Car ownership: Lifestyle is downward sticky

I had broached the topic four years ago when I was doing insurance planning. Today I wanted to share a personal example of seeing it in action.
5 years ago my wife felt a two wheeler is a complete solution to all her transportation needs. I believed a rental taxi is all I need. Esp. since I used a company provided cab for office commute, making the cost of insurance, servicing, depreciation & cost of capital alone would exceed the cost of a rental every weekend. In sort we were very happy with our transportation choice.
4 years ago after my marriage we immediately bought a car. That time it was more of a utility asset (rather than a luxury purchase). We bought one of the most affordable models and our selection criteria were width & acceleration. A light weight Suzuki Alto k-10 with a 1000cc 55bhp was ideal for zipping through the crowded lanes of Bangalore. However after driving 45,000km it became more of a member of a family rather than a means of transport.
Two years ago, when my daughter was born, we bought a second car. Since I worked in a distant part of the town; I needed a second set of wheels for my wife. My purpose was simple; working women with kids needed a dedicated car to manage both work and home. We settled for a sedan because my wife (now used to the comfort of a personal car) wanted larger leg room. Buying a nano/reva was unthinkable even though it might be more practical.
Currently she is planning to take a temporary break in employment to be a full time homemaker. Since I live in a posh locality with a playschool, hospital, shopping mall & all amenities in the walking distance, I suggested that we should be selling off the redundant car. This would also make economic sense because cars (even when they are not being used) depreciate rapidly and the insurance/servicing bills are considerable. So selling it off would align our expenses to the diminished earning capacity.
She was able to comprehend the rationale for the same and agreed that the car will be driven for hardly once a fortnight, but the very thought was appalling to her. Her car had become a symbol of independence, prestige and comfort at her disposal. Although I fully support my wife in her transition to be a full time home-maker, all I can think right now is: Our family’s financial goals remain the same, we don’t want to scale back on our lifestyle, the child has increased our obligations manifolds and yet our earning capacity has halved. Is the transition going to as smooth as we had anticipated?


Regressive Taxes in India

All democratic countries have a tax structure that increases the tax rate with increase in income. This achieves a double whammy higher taxable income and higher % share of taxes.
The noble aim of these progressive taxes being:

  1. Cross subsidizing the poor with taxes from the rich.
  2. Creating a healthy socio-economic mobility in through merit, diligence and luck anybody can scale up the social ladder.
  3. The society benefits from people who earning/spending is a reflection of the superior human capital, enterprising nature and hard work. Living off the inheritance (solely) is not productive for the society.

In US there has been so many voices saying that the rich are not taxed enough. Surprisingly when I take their arguments in Indian context, I feel that rich Indians are not taxed at all. Here is why:

  1. Estate tax & inheritance tax. These 2 taxes, ensure that inherited wealth cannot fuel the opulent lifestyle of the rich. Everybody needs to work hard to sustain themselves rather than the fortunes of their ancestors. Every developed nation has one version of this tax or the other. It allows government to prevent wealthy become super rich. Incidentally independent India has a land ceiling bill to prevent too much land (Wealth) concentration, modern India feels no need and is happy taxing the poor.
  2. Capital gains tax is surprisingly lower than regular income tax. Not surprisingly it is only the rich that have capital to gain on. The poor will put their money in Bank FD which are taxed at the full 33% rate (no inflation indexing or lower tax benefits)
  3. Most people often don’t end up paying the capital gains tax because if you re-invest in property the government will forgive it. No idea what is the rationale for this ruling
  4. Dividend income in India is tax free! WHY should you and I sweat and give 1/3 of our earnings as taxes while the rich can earn tax free. Even any gains from day trading is lower and if you hold your stocks for 12 months it is completely tax free.
  5. The industries have access to so many government subsidies, SEZ, tax holidays and sops but I have never heard a middle class getting a letter saying “Your work is important and I understand that you are finding it difficult to make your ends meet. Hence I honor you with a 5 year Income Tax holiday.”
  6. Unlike the west India collects more spending based taxes than income tax. The problem with this is that the poor spend a larger portion of their paycheck on consumption than rich. Hence effectively VAT, sales tax, exercise tax, octroi are taxes on poor. Also sales/service/exercise tax is payed at a flat rate rather than progressive slabs as in Income tax. This means that effective tax rate for the poor is higher.
  7. Government of India subsidizes higher education (IIT/IIM) for rich kids that will go abroad, air travel (Air India) for rich. While the quality of road, power, water, education & basic infrastructure needed for social mobility is low. This means that poor don’t get an equal opportunity to move up the social strata.
  8. Rather than investing to improve the reach of clean water, electricity, railways and primary education we subsidize them. This in effect means that rich who have access to these amenities to begin with continue to enjoy it at the expense of the poor.

I have always been intrigued by the book “Rich Dad, Poor Dad” by Robert Kiyosaki. Essentially it says:  “Individuals who earn and then pay taxes on what they earn, corporations earn, spend what they want to spend, and pay taxes on what’s left.” This compounded by knowledge of tax legislatures and effective use of tax havens, subsidies and incentives ensures that over time Rich grows richer.


Election Funding

8 Years ago, I had written a post about how election funding is the root cause of systematic corruption in India and how it is impacting the decisions taken by elected officials and making them think short term & undertake populist measures only.
Today several political parties are pointing finger at how AAP is funding its election campaign. How foreigners (NRIs) and bogus entities are funding Arvind Kejrival to become a vehicle of imperialism etc. I don’t know if there are any merits to the case, but what I do know that Aam Admi Party has taken the bold first step towards transparent political funding. Every penny is accounted for and every source is disclosed.
Elections is a billion dollar industry and we have no idea how it is being funded, who is backing which candidate and for which nefarious reasons. I don’t remember the last time a national party disclosed the list of its prime donors. I might donate a candidate 1,000/- for ideological reason, some might even donate 100,000/- INR (USD 2,000/-) but nobody will donate a million without getting any deal in return.
Most advanced nations have enforced limits on how much an individual/group can donate and have set up transparent processes to disclose who is donating whom. Some countries reimburse the candidates for the election expenses. Whatever be the process it is high time we install some checks and balances to ensure that funding is the only reason why few good men don’t opt for Politics. BTW only in India politics is considered as a career stream.


Muslims in India

10 years ago Sachar committee published some starkling facts about conditions of Muslim in India. through a detailed district/region by region analysis they found that Muslims were worse off than SC, ST and other marginalized communities.
It is unlikely that the current regime will be setting up a second committee to analyze if the situation has bettered or deteriorated. Are we closer or farther away from our goal of communal harmony and holistic socio-economic development? Hence I was loudly thinking:
1. Are there more avenues for socio-economic development? Is the economic disparity lessen over the past decade?
2. Are the goals of healthcare, access to public welfare programs really reaching the masses?
3. Are the minorities still being cornered and forced to live in enclaves/ghettos? Are more Muslims than Hindus dying in communal violence even today?
4. Is the problem of access to credit, technical education and entrepreneurship being solved?
5. Are they still discriminated against in industry, public employment schemes?
6. Is the next generation being equipped to be proud of being part of India?
Providing sufficient avenues for pursuit of happiness or economic development has been the cornerstone for any diverse multi-cultural society to achieve harmony. Khalisthan movement was solved by strategic affirmative action to achieve economic development of the region. North Western India today is the most prosperous and peaceful region in the country. India has the largest Muslim population in the world and continuing to ignore them is just a ticking time-bomb. For the country to really progress, people from all walks of the society should prosper with it.


Not all those who wander…

Gita says that you cannot give wisdom to a man until he seeks it. Similarly it is important to pursue your hobbies and make up your mind in order to be catapulted to success


Health & family priority

All our life we sacrifice everything, (our health, family, hobbies, relationship) just to get an edge at work and earn extra bucks. Later on many of us sacrifice all the accumulated wealth in therapy and medical bills to undo damages due to stress, eating disorders, neglect of relationships and health has caused.

Everybody gets only 24 hours but we stack our calenders so much that probably 48 hours day will still be less. Daily schedule of mine and many of my associates is filled with urgent things. Mentally we believe that there is a war going on and the entire world will crumble if we are not at the top of it. However is it true?
Our companies/enterprise have existed/flourished long before we joined them and will continue to survive even after us. No matter how critical we think we are at workplace, rarely a person is missed for more than five minutes after they quit. It might sound pessimistic, but compare your importance at workplace to your importance in your family.
Taking care of your family, taking time off to help your kids grow and your family ties deepen is important. However since these are rarely critical, we tend to procrastinate and defer it to a later time. How many times have you heard “After this deal/ after this meeting/seminar I will have all the time in the world” but there is always a deadline to be met, a crisis to be resolved.
We often cope up with stress and long working hours by snacks at odd times, comfort food laden with salt/fat/sugar etc. We skip our exercises, yoga for a free day knowing that such a day might never come. Then one day we realize that we are incorrigibly out of shape and suffering from a chronic heart or diabetic illness.
We often rationalize our neglect by saying were busy working and as the sole breadwinner we are making sacrifices for the family. However are these sacrifices for them or for us and our insatiable ego? When do we say that this is enough and we have sufficient money/earning capacity? Unfortunately it is not us that pays the price of our greed.
rhino unicorn treadmill
Most families grow stronger after an economic hardship in fact excess wealth only spoils them. You might be working two shifts to support your kids, but kids rarely remember a parent who was never around. I am yet to meet a spouse that would prefer a pair of Gucci shoes over spending an evening with their partner doing nothing. Then why do we sacrifice everything that we hold dear pursing wealth and professional accolades. There needs to be a balance.
God designed us in a way that our health and relationships with family/kids can take in a lot of neglect without crumbling, but do you want to test their limits? Make amends and act before it is too late.


ATF vs diesel price

“अंधेर नगरी चौपट्ट राजा टके सेर भाजी टके सेर खाजा”
A country is doomed/blinded when a foolish ruler ruins it by pricing the goods arbitrarily and with no bearing of the cost of production.
India is probably the only market in the world where ATF (aviation turbine fuel) is cheaper than High Speed Diesel. ATF needs to be processed several times and refined to pass the stringent tests by commercial airliner. On the other hand diesel (even high speed variety) is quite crude and only notches above furnace oil. That is the reason why shipping, trucking and other price sensitive commercial carriers prefer it.
I oppose such capricious moves for couple of reasons:
1. Are you going to have autorickshaw drivers, truck drivers experimenting with the ideal blend fo ATF in their tanks? Isn’t it a colossal waste of energy spend in refining this fuel?
2. Prior to 2013-14 Government had arbitrarily kept ATF prices in India, highest in the world. It is debatable if this led to perpetual bankruptcy of AirIndia and several other airlines. However I know this for sure that several airlines wasted their precious capital in setting up oil distribution network at airports, something that is not their core business nor leads to any efficiency.
3. Such arbitrary shift in policy is neither sustainable nor good for the country. Several international airlines charted their routes so that they did not have to refuel in India. Indian airlines could not expand because their capital was blocked in directly importing ATF. Today in service industry efficiency is the key to survival and such fluctuations in policy only compounds the problem.
In my early career, I used to do a rookie mistake of putting all the downsides or sources of losses of any transaction under the risk category. It was corrected by highlighting that any situation that leads to a guaranteed loss/negative cash flow is not a risk as it has been fully captured in the deal pricing. A risk is uncertainty in the outcome of any legal exposure, policy or market dependency that could impact (positively or negatively) your understanding/confidence on the realization of the profitability of the transaction/future of the business. Companies can handle adverse market scenario as that can be priced in the value of goods and services. However uncertainty not only impacts the prices, but makes people averse to make large investments with a longer time horizon. in other words:
Inconsistency makes people myopic and nobody makes investments to realize the optimal long term efficiency.


Born Human

In the worlds of PK, if the god had made we humans so different, it would have the courtesy to label us so. why do we divide ourselves on lines of religion, color or prefereences