Tuesday, 21 May 2019

Piketty Principle UPSC

Piketty Principle

Piketty in his book (capital in 21st centuary) explained the reasons for the widening difference in growth of economic disparity. He observed that “The rate of return on the investments the wealthy make will normally be greater than the rate of growth in a nation’s economy and total wealth.”.

This lead to increase in divergence of the earnings of the rich with respect to poor. He indicates increasing r-g gap(r – rate of asset return, g – real income growth) . The increasing r-g gap will lead to unrest and other social issues. The divergence is increasing with time. The  skill development, knowledge diffusion can lead to convergences – ie reduction in in-equality.

Wednesday, 8 May 2019

UPSC finance External Commercial Borrowing

External Commercial Borrowing
Finance upsc, finance basics

Capital is needed to achieve growth investment is needed. The capital needed for this can be from domestic (Indian) or foreign (external).

The type of deposits considered as ECB
  • ·         Loans including bank loans;
  • ·         Securitized instruments (e.g. floating rate notes and fixed rate bonds, non-convertible, optionally convertible or partially convertible preference shares / debentures);
  • ·         Buyers’ credit;
  • ·         Suppliers’ credit;
  • ·         Foreign Currency Convertible Bonds (FCCBs);
  • ·         Financial Lease; and
  • ·         Foreign Currency Exchangeable Bonds (FCEBs)

The companies need capital for expansion, and the foreign route provides finance at lower interest rates.
The borrower gets finance cost advantage. The borrower can diversify his investments, plan new initiatives.
The multiplicity of legislations and constant changes in policy are often criticized.
The bigger firms are able to get capital at lower interest while a smaller company may be paying heavy interest in domestic lending. This means that higher finance cost is born by them.
The lower interest funds to firms may lead to heavy borrowing and debt burden.

Monday, 29 April 2019

How to study psychology for UPSC exam

Psychology can be tricky for the mains. The way to get into the groove for the psychology is a bit tricky. I am sharing a link of topper Mithali Sethi here

Drive (pdf) - Download

Source: www.insightsonindia.com (LINK)

A comprehensive strategy with lots of matierials are given. It is a very useful read for psychology mains.

Notes shared by the Mithali Sethi (LINK)

Note: This blog makes attempts to share links, articles written by toppers. 

Sensitivity Training Merits Context Methodology

Psychology Paper 2 Topic

Sensitivity training

It is a method of training that makes one aware about the dynamics of group and their roles. It makes them aware of their prejudices/bias and make them sensitive to others.

Eg: - Ctx is an IT company with professionals of all generations. Subbu 57 yr and Ragz 25 yr old work in a group that works in virtual group of 10. The 8 members  of virtual group are from China, US. There may be biasness, prejudices of each member with the other.

Subbu thinks “What is this guy Ragz doing in this group which has seniors like me. He doesn’t respect my seniority and don’t even stand up when I come. He has long hair with ponytail that doesn’t suit this office”

Ragz thinks “ Subbu is not updated on latest styles of IT world. He won’t know about new UI designs and trends. I wonder how I will communicate with this guy who never parties or even tells a ‘Hi’ to me.

Each team member would be harbouring a set of such impressions which may be adversely affecting the organizational set up. The sensitivity training will help them to discover each other, it will allow one to explore his/her thoughts. At the end, the thoughts held will get altered and a new cohesion/understanding is intended to be developed.

Raghav the trainer is brought in to  give a sensitivity training. He does it in following steps

1.       A unstructured meeting is conducted when all the members (10-15, in this example 10)meet at head quarters.  The old values held by the members are challenged and an face to face interaction happens within the group.
2.       The new values are developed.
3.       The new values are freezed. Subbu feels that Ragz though looking different is sincere in work and he is rather a problem solver. Ragz feels that gesture which he thought was rude from a China team mate was infact a friendly gesture in that culture.

A self awareness of one’s attitude and bias happens in a facilitated manner. An introspection of one’s behavior can be done. This is a group psychotherapy started by Kurt Lewin.

It is useful technique in organizational structure.

Which is the best Coaching institute in Delhi, Chennai, Hyderabad, India

A common inquiry that aspirants and their parents have is - which is the best coaching institute?. Which is the best one which will get him/her into the service?. Where to stay ?
 I may not be able to answer your question fully, but may be able to help you get a better view about coaching institutes.
Soon after the result of the civil services, a campaign trail is started by IAS coaching centres. The common ad style is something like

XYZ IAS Academy 

(A guy generally in suit - photo in inset near name of academy)

10 in top 20, 50 in 100

(photos of toppers)
And 300+ Selections.

The ads will be dotted with pictures of young civil servants who just entered in last upsc exam. Sometimes highlighting 1st rank to 500+.

The address, the details, the updated course and how innovative we are generally is in the last line.

I understand that like in all business , marketing has to be high pitch. But as a customer( aspirant) has to put some thought to understand these ads. Why?
Simply because, in case you are joining the said flamboyant institute which churns out IAS officers, then you are paying for all the hungama created by the institute. The ad campaign by many institutes runs into crores. The institutes sometimes charges lakhs from a student, the accumulated lakhs go to feed these crores. That’s the way business runs and its perfectly fine if you are ready to pay and institute delivers.

Now to the winner’s part, you would see that toppers are claimed by all institutes. The topper who accidently left an inquiry email to the institute at puberty stage of preparation,  one who attended their outreach programme, to the original student who really studied at the institute – all will figure in the ad campaign.  If the ads were true, check the ads of prominent 10 institutes you would figure out that toppers photos will figure in all most all the coaching institute!!. I have met a topper whose name was falsely claimed by a Delhi institute, while only time he visited Delhi was for an upsc interview. He gently reminded the suit boot owner of the institute and his reply was “ Abhi toh chalne do, aapko kya bharak padtha hai”. So in case you are marching to an institute just because they have advertised 10 in 20 toppers studied there, then beware.

How do the institutes make so much toppers to be part of institute?

1.       Conduct “free” intro sessions – which entices to be part of the historic institute. A format with details of the attendees is signed from all participants. When the results come, the staff will dig these data, if you attended and signed then you are their “student”.
2.       Conduct free mock interview – this s catch late strata which many institutes use. The guy has passed mains and there is high chance he will get through. A good quality mock interview will ensure that he becomes the aspirant who studied here. This is reason why some institutes conduct mock interviews with good quality faculty as they can claim you as student without taking any pain to take you all the way through hectic mains exams.
3.       Just steal a pic and claim he was student!
4.       A highpitched ad driven institute in prime locality of Delhi has more probability of an aspirant joining and simply getting higher conversion. The person may have left the institute and studied on his own as the institute was not good. But since he spent money there, then naturally they now have a poster boy.

Lets now move on to total claims, 300+ selections. What is ‘+’ no one has any idea. Probably the institute is waiting to see ad of its main business rival and planning to increase. The multiple branches, multiple type of courses (online/offlie/correspondence) make it difficult to identify or clarify most claims. Even if the institute wrongly claims that a person passed because of their excellence, there is little way to verify it. An interaction with the newly cleared persons will give an idea of the state of the coaching institute. Many young civil servants have blogs where they clarify things.

What institutes won’t tell
1.       How many students attended and did not make it?
2.       Which good teachers the institute has?
3.       Why do they charge so high!

What matters in a coaching institute?

The Teacher
The only important factor in an institute is its teachers. Passing any exam depends on student and teacher, the way the teacher is able to connect to the students. Meeting the teacher, his attitude to students is key to your win. Is the institute which you join have the teacher who is best for you or is it just a ad based institute which don’t pay to teachers?. How many hours of class the best teacher gives you?.  It is a strategy of certain institutes to run multiple branches where good teacher is just an occasional visitor. This will be of limited use. Hence you should verify these facts.

The feedback
The question papers and its review should be able to evaluate you. The evaluator should be able to speak to you and explain the correct way. A one-to-one interaction and correct evaluation with support system (where to find the answer and how to present it) is needed for your continuous improvement of writing skills.

I hope these inquiries would be put forth by aspirants. This will help you weed out the high pitch ad based institutes and find the correct institution.

Note: There are very good coaching institutes everywhere, you just got to ask the right questions to find the good ones. Kindly cross check the credibility of the institute in multiple ways before you join. This blog makes an effort to identify and post blogs of toppers.

Thursday, 18 April 2019

Dollar Currency Swap by RBI

RBI is central bank of India and it uses liquidity management tools like
a)      Repo
b)      OMO (Open market operations) etc.

Recently, RBI used another tool – Currency swap


To infuse liquidity to overcome the current liquidity crunch.
The rupee appreciation may slow.
The dollar reserves of RBI increases.

How does it work?

RBI gives rupees for which banks gives dollars to RBI under certain terms and conditions. This contract is for a period of 3 years and the banks have to pay a forward premium. The banks (Tier 1) can participate in auction for the 5 billion dollar.  The banks will buy back dollars after 3 years at rates arrived through auction.
The content below can be ignored by aspirants. It is for causal readers of this blog.

What are risks of the currency swaps?

The swaps have default risk and exchange risk. In this case, since RBI is central bank, it can avoid default risk.

How is the swap agreement made?

As in most financial contracts, reasoned assumptions are made regarding the economy and then scenario analysis is done. The risk management analysis based on cash flows and assumptions in exchange rate, policies which may be followed by banks etc are done to arrive at a decision making.

How is liquidity created?

Banks which get rupee pass it on to its customers.
The customers could be
a)      Old customers –
1.       Those who repay
2.       Those who default due to business risk
3.       Those who lend not to pay but to pump in money for businesses at cost of bank or because of many other factors or for evergreening. (here after referred to N)
b)      New customers – which includes small, micro and medium industries  who need credit at lower rates for successfully running business. It also includes customers who will be able to generate cash when money is available at lower rates. (assuming the banks charge lower rate).

If the money gets routed to the Old customers who Sl.No 3 or N , then the whole exercise will go void. 

How to know whether banks are lending for Old Customers Sl. No 3 types or N ( intentionally careless or lending with intent of not paying )?

The current debt equity level and its variations can be analyzed to understand it. (provided company don’t collide with auditing and rating companies in rigging all the processes). If it gets to these customers, then the purpose gets defeated.

If you are further interested you may explore web on 

- Reverse mirror swap
-securitization of swap

Saturday, 17 November 2018

Psychology Mains Paper 2 Consumer behaviour

Consumer Psychology

The use of psychology and emotions for enticing consumers, keeping them satisfied is something you would come across every day.
Few things you have noticed daily would be
1.       Flash sale at heavy discount by Amazon or flipkart etc
2.       Free free free – take one get two free!
3.       Limited edition available – booking started
4.       Natural ingredients from flower to neem in soap!

The above all involve application of consumer psychology principles.

The base psychological principle is

“ Pricing is based on value to the customer ” .

Flash sale and heavy discounts (Psychological principle used is Anchoring)

The favourite mobile with MRP 70,000 being available to you at 30,000 for one hour and 40,000 for next one hour. Here, the customer mind gets anchored at 70,000 irrespective of its merit. Now when he/she sees the “offer”, the mind drags customer to get the offer. The thought process revolves around the anchor set by initial pricing. The customer will start discussion on how he got big offer in the portal because he was on time. Thus, a rat race is set up where turnover increases and sales raises.

Free Free Free
The diwali and other festival times are filled with offers of “free free free”. The branded shirt near your store would be putting, buy one shirt get one free.

The customer feels that he should not “miss” the opportunity as offer is short as festival days. Customers expectation and calculation revolves around the bundling. The customer is prompted to think of “what he gets and not think about any negatives – quality or model etc”.

source: wikimedia
Limited edition
The need to be unique, different, able or esteem is underlying principle behind the limited edition. By just adding a sticker or an accessories, the seller is able to increase the price of all products. The most important addition in limited edition is limited.

Currently you can see visualization of neem, rose, jasmine and hell lot of things going into products from shampoo to soap to bathroom cleaner. The advertisement create a visualization (which is written in smallest possible font at bottom of advertisement) to imbibe the feeling of closeness to nature. All the emotions, moods, feelings of humans are developed from the nature. The easiest emotional connect it is able to make in countries where nature is close to heart is to show that wonders of nature are in the product they buy. Next time you wonder how much quantity of “real natural products” are added, please check the contents of the bottle. The perception of humans is utilized heavily in marketing of many health, cosmetic and lot of other products. See tv for a few hours, find some cool examples to quote for consumer behavior in case question comes in UPSC exams.

Bundling of Products
Have you seen two mobile phones with exactly same configuration? Have you seen mobile plans with exact same configuration?

Eg: Telecom ARTL plan : 330 sms free + Roaming free+ 1.7 GB per day free
       Telecom RLNC : 700 sms free + roaming free + 1.5 GB per day free
It is not difficult for RLNC to match brand RLNC plan, but the difference ensures that the two do to fight to compete to lowest value for their product. Also it appears to loyal customers that one is doing better than other in giving them value (offers). The “fight” creates enthusiasm among followers of a plan. It would be designed in a way that at the end you feel “yeh sahi hai” even if it may or may not be.
The technique is to couple many things of multiple value and then it becomes difficult to calculate individual value. The personal preferences of sending msgs or downloading would affect the plan customer, but overall value and pricing is difficult to compare with the bundling. It creates competitive equilibrium.

Asymmetric dominance (customer finds the price ) –
The popular “healthy” muesli would be having many flavours. The company at the same time would add nuts&raisins or apples&oranges or fruit kick or chocolate or anything in world to the healthy drink. Now there will be plain muesli which might be rock bottom priced and many with additional components (nuts&raisins or apples&oranges or fruit kick or chocolate or blah blah) . Here the price can be hiked sky high with additives as it possible to create a feeling that value is created through presence of additives. The value also comes from time saving factor, where the customer would have tedious job of adding the ‘tutti frutti’ to make it rich in apples , grape etc. Here, the customers value of product is set by the base price and then mind builds value to the next range of products. Also, in a customer centric world, it may become fashion to buy the healthy muesli combined with tutti frutti than ‘just plain’ since it is cheap and may come in not so attractive packet.

There are endless principles of psychology related to consumer behavior. I will write about more in later articles.

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