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Rise of Patanjali: How Baba Ramdev's Yoga Ayurveda Venture Shook Leading FMCG Companies

Simi Sebastian

Healthcare

Stand-up comedian Kunal Kamra jokes in one of his gigs gone viral on YouTube, “Baba Ramdev is bigger than Cadbury right now…”   He’s not wrong.   Patanjali Ayurved Limited, a Haridwar-based consumer goods company clocked INR10,561cr ($1.5bn) of sales in 2017, growing by 111% to put to shame most established fast-moving consumer goods (FMCG) companies in the country. According to data by VCCircle the company’s growth has been nothing short of exceptional, with sales practically doubling each year since 2013. Patanjali reported revenues of INR850cr ($123mn) in FY13, INR1,195cr ($173mn) in FY14, INR2,014cr ($292mn) in FY15 INR5,000cr ($725mn) in FY16 and doubling again in FY17, seamlessly taking over much older competitors such as Nestle and Godrej. Source: Alokprasad [CC BY-SA 3.0  (https://creativecommons.org/licenses/by-sa/3.0) or GFDL (http://www.gnu.org/copyleft/fdl.html)], from Wikimedia Commons Where it All Began   The beginnings of this success story can be traced to 1990, when Acharya Balkrishna and Swami Baba Ramdev set up the Divya Yog Pharmacy Trust to organize yoga camps and manufacture Ayurvedic / herbal medicines. With popularity of Ayurvedic products on the rise, both wished to expand and diversify their business portfolio leading to the inception of Patanjali Ayurved in 2006. There has been no turning back since.   The company’s tale borders on the edge of whimsy. Sans fancy marketing strategies or celebrity names to back its brand, the company has today become a household name. Elaborating on its growth plans, the face and personal Brand of the company i.e. Baba Ramdev, claimed in 2017 that they would continue to “double revenue [each] year” to cross INR20,000cr ($2.9bn) by March 2018 to subsequently exceed annual revenues of FMCG giant Hindustan Unilever (HUL) by 2019.   To give some context, Unilever had set up its first Indian subsidiary, Hindustan Vanaspati Manufacturing Company around 1931. This was followed by the incorporation of Lever Brothers India Limited in 1933 and United Traders Limited in 1935. The three entities merged to form HUL in November 1956. It was through a dozen and more mergers, acquisitions, and alliances with key players such as Brooke Bond (1984), Tata Oil Mills (1994), Lakme (1996), and Modern Food Industries (2000) that HUL today has risen through 85 years to become the leading FMCG company in India.   Against this background, a 12-year old organization’s claim that it shall overtake the FMCG giant is indeed a bold one! Acharya Balkrishna, 98.6% owner of Patanjali Ayurved Forward and Onward    Patanjali’s meteoric success can be credited to a combination of low prices, a ‘naturally herbal’ and ‘ayurvedic’ proposition as well as its successful ‘swadeshi’ positioning. Baba Ramdev as the Yoga Guru leveraged his popularity to promote and add credibility to its products. Moreover, very competitive pricing ensured that products were accessible to middle and lower-middle class India, a segment often ignored by established companies.   To illustrate, a 60ml pack of Patanjali Neem and Tulsi Facewash is priced at INR45, while 100ml of a comparable product by Himalaya (Himalaya Neem Face Wash) sells at INR150. Patanjali prices its 200ml Kesh Kanti Shampoo at INR85, whereas Head and Shoulders is pegged at INR145 for a 180ml pack. Most Patanjali products are discounted at 20-30% vs. competition.   Key Drivers of Growth   What are the drivers behind such ‘affordable’ pricing? Patanjali’s low operational cost base and minimal advertising/promotional spend are key.   The former is due to the company's direct sourcing network with respect to farmers. Moreover, only 5%-6% of total 2017 sales was spent on marketing vis-à-vis INR3,500cr spent by HUL (10% of total sales) and INR500cr-INR600cr (10%-12% of total sales) by Procter & Gamble. An effective distribution strategy also plays an integral role in permitting lower prices.   Patanjali began its distribution through dedicated stores. Akin to a franchise model, these stores were essentially free Ayurvedic consultancy clinics run by entrepreneurs (who bring in the equity) who can leverage Patanjali’s brand and serve as a distribution channel for its products. Categorized as Arogya Kendras, Chikitsalaya Kendras and Swadeshi Kendras, Patanjali trained and certified doctors nominated by these stores and granted them credibility in the market. Free trustworthy consultancy assured high footfalls. Courtesy network effect, the brand and its demand grew exponentially.   Once a sizeable consumer base was built, the next step was to expand distribution towards general stores. Recent tie ups with Future Group and e-commerce marketplaces like Amazon and Flipkart illustrate the company’s intent to widen reach and explore possibilities beyond brick and mortar.   Patanjali’s disruptive growth has not been without its fair shares of controversies and accusations. Of late the company has been riddled with controversies around tax evasion, land grab, lack of quality control and failure to gain approvals.   Baba Ramdev’s devotees form a key voting constituency, creating conditions for political favouritism.    According to a report by Reuters, the company has acquired more than 2,000 acres of land for building factories and research centres since the present government took office in 2014. According to the same report, Patanjali received discounts of up to 80% of market price on the land purchased. Any preferential treatment raises eyebrows especially when complemented by quality control concerns. In 2017 the Indian Army Canteen stores suspended sale of Patanjali products after they failed to meet minimum quality requirements.   It has been suggested that Patanjali's non-adherence to stringent standards driven by a perceived immunity from requisite regulatory action may be another factor driving lower prices. The Way Forward   While Patanjali has made its mark in a rather competitive FMCG sector, it remains to be seen if they are able to hold their moat. The company has never really disclosed its source of funds. Managing Director Acharya Balkrishna earlier in the year confirmed its search for investments to fund ongoing projects such as food processing. He also confirmed talks with Moët Hennessy Louis Vuitton SE (LVMH) seeking a INR3,000cr ($435mn) investment from the French luxury brand.   In its attempt to grow inorganically, Patanjali has recently made an INR5,700cr ($826mn) bid for debt-ridden Ruchi Soya, which has its expertise in Nutrela Soya products and refined oil segment.   These changes aside, growth seems to be tapering off. For FY18, the company reportedly “closed the year around the same level as the previous fiscal year’s revenue [INR10,561cr]”, in spite of expectations of revenues to double to INR20,000cr.   Acharya Balkrishna credits it to the lingering effects of demonetization and GST. Interestingly during the same fiscal, HUL and ITC clocked 12% and 11% Y-o-Y growth. A drop in quality and shortage of supply have been cited as headwinds driving consumer churn.   Moreover, HUL and Colgate having advanced their game by introducing similar herbal products leaving consumers spoilt for choice. The next leg would call for renewed efforts from the company as Baba’s credentials might not be able to keep the boat afloat if not combined with innovative high quality products.   Aware of its rising competitors, Patanjali is all set to make a breakthrough in international markets, starting with an investment of INR5,000cr ($725mn) in five new food parks in Madhya Pradesh, Maharashtra, Andhra Pradesh, Assam, and Uttar Pradesh. The unit in Madhya Pradesh will be dedicated to products to be exported to the US, the UK, and Canada, besides neighboring countries like China. The company also aims to hire over 35,000 salesmen across India. Baba Ramdev has also dropped hints around entering the fast-food business, taking on multinational restaurant chains like McDonald’s, KFC and Subway. With an Election year bringing in political re-alignments, only time will tell whether Patanjali will face or can flourish on a level playing field.   (We are now on your favourite messaging app – WhatsApp. We strongly recommend you SUBSCRIBE to start receiving your Fresh, Homegrown and Handpicked News Feed.)

Digital Lessons from Go-Jek: Indonesia’s Answer to Uber and Grab

INSEAD Knowledge

Tech

By Jason Davis, INSEAD Associate Professor of Entrepreneurship and Family Enterprise   What can be learnt from the meteoric rise of Indonesia’s ride-hailing and logistics platform.   The Southeast Asian ride-hailing market was jolted by the recent announcement of Uber’s retreat from the region. At first glance, it would appear a dramatic victory for Singapore-based rival platform Grab, which acquired Uber’s Southeast Asian operations in exchange for a 27.5% stake. The merger’s real winner, though, may be mutual investor SoftBank, which will be relieved from having to bankroll costly competition between the two apps. As of this writing, the completion of the deal is on hold pending review from the Singapore government’s anti-trust watchdog.   One person who is doubtless following the Uber-Grab drama with particular interest is Nadiem Makarim, CEO and co-founder of Indonesian “super-app” Go-Jek. Coinciding as it does with the start of Go-Jek’s push towards regional expansion, Uber’s exit may open a path for Indonesia’s first and biggest unicorn to extend its success beyond its home nation.   As of January 2018, Grab’s valuation reportedly exceeded Go-Jek’s by at least $2 billion. But the battle between these two companies – whose CEOs attended Harvard Business School at the same time – is likely to be fierce, as those who know Go-Jek’s story will attest. In the course of extensive field research at Go-Jek’s Jakarta headquarters and preparation of an INSEAD Teaching Case, I learnt how Makarim and his team built a mobile empire despite local conditions that could not be more different from those of tiny, orderly Singapore.   Go-Jek: A Capsule History Source: musnahterinjak [CC BY-SA 3.0  (https://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons The initial inspiration for Go-Jek rose out of the traffic-clogged streets of Jakarta, Indonesia’s capital. Jakartans are famously thought to spend ten years of their lives in traffic, much of it during the morning and evening rush. Two- to three-hour commutes are common. Your best bet to avoid the gridlock is to hail an ojek (motorcycle taxi). But flagging one down was often a challenge – at least, before Go-Jek came along. Ojek drivers were haphazardly strewn about the city, waiting on street corners and in parking lots to negotiate with those needing a ride.   Go-Jek began in 2010 as a call centre enabling riders to order an ojek by phone. In 2014, inspired by the success of Uber and other ride-sharing platforms, Makarim launched Go-Jek as a smartphone app. But unlike Uber and Grab, which had both feet firmly planted in transportation at launch and added other services later, Makarim had a menu in mind from the outset. Ride-sharing services alone, he reasoned, would not generate sufficient network effects to achieve lift-off and scale. Business would slump outside the rush hours. To keep drivers busy all day and increase demand, Go-Jek also offered Go-Send (a courier service) and Go-Food (food delivery).   As Makarim explained to me, “All three are the same essentially: a motorcycle from A to B. The difference is in the sense that one is picking up a human and one is picking up a package.”   By mid-2015, Go-Jek was one of Indonesia’s most downloaded apps. In its first 14 months, the app logged 100 million transactions. Additional services were introduced in swift succession, including Go-Mart (grocery delivery), Go-Clean (a housekeeping and cleaning service) and even Go-Massage (for booking spa treatments anywhere). In short, Go-Jek had become perhaps the only app outside China to merit the “super-app” status of an Alipay or WeChat. Recently, Go-Jek moved into the fintech space, offering an e-wallet called Go-Pay that customers could use for all Go-Jek services. Aware that 64% of Indonesians had no access to banking services, Makarim saw great potential for eventual expansion into transactions outside the app system. A series of fintech acquisitions in December 2017 brought his hopes closer to reality.   Lessons for Success Source: By Anterin.id [CC BY-SA 4.0  (https://creativecommons.org/licenses/by-sa/4.0)], from Wikimedia Commons Two main points of Makarim’s strategy enabled Go-Jek to grasp the opportunities of the Indonesian market – chiefly its 260 million-strong population, 55% of whom are younger than 30 – without slamming into its many roadblocks.   First, Makarim realised from the start that the drivers were his lifeblood. Deviating from the standard demand-dictates-supply business logic, he correctly predicted that a massive deployment of available drivers would release pent-up demand for Go-Jek’s suite of services. So while Uber spent millions upon millions on promotions and price cuts aimed at both drivers and customers, Go-Jek focused marketing efforts squarely on the fleet. The company held a string of huge, street-fair-style driver recruitment events in basketball stadiums, signing on drivers by the tens of thousands.   Sharply contrasting Uber’s controversial preference to regard its drivers as independent contractors, Go-Jek encouraged drivers to feel like an integral part of the organisation. Drivers who could not afford a smartphone were given loans to buy one; assistance was granted to those who didn’t have the necessary paperwork to register legally as a Go-Jek driver. Drivers flaunted their association with the app via branded attire and accessories, which quickly made the streets of Jakarta stream with Go-Jek’s signature shade of green.   Second, Makarim’s familiarity with the local environment helped him sidestep pitfalls early on. The pivotal decision to concentrate on ojeks, for example, was doubly context-savvy: It skirted direct competition with Jakarta’s existing taxi industry, while dodging the nation’s transport regulations, which applied only to four-wheeled vehicles. By the time the app introduced four-wheelers in 2016, Go-Jek had already cultivated a public profile as a boon to the local economy and a patriotic symbol of Indonesian progress.   Go-Jek’s goodwill in governmental circles was tested on 18 December 2015, when the news broke that the Ministry of Transportation had announced a blanket ban on ride-hailing transport apps. This also happened to be the day Makarim’s first child was born. “It was both the worst day of my life, and the best,” he told me. Less than 12 hours after the ban was announced, however, Indonesian president Joko Widodo overturned it, declaring, “We need to remember that ojek exists because the people need it.”   Makarim explains the turnabout, “It’s not always regulatory concerns that are most important; it’s how much political capital you have by providing the most number of jobs, by having a million users.”   Expansion   Go-Jek’s strategy for Southeast Asian expansion is designed to capitalise on lessons and skillsets gleaned on its home turf. Makarim is eyeing countries such as the Philippines and Thailand, which share with Indonesia many of the logistical challenges (e.g. epic traffic jams) that arise when infrastructure cannot keep pace with urbanisation and economic expansion. The planned entry to Singapore is more unique, reflecting its status as an important Southeast Asian business hub. Yet Grab possesses a decided advantage as the earlier entrant in these markets. The competition between Go-Jek and Grab may be won by the platform that is faster and better at leveraging local resources to solve problems that prevail regionally.   Jason Davis is an Associate Professor of Entrepreneurship and Family Enterprise at INSEAD. He thanks INSEAD’s Emerging Markets Institute for supporting research on Go-Jek.   Follow INSEAD Knowledge on Twitter and Facebook.   This article is republished courtesy of INSEAD Knowledge. Copyright INSEAD 2018.   (We are now on your favourite messaging app – WhatsApp. We strongly recommend you SUBSCRIBE to start receiving your Fresh, Homegrown and Handpicked News Feed.)

Crowdfunding to Finance Your Start Up: Moving Beyond Traditional Venture Capital and Private Equity

Editorial

Start-ups

Editor’s comment: Oculus VR launched a crowdfunding campaign back in 2012 to develop ‘Oculus Rift’, a state-of-the-art virtual reality headset. Both the campaign and the product were a hit! The company crossed its initial funding goal of $250,000 within 24 hours, raising over $2.4 million by the end of the drive thanks to Kickstarter – a well-known crowdfunding platform. Two years later, Oculus VR was acquired by Facebook for a staggering $2 billion, bringing much joy to its founders, but leaving its initial backers miffed for not realising any tangible financial gain.   Crowdfunding is a powerful tool at the hand of entrepreneurs, who are always looking-out for a more ‘democratised’ form of venture funding. Regulators however stand wary and press for higher controls, especially in a nascent start-up ecosystem like India. Their hesitation is visible in an ambiguous set of rules, which in turn suppresses financial innovation and makes business look at it as a non-actionable option.   Equity Crowdfunding   Crowdfunding is an alternative for entrepreneurs, artists, filmmakers etc. to fund their ventures directly from the public. An online platform like Kickstarter acts as an intermediary and sources small financial contributions from a sizeable number of people. This “crowdsourcing” ensures a significant funding requirement can be fulfilled by bypassing traditional financing routes e.g. venture capital funds etc.   The “crowd” becomes the real asset. While Oculus VR is often cited as the posterchild for this model, the company used Reward Crowdfunding i.e. where participants (or investors) are compensated in kind, through goodies like T-shirts, mugs, posters, pre-order rights etc, in exchange for the amount they raise. When Facebook acquired Oculus, early investors, not acknowledging this obvious condition, felt cheated that the transaction could not benefit them financially. They perhaps mistook their investment as Equity Crowdfunding, where participants can gain share ownership in lieu of their participation.   Incidentally it is Equity Crowdfunding, which in spite bringing a real expectation of returns, is where the Indian regulator is the most conservative.   Equity Crowdfunding does come with its own set of risks. It allows the public to participate unsupervised in a high risk low liquidity asset class – traditionally the turf of venture capital and private equity funds. There is not much recourse in cases of fraud or default. Moreover, with funding platforms being vulnerable to cyberattacks, and an absence of sophisticated market makers like investment banks, there is always a chance of mis-selling and information asymmetry.   There are major plusses as well. Equity Crowdfunding acts as a new investment avenue for start-ups/SMEs and retail investors hungry for yield. It unlocks pools of household capital, usually tied to fixed deposits and savings accounts. It unburdens start-ups from tedious due diligence requirements they generally face while dealing with VCs. Lower diligence translates to a lower cost of capital.   Current Regulations    Fund raising via equity issuances is regulated by Companies Act, 2013 and SEBI guidelines in India. While Reward and Donor Crowdfunding (with its philanthropic roots) have some legal basis, a regulatory framework around Equity Crowdfunding is missing.   Platforms instead rely on present Private Placement rules to execute a quasi-model. These rules force companies to approach not more than 200 investors in a financial year, with a single offer not allowed to exceed beyond 50 people. Also, no issuer executing a Private Placement can release a public advertisement. It is obvious the Private Placement rules suppresses the basic philosophy driving Equity Crowdfunding i.e. the more investors, the merrier.   Though SEBI is cognisant of these challenges, its 2014 consultation paper was no less restrictive. Permitting only ‘accredited investors’ or ‘qualified institutional buyers’ (i.e. excluding retail) to participate, along with strict contribution and investor number caps, the regulator has made it clear that Equity Crowdfunding is nowhere close to becoming a mainstream funding option in India. A 2016 notice explicitly declaring 20 crowdfunding platforms as ‘illegal’ has not helped. International precedents should be examined e.g. the United States created an exemption to US securities law for crowdfunding in 2012. It permitted the sale of securities through crowdfunding via the Jumpstart Our Business Start-ups Act, abbreviated as the JOBS Act. It has significantly reduced disclosure, registration and procedural requirements and has set an upper limit of $1 million within a period of 12 months. Australia and Singapore have also carved out similar exemptions.   A regulatory sandbox may be considered to create a ‘safe space’ for Equity Crowdfunding. Without seeing this model in action, it will be imprudent to implement straight-jacket rules.   Indian start-ups are dependent on foreign capital. Almost 90% of funds flowing in Indian VC and PE are of a foreign origin. Equity Crowdfunding can be a way to unlock domestic capital and ensure Entrepreneurs have access to more diverse funding options.   The regulator should move beyond repetitive consultations and blanket bans, and instead see the model in action under controlled conditions. Investors should be protected by gaining experience and including safeguards, instead of point blank paternalism.   (We are now on your favourite messaging app – WhatsApp. We strongly recommend you SUBSCRIBE to start receiving your Fresh, Homegrown and Handpicked News Feed.)

The Dark and the Darker Sides of the Market

INSEAD Knowledge

Investment

By Bart Zhou Yueshen, INSEAD Assistant Professor of Finance, with Rachael Noyes, INSEAD Knowledge Europe Editor      Total transparency in financial trading can be costly.     The nostalgic image of traders standing around on the floor of the New York Stock Exchange, shouting at one another, throwing papers around is no more. Now unemotional computers are the traders, basing purchases on a tremendous amount of data.   The exchange market (or, for our purposes, the “lit market”) is the best known platform to buy and sell equity shares. But it’s not the only platform for trading. Since the 2000s, there are also “dark pools”.   Although it may sound ominous, a dark pool is a legal mechanism typically used by large traders. It is an automated trading system that doesn’t display orders to the public; a consolidated tape of trade execution details is released at a later point. Available shares are deliberately not advertised; buyers are matched via automated systems only when sellers are present. Prices are gleaned from the lit market. But some dark pools offer varying degrees of pricing to the publicly quoted prices on public equity exchanges.   The key difference between dark pools and the lit market is transparency. In lit markets, you can see the demand and supply. In a dark pool, they’re not visible.   Over the last decade, there has been an expansion in trading in dark pools or off the lit market. In the United States, at least 30% of equity trading happens off the public exchanges. In Europe, off-exchange trading venues represent 40% of equity trading. Dark pools are also used in Australia, Canada and the United Kingdom.   Rise of the Dark Side   Dark pools have their purpose, but are they better than the lit market? In a recent article, “Shades of darkness: A pecking order of trading venues”, published in the Journal of Financial Economics, Albert J. Menkveld, Haoxiang Zhu and I set out to examine the heterogeneity among trading venues and when dark pools or the lit market are the best platform for trading.   When evaluating the various platforms, we propose a “pecking order” hypothesis. When executing orders, investors decide between dark and transparent trading venues by ranking them based on their associated costs and immediacy.   At the top of the pecking order are venues with the lowest cost and lowest immediacy. Those with the highest cost and highest immediacy go at the bottom.  As a broker’s need to trade becomes more urgent, they move from low-cost/low-immediacy venues to high-cost/high-immediacy platforms, we found. Patience or Money   For large institutions, selling blocks of shares can exact a toll, either in terms of cost or patience.   Costs depend on the type of platform. Selling on the lit market incurs transaction costs and a possible drop in price if large amounts of shares are sold off – a large transaction moves the price in an unfavourable way for the seller. In dark pools, the cost is limited, because prices aren't moving as quickly and large bulk trades aren't continually moving prices.   Immediacy or patience also varies with the platform: Selling quickly is easy on the lit market but patience is important in dark pools, as an investor must wait for a counterparty to come.   In the lit market, a trade can be done immediately but the costs are higher. In the dark market, one has to wait for a counterparty to arrive so there are waiting costs but the trading costs are lower.   A mutual fund may want to buy large quantities of shares and for such a large institution, dark pools might be a better option. There the fund only needs to wait for potential sellers and all positions will eventually be transacted at “fair” prices as referred by the lit market. The only catch is that the fund needs to be patient. Equally large selling demand might take hours if not days to cumulate.   If the fund needs to buy shares quickly, especially due to a market shock and high volatility, the lit market is preferable because what’s on offer is clear and the buying fund can scoop up available shares quickly, but of course at an increasingly more expensive price.   Pecking Order   We found that dark pools were top in terms of low-cost/low-immediacy. Yet not all dark pools are the same. The very top of the pecking order were those dark pools that used a mid-point for pricing shares. Whenever there is a match in this type of dark pool, the trading price is the middle point between the best-bid and the best-ask prices shown in the lit market. The ask price is always higher.   Just under the mid-point dark pools in the order are the non-mid-point dark pools, which allow transaction prices to fall anywhere between the best-bid and the best-ask prices. These in-between platforms, that aren’t as dark or as transparent, traverse the spectrum in terms of cost and immediacy.   At the bottom is the lit market. This isn’t to say the lit market is the worst; it’s that trading is sent down the pecking order as shocks occur. The volume of shares becomes progressively larger further down the pecking order, especially when the market experiences volatility, stirring up investors’ urgency to trade.   Using a data set of 117 stocks traded in October 2010, we found that right after an urgency shock, the total volume of shares drops significantly in the dark pools, while the lit venue sees significant increases. Dark pools are much more sensitive to shocks than the lit market.   The Drawbacks of Transparency   Different types of traders need different platforms. If you are very patient, the best thing to do is to go to a dark market. If you are facing urgent shocks (like a volatile market), and it is no longer meaningful to wait, it’s best to pay to execute on the lit market.   As it turns out, transparency is not always good for the market. It is fair to hide demand if the market requires it. If regulators were to abandon dark pools, it would have a negative effect on the market as a whole. Essentially, certain types of investors who otherwise would be able to trade would, in fact, suffer from inefficient asset allocation due to the regulated transparency of trading venues.   The different platforms – the lit market, non-midpoint dark pools and dark pools – have been tailored to institutional demand. The market has worked out an efficient way to ensure that the dual priorities of cost and immediacy are balanced.   Bart Zhou Yueshen is an Assistant Professor of Finance at INSEAD.   Follow INSEAD Knowledge on Twitter and Facebook.   This article is republished courtesy of INSEAD Knowledge. Copyright INSEAD 2018.   (We are now on your favourite messaging app – WhatsApp. We strongly recommend you SUBSCRIBE to start receiving your Fresh, Homegrown and Handpicked News Feed.)

How to Fix Working Capital Woes of the SME: Consider Unsecured Loans

OfBusiness

Credit

Most businesses in India raise working capital either through secured or unsecured business loans. However, unsecured loans attract a higher rate of interest. This is because, while the lender, a Bank or Non-banking Financial Company (NBFC), keeps some form of collateral in secured business loans, no collateral is required for unsecured loans. This means a higher risk for the lender, hence a higher rate of interest.   This may be a dampener for businesses, especially Small & Medium-sized Enterprises (SMEs) due to the higher interest rate but it makes a lot of sense for a short-term requirement. Most businesses may not have an asset which they can keep as collateral. Further, any secured loan will take longer for disbursement owing to a long list of formalities required, including valuation of the asset being posted as collateral.   What is a Collateral?   A collateral is any kind of asset owned by a business. It may be a house, a plot of land, gold, machinery etc. These assets are used as a 'security' while borrowing 'secured' business loans either from a Bank or an NBFC.   Let’s understand why unsecured business loans can be a better choice when compared to secured business loans, even at higher interest rates, especially if you are looking to fulfill your working capital requirements.   1. Quicker Loan Approvals   Approvals on unsecured business loans are quicker in comparison to secured business loans as there is a lot of paperwork involved in the latter. Since the turnaround time is shorter in unsecured business loans, it enables businesses to run their daily operations smoothly. Moreover, businesses having limited collateral can gain quick access to working capital. 2. Lower Interest Payout   Despite charging a higher interest rate, unsecured loans help businesses by granting flexibility of interest payout. Businesses can restrict their payout to only the amount they have used in a unsecured business loan. This option is not available in a secured loan where the interest is to be served on the entire loan amount sanctioned. Another advantage of unsecured business loans is that they do not levy any foreclosure/penalty charges on the borrower/business. Hence businesses can pay back a partial or the entire amount whenever they have ready cash.   3. Collateral-Free   The very reason for a higher rate of interest for unsecured business loans is that it is collateral-free. Emerging businesses can hence greatly benefit as they are in general deficient in collateral.    4. Purchase Financing Power   Unsecured business loans help businesses negotiate with their suppliers as they have ready access to working capital. With a strong working capital position, these businesses are in a position to pay their supplier on a shorter payment cycle and also procure raw materials at a lower rate (facilitated by advance payment).   Working capital is key for any business to grow. It often poses a challenge for businesses which lack collateral. Unsecured business loans is the best available option for them.   In the last couple of years, a lot of NBFCs have been set up providing unsecured credit lines up to INR2cr, including companies like OfBusiness, Indifi and Capital Float.    (We are now on your favourite messaging app – WhatsApp. We strongly recommend you SUBSCRIBE to start receiving your Fresh, Homegrown and Handpicked News Feed.)

Why PPP Model of Infrastructure Development Is Yet to Takeoff in India?

Gaurav Agrawal

Infrastructure

Infrastructure is a key enabler for any economy to attain competitive and sustainable growth. There is no denying that the last two decades has seen a remarkable expansion of infrastructure in India, both in scale and reach. Ironically, it is the same infrastructure whose underdeveloped state acts as a constraint in the realization of our potential. At the heart of this lies the Public-Private Partnership (PPP) model. Any attempt to know what went wrong must come to grips with how we, as a nation, implemented the PPP model in infrastructure, what were the misses and what needs to be fixed?   A PPP project essentially involves three major stakeholders – the government, the private developer and the bank. Each of these have their fair contribution in carving a failure out of a potentially successful concept. The model was initially developed to leverage the combined strengths of the government and private sector to meet India’s critical infrastructural needs. But a poorly implemented model has led to numerous projects going bust, increased the risk of loans turning into Non-Performing Assets (NPAs) ­and pushed developers on the brink of bankruptcy.   The Government and the Model Concession Agreement (MCA)   A fundamental mistake committed by the government was narrowing down the scope of PPP to a funding necessity, initially leveraging the model solely to attract private investment. They did not focus on garnering other benefits like the private sector’s ability to bring in latest technology, efficient managerial practices and complementary risk mitigation. Furthermore, the critical need to build institutions that would have enabled the efficient deployment of capital raised was overlooked.   The fact that Governments can often raise funds at lower costs compared to private developers makes this initial digression of approach even more counter-intuitive.   The government also failed to ensure the private sector gets protected from risks it was ill-equipped to handle, such as land acquisition or environmental clearances. These are often critical reasons behind stalled projects. The need to establish an independent regulator to ensure an efficient dispute settlement mechanism was ignored.   The Model Concession Agreement (MCA), which sets the implementation backbone of PPP projects, can be far too rigid. It, in general, applies a ‘one size fits all’ solution to all projects in a sector. It fails to recognize the fact that many projects may face unique technological risks or demands that may go beyond standardized templates. The MCA also sets greater bindings on private developers, thereby limiting the accountability of the state, and fails to ensure an equitable risk allocation. The Kelkar Committee has acknowledged this problem and provided a framework for the renegotiation of MCA under various circumstances.    The Private Developer   A report on PPP projects submitted by Kelkar committee pointed out the practice of deliberate inflation of the Total Project Cost (TPC) by developers. By inflating the TPC, developers source higher debts than required. If the project is then jeopardized, there is virtually no “skin in the game” for the developer, as the funds at risk come from the lenders.   A 2016 submission of a parliamentary standing committee found that the National Highway Authority of India (NHAI) allowed concession agreements with cost estimates different from those used in loan applications. The Committee report suggested that banks and other financial institutions must have the authority to review the MCA along with the concerned ministries.   Banks: Source of Funds   Unlike its international precedents, infrastructure in India was funded to a major extent by commercial banks. Since infrastructure projects have longer gestation periods and banks raise funds from depositors for a tenure ranging from short to medium term, a case of serious asset-liability mismatch gets created.   Ignoring the problem, banks not only went ahead in investing in infrastructure projects but also showed irrational exuberance in terms of lending to the sector. The share of bank loans to infrastructural projects rose from 13% in 2002 to 31% in 2015. The mammoth NPA resolution problem that the commercial banks in India are facing today could have been considerably lower if bankers had acted with some foresight then.    Way Ahead   Success of PPP to a large extent depends on optimal risk allocation, an environment of trust among the stakeholders and a robust institutional capacity. To this effect, the government must necessitate the establishment of an independent regulatory institution and the creation of a robust dispute settlement mechanism.   Pricing and accounting reforms are required to improve the fiscal sustainability of projects undertaken, and to have a clearer projection of fund flows.   Apart from a sound regulatory and arbitration framework, a robust PPP enabling ecosystem includes diversified and financial institutions pivoting towards long-term funding such as wholesale banks.   The private fund flow into the infrastructure sector has been rightly streamlined by the establishment of the National Infrastructure Investment Funds (NIIF) by the government and the Infrastructure Debt Fund by the RBI. Further, a green signal to Infrastructure Investment Trusts (InvITs) is a step in the right direction as it would scale down the exposure of commercial banks to the infrastructure sector.   Moreover, the government’s roll out of the Hybrid Annuity Model (HAM) under PPP is a welcome move. The model seeks to balance the risk mitigation needs of private sector by providing c. 40% of the project cost in terms of annual annuities over a five-year time frame and the rest on a revenue sharing model.   Swift action to implement some of the key recommendations of the Kelkar committee such as setting up of a national level PPP institution, a dedicated PPP tribunal and a formal framework of contract renegotiation, is needed.   Building institutional capacity, better regulatory oversight, a diversified source of funding, efficient dispute settlement mechanism, flexible contract negotiation, and accounting and pricing reforms – such initiatives can greatly leverage the PPP model as a powerhouse to India’s growth and infrastructural requirements.   (We are now on your favourite messaging app – WhatsApp. We strongly recommend you SUBSCRIBE to start receiving your Fresh, Homegrown and Handpicked News Feed.)

How To Identify Valuable Bond Markets With High Yields

Colin Lloyd

Investment

Few government bond markets offer a positive real return; Those that do tend to have high associated currency risk; Active management of fixed income portfolios is the only real solution; Italy is the only G7 country offering a real-yield greater than 1.5%.   In my last Macro Letter – Italy and the repricing of European government debt – I said:   I have never been a great advocate of long-term investment in fixed income securities, not in a world of artificially low official inflation indices and fiat currencies. Given the de minimis real rate of return I regard them as trading assets. Suffice to say, I received a barrage of advice from some of my good friends who have worked in the fixed income markets for the majority of their careers. I felt I had perhaps been flippant in dismissing an entire asset class without so much as a qualm. In this letter I distil an analysis of more than one hundred markets around the world into a short list of markets which may be worthy of further analysis.   To begin with I organised countries by their most recent inflation rate, then I added their short term interest rate and finally, where I was able to find reliable information, a 10 year yield for the government bond of each country. I then calculated the real interest rate, real yield and shape of the yield curve.   At this point I applied three criteria, firstly that the real yield should be greater than 1.5%. Second, that the real interest rate should also exceed that level. And finally, that the yield curve should be more than 2% positive. These measures are not entirely arbitrary. A real return of 1.5% is below the long-run average (1.7%) for fixed income securities in the US since 1900, though not by much. For an analysis of the data, this article from Observations and Notes is informative – U.S. 10-Year Treasury Note Real Return History:   As you might have expected, the real returns earned were consistently below the initial coupon rate. The only exceptions occur around the time of the Great Depression. During this period, because of deflation, the value of some or all of the yearly interest payments was often higher than the original coupon rate, increasing the yield. (For more on this important period see The 1929 Stock Market Crash Revisited)   While the average coupon rate/nominal return was 4.9%, the average real return was only 1.7%. Not surprisingly, the 3.2% difference between the two is the average inflation experienced for the century. As an investor I require a positive expected real return with the minimum of risk, therefore if short term interest rates offer a real return of more than 1.5% I will incline to favour a floating rate rather than a fixed rate investment. Students of von Mises and Rothbard may beg to differ perhaps; for those of you who are unfamiliar with the Austrian view of the shape of the yield curve in an unhampered market, this article by Frank Shostak – How to Interpret the Shape of the Yield Curve provides an excellent primer. Markets are not unhampered and Central Banks, at the behest of their respective governments, have, since the dawn of the modern state, had an incentive to artificially lower short-term interest rates: and, latterly, rates across the entire maturity spectrum. For more on this subject (6,000 words) I refer you to my essay for the Cobden Centre – A History of Fractional Reserve Banking – the link will take you to part one, click here for part two.   Back to this week’s analysis. I am only interested in buying 10yr government bonds of credit worthy countries, where I can obtain a real yield on 10yr maturity which exceeds 1.5%, but I also require a positive yield curve of 2%. As you may observe in the table below, my original list of 100 countries diminishes rapidly: Source: Investing.com, Trading Economics, WorldBondMarkets.com   Five members of this list have negative real interest rates – Italy (the only G7 country) included. Despite the recent prolonged period of negative rates, this situation is not normal. Once rates eventually normalise, either the yield curve will flatten or 10yr yields will rise. Setting aside geopolitical risks, as a non-domicile investor, do I really want to hold the obligations of nations whose short-term real interest rates are less than 1.5%? Probably not.   Thus, I arrive at my final cut. Those markets where short-term real interest rates exceed 1.5% and the yield curve is 2% positive. Only nine countries make it onto the table and, perhaps a testament to their governments ability to raise finance, not a single developed economy makes the grade: Source: Investing.com, Trading Economics, WorldBondMarkets.com   There are a couple of caveats. The Ukrainian 10yr yield is derived, I therefore doubt its accuracy. 3yr Ukrainian bonds yield 16.83% and the yield curve is mildly inverted relative to official short-term rates. Brazilian bonds might look tempting, but it is important to remember that its currency, the Real, has declined by 14% against the US$ since January. The Indonesian Rupiah has been more stable, losing less than 3% this year, but, seen in the context of the move since 2012, during which time the currency has lost 35% of its purchasing power, Indonesian bonds cannot but considered ‘risk-free’. I could go on – each of these markets has lesser or greater currency risk.   I recant. For the long term investor there are bond markets which are worth consideration, but, setting aside access, liquidity and the uncertainty of exchange controls, they all require active currency management, which will inevitably reduce the expected return, due to factors such as the negative carry entailed in hedging.   Conclusions and Investment Opportunities   Investing in bond markets should be approached from a fundamental or technical perspective using strategies such as value or momentum. Since February 2012 Greek 10yr yields have fallen from a high of 41.77% to a low of 3.63%, although from the July 2014 low of 5.47% they rose to 19.44% in July 2015, before falling to recent lows in January of this year. For a trend following strategy, this move has presented abundant opportunity – it increases further if the strategy allows the investor to be short as well as long. Compare Greek bonds with Japanese 10yr JGBs which, over the same period, have fallen in yield from 1.02 in January 2012 to a low of -0.29% in July 2016. That is still a clear trend, although the current BoJ policy of yield curve control have created a roughly 10bp straight-jacket beyond which the central bank is committed to intervene. The value investor can still buy at zero and sell at 10bp – if you trust the resolve of the BoJ – it is likely to be profitable.   The idea of buying bonds and holding them to maturity may be profitable on occasion, but active management is the only logical approach in the current global environment, especially if one hopes to achieve acceptable real returns.   Originally Published in In the Long Run    (We are now on your favourite messaging app – WhatsApp. We strongly recommend you SUBSCRIBE to start receiving your Fresh, Homegrown and Handpicked News Feed.)

OBOR and China Pakistan Economic Corridor: India China Pakistan Should Rethink ‘Competition and Conflict’

South Asia at LSE

India

One of the major bones of contention between India and Pakistan relations has been Beijing’s close ties with Pakistan. However, the possibility of India joining China Pakistan Economic Corridor(CPEC) should not be ruled out, writes Tridivesh Singh Maini.    If one were to look at the India-China relationship, apart from territorial disputes, one of the major bones of contention between both countries has been Beijing’s close ties with Pakistan.   The China Pakistan Economic Corridor (CPEC) passes through disputed territory and New Delhi has put forward its reservations on more than one occasion. This was one of the main reasons why India boycotted the One Belt One Road Summit (OBOR) held in China in May 2017.   Recently, China has expressed its willingness to address Indian concerns. The Chinese Ambassador to India in fact even suggested an alternative route. Speaking at the Jawaharlal Nehru University (JNU), New Delhi, Ambassador Luo Zhaohui stated:   ‘We can change the name of CPEC [China Pakistan Economic Corridor]. Create an alternative corridor through Jammu and Kashmir, Nathu La pass or Nepal to deal with India’s concerns’   Significantly,  at the recently held Boao Forum for Asia (modelled after the World Economic Forum held at Davos), in Hainan (China), President Xi Jinping stated that the Belt and Road Initiative (of which CPEC is an important component) has no ‘geo-political’ calculations. It remains to be seen.   However, Beijing has turned a blind eye to the activities of Pakistani terror groups which have targeted India and it is China’s support for Pakistan, which has ensured that Jaish-E-Mohammad (JeM) Chief Masood Azhar has not been declared a ‘terrorist’ at the United Nations, and it has blocked US moves in such a direction, more than once.   Only recently, the US has declared MML (The Milli Muslim League), a political party formed by Hafiz Saeed (who heads LeT Lashkar-e-Taiba (LeT) and Jama’at-ud-Da’wah (JuD), as one of the fronts of LeT. Its top officials have also been designated as specially designated global terrorists. The Tehreek-e-Azadi-e-Kashmir has also been declared as a terrorist organization by the US.   China-Pakistan Nexus in South Asia   It is not just the China-Pakistan nexus in the context of CPEC, or Beijing’s tendency to turn a blind eye to terror groups operating from Pakistan which should worry India.   Through its economic leverage in South Asia, China is doing its hardest to ensure that Pakistan remains relevant in the SAARC region. Recent visits of the Pakistani PM, Shahid Khaqan Abbasi to Nepal; the Sri Lankan President to Pakistan; and the Pakistan army chief to the Maldives; are also a clear reiteration of the fact that China’s increasing influence in South Asia is beginning to shape the geopolitics of the region, and Beijing will ensure that Islamabad’s ties with neighbouring countries do not deteriorate excessively.   While the key issues raised by Abbasi during his visit to Nepal were the revival of the SAARC Process (Pakistan is keen to host the next SAARC Summit in 2018 and sought Nepal’s support for the same, the summit of 2016 was cancelled, because India refused to participate post the Uri terror attacks, with Bangladesh and Bhutan) and trilateral cooperation between Nepal, Pakistan and China, Abbasi also raised the Kashmir issue during his meeting with the Nepal PM.   During the Sri Lankan President’s (Maithripala Sirisena’s) visit to Pakistan, the Sri Lankan leader, praised the China Pakistan Economic Corridor (CPEC) project, and also held discussions with regard to the revival of the SAARC Process. The Sri Lankan President had been invited as Chief Guest to this year’s Pakistan Republic Day celebrations.   Pakistan Army Chief, General Qamar Javed Bajwa, also visited Maldives, becoming the first high-ranking foreign dignitary to visit the country after the lifting of the 45 day emergency. Bajwa was invited by Maldives National Defence Force chief Major General Ahmed Shiyam, and met with defence minister Adam Shareef Umar. The Pakistan Army Chief also spoke in favour of strengthening ties between both countries. One of the significant takeaways of the visit was the proposed joint patrolling of the exclusive economic zone, also reported in a press release from the Maldivian defence and national security ministry.   Recent Convergences   Yet, in spite of all these differences between India and China, it should also be borne in mind, that China did not come in the way of putting Pakistan on the watch list of the international watch dog Financial Action Task Force (FATF) (Pakistan will be put on the grey list by January 2018). India in return supported China’s bid for the Vice-Presidency of the FATF. Commenting on the outcome, a Ministry of External Affairs spokesperson tweeted:   ‘Congratulations to China on its election as Vice President of Financial Action Task Force at the #FATF plenary mtg. on 23 February 2018. We remain hopeful that China would uphold & support the objectives & standards of FATF in a balanced, objective, impartial & holistic way.’   Interestingly, commemoration of the 60th year of His Holiness Dalai Lama in India was also low key, while celebrations were shifted from the capital to Dharamsala, the Foreign Secretary also sent an advisory to government officials to remain away from such events. There has also been a recent thaw between India and Pakistan: both sides have agreed to resolve issues which their diplomats have been facing through dialogue. Indian High Commissioner to Pakistan, Ajay Bisaria met with Pakistan National Security Adviser Lt-Gen (retd.) Nasser Khan Janjua on April 3,  2018. Both agreed to reduce tensions, and move towards resumption of dialogue. India and Pakistan had also agreed to humanitarian measures with regard to prisoners lodged in both countries (including release of prisoners over 60).   Can The Triangle Move Away From A Zero-Sum Approach?   While a lot of attention and media space is given to the zero-sum narrative in the context of India’s ties with China and Pakistan, recent overtures by India towards China have raised some interesting possibilities. First, could China be used to pressurize Pakistan to act against terror groups? A number of American analysts and policy makers including recently appointed National Security Advisor, John Bolton have recommended that China can be more effective in pressuring Pakistan to act against terror groups. In the longer run, New Delhi should not totally rule out triangular cooperation, if ties improve. In India, a number of individuals have even argued in favour of joining CPEC.   Arguments In Favour of India Joining CPEC   There have been arguments in favour of India joining CPEC (in both India and China), especially through the Wagah-Attari border, though recently even the Jammu and Kashmir Chief Minister pitched for New Delhi to explore the possibility of joining the mega project. Said Mehbooba Mufti:   ‘Why can’t we be partners in economic growth and share the benefits of projects like CPEC. Let us move beyond skirmishes [.] It would make the region a hub of emerging economic opportunities leading to cooperation in trade, commerce, tourism, adventure across the region’.   The Turkmenistan, Afghanistan, Pakistan, India (TAPI) pipeline, in which both India and Pakistan are participating, can also be part of the CPEC project, as has been argued by some. This will of course depend upon how Pakistan and India resolve their differences over the project, but given the fact that China has proposed to extend the project to Afghanistan, this possibility cannot be ruled out.   Conclusion   Whilst India joining CPEC may seem far-fetched currently, all three countries need to start thinking in terms of cooperation and not conflict. However, over the next few months in the run up to the elections in Pakistan, one cannot expect much in the context of India-Pakistan ties. In the meanwhile, China must also reconsider its responses to terrorism emanating from Pakistan and targeted at India. For South Asia to move beyond the current narrative of ‘competition and conflict’ innovative and forward-thinking solutions will be required but this is not impossible.   About the Author   Tridivesh Singh Maini is a New Delhi-based policy analyst associated with Jindal School of International Affairs, Sonipat. His areas of interest include the India-China-Pakistan triangle, the role of India’s state governments in foreign policy (especially the economic dimension), and federalism in India. He was a South Asian Voices Visiting Fellow at the Stimson Center, Washington DC and a Public Policy Scholar with The Hindu Centre for Politics and Public Policy, Chennai.  He has previously worked with The Observer Research Foundation, New Delhi and The Indian Express, New Delhi. Maini is a regular contributor for The Diplomat, Global Times and Quint.   This article was first published on South Asia @ LSE, and is republished with permission. Click here for the original article. These are views of the author, and not the position of the South Asia @ LSE blog, nor of the London School of Economics, or CPGS, Islamabad.

The Butterfly Effect: Is Another Financial Crisis Underway?

Emiel van den Heiligenberg

Investment

I’m passionate about macro investing. As long as the markets are open, I don’t think about much else. Some people call it passion, others call it addiction.   Investing is not just a job; to me, it's an all-consuming lifestyle! The job often feels like you need to be switched on all the time. I somehow feel the need to check the US close almost every evening and Asian markets as soon as I wake up, even though I'm supposed to focus on big picture, top-down issues for a living. The daily noise in the markets is not determining my views but the daily rhythm definitely helps me to build the bigger picture. It's that or I am just addicted to the buzz.   Luckily most of the markets are closed over the weekend, but by then there is so much reading to catch up on. There is the usual macro stuff to read, like economics and politics and then there is so much other news that is potentially relevant. As a self-declared 'information junky', I read all I can.   I think I have FOMO; the fear of missing out   The fear of missing that one special article or paper that provides a deep insight or a new trend. The fear of that odd idiosyncratic news item that would add conviction to an interesting trade idea. The fear of failure to recognise the ‘butterfly effect’: an idea from chaos theory that the flapping wings of a tiny butterfly can cause a tornado somewhere else on earth, weeks after.   This effect is present in markets as well. I guess many things in chaos theory are applicable to markets. For example on 9 August  2007, BNP Paribas froze trading on three of their funds which invested in assets known as collateralised debt obligations (CDOs). Equity markets dropped about 1% that day: nothing special and probably not even particularly related to these “flaps of the wings of the butterfly”. The S&P index made new highs a few months later and the fund closures were a distant memory for most market participants by then. One year later the global financial crisis (GFC) was upon us and Lehman Brothers filed for bankruptcy.     The investment teams of LGIM did quite well through 2008. Tim and James, our resident economists at the time, were anticipating recession and the credit team worried about the build-up of excessive leverage.   What About Today?   The build up of a bubble is not too difficult to spot; starkly rising asset prices are usually a good starting point in spotting a potential asset bubble, dramatically increasing debt ratios are a strong hint towards a credit bubble. The Bank for International Settlements has a great framework to spot credit bubbles. We use a similar framework. In this light, we believe China still poses substantial credit risks at the moment.   Many things in chaos theory are applicable to markets   The ‘Heiligenberg index’ is a range of indicators put in an equally weighted index. I keep track of this to help us predict both asset and credit bubbles. The index has signalled both the 2000 and 2008 bubbles quite well and the index is clearly elevated at the moment.    Last August, when I last blogged about this index, I believed it was too soon to call the top. Markets are up more than 10% since then. So far so good.   Compared to last year the Heiligenberg Index has increased as market volatility is increasing and interest rates are drifting up. It is clearly getting more difficult to deny the markets are getting bubbly, but the index is at more or less the same level as in 2014. That proved to be a false signal. All in all, like last August, time I think it's too early to raise the alarm.   So it is not the formation of a bubble that is difficult to spot, it’s the timing of the popping of the bubble that is the problem. There is no standard playbook for it. There are no maximum levels of valuation or debt after which the bubble must burst. Actually, there is even no guarantee a bubble will burst at all. There is a great Financial Times article on this “The importance of bubbles that did not burst”.      Yale’s Will Goetzmann complains that bubbles are booms that go bad — “but not all booms are bad”   The un-popped bubble in China, which pundits (and investors like us) have been warning about for years, is a case in point. We believe it is a credit bubble, waiting to burst. But it is difficult to determine when and there is a remote possibility it will deflate without bursting. Go defensive too early and you miss out on essential returns or pay out too much insurance premium.   The odds are stacked against investors timing a credit crisis. To increase those odds, we spend a lot of our research time analysing credit risk and our colleagues from the fixed income team are crucial in this discussion. This should help us better understand transition mechanisms that lead to a crisis (i.e. recognise the flapping of a butterfly before it turns into a proper tornado). However, we believe that credit problems are more likely to come to the surface when the economic cycle weakens, like in 2007, so our cyclical view remains crucial as well.   In that light, I reiterate what I said in early February. We believe global growth is doing well for now, inflationary pressures are building gradually but not alarmingly and we would expect our recession indicators to start flashing red around the end of this year.   Stay invested, stay diversified, but stay focused as well. No time to sleep.   This article was originally published on Legal & General   (We are now on your favourite messaging app – WhatsApp. We strongly recommend you SUBSCRIBE to start receiving your Fresh, Homegrown and Handpicked News Feed.) 

Is Artificial Intelligence And Machine Learning Really Killing Job Opportunities?

Colin Lloyd

Tech

UK productivity – output/hour has risen 1.5% in a decade; UK unemployment, at 4.2%, is the lowest since April 1975; UK real-wages have risen by 1.1% per annum over the last four years; Robots may be coming but it’s not showing up in the data.   The subject matter of this Macro Letter is broad, so I shall confine my investigation to the UK. It was, after all, one of the first countries where services became a larger percentage of GDP than manufacturing. The crossover between manufacturing and services is estimated to have happened around 1881. When Napoleon Bonaparte described England as, ‘A nation of shopkeepers,’ his intension may have been derisive, but his observation was prescient. Of course, N. Bonaparte was actually quoting Adam Smith, who first coined the phrase in his magnum opus, An Inquiry into the Nature and Causes of the Wealth of Nations, published in 1776. Now, he really was prescient!   As we stare into the abyss, anticipating the huge percentage of manufacturing – and now, many services – jobs which are expected to be replaced by machines, it behoves us to begin by reviewing the accuracy with which we measure services in general. A recent paper from the Centre for Economic and Business Research does just that for one sub-sector, although it suggests that mis-measurement of economic activity in services, always difficult to define, may be a factor in the poor productivity record of the UK. I have often described Britain as a post-industrial nation but this research, into one of the most vibrant corners of the economy, makes a fascinate read – The True Value of Creative Industries Digital Exports – CIC, CBER – March 2018 – finds, among other things that:   The UK’s creative industries exports are:  £46bn in goods and services – 24% higher than the official figure £31bn of total creative exports are services – 41% higher than the official figure £21bn of these creative services are digital services – 40% higher than the official figure   The CEBR goes on to point out other weaknesses in current measurements of economic activity:    …estimated official figures for 2016 highlight that the majority of creative industries sub-sectors are exporting digital services. The IT, software and computer services sector, for example, exports £8.95bn in digital services. However, according to these figures, the crafts and museums, galleries and libraries sectors’ digital services exports are zero – which we know is not the case.   Many UK YouTube channels, for example, are watched by millions of viewers across the world. It is through these types of platforms that the creative industries export audiovisual content, music, and tutorials. Such platforms and the content they offer, however, may not be registered as a service export. This is due to difficulties capturing data for business models such as those offering free content and based on advertising revenues. There are also structural challenges with collecting data on such exports. Often, it is difficult for digital intermediaries to determine the point of sale and purchase. The borderless way in which many global firms operate presents additional complications and the origin of the creative content, and of those who consume it, is frequently hard to track.   This brings me to the vexed question of productivity growth in the new machine age. In the Deloitte – Monday Briefing – Thoughts on the global economy – from 30th April, the author reflects on the discussions which occurred at the annual global gathering of Deliotte’s economic experts. I’m cherry-picking, of course, the whole article is well worth reading:    Despite discussion of recession risks I was struck by a cautious optimism about the long-term outlook. There was a general view that the slowdown in productivity growth in the West has been overstated, partly because of problems in capturing gains from technological change and quality improvements. As a result most of us felt that Western economies should be able to improve upon the lacklustre growth rates seen in the last ten years. We agreed too that apocalyptic media stories about new technologies destroying work were overcooked; technology would continue to create more jobs than it destroys. The challenge would be to provide people with the right skills to prosper. The question was, what skills? We had a show of hands on what we would recommend as the ideal degree subjects for an 18-year-old planning for a 40-year career. Two-thirds advocated STEM subjects, so science, technology, engineering and maths. A third, myself included, opted for humanities/liberal arts as a way of honing skills of expression, creativity and thinking.   Mr Stewart ends by referring to a letter to the FT from Dr Lawrence Haar, Associate Professor at the University of Lincoln, in which he argues that poor UK productivity is a function of the low levels of UK unemployment. In other words, when everyone, even unproductive workers, are employed, productivity inevitably declines: …it does not have to be this way. Some economies, including Singapore, Switzerland and Germany, combine low unemployment and decent productivity growth. The right training and education can raise productivity rates for lower skilled workers.    This theme of productivity growth supported by the right education and training is at the heart of a recent paper written by Professor Shackleton of the IEA – Current Controversies No. 62 – Robocalypse Now? IEA – May 2018 – the essay cautions against the imposition of robotaxes and makes the observation that technology has always created new jobs, despite the human tendency to fear the unknown: why should the adoption of a new swath of technologies be different this time? Here is his introduction: –   It is claimed that robots, algorithms and artificial intelligence are going to destroy jobs on an unprecedented scale. These developments, unlike past bouts of technical change, threaten rapidly to affect even highly-skilled work and lead to mass unemployment and/or dramatic falls in wages and living standards, while accentuating inequality. As a result, we are threatened with the ‘end of work’, and should introduce radical new policies such as a robot tax and a universal basic income. However the claims being made of massive job loss are based on highly contentious technological assumptions and are contested by economists who point to flaws in the methodology. In any case, ‘technological determinism’ ignores the engineering, economic, social and regulatory barriers to adoption of many theoretically possible innovations. And even successful innovations are likely to take longer to materialise than optimists hope and pessimists fear. Moreover history strongly suggests that jobs destroyed by technical change will be replaced by new jobs complementary to these technologies – or else in unrelated areas as spending power is released by falling prices. Current evidence on new types of job opportunity supports this suggestion. The UK labour market is currently in a healthy state and there is little evidence that technology is having a strongly negative effect on total employment. The problem at the moment may be a shortage of key types of labour rather than a shortage of work. The proposal for a robot tax is ill-judged. Defining what is a robot is next to impossible, and concerns over slow productivity growth anyway suggest we should be investing more in automation rather than less. Even if a workable robot tax could be devised, it would essentially duplicate the effects, and problems, of corporation tax. Universal basic income is a concept with a long history. Despite its appeal, it would be costly to introduce, could have negative effects on work incentives, and would give governments dangerous powers. Politicians already seem tempted to move in the direction of these untested policies. They would be foolish to do so. If technological change were to create major problems in the future, there are less problematic policies available to mitigate its effects – such as reducing taxes on employment income, or substantially deregulating the labour market.   Professor Shackleton provides a brief history of technological paranoia. Riccardo added a chapter entitled ‘On Machinery’ to the third edition of his ‘Principles of Political Economy and Taxation,’ stating:   ‘I am convinced that the substitution of machinery for human labour is often very injurious to the interests of the class of labourers’.   While Marx, writing only a few decades later, envisaged a time when man would be enabled to:   ‘…to hunt in the morning, fish in the afternoon, rear cattle in the evening, criticise after dinner… without ever becoming hunter, fisherman, herdsman or critic.’   As for Keynes essay on the, ‘Economic Possibilities for our Grandchildren’, his optimism is laudable if laughable – 15 hour working week anyone?   The paranoia continues, nonetheless – The Economist – A study finds nearly half of jobs are vulnerable to automation – April 2018 – takes up the story:   A wave of automation anxiety has hit the West. Just try typing “Will machines…” into Google. An algorithm offers to complete the sentence with differing degrees of disquiet: “…take my job?”; “…take all jobs?”; “…replace humans?”; “…take over the world?” Job-grabbing robots are no longer science fiction. In 2013 Carl Benedikt Frey and Michael Osborne of Oxford University used—what else?—a machine-learning algorithm to assess how easily 702 different kinds of job in America could be automated. They concluded that fully 47% could be done by machines “over the next decade or two”. A new working paper by the OECD, a club of mostly rich countries, employs a similar approach, looking at other developed economies. Its technique differs from Mr Frey and Mr Osborne’s study by assessing the automatability of each task within a given job, based on a survey of skills in 2015. Overall, the study finds that 14% of jobs across 32 countries are highly vulnerable, defined as having at least a 70% chance of automation. A further 32% were slightly less imperilled, with a probability between 50% and 70%. At current employment rates, that puts 210m jobs at risk across the 32 countries in the study.   For a robust analysis, if not refutation, of the findings of Frey and Osborne, I refer you back to Professor Shackleton’s IEA paper. He is more favourably disposed towards the OECD research, which is less apocalyptic in its conclusions. He goes on to find considered counsel in last year’s report from McKinsey Global Institute (2017) A Future that Works: Automation Employment and Productivity.   The IEA paper highlights another factor which makes it difficult to assess the net impact of technological progress, namely, the constantly changing nature of the labour market. As the table below reveals it has hardly been in stasis since the turn of the millennium:   Percentage Change in Employment 2001-2017, Selected Occupations   Notes: April-June of years. Figures in brackets are Apr-June 2017 levels of employment. Source: Author's calculation from ONS The job losses are broadly predictable; that technology has usurped the role of the travel agent is evident to anyone who booked a flight, hotel or hire-car online recently.  For economists there are always challenges in capturing the gains; back in 1987 Robert Solow, a recipient of the Nobel prize from economics,  famously observed, ‘You can see the computer age everywhere but in the productivity statistics’ – perhaps the technology has been creating more jobs than thought. Does the 170% rise in Animal Care and Control owe a debt to technology? You might be inclined to doubt it but the 400,000 Uber drivers of London probably do. We are still seeking signs in the economic data for something we know instinctively should be evident.   Between the mis-measurement of economic activity (if technology is being under-estimated to the tune of 24% in the creative industries sector to what extent are productivity gains from technology being underestimated elsewhere?) and the ever-changing employment landscape, I believe the human race will continue to be employed in a wide and varied range of increasingly diverse roles. If some of the more repetitive and less satisfying jobs are consigned to robots and machine learning computer code, so much the better for mankind. For more on, what is sometimes termed, the routinisation of work, this working paper from Bruegel – The Impact of Industrial Robots on EU Employment and Wages: A Local Labour Market Approach – April 2018 is inciteful. They examine six EU countries and make comparisons, or highlighting contrasts, with the patterns observed in the US. Their conclusions are somewhat vague, however, which appears to be a function of the difficulty of measurement: –   We only find mixed results for the impact of industrial robots on wage growth, even after accounting for potential endogeneity and potential offsetting effects across different population or sectoral groups. …We believe that future research on the topic should focus on exploiting more granular data, to explore whether insignificant aggregate effects (on wages) are to the result of counterbalancing developments happening at the firm level. Bruegel refrains from proposing cuts to personal taxation as favoured by the IEA, suggesting that a more complex policy response may be required, however, their conclusions are only marginally negative. I am inclined to hope that market forces may be allowed to deal with the majority of the adjustment; they have worked well if history is any guide.   Conclusions and Investment Opportunities   Ignoring the fact that we are nine years into an equity bull market and that interest rates are now rising from their lowest levels ever recorded, the long term potential for technology remains supportive for equity markets, for earnings growth and for productivity. If history repeats, or even if it simply rhymes, it should also be good for employment.   With interest rates looking more likely to rise than fall over the next few years, companies will remain reticent to invest in capital projects. Buying back stock and issuing the occasional special dividend will remain the policy du jour. Assuming we do not suffer a repeat of the great financial recession of 2008 – and that remains a distinct possibility – the boon of technology will create employment with one invisible hand as it creatively destroys it with the other (with apologies to Smith and Schumpeter). If governments can keep their budgets in check and resist the temptation to siphon off investment from the productive sectors of the economy (which, sadly, I doubt) then, in the long run, the capital investment required to create the employment opportunities of the future will materialise.   Originally Published in In the Long Run    (We are now on your favorite messaging app – WhatsApp. We strongly recommend you SUBSCRIBE to start receiving your Fresh, Homegrown and Handpicked News Feed.)

Is US Leading The Global Economy Towards A Recession?

Colin Lloyd

Inflation

The Federal Reserve continues to raise rates as S&P earnings beat estimates; The ECB and BoJ maintain QE; Globally, corporations rely on US$ financing; Nonetheless, signs of a slowdown in growth are clearer outside the US.   After last week’s ECB meeting, Mario Draghi gave the usual press conference. He confirmed the continuance of stimulus and mentioned the moderation in the rate of growth and below-target inflation. He also referred to the steady expansion in money supply. When it came to the Q&A he revealed rather more:   It’s quite clear that since our last meeting, broadly all countries experienced, to different extents of course, some moderation in growth or some loss of momentum. When we look at the indicators that showed significant, sharp declines, we see that, first of all, the fact that all countries reported means that this loss of momentum is pretty broad across countries.   It’s also broad across sectors because when we look at the indicators, it’s both hard and soft survey-based indicators. Sharp declines were experienced by PMI, almost all sectors, in retail, sales, manufacturing, services, in construction. Then we had declines in industrial production, in capital goods production. The PMI in exports orders also declined. Also we had declines in national business and confidence indicators.   I quote this passage out of context because the entire answer was more nuanced. My reason? To highlight the difference between the situation in the EU and the US. In Europe, money supply (M3) is growing at 4.3% yet inflation (HICP) is a mere 1.3%. Meanwhile in the US, inflation (CPI) is running at 2.4% and money supply (M2) is hovering a fraction above 2%. Here is a chart of Eurozone M3 since 1999: Source: Eurostat   The recent weakening of momentum is a concern, but the absolute level is consistent with a continued expansion.   Looked at over a rather longer time horizon, here is a chart of US M2 since 1900: Source: Hoisington Asset Management, Federal Reserve   The letters A, B, C, D denote the only occasions, during the last 118 years, when a decline in the expansion (or, during the 1930’s, contraction) of M2 did not lead to a recession. 17 out of 21 is a quite compelling record.   Another concern for markets is the flatness of the US yield curve. Here is the 2yr – 10yr yield differential since 1990: Source: Factset, Mauldin Economics   More importantly, for international borrowers, the 6-month LIBOR rate has risen by more than 60 basis points since the start of the year (from 1.8% to 2.5%) whilst 30yr Swap rates have increased by only 40 basis points (2.6% to 3%). The 10yr – 30yr Swap curve is now practically flat.   Also worthy of comment, as US Treasury yields have risen, the relationship between Bonds and Swaps has begun to normalise – 30yr T-Bond yields are only 40 basis points above their level of January and roughly at the same level as in the spring of last year. In April 2017   In Macro Letter – No 74 – US 30yr Swaps have yielded less than Treasuries since 2008 – does it matter? I wrote:   Today the IRS market increasingly determines the cost of finance, during the next crisis IRS yields may rise or fall by substantially more than the same maturity of US T-bond, but that is because they are the most liquid instruments and are only indirectly supported by the Central Bank.   It looks like I may have to eat my words, here is the Bond vs Swap table revisited:   Source: Investing.com, Interestrateswaps.com, BBA   What is evident is that the Bond/Swap inversion in the longer maturities has closed substantially even as shorter maturity spreads have narrowed. Federal Reserve policy has been the dominant factor.   Why is it, however, that the effect of higher US rates is, seemingly, felt more poignantly in Europe than the US? Does this bring us back to protectionism? Perhaps, but in less contentious terms, the US has run a capital account surplus for many years. Outside the US investment is closely tied to LIBOR financing costs, these have remained higher, except in the longest maturities, and these rates have risen most precipitously this year. Looked at another way, the higher interest rate policies of the Federal Reserve, despite the continued largesse of other central banks, is exporting the next recession to the rest of the world.   I ended Macro Letter – No 74 back in April 2017 – saying:   Meanwhile, although interest rates have risen from historic lows they remain far below their long run average. Pension funds and other long-term investors still require 7% or more in annualised returns in order to meet their liabilities. They are being forced to continuously increase their investment risk and many have chosen to use the swap market. The next crisis is likely to see an even more pronounced unravelling than in 2008/2009. The unravelling may not happen for some while but the stresses are likely to be focused on the IRS market.   One year on, cracks in the capital markets edifice are beginning to become more evident. GDP growth has started to rollover in the US, Eurozone and Japan. Yields are still relatively low but the absolute increase in rates for shorter maturities (e.g. the near doubling of US 2yr yields from 1.25% to 2.5% in a single year) is guaranteed to take its toll on corporate interest servicing costs. US capital markets are the envy of the world. They are deep and allow borrowers to finance far into the future. The rest of the world is forced to borrow at shorter tenors. A three basis point narrowing of 5yr spreads between Swaps and Bonds is hardly compensation for the near 1% increase in interest rates, or, put in starker terms, a 46% increase in absolute borrowing costs.   Conclusion and Investment Opportunities   How is the rise in borrowing costs impacting the US stock market? Volatility is back, but earnings are robust. Factset – S&P 500 Earnings Season Update: April 27, 2018 – described it thus:   To date, 53% of the companies in the S&P 500 have reported actual results for Q1 2018. In terms of earnings, more companies are reporting actual EPS above estimates (79%) compared to the five-year average. If 79% is the final percentage for the quarter, it will mark the highest percentage of S&P 500 companies reporting actual EPS above estimates since FactSet began tracking this metric in Q3 2008. In aggregate, companies are reporting earnings that are 9.1% above the estimates, which is also above the five-year average. In terms of sales, more companies (74%) are reporting actual sales above estimates compared to the five-year average. In aggregate, companies are reporting sales that are 1.7% above estimates, which is also above the five-year average. If 1.7% is the final percentage for the quarter, it will mark the largest revenue surprise percentage since FactSet began tracking this metric in Q3 2008.   The blended (combines actual results for companies that have reported and estimated results for companies that have yet to report), year-over-year earnings growth rate for the first quarter is 23.2% today, which is higher than the earnings growth rate of 18.5% last week. Positive earnings surprises reported by companies in multiple sectors (led by the Information Technology sector) were responsible for the increase in the earnings growth rate for the index during the past week. All 11 sectors are reporting year-over-year earnings growth. Nine sectors are reporting double-digit earnings growth, led by the Energy, Materials, Information Technology, and Financials sectors.   We are more than halfway through Q1 earnings (I’m writing this letter on Wednesday 2nd May). Results have generally been above forecast and now the Fed seems conscious that they must not be too hasty to reverse the effects of both zero rates and QE. Added to which, while US stocks have been languishing mid-range, European stocks have recently broken out of their recent ranges to the upside, despite discouraging economic data.   The US stock market looks less expensive than it did in January 2017, when I wrote Macro Letter – 68 – Equity valuation in a de-globalising world. Then I was looking for stock markets with a low correlation to the US: they were (and remain) hard to find.   Other indicators to watch which exert a strong influence on stocks include the US PMI Index – last at 54.8 up from 54.2 in March. Above 50 there is little cause for concern. For the Eurozone it is even higher at 55.2, whilst throughout G20 no economy is recording a PMI below 50.   The chart below shows the Citigroup Economic Surprises Index (blue) vs the S&P500 Forward P/E estimates (red): Source: Yardeni Research, S&P, Thomas Reuters, Citigroup   Economic surprises remain positive rather than negative for the US. In the Eurozone it is quite another matter: Source: Bloomberg, Citigroup   A number of economic indicators are pointing to a slowdown, yet US stocks are beating estimates. To judge from price action, the market appears to be unimpressed by earnings. I am reminded of the old adage, ‘When all the buyers are in the market it’s time to sell.’ From a technical perspective it makes sense to be patient, but the market has failed to rise substantially on a positive slew of earnings news. This may be because there is a more important factor driving sentiment: the direction of US rates. It certainly appears to have engendered a revival of the US$. It rallied last month having been in a downtrend since January 2017 despite a steadily tightening Federal Reserve. For EURUSD the move from 1.10 to 1.25 appears to have taken its toll. On the basis of the CESI chart, above, if Wall Street sneezes, the Eurozone might catch pneumonia.   Originally Published in In the Long Run

Trade War in A Global Economy: On Globalization and Free Trade

IEI

Trade

Editor’s Comment: Against the backdrop of the ongoing Trade Wars, it becomes more pertinent than ever to participate in a discussion on globalization and free trade. Below are experts from an interview with Jean-Marc Daniel, Associate Professor of Economics at ESCP around the ongoing discourse on anti-globalization, protectionism and rejection of free trade.   Despite the current upturn in world trade, the return of a protectionist rhetoric since 2008 threatens the future of free trade. How do you analyse the rejection of free trade, which manifests itself in the economic policy of certain states (United States, Great Britain)?   What is striking, and relatively new, is that the dominant power, namely the United States, is assuming the leadership of protectionism. The return to grace of protectionist theories is due to public opinion associating free trade with delocalization, then delocalization to deindustrialization, even if the loss of industrial jobs is due more to robotization than to delocalization. By the end of the 19th century, this kind of false equation applied to agriculture had already led to protectionism, a protectionism embodied in France by Jules Méline.    Since the 2008 crisis, global economic recovery remains uncertain. Do you think free trade can save the economy?   2008 was a cyclical crisis similar to that of 1974/1975 or 1992/1993, even if each of these cyclical downturns has specific aggravating factors (oil shock in the 1970s, financial slackness in 2008). The problem is that, from cycle to cycle, each recovery is weaker than the previous one. Potential growth, i. e. growth independent of ups and downs, continues to decline. In France, we went from 5% in the 1960s to 1.3% today. This slowdown affects all developed countries, which have in common the fact that they are close to the so-called "technological frontier".    But there are countries whose potential growth remains strong because they are in the catch-up phase. The free movement of capital allows them to access the most efficient technologies and the free movement of goods allows developed countries to find new markets: thus, global growth is doubly successful.    From 1985 to 2014, the growth in world trade was higher than the growth in world economy. This is no longer the case, since the growth rate of world trade is now below the growth rate of the global economy. Is free trade less dynamic?    The slowdown in world trade is due to three factors. First of all, its growth phase due to its liberalization is rather behind us. During this phase, each country specializes according to its comparative advantage. As a result, it abandons some productions, which increases its imports; at the same time, the outlets of the activities it keeps are increasing sharply. Once this process is completed, international trade reaches cruising speed. Secondly, world trade has a strong industrial and energy component.  However, relative prices for this type of products are falling. Since 2014, the oil counter-shock has been spectacular. This leads to a mechanical decline in the weight of international trade in GDP. While statisticians do take into account the impact of these price distortions, their correction is not perfect. Finally, people are becoming receptive to discourses on "made in" and "economic patriotism".    The trade surpluses of some countries (China, Germany) are often seen as an attack on the national interests of their trading partners. Do you think trade surpluses affect global economy?   One country’s deficit is another country’s surplus. Responsibilities for global imbalances are therefore shared. In economy, we demonstrate that an external surplus reflects an excess of savings and a deficit reflects an excess of consumption. The Japanese, the Germans, and for some time now the Chinese, have been accumulating surpluses on the United States, surpluses that they invest there by buying US public debt. For example, the American consumer lives on German or Asian labour, while the latter, whose average age is constantly increasing, hopes that he or she will retire and live off American taxes.  There is something unhealthy about both American recklessness and the illusions of aging countries.     How do you see Europe's place in both world trade and the world economy?    The EU 28 is the world's leading economic power. Moreover, it has a high educational level and a real dynamic of innovation. However, it has two weaknesses: on the one hand, its demographics, which is a common point with Japan, and a certain lack of coherence in economic policy-making on the other hand, which hampers its flagship project, the euro.    This article was first published by the International & European Institute, ESCP Europe, and is republished with permission. Click here for the original article.

How Marketing Can Trick Our Brains

INSEAD Knowledge

Consumer Behaviour

Why Uncertain Consumers Let their Emotions Trump Reason

Ali Faraji Rad

Consumer Behaviour

How Price Comparison Websites Affect Consumer Behaviour

Krishna Savani

Consumer Behaviour

What Is Nutrition: The Real "Truth" About Milk and Dairy

Dr Arun K Chopra

Ship Shape

Along with Eggs, another staple which forms an integral part of our breakfast menu is Milk. In addition to the mandatory or occasional glass of Milk, most of us also consume a wide variety of Milk products (i.e. "Dairy") such as cheese, yoghurt, lassi (buttermilk), butter, ghee, ice cream etc.   However, what once formed an intrinsic part of our diet is now shrouded in controversy. Recurrent queries are thrown around what kind of Milk is healthy, whether consumption of cheese is healthy, is ghee good or bad for you et al. Here I will attempt to clear the issues surrounding Milk and Dairy products.   Milk and Dairy products have been mostly seen as a single group. Consumption recommendations are based on a shared framework, mostly talking of Milk alone. However, it must be understood that Dairy comprises a whole range of products including Milk (whole and low-fat), yoghurt (sweetened-flavoured or unsweetened curd), cheese (processed, cottage), desserts (ice cream, kheer, burfi and other khoya sweets) and  butter and desi ghee. As these have very different properties, it only makes sense to discuss them separately.   Milk is a tricky one. It has been an integral part of human diet from infancy to old age. It is rich in fat (60% saturated), proteins, carbohydrates, and acts as a filling meal. Often loaded with hormones and antibiotics (injected in cows and buffaloes) it may however not be the best diet, especially for adults. Lactose intolerance also plays a role, with nearly two-thirds of adults unable to digest Milk. Various guidelines recommend Milk intake as a necessity to push child growth as well as to prevent fractures in the elderly. Both presumptions have little support from scientific studies. In several studies, countries with lower average intake of Milk have reported a lower incidence of hip fractures vs. countries with a higher Milk intake. Also, there are several viable alternatives for calcium including unsweetened curd, cheese, leafy vegetables and salads. Regular exercise (much ignored) is probably the best bet for better calcium absorption, for promoting growth in children, and preventing fractures in the elderly.   Greater controversy surrounds around which variety of Milk is the best – low fat or full fat?   American Dietary guidelines recommend that all adults should drink 3 servings (cups) of low fat Milk every day, while children should consume at least 2 servings to maintain bone health. There is little data to back this recommendation. Instead, studies indicate that children who drink low fat Milk gain more weight in comparison to those who consume full-fat Milk. This is probably due to the greater satiety associated with the full fat variety. Moreover, kids often drink Milk with cookies if it’s the low-fat variety, which increases their sugar consumption. Sweetened Milk, especially flavoured Milk (i.e. chocolate, shakes, sherbets etc.) is even worse.   The most beneficial Milk products are yoghurt and cheese. Apart from the common cottage cheese, processed cheese also has proteins and fats, and can be consumed in moderate quantities. Post-fermentation, these are rich in healthy bacteria required by the human body, especially with rampant antibiotic use increasing the risk of multi-drug resistant bacteria. They can also be safely consumed by those who are lactose intolerant.   Milk has two proteins – Whey and Casein. Whey is the liquid that remains after Milk is curdled and cheese is removed. Being rich in healthy protein, it is usually branded and marketed as the muscle building "Whey Protein".   Lassi or buttermilk (and its variants) are a popular breakfast drink, especially in North India. It is the liquid remaining after taking out butter from Milk, but is also made from mixing curd with water, and can be had unsweetened, sweetened, with salt or other flavourings. This has not been subjected to large studies, but lassi is a refreshing drink (served chilled) and is rich in protein, some carbs and low fats. There appear to be no major concerns, except for the added sugar, which is a no-no.   Butter and ghee have long been maligned due to the fat hypothesis associated with heart disease. For years, most studies that have tracked diets of large populations have been unable to find any association of butter with heart attacks or strokes. A recent meta-analysis which tracked over 500,000 individuals for 6,500,000 person-years have concluded that butter intake (1 tablespoon or 14 grams per day) has a minimal effect on mortality and heart attacks. Moreover, it reduces the risk of diabetes. But, it must be kept in mind that consuming large amounts of butter regularly is not advisable as it will lead to weight gain. Ghee, having a high smoking point, is also a better medium for frying (although eating fried foods regularly is not a healthy option). Finally, Milk is used to make several tasty desserts, the most common being ice cream. As alluded to in earlier articles, sugar is one of the worst components of our diet, whose intake should be avoided or minimised.   The take home message after this entire discussion is: Milk is acceptable for children, especially if it is whole-Milk rather than low-fat. Adults may drink Milk if they are very fond of it, and if they have no intolerance or allergies. Milk should also be procured from a reliable source where the cow / buffalo is given a good feed and not injected with hormones and antibiotics (although that is difficult to determine). Unsweetened yoghurt is an excellent option and should be part of one’s daily diet. Cheese also is a healthy option within reasonable limits. Lassi (unsweetened, maybe mildly salted) is also a healthy and tasty drink. Butter and ghee, which have minimal effect on the heart can be consumed in small amounts daily as they also help in reducing the risk of diabetes.   Ice creams, kheer and khoya-based sweets are popular desserts - they should be had only occasionally, especially by those who are overweight (though there is nothing like a savoury kulfi, a sundae or burfi to celebrate any happy occasion).   Together, Eggs and Dairy make a tasty breakfast without any increased risk of heart disease.   (We are now on your favourite messaging app – WhatsApp. We strongly recommend you SUBSCRIBE to start receiving your Fresh, Homegrown and Handpicked News Feed.)

How Marketing Can Trick Our Brains

INSEAD Knowledge

Consumer Behaviour

By Hilke Plassmann, INSEAD Associate Professor of Marketing, and Liane Schmidt, INSEAD Post-Doctoral Fellow   Marketing cues can influence the neurobiology underlying our feelings and behaviour.   People commonly assume there is an airtight boundary between the psychological impression created by marketing campaigns and consumers’ actual, empirical experiences of products or services. However, a growing body of research suggests that marketing’s influence can co-opt our senses.   A 2008 study led by Hilke Plassmann used fMRI (functional magnetic resonance imaging) scans to show how the stated price of various wines affected brain activity at the moment of consumption. The price tags presented were deliberately falsified — a $5 wine, for example, was identified as costing $45 — yet the drinkers’ brains couldn’t tell the difference. The price cue, not the objective quality of the product, predicted people’s level of enjoyment.   Researchers call this the Marketing Placebo Effect (MPE) — a behavioural and/or physical change produced by marketing alone, totally separate from the product itself. And it’s not limited to wine. Ziv Carmon found that people were worse at solving puzzles if they were told they’d consumed a discounted energy drink, as compared to a full-price one. In truth, all participants drank the same beverage. Pierre Chandon found that young men who knew that they’d consumed an alcoholic cocktail laced with Red Bull reported feeling more inebriated, and acted in a more uninhibited manner, than those who drank the exact same cocktail, but who weren't told that it contained Red Bull.    To delve deeper into how MPE works, we recently revisited the fMRI wine experiment using a newly developed statistical methodology. Our findings have now been compiled in an article for Scientific Reports (co-authored by Vasilisa Skvortsova of École Normale Supérieure de Paris, Claus Kullen and Bernd Weber of University of Bonn). Specifically, we wanted to know which areas of the brain are most active in translating marketing cues into taste experiences, and thus cause MPE. An Unconventional Wine Tasting   The wine-tasting part of our study followed the format of its predecessors. Thirty participants — 15 women, 15 men — were put inside an fMRI scanner with a tube inserted into their mouths, through which wines were piped, one milliliter at a time. Subjects sampled three red wines in total that they were told cost €3, €6 or €18; all three wines actually retailed for approximately €12 per bottle.   As with the previous studies, the placebo effect predominated in our results. Even when the exact same wine was served with different stated prices, participants said they could taste a difference that corresponded to price difference. The fMRI scans showed that participants’ taste ratings were based on an organic response reflected in brain activity, not second-guessing or dissembling.   Earned Vs. Unearned Rewards   The new study builds on past work through the addition of at least three elements designed to illuminate the causal mechanisms of MPE. First, we asked participants in some trials to pay for each sample of wine with money that they had earlier earned based on their performance in a perceptual learning game. Unbeknownst to the participants, the game was adjusted for skill level so that each participant won the same amount: €45.   In the end, it didn’t matter whether the wines were free or participants had to pay the stated price out of pocket. The placebo effect showed up to the same extent in both cases. This finding seems to suggest that indulgences such as luxury goods are not, in fact, sweeter when we feel we’ve earned them. The pleasure we derive from them appears to be defined more by external cues (e.g. marketing campaigns, brand images, the exclusivity implied by high prices) than by exchange value per se.   Where the Placebo Effect Lives The second additional element in our new study was a multilevel statistical analysis that produced further insight into the neuroscience underlying MPE.  We concluded that the BVMS—the brain’s valuation and motivation system—is a causal contributor to the placebo effect. The BVMS, composed of the ventromedial prefrontal cortex and the ventral striatum, assigns subjective value to things around us and determines how motivated we are to approach them. The ventral striatum is also known as the motivation centre of the brain, i.e. the brain’s chief “dopamine dealer”.   In addition to the BVMS, brain areas associated with cognitive regulation—specifically, the anterior prefrontal cortex and the dorsolateral prefrontal cortex—were also seen to play a major role.   More research is needed to ascertain how these regions interact to convert marketing cues into sensory experiences. One possible theory is that the BVMS activates regard for a product’s value, as well as blind faith in its desirable qualities, while the cognitive regulation centres choose from an archive of pleasurable memories to crystallise the enjoyment.   Individual Sensitivity The third additional element was a monetary decision-making task designed to activate the BVMS. In a separate part of the experiment, participants were offered the chance to win real money by finding a circle in one out of a varying number of boxes displayed on a screen—the more boxes that appeared, the smaller the chance of winning. We could measure each player’s BVMS sensitivity, i.e. his or her receptivity to monetary rewards, via his or her neural responses to the ups and downs of the game. Of course, the vast majority of us enjoy receiving rewards, but some people’s enjoyment is especially intense.   Our findings showed that participants whose BVMS lit up “like a Christmas tree” when they won money also tended to display the strongest placebo effects.   The Responsibility of Marketers   As marketers refine the customer journey, they could explore ethical ways of leveraging the brain’s tendency towards self-fulfilling prophecy. For example, incorporating language or imagery intended to stimulate desire for a reward—any reward, not necessarily something tied to a product—may make customers’ experience of said product more pleasurable. Presumably, triggering the placebo effect could lead to more favourable word of mouth, online product ratings and reviews, etc.   However, product quality can’t be completely ignored. A recent Journal of Marketing Research study led by Ayelet Gneezy (of University of California San Diego) showed that MPE works only for products of decent quality. With shoddy goods, high prices backfire and the glaring dishonesty draws consumer ire.   Hilke Plassmann is an Associate Professor of Marketing at INSEAD.   Liane Schmidt is a Post-Doctoral Fellow at INSEAD.   Follow INSEAD Knowledge on Twitter and Facebook   This article is republished courtesy of INSEAD Knowledge. Copyright INSEAD 2018.   (We are now on your favourite messaging app – WhatsApp. We strongly recommend you SUBSCRIBE to start receiving your Fresh, Homegrown and Handpicked News Feed.) 

Evolution of Stand-Up Comedy in India

Pavitra Joshi

Culture

Navjot Singh Sidhu and Archana Puran Singh’s exaggerated laughter is now a faded memory. We can thank god for ushering the era of YouTube as viewers ROFL to the latest stand-up solo. Comedy as a structured spectacle is a product of the last decade. Enthusiasts describe this emergence as a sum of four parts: Artist, Distribution, Monetisation, and Audience.   The comedy itself is not new. Mehmood, Johnny Lever, Jaspal Bhatti, or Raju Srivastav each had a go at striking mainstream acceptance. They tried but quickly fell in trap of being caricatured. The current cohort however, including names such as Kenny Sebastian, Kanan Gill, Biswa Kalyan Rath, or Aditi Mittal have truly groomed and developed a niche audience. They do stand-up acts which go viral on YouTube, perform live gigs for companies & colleges, and after having achieved mainstream acceptability end up streaming “Specials” on Netflix and Amazon Prime.     This came to be thanks, to a few entrepreneurs who could sense the changing tide. The earliest proponent being US-returned comedy enthusiast Amar Agrawal, who started the Canvas Laugh Club in Mumbai. The Club became a launchpad for many, including Biswa Kalyan Rath, Zakir Khan, and Tanmay Bhat who went to start All India Bakchod (AIB) – a highly successful comedy sketch group. Even today the journey to fandom of most upcoming comedians starts with a gig at the Canvas Laugh Club, distributed thanks to YouTube. Source: By User:Funnysinghisking [CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0)], from Wikimedia Commons But distribution was earlier a hurdle. At the time of Canvas Laugh Club’s inception in 2010, neither was there a keen ticket-buying audience, nor was there a long roster of young comedians. Those established on television, thanks to poorly structured shows like The Great Indian Laughter Challenge, didn’t contemplate doing stage shows.   But now things have changed. Stage artists are regularly beating ‘stalwarts’ of the film and television industry. There are hundreds of stages pan India and many more are willing to pay the price. Thanks to booking platforms such as BookMyShow, Insider.in et al, access to tickets is fairly seamless. Source: By IISER Kolkata [CC BY-SA 4.0 (https://creativecommons.org/licenses/by-sa/4.0)], via Wikimedia Commons The role of YouTube in the evolution of India’s stand-up scene is undeniable. It has created demand for a particular brand of (youth-focused) comic delivery, suitable for digestion on ‘personal’ devices like smartphones instead of family devices such as television. Interestingly so, while in countries like US the natural transition was from the stage to television to internet, Indian comics charted a reverse route.   With the entry of Over-the-top (OTT) streaming platforms like Netflix and Amazon Prime, the artists have now found newer and commercially viable avenues to reach their fans. Absence of a physical medium helped these comic bypass traditional gatekeepers. Wider reach ensured that they could develop a sticky and differentiated fan base.   What began as a hobby for most, has now become a profession. Comedy has evolved into a “serious” business and it becomes worthwhile to discern if the economics work. Though the area is light on data, based on anecdotal evidence, a ticket for an hour-long stand-up can be priced between INR400-INR1,000. This number depends on the comedian's popularity and fan following. Moreover, most shows are divided between two or more comics. In such a scenario, ticket sales per artist can range from INR30,000-50,000. Considering the venue and marketing takes up to INR20,000, the net income per show would be around INR10,000-INR30,000. A comedian is likely to do 2-4 shows per month. The earnings can be considerably higher for solo shows and corporate events. Moreover, established players can expect up to 3x-5x the above. YouTube on the other hand lets you host the content for free, while getting you revenue through adverts.   Source: Carlos Delgado [CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0)], from Wikimedia Commons The new age comedians resonated with the Millennials. People found a relief in a whimsical analysis of daily chores. In popular theory, it is the truth which is layered in the delivery of a joke that really intrigues the listeners. The public however still need to evolve to accept some specific forms of comedy such as a Roast, which involves insulting someone with consent. The AIB Roast faced intense criticism from many. FIRs accusing the participants of obscene behaviour and abusive language were lodged. Three years later…the proceedings are still ongoing.       Bad language aside, any dig at politics or religion would be considered courageous. Unless the constitutional direction of ensuring a ‘conditional’ freedom of expression is amended, it is difficult to see that change in the medium term.   Several people today are trying to realise their dreams of pushing the envelope of public narrative through comedy. The opportunities are no less. The Indian stand-up scene has evolved, it is the ‘joke’ now which needs to evolve.   (We are now on your favourite messaging app – WhatsApp. We strongly recommend you SUBSCRIBE to start receiving your Fresh, Homegrown and Handpicked News Feed.)

What is Nutrition: How Many Eggs Should I Eat A Day?

Dr Arun K Chopra

Ship Shape

Eggs are an integral part of our breakfast menu. Their consumption has however declined significantly over the last three decades, amidst rising concerns regarding cholesterol and fat constituents. Nevertheless, with the recent narrative pivoting towards encouraging ad lib consumption and questioning prior anxieties, the humble Egg has now returned to our tables!   What is the “Truth” About Eggs?   Eggs have been subject to two types of studies – short term and long term. Short term studies are executed rigorously in a controlled fashion, but on small populations – a few hundred people at most. These studies conclude that the daily consumption of Eggs up to 2-4 per day have a minimal influence on one’s lipid (cholesterol) levels. They claim Eggs are safe, at least on paper.  Long term studies are population-based, involving hundreds and thousands of individuals. They’re conducted over a 5 to 20-year period. While such studies should expectedly be more reliable, they suffer from the disadvantage of being loosely conducted, mostly depending on individuals filling questionnaires every 3 to 6-months. Most of these have concluded that eating whole Eggs, even higher than 7 per week, do not correlate with an increased risk of heart attacks, stroke, or mortality.   Other trends noted for higher than 7 Eggs per week consumption include possibly increased incidence of diabetes, heightened chances of heart attacks for diabetic individuals, and reduced risk of strokes (especially brain haemorrhage). But it must be mentioned that the evidence for these trends is not solid as it originates from subgroup analysis (i.e., the studies were not conducted to test these hypotheses).   Furthermore, only studies conducted in the United States show a 39% increase in the incidence of diabetes for those consuming higher than 7 Eggs a week. Studies conducted in Europe and Asia do not show such trends and are neutral as far as such risks are concerned. Why would this be?  This could have resulted from the possibility that people consuming more Eggs in the US also lead unhealthier lifestyles overall (as they were unaware of, or ignored Government guidelines to avoid a high cholesterol diet, in force till 2015), e.g. smoking, high consumption of processed red meat, less exercise etc. This was not the case for other demographies, as most other countries did not have specific recommendations to avoid eggs or meat for a healthy lifestyle.   Even American guidelines have now removed the restriction on Eggs (in 2015), accepting that they have no association with heart attacks or mortality.   What Are the Key Takeaways?   It is quite safe to eat an Egg daily, even two. If one regularly consumes higher than 1 Egg a day, they should maintain an overall healthy diet and lifestyle. Getting one’s lipid profile checked every 2 years is advisable for all adults. A check is also recommended for those who regularly consume meat. For diabetics, a higher consumption of Eggs may be allowed under the supervision of a doctor, who can track the patient’s lipid profile and keep other risk factors under check.   How Should You Consume Eggs? Soft boiled and poached Eggs are the best. Occasional consumption of fried Eggs or omelets, especially if cooked in healthy oil, is acceptable. There is no need to discard the yolk as it has healthy fats and vitamins. In fact, Egg yolk has almost 50% Monounsaturated fatty acids (MUFA) and 16% polyunsaturated fatty acids (PUFA), both of which are beneficial for overall health, while the rest is constituted of saturated fat.   In summary, if you eat Eggs – please carry on. If your intake is up to 7 Eggs per week, there are no concerns, even if you’re a diabetic.   You think you know what is good for your health and what isn't? Try your luck at these 10 Questions here.   (We are now on your favourite messaging app – WhatsApp. We strongly recommend you SUBSCRIBE to start receiving your Fresh, Homegrown and Handpicked News Feed.)

The Role of Digital in Financial Planning

INSEAD Knowledge

Investment

By Lucas Weatherill, CEO & CIO at OnTrack Retirement, and Boris Liedtke, Distinguished Executive Fellow, INSEAD Emerging Markets Institute   Retirement planning, riddled with uncertainty and consumer biases as it is, may be best handled with a mix of digital and face-to-face advice.   Historically, so long as your company and government stayed solvent, you knew with a fair amount of certainty what your retirement benefits would be and how long they’d last – basically for life. The rise of defined contribution plans turned that on its head and created a large market for personal financial advice, as individuals suddenly had to figure out how to plan for their own retirement. However, as we outlined in the first part of this series, traditional face-to-face financial advice isn’t cost-effective for providers and average investors.   So, how to provide advice to the average long-term investor in a cost-efficient and profitable way? In this piece, we are going to delve a little deeper into a solution.   Financial Planning Isn’t Just About Finance   Long-term saving is a classic case study in behavioural biases. These must be managed and mitigated – whether it is through digital or face-to-face advice.   Inertia is one such bias. While people will generally put off taking action, research has shown that if they are intimately involved in preparing a plan, they are more likely to stick to it. The most committed planners also tend to be the most financially literate.   On a broader level, individuals need to understand the trade-offs they make, now and in the future. They need to be educated about the consequences of their decisions and consciously choose their priorities. What lifestyle do they want now? How about in retirement? Are they contemplating any bequest?   Imparting a good understanding of behavioural biases should be an integral part of the retirement planning process and needs to be built into any successful digital-style advice model. Either that, or the model should protect individuals from the worst of their own biases, as much as possible.   Any Model is Based on Assumptions That Must Be Evaluated   While robo-advisors are getting lots of press at the moment, they are mostly just a delivery mechanism. A nice user interface should not be a substitute for solid advice that ultimately addresses a key financial and behavioural problem. Digital poor advice is still poor advice.   Tool creators – particularly when there is limited opportunity to ask them questions – need to be upfront about the assumptions they used for calculations. By far the most consequential assumptions that go into long-term planning concern the expected rates of return. If the tool assumes that equity markets will continue to return 6% (in real terms) as they have for the past century, monthly savings need to be a lot less than if a 3% return rate is assumed. But which rate better reflects the future? Over which time frame? How is the person’s age taken into account? Does time to retirement matter?   Thinking in real terms is convenient, but what happens if inflation turns out to be 5% per annum instead of 2%? Inflation plays a key role as it is the link between salary (and hence saving capacity), asset market returns and valuations, the value of other assets (like property) and perhaps most importantly, spending in retirement. In short, it is so integral to the problem of retirement that it needs to be carefully modelled – and very clearly explained. Failing to adequately address it may render the advice misleading at best, leaving the user to reach retirement woefully underfunded. What a Useful Digital Tool Should Look Like   To be a valuable tool, a digital platform needs to be both robust and user-friendly. A smartly designed product that manages biases to bring about the outcome chosen by the consumer will be a remarkably cost-effective way of providing customised financial advice to most people, most of the time.   The tool should explain its assumptions in a simple way, but without sacrificing real-world complexity. Other points to note:   Users should be asked, in non-misleading terms, whether they want a basic, average or luxury retirement lifestyle. The language should be free of jargon and go to the heart of the users’ problem. For instance, users generally aren’t interested in the content of their portfolio, but care whether they can retire according to a certain lifestyle they are comfortable with. The tool should allow users to be actively involved in making the trade-offs based on their unique needs, wants and circumstances. For instance, would they prefer to retire a year later or save $200 more per month?  This will ensure they work towards the retirement they want, rather than being lectured by a computer or given an inappropriate cookie-cutter response.   Computationally, a Monte Carlo approach – a computer-simulated analysis of potential decision outcomes - is the optimal way to allow for the range of possibilities that the unknowable future may hold in store. Simulations need to be run with different rates of return and inflation and maybe even varying levels of tax rates and government entitlements.   The Best Blend of Digital and Face-to-Face Advice   Ultimately, the biggest weakness of digital advice tools is the unpredictable behaviour of users. For instance, what will they do - and who will they turn to for counselling - when markets fall 20% in a month?   Moreover, government benefits are extremely difficult to project even five years out, let alone 20 years. These benefits vary by country but often include tax advantages for long-term savings, an old-age pension, health care subsidies and specific one-off cash grants. Given their inherent uncertainty, the value of these future benefits can be extremely difficult to model.   For all these reasons, we envision the current generation of digital advisors providing about 50% of the advice needed for 80% of the people. As retirement age approaches, it is wise for customers to sit down with a specialist and plan how to maximise their government benefits and tax structuring (especially estate planning in some countries).   In other words, it will be quite a while before the human planner goes extinct. Instead, financial advisors will deliver issue-specific advice using digital devices.  Gone will be the days of trudging to their offices clutching a pile of paperwork at an appointed time. Financial advice will only be a few clicks away after you’ve reviewed your plans on your phone.   Lucas Weatherill is the founder & CIO at OnTrack Retirement.   Boris Liedtke is a Distinguished Executive Fellow in the INSEAD Emerging Markets Institute.   Follow INSEAD Knowledge on Twitter and Facebook.   This article is republished courtesy of INSEAD Knowledge. Copyright INSEAD 2018.   (We are now on your favourite messaging app – WhatsApp. We strongly recommend you SUBSCRIBE to start receiving your Fresh, Homegrown and Handpicked News Feed.)

What is Nutrition: Which Oil is Good for Health?

Dr Arun K Chopra

Ship Shape

One of the most common questions asked in a clinic is, “Which [cooking] oil is good for health, Doctor?”   There are so many options out there.   The very popular olive oil, canola, sunflower, groundnut, mustard, rice bran oil; the list is endless. Then there are ‘proprietary’ healthy mixtures or vegetable oil blends, branded as ‘Saffola Gold’ and many others like it.   Which one is the best?   Sadly, the answer here is none.   Go Nuts!   An ideal diet should not use oil for cooking, but only as a dressing for salads. Requisite fat should instead come from natural sources such as nuts, seeds, meat, eggs etc. In addition, such items have healthy proteins as well. Add vegetables, salads and fruit – and your diet is complete. Fat as a macronutrient has been shown to have a net positive effect in general, especially heart health. As per some key studies, fat lowers the risk of stroke, heart attack and diabetes. Therefore, the principal source of fat in our diet i.e. cooking oil should not be treated as taboo the way it is usually considered. In fact, the American Heart Association also now accepts that total fat consumption needs to be higher than the earlier recommended 30% (30-45% is acceptable now) of all calories.   Vegetable oils should be preferred; most Western data indicate positive associations with extra-virgin olive oil, canola oil and soybean oil. Further, refined oils should be avoided, as they are subjected to intense mechanical and chemical processes during refining; these destroy most of their anti-oxidants and generate potentially toxic substances.   Having said that, let’s come down to the practical reality of Indian cooking, the demands being a good shelf life, high smoking point (good for frying) and a good fatty acid composition.   Olive oil has a low smoking point and is therefore not great for Indian cooking (an exception may be the pomace variety, which has a higher smoking point). It is thus best used as a salad dressing.   In contrast, mustard oil has close to ideal fat composition and a high smoking point (but a high erucic acid content, which may be harmful). Rice bran oil  has healthy fatty acids, heart healthy oryzanol, and a high smoking point, but unfortunately no studies.   The commonly used coconut oil has data from small Indian studies only, but no hard longterm data to back its benefits, though the medium-chain triglycerides in coconut oil are believed to be useful despite its high saturated fat content.   All the above mentioned oils are good for the Indian system of cooking as they have high smoking points, and can be used for frying. Source: By torange.biz [CC BY 4.0 (https://creativecommons.org/licenses/by/4.0)], via Wikimedia Commons   In the absence of an ideal oil, blending is done to achieve an optimal fatty acid composition at an affordable cost. Usually, oils rich in MUFA-monounsaturated fatty acids (mustard, canola, olive, rice bran) are blended with oils rich in PUFA-polyunsaturated fatty acids (sunflower, safflower, flax and soya). Or to simplify, one can also alternately use these two types of oils for getting most of the “supposedly healthy” fats. Proprietary vegetable oil blends are thus reasonable alternatives: Saffola Gold (rice bran + saffola in 80:20 ratio), Sundrop Heart (rice bran + sunflower in 80:20 ratio) and flaxseed with canola oil are good examples.   Replacing saturated fats with mono or polyunsaturated fats has been shown to be healthy. But there is no need to get obsessed with different types of fats. Suffice it to say that a moderate consumption of oil is not unhealthy, either with respect to heart condition or diabetes, and may be especially healthy in preventing hemorrhagic strokes.   Another common question is about butter. It increases somewhat the unhealthy LDL cholesterol, but also increases the healthy HDL cholesterol, while lowering unhealthy triglycerides and Lp (a). There is no obvious association with heart attacks, stroke or mortality, while there may be some protection against diabetes. So, while extra-virgin olive or canola oil may be better than butter for daily use, the data on butter is neutral, and a small amount can be consumed a few times every week, keeping in mind that a high consumption would lead to weight gain.   Please note that this clean chit to fats does not include fried stuff like pooris, samosas and kachoris. They are rich in trans-fatty acids which are clearly unhealthy and have shown to increase risk of CVD (cardiovascular diseases). Trans fatty acids are generated during frying, and increasingly form with repeated frying of the same oil, as is the norm in ‘Halwai' shops. Fried foods should be consumed sparingly; the best oils for this are mustard, rice bran, coconut and canola oils. Once consumed, the oil should ideally be discarded (hopefully this will discourage frying).   The healthiest fats come from nuts and seeds; they definitely improve health and lower the risk of lifestyle diseases and should be eaten daily. Another healthy fat is fish oil; one should consider having fish twice a week or eat fish oil (or Krill oil) capsules daily.   In summary, fats are to be preferred over refined grains, cookies and colas; vegetable oils (especially those mentioned above) are to be preferred; use different oils for different types of cooking; refined oils are to be avoided; oil blends are reasonable; butter can be consumed occasionally in modest amounts, frying should be done rarely, with appropriate oils that are discarded later, and nuts, seeds and fish oil are very healthy.   Hope that makes it easier for you to choose what to eat (almost)!   (We are now on your favourite messaging app – WhatsApp. We strongly recommend you SUBSCRIBE to start receiving your Fresh, Homegrown and Handpicked News Feed.)

Rise of Patanjali

Baba Ramdev, claimed in 2017 that Patanjali would continue to “double revenue each year” to subsequently exceed annual revenues of FMCG giant Hindustan Unilever (HUL) by 2019. To give some context, Unilever took 85 years and dozens of mergers, acquisitions, and alliances to become India's leading FMCG company with INR35,000cr of Annual Sales. A 12-year old organization’s claim that it shall overtake the FMCG giant is indeed a bold one!

How To Best Prepare For Your Exams?

Editorial

Scribes

Where Do Indians Go Wrong While Planning Their Education And Career? What's Off With The Way We Learn? Why Are Pass and Enrolment Rates In Higher Education So Low? Is There A "Stress-Minimum" Way To Prepare For Competitive Exams? How Can Technology Help?   Presenting Saloni Khandelwal, Co-Founder of Exambazaar - a cutting-edge technology platform which supports, guides, and connects students to over 28,000 coaching classes for various competitive exams. Saloni walks through critical issues faced by Indians while they take key education and career decisions. She strikes a comparative analysis differentiating Indian vs. Western education systems and suggests a useful framework for students to keep in mind when they plan what's next. The crucial thing to emphasise is to focus on one's career from the earliest days of making education decisions.

What's Wrong With Indian Healthcare Industry: Lessons & Traps from The US Healthcare System & Health Insurance

Editorial

Adda

Public, media, and government outrage against Private Indian hospitals facing allegations of medical negligence and over-billing (Fortis, Max, BLK et al) reached another crescendo in 2017. Within this backdrop, we decided to invite Dr. Auras Atreya, an Indian US-based Cardiologist for a conversation and to gain an ‘internal-external’ view of the ongoing crisis.    Taking parallels from the American system, Dr. Atreya gives his perspective on all that is wrong with Indian Healthcare, and how to fix it. He caveats that the US healthcare and health insurance model is far from perfect but offers useful lessons worthy of being cherry-picked. He also forewarns of some traps to avoid.   Policymakers along with the medical community, need to overhaul the broken system and evolve India's own unique model which suits the requirements of our citizens in the best possible and equitable manner.

Nobel Prize 2017: Richard Thaler & Behavioral Economics - The Man, The Ideas

Editorial

Trails

  Our tribute to the 2017 Nobel Prize Winner in Economic Sciences. Richard Thaler's contributions to understand the complexities of decision-making has virtually created a new field of study called Behavioural Economics. Humans as per Dr. Thaler are not always rational and their decisions are often driven by behavioural traits and information asymmetry of the real world. Richard Thaler is a vocal proponent of the Nudge Theory, which focuses on making small adjustments in the environment of people to drive their behaviour. He joins other great contributors to the study of human behaviour, including Daniel Kahneman, Amos Tversky and Gary Becker. Here we try to explain his basic theories of limited rationality, lack of self-control and social preferences. Hope you enjoy it.

Dawn of AI

Editorial

Express

Our cheeky take on Artificial Intelligence with the legendary Pac-Man Breaking Bad! Watch till the end. 

What's Up With Paradise Papers?

Nikhil Arora

Scribes

Paradise Papers bring a sense of déjà vu. The age old debate on rich people and big corporates evading taxes through offshore entities is live again, with high profile names ranging from the Queen of England to Apple Inc. adding fuel to the fire.   Obviously there is plenty of coverage on who did what and why. So we thought its best to step back and see what the fuss is all about.  

Shantanu Narayen

Editorial

Trails

Adobe's products is the holy grail for designers, photographers, and publishers worldwide. The story of Shantanu Narayen is also the story of Adobe.