Anguish at Petrol Prices

Petrol prices again got hiked by Rs 1.82. This is the 13th time that it has been hiked since June of 2010.

The big difference this time around is that crude oil prices have actually been going down in the global market. When petrol prices were hiked in 2008 / 2009, the blame was placed on the crude oil prices going up and hence the cost is being passed on to the consumer. I can kind of understand that.

But, today, the prices are going up - not because the "cost" of petrol is going up. But, because the layer of tax above and beyond the cost has gone up.

The economics gets interesting here. My friend Garima Mishra helped me with these values: The price of petrol (say, Rs 71) can be split into 3 components:

1. The actual cost of petrol (including transportation, dealer commissions etc): Rs 40

2. Taxes - central government - Approx. Rs 15.00

3. Taxes - State government - Approx. Rs 14.50

So, let us get this straight. The tax on petrol is 75%. This is a tax paid by each person who buys petrol irrespective of whether he owns a moped or owns a luxury car. This moped owner's earning might even be lesser than the lowest tax slab. He is also made to pay a tax at the rate of 75%. Let us put this 75% in perspective. Luxury items like a Lamborghini Aventador attract a luxury tax of 100%. So, essentially the government is suggesting that petrol is a luxurious good. I see.

Another issue is that political parties react as if it entirely is a central government issue. Before an opposition party takes up cudgels against the central government, could they please address the tax component of the state government at least in the states where they rule?

I can absolutely understand if a cost escalation in international crude oil prices get translated to fluctuations in the price of petrol that consumers have to pay for. I can absolutely understand in the spirit of a free market. But no, this is not a case of cost escalation. The government says that it needs more revenues. Search for the cash cow. It happens to be the tax earned on petrol. Aha - milk it to death.

I have not been great in politics. I am not sure if changing the central government is an answer to this question. But, personally, I would be willing to vote for any party which assures me that the price of petrol will be equal to cost of petrol in international markets + a reasonable indirect tax rate (say, 10% or even 20%).

My earliest remembrance is paying Rs 20/- per liter of petrol (I was probably 10 then). There were days when I used to pay Rs 30/- per liter of petrol when I was "moped pooling" with Sankar. I would like the 30 year old in 2030 remembering that the price of petrol was Rs 50/- per liter when he was a 15 year old. Is that too much to ask for?

A New Beginning !

Just an update from my end. I have quit from Citigroup, Equity Research.

I am setting up a test preparation firm (a coaching center which will help students prepare for competitive examinations). I am taking up a franchise (www.4gmat.com) and will be based out of Mumbai.

The idea is to expand to more competitive exams and to tailor products reachable to a broader age group.

Look forward to your support ;-D

Gold as an investment: a change in behaviour ?

Check out the following new item:

Long queues outside jewellery shops, now to sell: Business Line (Feb 20, 2009)

I was pleasantly surprised to read this news ... "Indians selling jewellery?" - That is probably the indication that Gold is just way too too too overvalued. A colleague of mine, whom I respect a lot, said "Gold is a one-way street in India. People always keep buying gold. Gold is never sold from an Indian's household". I also shared his opinion till now.

Taking one step backward, this is probably why economists (who believe in market forces) ask governments to let the market decide for itself. What has just happened? Gold became way too costly - People took a call that they could actually sell at this high price and buy it back at a much lower price - this resulted in an entire shift in consumer behaviour. If this becomes more prevalent, the price of gold will automatically come down to a level at which people stop selling and start buying ... market corrects itself (I hear you saying 'If only it could be so easy !!')

Some issues:

There is no 'market' to sell our gold coin / jewellery. If we take a gold coin weighing 1 sovereign to a shop like GRT, they do not give us money based on today's gold prices. They may only take it as an exchange for buying jewellery weighing 1 sovereign. In other words - gold can be exchanged only for gold - gold cannot be exchanged for cash. That could be a reason why selling jewellery is not more prevalent than it is now.

On the other hand, if all you want is to speculate on gold prices, there are gold ETFs and gold MFs. They eliminate the 'carry cost' (keeping the gold coin safely, paying Rs.1000/- per year to a bank for using their deposit locker, hiring an auto to and from the jewellery shop instead of taking a bus. Chennai readers will probably prefer dealing with mafia than negotiating with auto drivers).

Of course, 'selling family silver' is still a taboo that is frowned upon. It is probably going to take several decades before Indians look at gold as a pure investment asset.

As my colleague said 'Try telling the lady to sell her gold necklace as the price of gold is at its highest ... Try telling the lady that it will be bought back when the sovereign costs 5K lesser' Now we know why gold never looses its shine.

An interesting datapoint - An investment option offered by GRT. A chit fund like offer: Pay 1000 bucks for 15 months. Take home jewels worth 16,400 at the end of 16 months. It works out to an yearly interest rate of 14.1%. Contrast this with SBI and ICICI's 1 year deposit rate at 8.5% and 8.25% respectively. That is a spread of more than 5.6% over a (notionally) risk free FD return. A question that occurs to me ... Is it the middlemen who are taking away extraordinarily high margins ...

Talk by Mr. CK Ranganathan - CEO of CavinKare

The 60 minute talk was arranged by Ahmedabad Management Association (AMA) on the evening of 31st July 2007. It is about half a km from my institute.

CK Ranganathan - A chemistry graduate amongst siblings who are doctors and lawyers. Grew up with a complex that he will never be able to measure up to their levels. Had trouble reading and talking English till he graduated out. Could not read beyond the headlines in English newspapers. In his 20's, he started reading up on 5 new words each day for a period of 3 years. Forced himself to read English papers by stopping the vernacular dailies.

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I had drafted till this point of the article about 18 months ago. This had been an unfinished task at the back of my mind ever since. Time to complete it. I guess my laziness has been proved beyond doubt ;-D
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He highlighted that his success hinges upon 5 pillars: Investors, Employees, Distributors (very important in FMCG), Customers and Lenders.

The most important thing that I remember from his lecture is his encounter with lenders (banks). There were times that he used to run out of working capital and had to knock on the banks' doors to extend his credit line. Bankers would quote an interest rate which he could not afford. He does not blame the bankers for this. After all, they have a profit & loss statement to take care of. They need to keep in mind the risk proposition before lending to each business. Ranganathan would negotiate with his bankers to decrease the interest rate by a percentage point or two. Many a time, he could get the rate he asked for. One of the bank managers had said "I will reduce the rate based on your negotiation. The very fact that you negotiate indicates to me that you do intend to repay. If you had no intention to repay, why would you bother to negotiate".

I am not able to remember the exact details about the rest of the stake holders in his business. The one about lenders was what hit me most. This is the biggest problem faced by SME businesses today. The liquidity crunch has hit small and big businesses alike. Credit is hard to come by. Government is doing its best to force lending through the PSU banks. I am not able to talk much since it is directly connected with the nature of my work. Let me just say that I hope that all stake holders survive this crunch- SMEs, Banks & GoI. Even if one of these fail, I shudder to imagine the effect.

Well worth the trouble I took in dragging Goga to the seminar !

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The first two paragraphs were written when I was a 4th term student. That was before I took TTR's elective 'Managing Financial Institutions'. The last paragraphs were drafted about 9 months into my job. No wonder the article seems to wander a bit aimlessly ;-D
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An excellent person

10th June 2007. I took a train from Mumbai to Ahmedabad. My 4th term was going to begin on the next day. It was a day train which started at 5:45 or so. Reached the station well in time and checked if my name was on the list pasted in the compartment. I did the regular boy thingy - checked out who was sitting next to me. Male. 80 years. Sank (Heart).

He was neatly dressed. Looked quite healthy. In fact, he was wearing trousers with shirt neatly tucked in. He looked like he was in his late 60's.

It was almost 4 or 5 hours into the journey that we started talking. You know - all the scare about biscuit robbers successfully delay us from connecting with co-passengers. "Rail Sneham" used to be a beautiful, sweet concept till about 15 years ago before the ruckus started.

He was a freedom fighter. He has participated in the 1942 "Quit India Movement". He has been jailed several times. It was a weird feeling to realize that this stranger has in his own slightest way contributed to my status as the citizen of an independent country.

At the age of +/- 42, he has migrated to the US. He has reached the land of opportunities with $100 in his pocket. Things would have been so different in those days. It must have been a land of total strangers. Today, nowhere in the world would an Indian be a stranger - there is bound to be another Indian within a radius of 10 meters ;-)

Soon after going there, he has set up a retail outlet. It was a 1700 sq. ft. shop by the time he sold it. He said that he has been involved in 7 hold ups where he was held at gun point by the small time burglers.

A Gujju who set up a retail outlet in US ... No marks for guessing that he lived in New Jersey ;-)

A widower at the age of 25 - he has single handedly raised his two children. He has never drunk alcohol or smoked.

He had so many things to say and if I can take home only one thing - it would be this : ALWAYS BE FEARLESS.

Be F.E.A.R.L.E.S.S: You must have seen how vehement the 80 year old man pronounced that word. Why should anybody be afraid? - was his matter of factly question. Each day - Do what you fear doing the most - there is no better way to improve the self. Talking to strangers ... Cracking that probability question ... Talking to your boss for that pay hike ... Venturing out on your own ... You name it and he asks the same question.

What do you have to loose? What else can explain the attitude of a man in his 40's to go to US and set up a business of his own.

He was even saying that we should not fear the loss of a loved one. Who knows - they may have reached a better place. It basically arises from the fear of death. Death is just another word for "eternal sleep". Why mourn if your loved one has reached another stage which is probably better? - was his question.

"BE FEARLESS" were his last words to me before he got down in Surat. It was a reminder for the treasure trove of wisdom and experience vested with the elders in the society.

A Good Lunch

Ok ... Let me make u guys feel a little bad !!! Let us taste some Indian food

Today I went out with my colleagues for lunch ... By far, it was the most calorie rich diet that I had in a long long time ...

1. Crispy Nachos dipped in creamy cheese for starters

2. Hot and Crispy Onion rings for appetizers (err ... )

3. Nice - hot - Channa Batura with Mirchi ...

4. Icecream browney sizzlers ... Imagine this ... Very hot plate ... On which there is a .5 inch browney ... Upon which is resting a ball of icecream ... It looks plain and calm for all practical purposes ... After keeping it on the table, the chef pours a small cup of chocolate syrup on the icecream ... The syrup starts boiling on the steaming hot plate ... Steam rises from the plate and I am half afraid that the chocolate vapour is going to settle on my shirt ...

And then I dig the spoon into the concoction ... starting from the top ... Skim it top to bottom and the spoon now contains a mixture of chocolate syrup, Ice Cream, Brownies steaming hot ... I blow gently on my spoon just in case that the brownie is too hot ... What an irony - Am blowing on a spoon which is half filled with cold ice cream !

Pop it in ... Close my eyes .... Mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm ... I Lost all sense of place and time for a moment ... Till the potion slided down the oesophagus ...

Kya baath hai !!!

Place: NewYorker in Nariman Point.

PS: 15 minutes later ... I felt as if a cigarette was stubbed against my shirt pocket ... Ugghh ... Checked it out ... Oh ... It was not a cigarette ... It was the bill which had burnt a hole in my pocket ... 300 gets debited from my Cash A/C ... Goodwill gets credited correspondingly ... Amortization period : 18 hours.

Met Chandramogan - CEO of Arun Ice Cream

Long time since I blogged ... Did it last on the last day of my 1st term ... which was almost 7 months ago ... For the next two months, I will be in Mumbai for my summer internship ...

Chandramogan might be in his late 50s or early 60s ... He came to campus as part of an interaction arranged by the professors of the subject "Strategy Formulation and Implementation" ...

Nobody would guess that Chandramogan is the CEO of an organization which had a revenue of Rs. 540 Crores in the last financial year ... He was wearing a simple full sleve shirt ... Had not tucked it in .. But, he was absolutely at home handling the questions addressed to him by the fachchaa students ...

A case was written about Arun Ice cream's ascent to glory ... He had dropped out of college decades ago and started the venture with a seed capital of Rs. 15,000 ... Started off with manufacturing ice cream in a small factory and selling it fresh ... He had competed against the Dasaprakash-es of Chennai ... People in Chennai would be able to recall the decades old Dasaprakash hotel in Poonamallee high road ... Had taken the ice cream to the neighbouring small towns with the positioning "Fresh Ice cream from Madras" ...

He had hit upon the concept of franchising without even studying about it formally ... Every kid in TamilNadu would be familiar with the neighbourhood ice cream parlour ... Chandramogan gave insights about the consumer preferences ... He was talking about the fact that in the 1980's ladies would not want to be seen (from the road) eating ice cream sitting in a shop ... He had designed the shops keeping these things in mind ....

For running the franchise, he chose people with modest educational backgrounds who had failed in the earlier businesses ... He explained that the loyalty factor would be higher in this segment of the population ... So much so that some of the franchisees had named their sons and grandsons as "Arun" !!!

He had survived the onslaught of MNC's like HLL which had tried to acquire the company ... By that time, Arun Ice Cream was valued at several crores ... A friend had suggested that Chandramogan sell it before the value gets eroded because of the competition ... Chandramogan had explained that when he started the business, it was worth 15,000 and there was nothing to loose as long the firm was worth more than 15,000 !!! THAT was the guts with which he faced his formidable competitors.

He has come a long way since the time he started the venture ... A professor asked him, on behalf of the students, about the qualities necessary for an entrepreneur ... Chandramogan mentioned that different skills are required at different stages of the business ... He explained that during the initial years he used to concentrate only on marketing ... As years went by, he picked up finance (He underwent a short term management programme for executives many years ago) ... Now, he is concentrating only on strategy and manpower management ... And he means business !!! You must have seen him throw terms like backward integration, cost of capital, dept / equity structure, cost leadership, consumer behaviour with tremendous ease ...

Another question he handled well was about the necessity of management education for being a good entrepreneur ... He stated that perhaps he would not have taken the risks that he took if had been a management grad ... And at the same time, he also agreed that a management degree might have accelerated his growth - saving him about 10 years ...

~~~ Bowing down in front of the towering personality ~~~

References : These facts have been gathered from the case written by professors Abraham Koshy and Venkiteswaran and the question answer session we had with Chandramogan.

Do leave your comments !!!