As a kid I remember getting irritated whenever the old people would get together. Now they’ll start talking about how expensive everything is, I used to mutter. Back in those days, kids couldn’t utter aloud all the insidious little comments that were swimming around in their heads when adults were around. “Arrey, on a salary of twenty rupees you could run the house and then have something left over? That shawl mamijee wears, no? That cost a full five rupees. Now toh, you can’t buy it for five thousand only.” Everybody shakes their heads. “Tch tch. Zamana hi kharab hai (these are bad times).” As a kid I remember buying sweets for 5 paise and bus tickets cost 25 paise (and I’m on my way to irritating the life out of kids in the family). My daughter has never seen coins below one rupee. Her daughter will probably say the same for fifty bucks. The fall in purchasing power is the reason that we worry about meeting our expenses when we retire.
Have you been feeling low lately? Generally pessimistic and grumpy? I met a colleague in the lift bay and swapped stories. A fund manager drops by to meet me and we discuss how everybody feels much older than before. That the last 10 years feel like 20. Many conversations over the past few months lead me to think that the urban mass affluent Indian is not feeling too happy. It’s a big come down since the go-go days of 9% growth. No wonder that the Misery Index for India is the highest since 1991. Nomura Research has tweaked the classic Arthur Okun method of adding the unemployment and inflation rate (higher levels of both, the argument goes, would cause higher economic and social distress) to take the difference of the Index of Industrial Production growth and the Consumer Price Index to construct the Indian Misery Index. The swap was made necessary by poor employment data in India. The greater this difference, the higher is the misery index. With inflation persistently high and industrial production and jobs falling, no wonder the lines of worry are settling in. Add to this the sheer persistent deluge of bad news across all fronts—economic, political, social, moral—and the picture looks even worse.
Two years ago, I had a dream. It was vivid as some dreams are. A giant elephant was being taken to be chained up. I remember waking up traumatized at the anguish of the animal at being pulled, pushed and dragged back to the place from where it had so recently got free. For some reason I still feel the helplessness of the beast, who simply wanted to be free. I can’t help but see the analogy with us as an aspirational nation, being bullied, dragged, prodded and pinched into going back to the 1970s. Having grown up in a middle-class DDA colony in Delhi, one set of the memories is about the lack of everyday things. Everything was in short supply – milk, butter, ghee, eggs. The line at the Mother Dairy milk booth would stretch 50-60 people long.
You book a Delhi-Mumbai flight and the online travel site says the journey will take two hours. It takes four due to sudden bad weather. Would you use that site again? Sure—it wasn’t the fault of the site that the weather turned bad. Let’s complicate the story. Your paediatrician advises you against the chickenpox vaccine. The week after, your child goes down with it. Do you stop going to the doctor? No, you took a considered decision and are OK with the kid being out of action for a couple of weeks—chickenpox can be treated with medication and rest, unlike the more life-threatening diseases that need vaccination.
When retail investors begin to jump onto an investment idea that is either complicated or offers very high returns or both, you know that the end is near. We never hear of investors rushing suddenly to the idea that large-cap funds are so cool. Or that the Public Provident Fund is the next best thing after toasted bread. Nope. But you get asked if it is a good idea to buy a contract on a commodity exchange to earn a sure 15% return — and by a person who otherwise has just fixed deposits (FDs) and real estate in his portfolio. This has happened so many times that it is almost a rule set in stone. So when some three months ago I began getting questions from readers and viewers about investing in 100% guaranteed products offering double the FD rates by brokers on the National Spot Exchange Ltd (NSEL), it was clear that the unravelling would begin soon.
It’s been just over five months since I began doing a weekly personal finance show on Bloomberg India TV. Called Smart Money, the show is about offering strategies to people who are looking for hands-free money management. It’s for people who want to put in place a grid that they can service while they deal with flooding roads, politics at work, kiddy tantrums at home and that darn neighbour who parks in your place just to irritate you. The battle of everyday life of urban middle-class India leaves little time for goals such as everyday workouts and financial planning. The show seems to be helping for we get more than 25 to 30 mails (other than tweets and SMSes) a week sharing detailed financial information and asking for a strategy.
So it comes to pass that Aniruddha Bahal (the editor of Cobrapost.com, the online magazine that caught on camera bankers in over 20 banks across the country offering to launder money) is after all not blackmailing the banks. Neither, it seems, was he shorting bank stocks. The banking regulator fined 22 banks a total sum of Rs.49.5 crore earlier this week (you can read the Reserve Bank of India (RBI) circular here: http: //bit.ly/12FNP9w ), making it a total of Rs.60 crore in fines on the top Indian public and private sector banks, vindicating the Cobrapost sting. Ever since Bahal went public with his first tranche of the sting on three private sector banks in March 2013, the banking industry went overtly into outright denial and hair splitting. The more insidious part of the fightback were stories that ascribed motives to the sting operation and the editor of the online magazine. Having tracked retail banking and the rampant use of branches to mis-sell financial products for many years, I know anecdotally that there is muck at the bottom, but the sting not just brought home proof of mis-selling but showed that the problem went far beyond in a systemic way across the industry.
OK. So there is one more acronym to remember and deal with. Jostling for space with PAN, KYC and UID is a newly born creature. Meet the little fledgling—it’s called the EUIN or the Employee Unique Identification Number. When it grows up, it will cover the three million sellers of financial products in India. To see why it was born, we’ll have to go back to the 13 September, 2012, circular of the capital market regulator (http://bit.ly/11TWCtu) that laid out the road map of change for mutual fund (MF) manufacturers and sellers. Titled ‘Steps to Re-energise the Mutual Fund Industry’, the circular used carrot and stick to get the industry to do more than chase after the wholesale part of the market. Buried in the section that dealt with the distribution of MFs was a direction to the industry association, the Association of Mutual Funds in India (Amfi), that it should “create a unique identity number of the employee/ relationship manager/ sales person of the distributor interacting with the investor for the sale of MF products, in addition to the Amfi Registration Number (ARN) of the distributor.” And that the MF application form should have a box for the EUIN.
When I began doing a personal finance show on TV about seven years ago, I was inundated by stock tip seeking questions. But I was clear that what we were setting out to do was financial literacy and not giving cheap stock tips. It took work to nudge the questions in a particular direction, but within a few weeks of the show, the questions changed. They changed from asking if they should buy or sell a particular stock to the “I have so much money, what product do I buy?” questions. A product sales driven model of retail finance, fuelled by commission bearing products, had framed the market in a certain way. So instead of using products to solve financial problems, manufacturers and sellers aim to soak up all the surplus money by selling a product that gave the highest commission to the seller. Smart Money on Bloomberg India TV is my fourth show and we (co-anchor Vivek Law and I) began with portfolio-driven questions—where viewers were writing in to ask if their portfolios were Ok. And now within 15 weeks, we see a pattern emerge that tells me that people are finally asking the right questions. Though half are still driven by questions around a portfolio check, the rest deal with issues around individual financial situations. We’ve moved from trying to find a product to hit with our savings to a place where we want a plan that we can follow for the rest of our lives.