How to Make Sense of the Indian Economy: Motivation

It is difficult to find News without an Economic or Financial undertone these days. Demonetization, GST, bad loan troubles of Indian banks etc. have been paradigm-shifting events. They have ensured that issues which were erstwhile perceived as esoteric – be it the dynamics of money supply, utility of digital payments; importance of financial inclusion; risk of tax shortfalls, to name a few, gain mainstream relevance.

 

The present dispensation’s Economic push derived from its "reformist credentials", has further fueled this interest. We’re constantly bombarded by a state-backed PR machine highlighting day to day implications of policies.

 

Acronyms adorning flagship schemes…PMJDY, PMAY, PMUY, UDAY, UDAN and many more – have become part of our lexicon.

 

Some implications are real, others not so much.How to Make Sense of the Indian Economy: Motivation

An overall Economic-Financial narrative is “unmissable” in mainstream News and reportage, pushing it outside the confines of business-focused newspapers & channels for the first time. Another force pushing this trend is the rise of financial markets as perhaps the most actionable investment option left for households.

 

Demonetization and RERA challenged the domination of real estate as “the asset class of choice” for households, resulting in one of the most significant portfolio re-alignments seen in recent years. The boom in mutual fund (MF) and stock market inflows since 2014 was for everyone to see. MF investments increased by a staggering 196% in the year following Demonetization.

 

I consider this shift from conventional options like real estate and gold towards the financial markets as a positive. It results in a robust Indian market backed by a stable domestic investor base. We are now relatively hedged against the risk of outflows due to reduced dependencies on foreign portfolio investors, a relatively flaky bunch to start with. However, such exposure of retail consumers means the understanding of Economic concepts and financial products are an ever more essential requirement for laymen.

 

The first step in understanding these concepts is the ability to comprehend day-to-day Economic events.

 

That is a challenge. Economics and Finance are jargon heavy, making them easy targets for pseudo experts who prefer to throw verbiage to mislead, confuse and by extension obfuscate from readers their own lack of fundamental knowledge.
How to Make Sense of the Indian Economy: Motivation

Print media, where the mantle of Economic reporting goes to generalists, is no better. It is common for newspapers to omit essential nuances needed to fully understand an issue, rather settling for a topline view and a snappy headline. A primer to better understand India’s Economic mysteries is wanting.

 

We at Transfin. attempt to have a go.

 

What makes us qualified?

 

Simple, we’re passionate about making ‘serious’ News content more accessible and digestible. That is our vision. That is why we publish shorter snackable articles, make explainer videos, create infographics and GIFs. Between our founding team we have over 10 years of experience working in investment banking, capital markets, and Economic research. We have worked with CEOs of Fortune 500 companies and understand that meaningful conversations and decisions happen ONLY when information is communicated in the simplest and most straight forward manner.

 

Not a One-Off

 

In the series that follows, we wish to elucidate some basic thumb-rules and concepts, which may be handy to understand Economic events referenced more and more in our daily News intake. The objective here is not to become an expert, but to equip oneself with just enough to make sense of our Economic world.

 

Our not so creative moniker for this series will be “How to Make Sense of the Indian Economy”. This will be the common element in each Headline.

 

We think this is important. Not only for the naturally enthused but for any engaged citizen.

 

After all, it is a sign of progress that one is compelled to think about complex Economic problems. It highlights the fact that a significant share of Indians now think of issues beyond basic sustenance. The need to understand the nuts and bolts of our Economic realities is no longer a first world problem.

 

The Structure

 

S&P ranks only 24% of Indians as Financially Literate in its 2016 Global Financial Literacy, the lowest within BRICS. The survey measures people’s knowledge across 4 areas: Risk Diversification, Inflation, Numeracy, and Interest Compounding. Our knowledge framework will target each of these headers.

 

A draft Table of Contents (TOC) on how we can structure this dialogue is set below. Please note this list is meant to be fluid.

 

  1. How are Interest Rates, Inflation, Employment trends, and Currency value connected with each other?
  2. Understanding Interest Rates
    1. What are Interest Rates?
    2. How do they work? Who sets them?
    3. How does the bank or your lender know whether you’re a risky borrower or not?
    4. What are the different types of interest rates? How should I look at them when I go to the bank? How do they work in: 
      1. Car Loan
      2. Home Loan
      3. Education Loan
      4. Gold Loan
    5. Do interest rates change?
    6. Why are the interest rates charged by the bank on loans higher than the interest rates the bank pays back on savings accounts or fixed deposits?
    7. Why are interest rates higher in India vs. the developed world?
  3. What is the function of the Central Bank? 
    1. Monetary Policy
    2. Why are Central Bankers obsessed with Inflation?
    3. ...
  4. What makes the Rupee move?
  5. Why are Crude Oil prices so important?
    1. How is Crude Oil priced?
    2. India and Crude Oil
    3. How is Petrol Price calculated?
  6. What are the key metrics of Economic analysis and interpretation?
    1. Common terms: GDP, Fiscal Deficit, Current Account Deficit 
    2. ...

 

Next Steps

 

This will be a recurring column published every Friday, kicking-off from 3rd August 2018. We will add headers and incorporate links in the TOC as we progress in this journey or realign existing topics if more suitable to the changing times.

 

Your suggestions and/or requests are welcome in the Comments section at the bottom.

 

Happy Reading!

 

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