Well this article just intends to highlight how the Indian middle class ends up subsidizing the super-rich and the real inflation persistent in the country.
Every second day, we read in the business news papers that loans worth 4500 crores [Winsome Diamonds Case], 7500 Crores [Kingfisher Airlines] are going sour and as I explained earlier in 2013, this is a theme that is here to stay. At this point of time, we are not even getting into the loan restructuring issues [Corporate Debt Restructuring - the used jargon]
To begin with, the claim seems boisterous that it is the middle class that subsidize the super-rich. Just sit back and think about it for a minute. Banks charge about 20 to 40 rupees per user per month for SMS alerts. This charge is applicable by a conservative estimate of 300 million accounts [the real figure could be as high as 650 million accounts] Taking 300 million @ average 25 / month for SMS alerts over 1 calender year generates 9000 Crores of Revenue with an 80% profit margin! So 2 accounts like Winsome Diamonds can easily be wiped out. Who pays? The Indian Mango class. Who profits? The super-rich
Then we come to the interest payable; apart from the Fixed deposits, you get banks trying to woo you with 6%, 7% interest on your savings account. How many actually read the fine print? That amount is only payable on the MINIMUM balance between 10th and 25th of the calendar month When it comes to car loans, personal loans, home loans from the banks, do they allow this? The very moment the loan is disbursed the recovery mechanism starts ticking.
For some reason if a middle class person is not able to pay his car loan EMI for 3 months, his car will be towed away. Even if the Mallyas or Roys hold back on 2000 crores of payables, they can move around freely. How does this happen. Simply because the banks are paying you interest for 15 days at 6% whilst they recover from you anywhere between 10% and 18% for 30 days! This surplus is used to bail out the super-rich by means of write-offs
The other part that is hitting the middle class badly is inflation. The reported inflation figures are simply bogus. Let us get a perspective on simple items for an average middle class home of 4 members
Since we are in 2013, I have intrapolated in 10 year slabs going upto 1983. I have kept the basket of goods very simple and focused on essentials [Milk, Gas Cylinder and Home Loan/Rent I have not mentioned in this list] Just look for yourself what is the value of a 1000 rupee note in 2013 - why is money power eroding so much? because India is not going through inflation but through hyper-inflation.
Petrol is now going at almost 75 / litre and within the next 5 to 7 years it will go to 150!
There is a very smart gimmick that the government employed with the Right To Education Act and promotion of CBSE syllabus. The Right To Education Act basically brings in a lot of votes from the lower income segment. However, the average Indian middle-class up-bringing and values do not permit this kind of mixture at the moment. There have been many cases when children come back home from school learning a lot of filthy knowledge and definitely parents don't want their own children to get exposed to such language and behavior. They look for alternatives i.e. CBSE and ICSE schools and what at some point of time was an expense of 200 bucks per year has shot up to 1 lakh per year. Who owns these schools? Politicians and cronies/kin of politicians. Just a few days ago, the government of Maharashtra proudly put in a page full of propaganda in a leading newspaper that they gave green lights to 100s of 'self-funded' schools within a very short period of time. What they missed out on telling people is that the 'self-funded' schools are CBSE/ICSE schools run by their own brethren in Mantralaya :D Now don't get me wrong I am completely in favor of Right To Education because we need education and literacy to trickle down right to the bottom of the pyramid. Only then can India experience some real and positive changes. However, mixing up Right To Education with conventional schools is not the solution.
On one side, a lot of state run schools are citing a dearth of teachers despite the 50% reservation quota. On the other side, a lot of middle class people well-qualified, NET/SET cleared are waiting for getting a teaching job. They get frustrated and join at low paying jobs in these private schools and make up for lost compensation by form of tuitions and coaching classes. The best way to ensure Right To Education is to keep separate schools for the under-privileged children and staff them with the jobless youth by relaxing NET/SET rules.
Today, the governments are proud that as a tax payer you have right to education, right to health care which is taken care of by the ESIC contributions. However, with a population so gigantic in India and the changing demographic dividends, the average middle class person would like to chose a private hospital for healthcare. Private hospitals are more than happy to charge whatever they like because of mediclaim settlements. So the middle class gets a double whammy. They pay taxes to subsidize healthcare for the lower-income groups and yet spend again on their own health-care. Take a careful look at the proliferation of private hospitals over the last 2 years and who in-reality owns them; predominantly business houses and politicians! [One should go through the assumptions of budgets of Apollo Hospitals and Fortis Hospitals; they have estimated an average revenue of 1 Crore per bed per year since most of that will be covered by healthcare insurers!!!]
One argues that the salary levels have risen exponentially over the last 10 years and that is true to an extent but then look at the other aspects as well; education spend has grown by 1000% over the last 5 years and will continue to grow at 15% per year. Housing has already grown 400% over the last 10 years and will now grow about 300% over the next 10 years and will crash land eventually. Fuel, Milk, Pulses, Cereals will all continue to double every 5 years and this is a very hyper-inflationary trend in India.
Business houses and politicians are taking sound advantage of the aspiring Indian middle class and creating asset bubbles exactly where it hurts the middle class the most; can anybody change this trend?
No it is not possible and asset bubbles will keep getting created, destroyed and look for newer avenues. The only thing that the middle class can do is to keep themselves financially secure.
These days there is a popular advertisement for some retirement plans; investing 5000 / month for 20 years will yield 11000/month on maturity. There are a lot of hidden clauses in that as well. The fact of the matter is that 5000 rupees invested per month for 20 years amounts to almost 55000 rupees at maturity @ 9% interest rate. Stay invested with stock markets i.e. buy low and sell high. Keep maximum exposure to the index itself via NiftyBees, BankBees and those who are busy to track markets on a regular basis can simply opt for SIPs. Regardless of bull or bear conditions, when you buy through SIPs, over a 5 year period the cumulative returns are well above 15% [When the markets tank, you get more units of the ETF and viceversa] So over a 5 year period, regardless of where the market is, your total networth will be greater by 15% and if one is tuned enough to buy more during the lows and sell more during the highs, the returns can be as high as 25% to 30% annualized. The index exposure acts as a natural diversification strategy because regardless of which companies get in and out of the index, the ETF derives its value from the index itself.
Liabilities like home loans should be offset by 8 years at the most and car loans, personal loans should be offset by 3.5 years at the most.
Bottom-line: The political brass and the corporate brass wants to take out as much value as possible from your wallet. Make sure all your income is planned till the age of 42. Technological revolutions and that too disruptive technological revolutions will come in, thereby reducing the number of jobs drastically as we move ahead with time. Enjoy your weekend and don't get stressed at all :D A few good steps in fiscal prudence will help you stay secure and you can do it yourself. Self-help is the best help.
Every second day, we read in the business news papers that loans worth 4500 crores [Winsome Diamonds Case], 7500 Crores [Kingfisher Airlines] are going sour and as I explained earlier in 2013, this is a theme that is here to stay. At this point of time, we are not even getting into the loan restructuring issues [Corporate Debt Restructuring - the used jargon]
To begin with, the claim seems boisterous that it is the middle class that subsidize the super-rich. Just sit back and think about it for a minute. Banks charge about 20 to 40 rupees per user per month for SMS alerts. This charge is applicable by a conservative estimate of 300 million accounts [the real figure could be as high as 650 million accounts] Taking 300 million @ average 25 / month for SMS alerts over 1 calender year generates 9000 Crores of Revenue with an 80% profit margin! So 2 accounts like Winsome Diamonds can easily be wiped out. Who pays? The Indian Mango class. Who profits? The super-rich
Then we come to the interest payable; apart from the Fixed deposits, you get banks trying to woo you with 6%, 7% interest on your savings account. How many actually read the fine print? That amount is only payable on the MINIMUM balance between 10th and 25th of the calendar month When it comes to car loans, personal loans, home loans from the banks, do they allow this? The very moment the loan is disbursed the recovery mechanism starts ticking.
For some reason if a middle class person is not able to pay his car loan EMI for 3 months, his car will be towed away. Even if the Mallyas or Roys hold back on 2000 crores of payables, they can move around freely. How does this happen. Simply because the banks are paying you interest for 15 days at 6% whilst they recover from you anywhere between 10% and 18% for 30 days! This surplus is used to bail out the super-rich by means of write-offs
The other part that is hitting the middle class badly is inflation. The reported inflation figures are simply bogus. Let us get a perspective on simple items for an average middle class home of 4 members
Petrol is now going at almost 75 / litre and within the next 5 to 7 years it will go to 150!
There is a very smart gimmick that the government employed with the Right To Education Act and promotion of CBSE syllabus. The Right To Education Act basically brings in a lot of votes from the lower income segment. However, the average Indian middle-class up-bringing and values do not permit this kind of mixture at the moment. There have been many cases when children come back home from school learning a lot of filthy knowledge and definitely parents don't want their own children to get exposed to such language and behavior. They look for alternatives i.e. CBSE and ICSE schools and what at some point of time was an expense of 200 bucks per year has shot up to 1 lakh per year. Who owns these schools? Politicians and cronies/kin of politicians. Just a few days ago, the government of Maharashtra proudly put in a page full of propaganda in a leading newspaper that they gave green lights to 100s of 'self-funded' schools within a very short period of time. What they missed out on telling people is that the 'self-funded' schools are CBSE/ICSE schools run by their own brethren in Mantralaya :D Now don't get me wrong I am completely in favor of Right To Education because we need education and literacy to trickle down right to the bottom of the pyramid. Only then can India experience some real and positive changes. However, mixing up Right To Education with conventional schools is not the solution.
On one side, a lot of state run schools are citing a dearth of teachers despite the 50% reservation quota. On the other side, a lot of middle class people well-qualified, NET/SET cleared are waiting for getting a teaching job. They get frustrated and join at low paying jobs in these private schools and make up for lost compensation by form of tuitions and coaching classes. The best way to ensure Right To Education is to keep separate schools for the under-privileged children and staff them with the jobless youth by relaxing NET/SET rules.
Today, the governments are proud that as a tax payer you have right to education, right to health care which is taken care of by the ESIC contributions. However, with a population so gigantic in India and the changing demographic dividends, the average middle class person would like to chose a private hospital for healthcare. Private hospitals are more than happy to charge whatever they like because of mediclaim settlements. So the middle class gets a double whammy. They pay taxes to subsidize healthcare for the lower-income groups and yet spend again on their own health-care. Take a careful look at the proliferation of private hospitals over the last 2 years and who in-reality owns them; predominantly business houses and politicians! [One should go through the assumptions of budgets of Apollo Hospitals and Fortis Hospitals; they have estimated an average revenue of 1 Crore per bed per year since most of that will be covered by healthcare insurers!!!]
One argues that the salary levels have risen exponentially over the last 10 years and that is true to an extent but then look at the other aspects as well; education spend has grown by 1000% over the last 5 years and will continue to grow at 15% per year. Housing has already grown 400% over the last 10 years and will now grow about 300% over the next 10 years and will crash land eventually. Fuel, Milk, Pulses, Cereals will all continue to double every 5 years and this is a very hyper-inflationary trend in India.
Business houses and politicians are taking sound advantage of the aspiring Indian middle class and creating asset bubbles exactly where it hurts the middle class the most; can anybody change this trend?
No it is not possible and asset bubbles will keep getting created, destroyed and look for newer avenues. The only thing that the middle class can do is to keep themselves financially secure.
These days there is a popular advertisement for some retirement plans; investing 5000 / month for 20 years will yield 11000/month on maturity. There are a lot of hidden clauses in that as well. The fact of the matter is that 5000 rupees invested per month for 20 years amounts to almost 55000 rupees at maturity @ 9% interest rate. Stay invested with stock markets i.e. buy low and sell high. Keep maximum exposure to the index itself via NiftyBees, BankBees and those who are busy to track markets on a regular basis can simply opt for SIPs. Regardless of bull or bear conditions, when you buy through SIPs, over a 5 year period the cumulative returns are well above 15% [When the markets tank, you get more units of the ETF and viceversa] So over a 5 year period, regardless of where the market is, your total networth will be greater by 15% and if one is tuned enough to buy more during the lows and sell more during the highs, the returns can be as high as 25% to 30% annualized. The index exposure acts as a natural diversification strategy because regardless of which companies get in and out of the index, the ETF derives its value from the index itself.
Liabilities like home loans should be offset by 8 years at the most and car loans, personal loans should be offset by 3.5 years at the most.
Bottom-line: The political brass and the corporate brass wants to take out as much value as possible from your wallet. Make sure all your income is planned till the age of 42. Technological revolutions and that too disruptive technological revolutions will come in, thereby reducing the number of jobs drastically as we move ahead with time. Enjoy your weekend and don't get stressed at all :D A few good steps in fiscal prudence will help you stay secure and you can do it yourself. Self-help is the best help.
