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January 12, 2008

And here comes the nano….

Filed under: economics,opinion — by newtimes @ 1:25 am

No, this isn’t about Apple and its range of extremely small and cool range of iPods with whom we have come to associate nano for past few years. It’s about TATA which has interestingly decided to name its new car nano (will people end up calling it ‘nun-o’ back home?). So, the nano is a another 5 seater from TATA in the small car form, then what makes it send waves around the globe with its launch last Thursday at 2008 New Delhi Auto Expo?

Ladies and Gentlemen, that is the fascinating part. As you might have heard, it comes with a price tag of just US$ 2500. Wow! And quite interestingly, the cheapest car of the world is made by none other than TATA’s, the same people who are buying over Jaguar and Land Rover which make some of the very expensive cars on the planet.
Sure they must know a thing about brand management and avoiding brand dilution.

Anyways, brand management is not the issue at discussion in this post. The hot raging issue apparently is about the exponential increase in the number of cares on the road and the gazillions of cubic cm’s of pollution that may be added to the atmosphere as more people can afford to drive cars. Some of the environmentalists and more vocal criticizers of the car feel that a disaster is in the waiting with the launch of the car. Surely, the protests are logical and correct but only from a very limited perspective of the actual situation.

Before one can claim that a disaster is waiting to happen, perhaps one should go and look around oneself for a disaster around you. Come to the roads of New Delhi, the capital of India, or even worse a smaller city located elsewhere in India.This is what you will see: A man driving the scooter, his elder kid standing on the scooter in front of him, his wife sitting on the back seat holding her younger child (read baby) while simultaneously attempting to balance herself off the jerks and thuds most felt in a scooter. This entire family of four has no shade against the sun, no protection against the rain and no panacea to immune them from chilled winds bursting on them at temperatures sometimes well below 5 degree Celsius. For India’s significant population which can’t afford a car, is this what the standard of living should be?

A $2500 car may perhaps aggravate the traffic jams further and increase air pollution. It may not even be fit with standard safety features such as airbags and may not offer a ride as comfortable as any other car. But for millions of Indians (where the car is being launched), it will provide multiple times the safety of a two wheeler and many times the comfort too. Criticizing a cheap car is not the solution, the solution is to innovate. Only through such breakthrough products can we be ‘forced’ to find solutions to the problems of heavy traffic jams and gas guzzling engines.

October 31, 2007

Interest Rates and Savings

Filed under: economics — by newtimes @ 2:24 pm

Governor of RBI, Y.V. Reddy has recently announced his mid-term review of the annual monetary policy for 2007-08. In a following interview with Mint, he is seen talking about early signs of overheating in the Indian Economy.

I am particularly curious about the validity of some of the given causes of such overheating. Rightfully, he appears to be concerned about India’s trade deficit (7% of GDP) which may contribute to a poor economic condition if a global financial crunch were to happen. Considering that the principle reason for a trade deficit is the imbalance between savings and investment, he pays attention in keeping domestic savings to reasonably high value.

What follows makes me curious. He says ‘If you cut interest rates, what happens to domestic savings?’ (In defense of not reducing interest rate differential between US and India). Essentially, he follows the popular view that domestic savings as a directly proportional function of interest rates. Is that really the case or is this relationship more complex?

Think about yourself. Did you start saving more when interest rates increased last time? What determines our savings? A strong explanation revolves around retirement. People save money for their retirement. If I plan to earn (say, $100,00) for 30 years and live on my savings (say, $50,000) for next 30 years, I would save $50,000 minus the interest I would earn.

What happens if the interest rates increase? According to the above explanation, I need to save less since I can gain more interest on my existing savings. Exactly the opposite outcome when compared with the popular belief that interest rates are directly proportional to savings.

What makes a more convincing argument? Any comments Mr. Reddy?

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