Akshat Shrivastava

100,000 USD= 18 Lakh in INR (in Purchasing Power Parity terms) but is this really true?

It is much better to make 100K USD & save 20K (roughly 16.5L); than make 18 Lakhs in India.

[1] 10 years ago, investing was about capital protection.

[2] Now, investing is about capital protection + inflation protection.

[3] 10 years from, it will be about: capital protection + inflation protection + tax protection.

As the (real) inflation rises in the world: government will charge more subscription on their taxes. And, people will find it harder and harder to invest.

If anyone is actually bothered about improving the ease of doing business: they should simply do away with advance taxes.

[1] For a small business, it is impossible to estimate (correctly) what their turnover would be. And, keep filing the taxes every quarter.

[2] If you miss the estimates, you have to pay an interest to the government.

I don't know if this is a fair way for any government to make money (and honestly this won't be much). But, it generates mistrust.

[3] And, do a bunch of mental acrobatics for compliances.

If the government actually trusts small businesses. And, give them a little but of leeway like: filing taxes once the income clarity is there, it would go a long way in terms of creating harmony.

To buy a house worth 1Cr, these should be your minimum financial qualifications:-

[1] You should have 20 Lakhs for making the downpayment

[2] Rest 80 Lakhs (let's assume you take a loan); EMI payments would be around 90K/month

[3] This should NOT exceed 33% of your household income. Therefore, your household salary should be: 2.7 Lakhs

Anything more puts massive stress on your financial well being.

Natural question: I still want to buy a house. And, my household salary is NOT 2.7Lakhs, what should I do?

Three options:

[1] Own a house in a different city (where the cost of property is lower)

[2] Buy a smaller unit (you might not like it)

[3] Save 40 lakhs first. Then buy.

This is not a full proof plan. But, hopefully the math will help you avoid disastrous decisions.

People go bankrupt owning a house when a downturn hits. The builder stops building & delays possession.

But, the EMIs keeps going out of your pocket. So controlling that should be your #1 step.

All the macroeconomics you need to know 😂

If you are buying under construction property from big builders in India, you should know the story of Super Tech Builders.

At one point in time, they were one of India's biggest Real Estate player. But, now their Chairman (RK Arora) is in jail. Allegations being: money laundering.

So here are key details you should know:-

[1] The firm had several international tie-ups with firms like: Knight Frank (London), Armani Casa (Italy), Arabian Construction Company (Dubai) & many more.

[2] If you look at the resume of Super Tech, you would be rest assured that they would deliver what they promise.

[3] But, the greed of big builders knows no bound. And, the common people pay for that.

In 2004, the firm acquired land to build what would later be called as Noida SuperTech Twin Towers.

[4] The initial plan was to have 14 building. But, the plan was revised 2 times. And, instead of 14 building 15 buildings were to be built: and the height of towers was increased from 20 to 40 stories.

[5] The courts later found out that all this was illegally done. And, many government entities worked hand in glove with the builder to pass these permissions.

On 28 August 2022 at 2:30 pm, the towers were demolished after the implosion in about 10 seconds. around 10,000 people watched the implosion.

This was the first time when a building with more than 30 storeys has been demolished in India.

[6] The case blew up: more details started to come (& existing investigations started to gain more steam).

In simple words it was uncovered: that the builder took (a) loans from banks (b) sold under construction properties; this money was then diverted to group companies [hence money laundering]

Given the long-lead time associated with real estate dispute resolution, it is hard to assess how much money the end users actually lost.

In the next few years: we will appreciate the beauty of low rise-low density constructions.

What happened in Dubai is just a trailer of what is going to come next across major cities in the world.

Owning a box in the sky looks appealing. But, along with it, it brings challenges:

- Infrastructure
- Garbage management
- Traffic flow

Moreover, developers these days are looking to cut corners.

Making tall buildings. Making it shiny. And, keeping the cost high is a great profit optimisation game for builders, not for the owners.

Let me spell it out for you: get out while you have a chance.

We are slowly moving towards a system of 30% taxation on capital gains.

[1] A lot of retail folks used to enjoy the indexation benefits on Debt mutual Funds.

This was taken away in 2023.

Rational? Well, Equities have no indexation-- why should debt have it?

[2] Next 2 years: Let's apply Direct Tax Code.

LTCG on Real Estate is 20%
On Equities it is 10%

Why should Equities have advantage here?

[3] Some political parties: Let's apply Inheritance tax.

In American when the rich pass on their wealth to their kids, they pay inheritance taxes.

Why should people in India enjoy this unfair advantage?

The point is no matter which political party comes to power, they will suck common people's blood through excessive taxation.

Tax whom you can.
And, doll out as much freebies as possible.
This in-short is the future of India's economic policy.

No matter who comes to power: India will see a massive redistribution of wealth.

The way this will work is:

[1] A lot of money will be wasted on freebies (irrespective of whoever comes). This will be extracted from taxpayers.

There will be 2 sets of people:
- One completely dependent on government (for survival)
- One completely dependent on government (for growth: licences & whatnot)

[2] Now there are two sets of taxpayers in India: salaried & corporates.

Personal income tax will rise even more (if you are on a salary, your bad days are about to start).

[3] Corporate income tax cannot rise more b/c job creators will NOT come to the country then. This just kill the freebie engine.

For context:
Latest recent income tax data came out for India:-
- Corporate income tax collection went up by 10%
- Personal income tax collection went up by 25%

No political party has the guts to raise corporate income tax. And, yet keep the FDI/FII investments in India.

They understand that the rich have options.

[4] The clean entrepreneurs (who do not need public debt or need to hobnob with politicians) will leave.

They always thrive on innovation.
They need stability of regulation.
High handedness does not help.

[5] Businesses which are: doing unorganised to organised play (who are killing small businesses) will see their glory days.

- They will pay 25% max corporate tax
- Employ most Indians (the salary folks will pay higher and higher)
- And sell to 99% Indians (at overinflated prices)

Given the headlines, they will be celebrated.

Happy Monday Akshat. Not any advertisement, but lately, I don't care who comes as they all have assets worth 60cr. I have found genuine value in your community and my portfolio is 25% stronger. If you have 159 to spare for a month, try and witness yourself.

youtube.com/?si…

The level of politics only goes down, not up.

If you are sad with the state of politics today, I don't have any good news for you.

You have 2 choices:

[1] Be a mindless optimist: imagine that some strong leader will come and save the country.

And, you will benefit due to good governance.

The point reg this is: that if a good leader was to save our country, they would have done it by now.

[2] Be a realist and create options for yourself. And, your family.

Study trends, build your own wealth. And, have the option to migrate (at least get that option, even if you don't want to execute).

A rich person has 100 choices.

A poor person has 1 choice: that is to depend on their government.

Due to India's increasing debt, you will pay higher taxes. Our debt:-

2014: 54 lakh crore
2023: 205 lakh crore

People are doing politics around this data.
But, here are critical facts you should know:

[1] A good debt is: when you borrow to build productive assets.
Very similar to if you borrow to buy an iPhone, not a very smart move.

But, if you are borrowing to buy a good real estate, it might be a productive use.

[2] Similarly if a country takes debt (borrowings) to build productive assets, it could be considered as a good debt.

So how do we figure out: whether the money has been borrowed for productive/unproductive use.

[3] While there is no standard way to do this: there are a few indicators that could help.

[4] First, you could check for borrowing as a % of GDP. Since, 2005, this number has been going down.

In 2005: around 63%
In 2023: around 45%

So the government seems to have done a great job!

Source: World Bank data

[5] Second, you check: whether this borrowing is (external borrowing) or (domestic borrowing).

Because if we borrow externally more, our economy gets controlled by foreign players.

For this, check external borrowing as a % of GDP

Here, nothing much has changed since 2005. It has stayed around 20%
This indirectly means that: we are borrowing more domestically.

Going forward, it is quite likely that inflation (real inflation is going to be high).

While the government data always underplays inflation, you need to be sensible here, to understand the real inflation.

[6] Third, we need to check if the money that is being borrowed, is it being spent on productive vs unproductive things.

For this we could check Gross Fixed Capital formation data.

This in simple terms mean: how much money is being spent on productive things like investments, rather than consumption.

So high GFCF is good.
Here we are not doing well.
It used to be around 36% in 2008. It is now around 28%.

This points: most of our borrowings is actually going to pointless spending.

If things do not change: expect higher taxation and higher inflation.

Understanding how to deal with higher real inflation (and future proofing your investments) is going to be critical in the future.

Many average students in India end up becoming college professors. In private colleges, they are called "Assistant Professors".

Along with teaching: they prepare for UPSC/GMAT/CAT. So that one day they can better their career prospects.

In short, they don't really want to teach.

Students are "forced" to learn from them because most colleges have 75% attendance rule.

In short, the student really don't want to learn from them.

So a great ecosystem is created: where the teacher isn't really interested in teaching. And, the student isn't really interested in learning.

Yet, the drama goes on. And, we wonder why most graduates in India are not skilled.

When you buy from a small business, you help a family. Most of them are 'selling something' to earn a living.

They can't compete against (many) deeply entrenched corporates:

[1] Who get cheap debt from the government.
[2] Build more monopolies with that money.
[3] Kill such small businesses. And, eventually jack up prices for the end customers (i.e you)

Small has always been beautiful.

But, unfortunately, the small can't build their PR machinery. So they need your support.

When you help them. You help yourself.

If you don't: the day is not far, when you will OVER pay for everything.

[1] In a democracy if 5% are direct tax payers, it means that 95% do not bother about direct taxes.

[2] If 60% people depend on freebies, most people crave for freebies.

[3] Most people are okay adjusting to: pollution, lack of water supply & lack of basic amenities.

Politicians do nothing, bunt pander to the crowd.
We get what we deserve.

The quality of governance directly impacts your taxes. And, the facilities you end up getting.

[1] If jobs are NOT there
[2] Cost of education for your kids is HIGH
[3] You have to pay good money for availing decent health care
[4] Water, Pollution, traffic is a constant problem
[5] And, the buying power of your money is constantly eroding.

(And, yet you pay crazy taxes)

Take a pause. Think, where we are heading? Leave the political party debate aside for 2 mins.

No matter which political party comes to power: they understand that most people DO NOT pay (direct) taxes. And, can't understand HIGH INDIRECT taxes.

Therefore, they don't bother about you.

And, therefore, no matter which political party comes to power: YOU my friend, will have to solve your OWN problems.

As a shareholder in Jio Fin, I am happy that the firm is entering Broking business.

I see folks making fun of Zerodha & Groww, that their days are numbered.

Most likely, yes.

But, here is what will happen next:-

[1] Jio Fin will rule the Broking space
[2] They will lower their commissions (kill the competition)
[3] They will scale really fast (they own all the backend)
[4] Exploring B2B is super easy for them
[5] They will make sure that people can easily switch their broking accounts
[6] This will accelerate B2C (get more retail)
[7] Lowest commissions continue (more customer migration to Jio Fin)
[8] Competition would be gasping for air. And, will slowly die.
[9] Jio Fin would own the majority market.
[10] The price gets jacked up to the same old levels (or maybe even more)

Call it capitalism or whatever you like it, going forward we won't have too choices as customers.

While, I could celebrate my stock rising. I would rather wish the best to Zerodha/Groww and other discount brokers.

I really hope they are able to fight this war. And, survive.

How would you feel if you lost 55% of your wealth overnight? (for no fault of your own?)

This recently happened in Egypt, where people were saving in Egyptian Pound.

- On 4th March 2024: 1 USD to Egyptian Pound= 31
- On 6th March 2024: 1 USD to Egyptian Pound= 49

Reasons:

1) Poor economic management & excess debt
2) Unproductive use of public money
3) Deep rooted corruption

The common people suffered.

Sad thing is: the Egyptian President (Abdel Fattah al-Sisi) took his 3rd term in office recently. He restructured these loans -- and kaboom, the currency fell by 55%.

Some of his other highlights:

"El-Sisi came to power after the 2013 overthrow of the country’s first popularly elected president, Mohamed Morsi. He was re-elected in 2018. In both previous elections, he won with 97 percent of the vote.

He extended the presidential mandate from four to six years and amended the constitution to raise the limit on consecutive terms in office from two to three"

Point is:

Poor economics.
And, good politics rarely go hand-in-hand.

Now what are SGBs?
They are bonds (ie: Internal Debt)

Forex Reserve is an indication.
Our Forex Reserves have gone up.

But the question is:
Is 80-85% Debt-to-GDP high?

I think that it’s completely ok to take on debt (even 100-150%).

[If the money is spent productively.]

If both the above points turn out to be true then:

- Better Gross Fixed Capital Formation
- More Employment
- Higher Subsidization of Taxes

And as GDP grows in real terms,
This growth can be used to offset taxation.

In summary,

- India’s Debt situation right now is not unmanageable. But the road ahead looks unstable.

- Going forward, Real Inflation will be high in the economy.

- Inflation-proof your portfolio. Find assets that at least beat real Inflation.

[5] What does India’s External Debt look like?

From 2016, the external debt reduced in India and flatlined till 2019.

And then, again went up and came back down.

I.e. it follows a business cycle (driven by circumstances and trade cycles).

[6] How can Internal Debt be raised to offset External Liabilities?

As per the Gold Buying Data by the RBI:

Outstanding Gold holding has increased from ~250 tonnes in 2009 to ~600 tonnes in 2022.

They are building a Foreign Reserve.

It is not possible to judge a government's actions through these levels since it follows an average.

Is it possible to raise Internal Debt to pay off External Debt?

This is extremely complicated to figure this out on the national level.

So is this happening?

Defaulting leads to:

- Loss of sovereignty (Access to their own resources like ports)

External Debt happens at a national level.
And it has to be repaid.

So then, why would a country take external debt?