become zero and cannot pay for anything anymore.

Similarly, a business does not go bust just because it is making loss. A lot of businesses, especially those like start-ups, make losses during initial years. However, they carry on as long as investors pump out money to them. This is cash flow.

A business goes bust only when it runs out of cash.

In normal time, a business can increase their cash reserve by adding the profit to their cash reserve.  Every business has a finite amount of cash reserve. The amount again depends on industry, strategy, demand etc.

Also as the demand falls during recession, the supplies must also go down as more competitors now try to get a slice of same shrinking market. This further drives many businesses into downward spiral of lower sales thus more losses.

As businesses go into losses, they start laying off employees, which collectively reduces further demand on the market, leading to panic and mayhem.

2. The cause – macro view

2.1. Pre-pandemic

Here we shall take a step back and discuss how the world economy (mostly capitalism or market driven economic model) works.

Our economy is underpinned by the banks and the government. The depositors (i.e. common people) deposit money in the bank. Let us say a bank collected £1000 from depositors. The bank will pay a tiny interest to the savers. Bank will earn money by lending money to borrowers (for starting business, buying house etc.) at a higher interest. The different between interest earned and interest paid (from bank’s point of view) is the profit for the bank.

But the twist is fractional reserve. This is adopted almost universally worldwide. Under this model, if a bank has only £1000 deposit it can create more money out of thin air, while lending. So basically the banks are allowed to lend more than the actual money they have. In our example, a bank can lend £10000 to borrowers! This means, the bank has created 9 times more money (1000 + 9000) than the real deposit amount. This fictitious money is then lent to people and businesses. This fictitious money is the debt.

Our economy is debt driven economy.

In olden days, when gold was used as currency, fictitious money was not possible. Once the banks introduced fiat currency, by abandoning gold standard, banks got the freedom of create fictional money and debt.

The fiat currency is what our bank notes are. These have no intrinsic value (unlike gold etc.) but people use it as if it has purchasing power purely driven by trust as guaranteed by the government.

Creating this fictional money is not necessarily evil per se. Had the bank not created fictional money, it could have lent only £1000 (in our example) to people who wanted to buy houses or start businesses. However, by creating fictional money of £9000 more, bank is able to lend to more people, enabling more people to buy their dream houses or fund their own businesses. In theory, it actually elevates more people into better life. When we say better life, this is by more consumption of goods and services. With more transactions, nation’s GDP goes up.

As long as continuous growth is happening, everyone is happy in this model. This is why all politicians and big businesses love growth. It makes everyone feel good.

Thus, in a debt driven economy, more money is analogous to having better life.

2.2. Post pandemic

Things become dramatically different during and after pandemic!

As everyone borrows more and more, the debt burden increases. Remember, all debts are to be paid off someday! In normal time, people do not think much for paying of debt. The house price mostly goes up. So even if house owners default on mortgage, the bank can repossess the house and can sell at a higher value than outstanding mortgage amount. So even if individual business or people are bankrupt, the country level economy (known as macro economy) pulls thru as usual.

During pandemic time, the revenue of most businesses fall so low, that most business cannot make profit at all. The business will also default on their loan payments and soon become bankrupt. With millions of people becoming jobless it will be a national calamity.

The government, as in any recession, usually intervenes. This is done by financial stimulus like printing money (known as Quantitative Easing) and reduces interest rate to encourage business to borrow money and sail thru the cash flow issue.

The important part is, government will give further loans to businesses. These loans are meant to be paid back when situation improves.

This will lead to a situation depicted in the next graph.

Pandemic3Figure 3

The key message here is that with even more debt (on top of existing debt) most businesses will not be able to see profit for a very long time. So they are going to see cash flow problem again after some time, requiring another bail out. This will lead to even more debt – which will increase the fixed cost even more as interest payment will also go up and this cycle will continue for foreseeable future.

No business can run in loss forever (only exception is some nationalized public services). Unless the shareholders/investors see some return on their investment, they will not be interested in paying money to the business.

This is a deflationary economy, dreaded by all. Whereas deflation did happen in the past, this time, clubbed with the pandemic (i.e. loss of lives) the blow will be huge.

The philosophy of the capitalism is survival of the fittest. In capitalism, people with more money are considered better off. People with more money can have a better life. But a pandemic, affects rich and poor equally. Hence, if money does not improve people’s lives, people may not be willing to increase their earning more. Thus the fabrics of run after money philosophy fails!

Although, even during pandemic, the rich and powerful in somewhat privileged as they are able to get tested for COVID19 whereas normal people cannot unless they are serious ill and rich people can still buy essentials at an inflated price from black marketeers.

3. The solution

I admit that I do not know what the solution is. If I were that intelligent, I would have received Nobel prize by now. But still, we can make some attempt to find a solution that may work.

One option could be writing all the debt off for everyone. This means everyone can start with a clean slate. This will help majority of the people. But this will not go very well with the banks and the government. Why?

Because in debt driven economy, the control of economy in the hands of privileged few, namely the banks and the government. If debts are written off, their own flow of income will stop. They will also not be able to control the population saying work hard else you will die starving.

From historical times, society has mostly been unequal rather than equal. Even in Ancient Egypt, there were rich and almighty pharaohs and slaves who served the riches. As the folktales say, when Moses tried to free the slaves, the pharaoh refused. Among many other tricks, the God of slaves unleashed a plague which affected pharaohs’ family only and spared the slaves’ families.

The analogy here is illustrating that rich and powerful always controlled the masses – in olden days with fear of death and in modern days’ fear of (lack of) money!

Usually in recession the government often bails out (i.e. provide cash to big businesses as loan) but this seldom goes to employees. Big corporations claim these saves the jobs, but alternatively, government can help everyone by giving them money directly in the form of Universal Basic Income (also known as Unconditional Basic Income i.e. not means tested). The unconditional basic income is claimed to be easier to manage than means tested benefit system. If this scheme is adopted, the big corporations can simply fail if they cannot run their business efficiently.

The other path could be gift economy. It mode of exchange where valuables are not traded or sold, but rather given without an explicit agreement for immediate or future rewards. This is like catching fish to eat but not catching too much to make a big profit. This model already works in Open Source Software where people write software for others for free and users can donate if they wish. Couch Surfing as another such example where people stay in others’ homes during holidays without paying anything.

Designing an alternate economy model is extremely complex and beyond the scope of this article. My aim here is to drive the thought process of everyone so that collectively we may invent something more egalitarian than greed driven economy.

 

Difference between Indian and Western music notation

2017/07/10

New musicians, especially who studied Indian swaralipi first and trying to study Western staff notation (and vice versa), often get very confused about how to align Indian swaralipi with western staff notation.

The key thing to understand here that in Western Music notation, each symbol represents an absolute note. For example, in a staff notation you always see whether it is C4 or C5.

However, in Indian swaralipi (= sa re ga ma pa dha ni) is made of relative notes!

The Sa can be C, D, E, F, G, A, B anything! In fact it can be C# or Ab too.

When you play a western staff music notation, you are expected to play exactly as it is written. That means, staff notation shows whether you will have to play C4 or G#3 etc.

However, when you play a Indian swaralipi, since only relative notes are shown, it is up to the player to choose which scale s/he wants to play in!

For example, here is Indian swarlipi notation for national anthem Jana Gana Mana (first line)

Sa Re Ga Ga | Ga – Ga Ga | Re Ga Ma – |

Now it is the player’s discretion whether s/he wants to start Sa in C or D or E or whatever.

Suppose, you have staff notation for this tune in C major. If you follow that notation, you have to play in C major. However, one can still play it in other scale like D major, F major etc. – by transposing it to a target scale (software like MuseScore can do it by flick of a menu).

In a way, the Indian notation is easier since it is entirely relative and you are free to play at any scale of your choice. Western staff notation is more rigid in this aspect (though you can re-write it by transposing – as mentioned earlier). However, staff notation is very rich and can convey timings, rhythm, chords etc. in much more details compared to swaralipi.

Any Indian tune or swaralipi can be always converted (manually) to staff notation. The reverse is also true, though you are likely to loose some complex information as there is no swaralipi equivalent of some concepts of staff notation.

There is a dearth of good quality written Indian tunes (compared to western music whether you can get notation of almost any popular tune). This is because Indian musicians predominantly play by ear where as western counterparts play by ear and/or sight as well.

If you are an Indian musician but unable to read staff notation, I strongly recommend that you learn it. It is not only versatile (in spite of steep initial learning curve) but universal too. People from anywhere can exchange music using this format.

Free software like MuseScore, make it very easy to compose music using staff notation.

PS: full scale example

Indian swaralipi and Equivalent Western notes (in C major)

Sa – C (C4 if mapping it with piano’s middle C key)
komal re – C# or Db
Re – D
komal ga – D# or Eb
Ga – E
Ma – F
kori ma – F# or Gb
Pa – G
komal dha – G# or Ab
Dha – A
komal ni – A# or Bb
Ni – B
Sa (next octave) – C

Indian swaralipi and Equivalent Western note (in D major)

Sa – D
komal re – D# or Eb
Re – E
komal ga – F
Ga – F#
Ma – G
kori ma – G# or Ab
Pa – A
komal dha – A# or Bb
Dha – B
komal ni – C
Ni – C# or Db

 

What are different types of sharees?

2013/10/27

Sharee (also sari, saree) is a dress predominantly worn by Indian women. It is often difficult to classify a sharee for a foreigner. This article shows the classification.

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Why rupee always falls against dollar, pound, euro?

2013/06/26
Historically, Indian Rupee always fell against strong currencies like Dollar, Pound or Euro.

 
During mid of 2013, rupee had almost a free fall. It now equals 1 $ = 60 Rs or 1 £ = 93 Rs.
 
So why suddenly rupee fell so low?
 
One reason is better economic outlook in USA. Large scale investors are now expecting better return on their investment from USA. Thus, their funds are going towards USA and less amount is coming to India. For many day to day products, India needs foreign currency (in the form of $, £, € etc.) so less foreign currency coming to India means more demand for $ £ € to buy goods/raw materials from outer world.
 
Incidentally, weakening of rupee should make export much more attractive as same $ will now buy more Rs. However, there is a catch. To produce many of those exportable goods, businesses need to import raw materials from outside India, which requires foreign currency! Since such import is getting more expensive, resulting goods (manufactured in India) is also becoming expensive – thus eroding the benefit of weakening rupee for export.
 
Weakening rupee also sometimes prompt foreign importers (who buy exported goods from India) demanding a re-negotiation on price (as they claim weakening rupee will benefit Indian exporters also we have just seen that may be the case always).
 
Non residents Indians (NRI) are happy because if they send foreign currency to India now they will get much better return (i.e. more Rs for every $ sent). However, such fun is only possible if they don’t want to take money out of India at a later date. If NRIs send money to India and invests in a scheme in India, when they convert money later from Rs to $/£/€, chances are – due to rupee weakening even more, they will get a very poor return.
 
So, in short, weakening rupee is not a good news for investors especially those who want to invest foreign currency in India and then want to convert that to their native foreign currency once their investment is matured. If rupee falls further between the time they invested and investment matured and considering rate of return and inflation, they may even get same/lower than what they originally invested in $/£/€ terms!
 
In theory, Reserve Bank of India (RBI) can intervene by imposing a temporary limit of foreign currency going out of India but that will irk lots of common public and goes against free market economy principle (which India has adopted since 1990s).

What is black money in India?

2012/08/13

Black money is a term used (predominantly in India) to indicate money which has not been declared for tax purpose.

Black money occurs in all economies but in few countries, the amount is massive.

Let us illustrate this with an example; if you pay cash to your plumber and he does not declare this in his income statement, the amount becomes a black money. In most countries, this happens in small scale transaction involving small traders. However, in many countries (especially India and surrounding countries) it happens at a mass scale.

For example, one builder sells a flat for Rupees 10 million. When a buyer is found, he offers it to sell for Rs 9 million on the condition that official transaction will be noted as Rs 7 million and then buyer will pay him Rs 2 million separately without keeping any footprint of the transaction. Thus, they will pay tax on Rs 7 million only. Buyer will accept it as he is getting a price reduction of Rs 1 million. Seller is saving on tax as he won’t declare Rs 2 million as income. So in a nutshell, the tax amount is shared between buyer and seller.

This activity flourishes because of two reasons:

1. People believe by dodging tax they are helping themselves

2. In many cases the practice is so rampant that normal citizens do not dare to buck the trend because they believe law will take side of rich people only (even though when these people are actually in fault)

Some analysts estimate that the amount of black money stored by Indians in Swiss bank is over Rs 1 trillion. Indian government did not show any real interest to tackle this problem because many head honchos in political parties are benefitting from this practice by paying little tax.

Why India performs poorly in Olympics?

2012/08/12

When compared to relative population of other countries, India usually performs quite poorly in Olympics.

What is the fundamental reason for this?

This is down to cultural outlook. Parents in India encourage their children to excel in academics rather than sports. Middle class in India aspire for a well paid and secured job. If an aspirating athlete fails in India, the future is pretty bleak. Many athletes often struggle to make both ends meet because of relative poverty.

Sports require investment which is often beyond reach of ordinary citizens without any substantial grant from government. The grants from Indian government is often mediocre at best and even then it is frequently tainted with politics and regionalism. Thus main good talents are lost.

Some rich Indian kids manage to persuade their dream in sports but their numbers are very few.

This is quite contrast to China. Chinese government invest huge amount in sports and candidates ate picked for rigorous training from childhood. Of course, being a communist country, such acts of government is often considered as dictatorship. Whether is is good or bad is debatable but we can’t ignore that China achieved lot more in sports compared to India. Such practice is not possible in democratic India.

Until very recent time, Indian media glorified only cricket and largely ignored in other sports. This also discouraged lots of Indian citizens to come to sports which could have improved india’s Olympic performance.

Having said so, india’s performance in last two Olympic improved and Indian contenders now started winning individual events. So it is expected that in next few olympics India will perform much better.

Why auto rickshaw is not used as personal transport?

2012/06/10

Auto rickshaws are ubiquitous low cost public transport in India and few other countries in SE Asia.

It is positioned in the market between two wheelers and cars. But strangely enough these vehicles are never used as personal transport! It might seem intuitive that those can afford these but not cars could be using as personal transports but that idea never caught. There is no clear explanation for this but usually it is assumed that people in India assume this as low status vehicle. One does not like to be seen driving this. Those who drive auto rickshaws for living are considered not being up to any better quality jobs (even though they earn moderate amount of money as per Indian standard).

Those who can afford cars won’t buy autos because they offer very poor ride quality, comfort and safety kits compared to proper cars. In fact, some people consider autos as worst of both worlds. They are not comfortable as cars and not cheap and agile enough like two wheelers.

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Which whole milk and skimmed milk cost the same?

2012/05/10

Whether whole milk is cheaper than skimmed milk or not, depends on where you are buying it.

Milk is produced as whole milk (i.e. with fat). Then it is pasteurized (i.e. killing of bacteria via heating the milk but not altering its taste or nutrition value). After this, the excess fat is removed to create skimmed or semi-skimmed milk. Now removing this fat is an additional process for skimmed milk. So that indicates skimmed milk should be more expensive. However, the removed fat can be put for other uses – so there is an intensive to selling skimmed milk

The price of milk often reflects whether it is placed as a lifestyle choice or based on actual cost of processing. For example, in UK, whole milk and skimmed milk cost the same to encourage people consume less fat. However, in India, whole milk costs more than skimmed milk because the former contains additional fat.

Why Vodafone has been asked to pay huge tax in India?

2012/05/10

In 2012, Indian government imposed Rs 20,300 crore taxes (£2.5 billion) on Vodafone India. Why suddenly this move was made?

India has 2nd (after China) fastest growing mobile phone market. Vodafone, a British telecom company, entered this lucrative market in 2007 by buying 67% share of Hutchison-Essar, which was a dominant mobile player in Indian market then. However, this agreement was signed in Cayman Island in Caribbean, which had no corporation tax. India has “double taxation” agreement with many countries in the world. This means, if a person or corporation had paid tax in any of those countries, they do not have to pay tax again in India. However, this excludes countries where either corporation tax is zero or close to nil. Cayman Island is one such country. This rule was constructed in an aim of not to penalize companies with dual taxation. But many corporations are signing contracts in tax haven countries and thus, even though they are doing business in profitable Indian market, they are not paying any corporation tax.

Indian government has implemented a correction in law and applied retrospectively. This means, it will be considered as if this act was in place since 1962 even though it was implemented in 2012.

Vodafone disagreed to pay this tax and said they would go to court against this. Their argument is that they can’t be held liable for tax when law was changed after the transaction happened. Indian government argues that Vodafone used an unethical loophole intentionally to avoid tax.