By Arul Prakash
Mr. Duvvuri Subbarao had delivered Palkhivala Memorial Lecture for this year at Nani Palkhivala Memorial Trust on August 29, 2013 and the topic was: Five Years of Leading the Reserve Bank: Looking Ahead by Looking Back. After going through his lecture, I found there are few things we as citizens of India must know about.
The Ex Governor of RBI, in his insightful speech had given few points which as an individual and/or as investor will be helpful to everyone of us. His speech consists of two parts. Part one is Learning from his past 5 year service and part two is the challenges RBI is going to face in the future. Here I take only the first part that is the learning part.
Action is more important than Plan.
During initial part of the speech, he was analyzing about lessons RBI learnt during economic crisis. He states that During crisis times, it helps enormously if governments and central banks act, and are seen to be acting, in concert.
What we need to learn from this is two things, one is planning alone will not help. We need to put them into the action. This is for an individual and for investor, doing financial planning alone is not enough; we need to put them into action to overcome our personal financial crisis too. The second one is the financial planner and the client should go hand in hand. If there are controversies, it will not be fruitful to both of them.
Being Glocal.
He mentioned that We learnt that even in a multi-nation crisis, governments and central banks have to adapt their response to domestic conditions.
Globalization had made the world to run faster. Whenever there is a problem, we refer what others do in that situation and we just follow it. Because what we need is Instant Solutions. I am not stating that looking others for solution is wrong. Of course we need to learn from others problem. But we should analyse whether it be suitable to us or not? This is for individuals and in case of investors; we should not buy or sell stocks just because someone is doing. We should understand the stock market and our financial position, and then take financial decisions. If you need, you can take help of a Financial Planner/Investment Advisor and dont suggest you to completely relay on them. Ask him why he is doing something. If you are satisfied with what he doing, then go ahead with him. Otherwise tell your point of view and discuss. Come to common conclusion before implementing it.
The Myopia
The above two things are the things he learnt during financial crisis 2008/09 his initial stages as a Governor of RBI. After that crisis, it was the year 2010/11, which he states, We were caught in the quintessential central banking dilemma of balancing growth and inflation. The time India recovered from the crisis sooner than even other emerging economies, but inflation too caught up with us sooner than elsewhere in his own words.
At this time, he says, We have been criticized for our anti-inflationary stance, ironically from two opposite directions. From one side, there were critics who argued that we were too soft on inflation, that we were late in recognizing the inflation pressures, and that even after recognizing such pressures, our baby step tightening was a timid and hesitant response. Had the Reserve Bank acted quickly and more decisively, inflation could have been brought under control much sooner. From the other side of the spectrum, we were criticized for being too hawkish, mainly on the argument that there was no need for the Reserve Bank to respond to inflation driven largely by food and supply shocks, and that we only ended up stifling growth without easing inflation pressures.
Solution from RBI for this is, Admittedly, some growth slowdown is attributable to monetary tightening. Note that the objective of monetary tightening is to compress aggregate demand, and so some sacrifice of growth is programmed into monetary tightening. But this sacrifice is only in the short-term; there is no sacrifice in the medium term. Indeed, low and steady inflation is a necessary precondition for sustained growth. Any growth sacrifice in the short term would be more than offset by sustained medium term growth.
The point is we should not look for short term. We should have fore sight and ready to sacrifice our short term pleasures for our long term goals. A person who enjoys his early life suffers at the older age says a proverb. So think everything in long term prospective.
Coming to investors, many of us are spending a lot. Like, more number of movies every month, more eat outs every month, Parties, and so on. I dont say you should not do that. I dont say every one of us is doing it. What I am saying is, check your financial position. If someone gave you a party, it doesnt mean that you have to repay them in the same way. More than that if required, sacrifice some of the short term pleasure to save for the better future.
It is not full version of the speech and only his learning part as RBI Governor. I hope every one of us has some take away from this. I will be really happy if someone really implement this in life and give feed back to me.
The Author is a PGDM in Finance was an Independent Financial Planner and Director of Pushpak Financial Planners (http://pushpakfinancialplanners.weebly.com). Investment Planning, Risk Management, Portfolio Management, Tax Planning are his area of interest. He has passion for Personal Financial Planning. He can be reached at pushpakfinancialplanners@gmail.com