A missed opportunity

The government has swung into election mode by announcing a substantial decrease in the price of petroleum products. It is good for the consumer, but is it good for India overall? Granted, we have had a crash in oil prices and a period of relative stability over the past 2-3 months. But, who knows what the situation may be in 6 months. If the price of oil skyrockets, will we again go into a cycle of under-recovery and a mounting subsidy bill?

 The prudent thing for the government would have been to take advantage of the low prices to bring about a degree of deregulation. They could have revised prices on a monthly basis or even rationalized the taxes and duties on petroleum products. But that would have been too much to expect from the worst government in Indian history.

More bailouts

So, now the Indian government is going into baliout mode. I wonder what it is, China envy, if you can come up with a 500 million dollar bailout, so can we.

There are a couple of problems here
- The Chinese government is rolling in cash with huge surpluses. The Indian government is broke and the true magnitude of how broke is hidden because they keep items like fertilizer/oil subsidy out of the budget statement
- They are targetting the wrong segments. I completely agree with help for the auto and textile segments. But realty? Come on.
- They're trying to make it cheaper to get loans for homes/cars etc. But what they don't realize is that we Indians are among the most risk averse people in the world. When the future is so hazy, why would people go out and take a loan even if it 2-3% cheaper than a couple of months ago?

Talking about realty again, no amount of stimulus is going to turn the situation around till prices come down to reasonable levels. Charging 80 lakhs for an apartment that falls apart in a couple of years is just not sustainable. Even if you give it a fancy name and come up with great looking brochures and websites. Has anyone considered the average income level of people in this country before taking prices to such absurd levels?

It's the same with automobiles. We're seeing a war of words between the auto companies and banks. The auto companies are saying that banks are not bringing down the interest rates fast enough while the banks are saying that no one is actually approaching them for auto loans. The auto companies were blinded by the boom years and thought that the cycle of people upgrading their cars every 2, 3 or 4 years will continue forever. They didn't realize that when people are uncertain about their jobs, cars are one of the easiest purchases to defer.

Overall, I am extemely uncomfortable with the whole bailout idea. My reasoning is simple, we had many excesses during the last few years primarily caused by a huge oversupply of money. At some point the bubble has to burst before things get back to normal. But, by throwing more money at the problem, aren't governments just postponing the inevitable and setting us up for an even greater bust?

Layoffs, Airlines etc

Having seen the drama created by the massive layoffs at Jet Airways and the subsequent reinstatement of the staff, I now understand why the IT companies in India behave the way they do when it comes to retrenchment. They never admit to layoffs, it is always described as “performance related separation”. Initially, I had thought that it is related to their stock price, but now I realize it is to avoid getting the politicians involved.

As for Jet, I fear that it may not be around in its present form for much longer. Though the immediate crisis has been averted, the conditions continue to be as difficult as before and they will continue to hemorrhage money. They have also cut down their schedule drastically for the coming months, so I wonder what all these people are going to do?

Speaking of airline schedules, I had to fly to Chennai earlier this week at very short notice. To my surprise, the agent just came up with a couple of options for flights in the morning. It did seem like the airlines have drastically cut down on the short haul flights. The rates were astronomical as well, Kingfisher was quoting over 10K, they finally got me on a Jet flight at 5K. The days when all 3 of us flew round trip from Bangalore to Goa for 10K, seem like a very distant memory.

The other observation I had was the security check at Bangalore airport. The queue was atleast 50 people and according to a Jet employee, this was an everyday occurrence due to the huge number of flights that take off in a very short time period. If that was the case, I wonder why they do not double the number of security personnel for that time period to make life easier for the passengers?

Bad times for Indian IT

Typically, companies in the US outsource their routine maintenance and low end project work to India and keep the really important projects inhouse or work with local vendors here. Most large companies that have offshoring programs have already offshored most of these functions to India. For the remaining companies, if they have not offshored yet in 2007, it is likely for a good reason and I doubt it will happen anytime soon. Even if it does, I feel that the potential increase in business will still not be able to make up for the loss from projects that have shut down due to budget cuts. You will never hear anything like this from the companies or the analysts, who continue to portray a rosy picture and feel that a slowdown will only benefit Indian IT. But, I hear enough news to the contrary and think that companies are preparing themselves for tougher times ahead.

Look at the evidence
IBM fires 700 people.
500 people "voluntarily resigned" from TCS.

I'm sure that there are similar stories being played out elsewhere. I see enough evidence in my own firm. All the managers were called for a meeting last week and informed that the overall utilization was low and a major drive has been launched to fill up the open positions from the bench pool. And yesterday, we learnt that the notice period has been slashed to 1 month. Add to this the fact that promotions, bonus, salary hikes which are typically completed by early January have yet to be announced and it does seem clear that job cuts are on the horizon.

The Indian economic growth story depends a lot more on the IT sector that many people realize. It's the promise of huge salary increases and large disposable income that keeps IT folks spending on a lot of goods and services and leads to a boom in those sectors. So, a slow IT sector is not only bad news for itself, but for many other sectors as well.