Greece is in financial trouble – and by now all of us know it. The trouble is a result of years of mismanaging the economy. All you have to do is read Michael Lewis’s article about this in Vanity Fair – and it had appeared long back.

How different are other countries? Well not very different. Governments have made impossible to meet promises – US, UK, France – all are guilty of similar mistakes if not greater mistakes, and one day all the problems will come home.

What about India? Well we have one major mistake which will kill one of the future governments – indexed pension for the government servants. When the government is told of the danger they do not react fast enough. For example when the government did a calculation and realised the enormity of the ‘defined benefit’ indexed pension, they quickly converted new joinees (a few years ago) to the NPS. However the army has not yet agreed to defined contribution.

When committees suggest downsizing of the government the government does not listen to it.

Currently if you are blaming the Euro crisis, the Chinese Realty collapse, or the Americans for the dollar being at Rs. 55, please cut out the crap. Look at the way the UPA government is allowing / helping legitimate looting of the exchequer. The politician and the bureaucrat combine is causing a lot of harm.

Just look at the numbers! NREGA, Telecom scam (if Raja was the only guy who took home so much of money, I would be surprised), Fertiliser subsidy, petroleum subsidy, mess in the coal mining, inability to handle Telangana,….it is a mess.

If people are pulling their money out, do you blame them?

The foreign markets look interesting – and if you are not worried about the $-Re rate, even the debt market looks good in the short run of 12-14 months….

The fiscal part of the economy is poor – so please reduce your expectations on growth!

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  1. Subra,
    I don’t understand why the media, now including you, harp so much on salaries and pension payments to Govt and PSU retirees. I am one of the early retirees of a PSU Bank, the pension I am getting now is a pittance compared to the salary I would have gotten if I had stayed in the same job! In any case, the salaries and other benefits of PSU and Govt.employees are far less compared to the organised private sector. Pension is one life-saving grace that they enjoy and let them die in peace, please !

  2. Simple Shrinivas if the private sector overpays, it is their shareholders’ problem. Companies which overpay and cannot pass on just fail, that is all.

    When the government overpays, it continues to overpay and the burden is borne by the taxpayer…and PSUs generally do not earn a profit unless they have a monopoly (oil, power, coal, gas) or a regulator who ensures that there is very little competition in banking.

    Show me profit making, INDEXED pension paying non monopoly PSU organisations and I will salute them….

  3. Hi Subra Sir, some good articles by you in such a short period of time showing the bad shape Indian economy and governance is in. Many of your articles in recent time start on different topic but ends up with bad Indian economy and bad governance. I think, not only middle class people but also there is lot of frustration even in most knowlegeable people like you in India. I Thank you for highlighting these points in your articles.

  4. Days of high growth (9+) rates seem to be over for a few years now. Primary reason can be attributed to macroeconomics of the situation which says that consistently long durations of high inflation increase the ‘expectation’ of inflation. Such high inflation expectations are then built into the system by means of wage increases, contract conditions and other assumptions.
    To reduce the ‘expectation’ of inflation to lower levels, consistent recession (Or in India’s case, a slowdown) is necessary in the immediate short run. And as we can see, our govt. is hell bent in trying to bring about a slowdown by means of rate increases and food bills. Lets see what future holds for us.

  5. Every one including politicians, babus, Economists, Analyists, Academicians, Consultants, fund managers and bankers assumed that our economy would continue to grow more than 8% irrespetive of what stupid policies they implement back home.

    Our media is full of stories that our economy is domestic driven and presumed it as sustained figure. Govt thought that it is doing a wondeful job and introduce socialist policies to gain politial support. Inflation was one simple clue even a common man could tell something is cooking up. Hell broke lose and govt resort to fire fighting measures.

  6. Subra,

    I think the combination of all these internal and external factors will give an opportunity to buy shares at valuations not seen in the last ten years so in a way this is good for fundamental investors. Remember the valuations in 2002?

    — Nir

  7. I am more worried about Chinese real estate crash. I think that will cause more havoc than the one we are going through now.
    In the long run it may be good as commodity prices will come down due to reduced Chinese demand post crash but our stock market will go for a spin taking many bankrupt companies with it.
    I think markets may not make a new high for the next few years; unless the US or Europe starts printing their way out as they did in 2009.

  8. india will be more greece-like. no wealth,but plenty of claimants to entitlements.sharad pawar-champion of the corrupt -is right about one thing .the entitlement system will kill economic incentive to work.if people get free money,you can bet they will not work their butt off

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