CAT 2015 Return of Good Readers

It is that time of the year when one relives his college days when he used to appear in the CAT as a student. Now I write the test as an analyst. And I just came out doing the worst ever in all the CATs I ever took. :-) Well it was one of those years when I completely messed up one of the strongest areas, I thought, I had. I guess - too much confidence never helps. Here is a nut and shell of what I think CAT 2015 was like.

CAT 2015 was a mixed bag with more pleasant and less painful surprises. The Language section often dreaded by students in our side of India was fairly simple one and easy to negotiate. The Quantitative Ability section was truly a sitter for anyone who has been preparing sincerely for CAT. A CHEM student who has done even his Thrust & Accelerate portion of material – would confidently do 28-30 questions with almost cent-percent accuracy.

The spanner in the easy ride was the DI/LR section. In last several years this was probably the toughest ever Di & LR section. The do well in the section students will have to spend substantial time in understanding and structuring the data and building the structure clearly. Even after having done that, the questions would require good comprehension to finally arrive at the answer.

Section – 1 :  Verbal Ability and Reading Comprehension

This was the first section of the CAT paper was divided into two sub-sections

One, with 24 questions based on Reading Comprehension  and

Second, with 10 questions 5 Para jumbles , 3 on Essence of the paragraph  and 2 on odd sentence out of a jumbled up paragraph.

Overall the section was very manageable. Anyone who is practicing the RC section regularly will find very few difficulties in navigating the section. A good student should be able to attempt up to 30 questions with almost 85% accuracy. Do not worry about accuracy in the jumbled up paragraph types.

Here is a detailed analysis of the section in the forenoon (morning) slot.

Sub – section I : Reading Comprehension

Subject	URL Yes we even found the source	No. of Qs.	Difficulty Level
1)      Relationship of Economic inequality and accumulation of wealth	Edited from https://hbr.org/2014/04/pikettys-capital-in-a-lot-less-than-696-pages/	3	2 simple 1 moderate
2)      Increasing dependence of human memory on internet resource	http://www.iht.com/2014/03/22/the-web-is-here-to-stay/	6	1 tough 2 moderate 3 simple
3)      Relevance of studying humanities in a dominantly technical world		3	3 simple
4)      Economic Theory that suggests migration actually results in making a country/world richer	Edited from http://www.nytimes.com/2015/03/29/magazine/debunking-the-myth-of-the-job-stealing-immigrant.html	6	1 tricky 2 moderate 3 simple
5)      Why world’s poor  need grid power not just solar panels	https://www.newscientist.com/article/mg22329804-400-worlds-poor-need-grid-power-not-just-solar-panels/	6	2 moderate 4 simple

Sub – section II : Verbal Ability

What was interesting in this section was that all VA questions except the essence questions were non MCQ . The questions in which the sentences had to be arranged in a logical paragraph had 5 sentences each and were numbered 1 to 5. The message was clear attempt all the jumbled up paragraphs because there was no negative marking for them.

Again questions on Odd sentence out and those on essence were fairly simple and could be easily done accurately by eliminating the “not possible” choices. While even when one is confused in the jumbled up paragraphs because one did not have the support of the option choices – one must still attempt them as all of them were non-MCQ questions and hence one does not have to worry about negative marks.

Surprises

Not much except that in tune with the sample paper that IIMs had put up – the questions based on vocabulary and English Usage (Grammar) went missing completely.

This clearly pointed out to the focus the IIMs might have increased on getting better readers in the creed. And I agree whole heartedly - offlate the trend was that students could bypass the language section by focussing on the LR section and even in the VA section the reading comprehension has a minimal presence and hence a poor performance in RC did not have a great impact on the performance.

This year that has transformed. Anyone who was taking RC lightly would pay dearly. The RC wasn't difficult but if you one who was avoiding it - then you were the e targetted. Fair & Square.

Section – 2 : Data Interpretation and Logical Reasoning

Most cases were time consuming beyond the generally challenging DI & LR. However one case in DI and one using a line graph and data on Tourist was fairly simple. Similarly once you get the logic right a case on cube made of smaller numbered cubes was also a simple one. Combined with these two one can do up to two to three more cases and hence an attempt of anywhere between 16-20 questions in this section would be a good idea.

without going into detailed analysis (If interested a more detailed analysis is available here) of the section let me state the surprise :

Total absence of questions on sequencing, arranging, relating or associating. No questions on blood relations which had found some presence in recent previous CATs. If you notice, the primary skill that was tested was puzzle solving which required students to try out scenarios, try and verify and to visualize strongly. True Management professionals stuff. So again kudos the subte change here - but yes it took a lot of us by surprise and would have definitely affected our performance.

But as they say - its a relative test - so as long as your decline the section was not as great as mine was yesterday - you should be fine. I ended up doing just three cases - 10 Qs. My guess is if you could do anywhere between 16-20 (4 to 5 cases) you are pretty snugly placed to get a good percentile.

Section – 3 :  Quantitaive Ability

This section was a pleasant surprise for all those students who are scared of mathematics. It was sitter in the true sense of the word. Increased stress on arithmetic made it all the more of a blessing for CHEM students. The ratios approach would have increased their speed immensely in solving many questions. Geometry questions were simple and could have been easily done by observation of diagrams drawn. While all questions could have been done but even if we discount a few cumbersome ones – a sincere student can do up to 30 questions with almost cent percent accuracy.

Here is a detailed analysis of the section for the forenoon slot - the evening slot by early feedback was not much different.

Subject	No. of Qs.	Difficulty Level
Ratios & Percentages	4	3 simple 1 moderate
Profit & Loss	2	Both simple
Averages, Mixtures & Alligation	2	1 simple 1 simple; little high on calculations
Work & Time	1	Moderate
Speed, Time & Distance	2	1 moderate 1 Time Consuming not tough
Number Theory	1	High on Calculation – not tough
Geometry & Mensuration	7	3 simple 3 moderate 1 high on calculation
P & C	1	Tricky but simple once understood
Quadratic & higher order equation	5	3 simple & moderate 2 tricky
Logaritham	1	Simple
Functions	1	Simple
Squences & series	2	Both simple
Trigonometry – Heights & Distance	1	simple
Coordinate Geometry	1	Simple (actually of P& C)
Set Theory	1	Very Simple
Misc.	1	Tricky

 Note the returned stress on arithmetic. Thats what aptitude tests must do - not scare people with overtly mathematical language and technically sounding questions. They must confound the students by the sound, language and the twists in the questions. This section had questions that when understood well had VERY simple and almost direct solutions (even those on P&C, Sequences & series, Coordinate etc.). 7 questions on Geometry and mensuration again had the quality that required you to observe keenly - and poof its done.

Very good aptitude test it was.

In conlusion then

This year's CAT increased my trust in the common sensical intelligence of the IIMs once again. I was losing it over the last few years.

The test marked the return of common sense and good comprehension as the primary need to crack it.

It also put an end to the "short tricks" department of coaching classes, as well as "arm chair strategists" suggesting focus on strengths and wrapping up weaknesses. Won't work.

Just develope great concepts and love for reading wide and deep - and you could be well placed to be the next kid on the block. All the Best.

"Increasing Intolerance" not "Intolerant India"

In july 2014, it was reported in the media that Mr. Amit shah in his speech said "Acche Din will take 25 years to come (click to read)".  The BJP president was speaking to BJP Volunteers who were a part of the Mass Contact programme of the Party. Ofcourse what followed was a huge uproar - even suggesting that like in many cases the BJP was taking a U-turn on the "Acche Din" promise as well.

The truth however was more mundane. If someone took a little more nuanced view of the speech that Mr. Amit Shah made that day - two things emerge. One, that Mr. shah was not talking about the proverbial "Acche Din" in the speech - he was talking about India to be brought to the No. 1 position in the world. Two, his context was that he was motivating the volunteers of a mass contact programme of his party to ensure that they worked towards creating a mass base for his party that will ensure his party's win in elections at all levels for the next 25 years.

Here is a rather provocative and yet a more accurate (click to read) rebuttal to that piece of news. And here is a more balance explanation (click to read) on the news. While one could technically twist the logic to mean that he was suggesting that "Acche Din" would require 25 years to come yet the truth is that to any sensible person that will be an unfair inference to draw from his speech.

What is my point? That instant and reactionary outrage on just a part of a larger point creates an imagined narrative which is not the whole truth.

The Intolerance Debate
That seem to have happened in the case of the "Intolerance Debate" as well. Let me explain.

Most people who raised the issue of intolerance ,apart from one clear exception of the eminent Historian Irfan Habib, have made just one point - that religious Intolerance is growing in our country. They have not claimed that India has (already) become an Intolerant country. In fact they would want to believe that their opposition, protest, returning of awards is to ensure that India does not actually become an intolerant nation.

For the large massess out there this distinction is too fine to make. And simpilified reporting of such issues makes it worse. Hence, the returning of Awards by authors, scientists and artists turned into acrimonious debate by focussing on whether returning awards is an organised conspiracy or whether it is payback by those undsererving people who received awards as favours from earlier governments or whetehr these people had ulterior motives. Very few people actually discussed growing intolerance or the lack of it which should have been discussed in the first place.

The Aamir Khan controversy
Here is the full transcript of the conversation with Aamir khan (click to read) where he made his statement on Increasing intolerance. I quote some long excerpts below:

I think for creative people to voice what they feel is important and I think that a number of creative people like scientists, historians increasingly had a certain feeling in them which they felt to express. So, for creative people to express their dissatisfaction and disappointment is to return awards. I think that is one way of getting your point across, certainly. 

I would actually endorse any protest which is non-violent… as long as you don’t start beating up people, as long as you don’t resort to violence. All individuals have a right to protest and they can protest in any manner that they feel is right as long as they are not phsically harming people or taking law into their hands. It is certainly a way to protest.. for creative people. 

When people take law in to their hands and when there is a sense of insecurity, we look upon these people to take a strong stance, make strong statements and speed up the legal process to prosecute cases. When we see it happening there is a sense of security but when we don’t see that happening there is a sense of insecurity. So it does not matter who the ruling party is. It’s happened across ages. On television debates, we see where one political party, in this case, the BJP which is ruling right now, is accused of various things. They said, ‘But what happened in 1984?’. But that doesn’t make right what’s happening now. What happened in ‘84 was disastrous and horrendous. At other times also, through ages, whenever there is a violent act, when an innocent person is killed, be it one or a large number, that’s very unfortunate. And these unfortunate moments are the ones when we look towards our leaders to take a strong step. Make statements that are reassuring to the citizens. 

To complete my answer that there is a sense of fear more than there was earlier. I do feel there is a sense of insecurity. When I sit at home and talk to Kiran. (Wife) Kiran and I have lived all our lives in India. For the first time, she said, should we move out of India? That’s a disastrous and big statement for Kiran to make to me. She fears for her child. She fears about what the atmosphere around us will be. She feels scared to open the newspapers everyday. That does indicate that there is a sense of growing disquiet.

Now the simplified reporting made it into a simple headline. One interesting headline was - Aamir Khan's 'quit India' comment attracts outrage and support. Almost everywhere the talk of the town was that Aamir khan wishes to go out of the country because of Intolerant India which is obvious simplification of what he said.

What is going on?
Well a lot is going on simultaneously. It is not as if India was an abolutely tolerant nation earlier but often its intolerance and the reaction to it was differently managed by the powers in authority. The current dispensation (read the Modi Govt.) has often chosen to ignore or to remain indifferent to many such incidences in the past. Also often on behalf of the Govt. or the Party the responses to such insidences or protests have been of strong opposition, or of mild justification. Earlier governments would have generally followed a more conciliatary approach to calm down rebellion or dicidence.

I am not saying that the earlier govt. was better at managing such protests or vice versa. I am just pointing out to the difference in the approach. The current appraoch to responding to such controversies obviously generates increased acrimony.

Further, the India that we lived in a couple of decades ago and the current India are also different in its structure or appraoch to such controversies. Swaminathan S Anklesaria Aiyar has this interesting take on the issue. He says India is not growing more intolerant but it has grown more sensitive (click here to read and, in my view, that may not be so bad, actually.

What do I think ?

Before I am branded a "leftist sickular" and a "modi baiter" (which this post is not about) let me clarify where I stand on the issue - because till now I never really wrote on the issue of intolerance. Here is what I think

1. I don't think Authors should return rewards AND yet I also think it is a valid way of protesting in a non-violent and unintrusive manner. I would have surely liked the authors - artist to speak strongly on the subject - even march to the president (like Anupam Kher) instead of returning awards and yet I do not care whether it was  "manufactured revolt" or an "organised conspiracy". It was a fairly effective, non-violent and valid way of protesting.

2. The best performing Prime Ministers in our country (primarily based on Economic development policies) were those who followed the consensual approach to Governance. The examples I have in mind are Mr. Narsimha Rao, Mr. Atal Bihari Vajayee & Dr. Manmohan Singh as the PM of UPA-I (not UPA-II). I think the current Govt. needs to tone down the arrogance and converse more with all stake holders.

3. I agree with Aamir Khan when he says that any protest which is non-violent should be allowed every space. I wish to add to it that the protest should also not violate someone else's rights. However, I do think that he is more of a commercial manager than a conscious stake holder in the issues that he raises. He is other wise an unsocial person and he often finds his voice of conscience around his film releases. However, the timing of this comment is nowhere nearer the release of his next movie Dangal (expected to release in Dec. 2016). So it is NOT confirmed pattern and hence I must give the benefit of doubt to Aamir. Lets go with the theory that he is sincere in what he is saying.

4. We need to debate the issue. The answer to a critical question should NOT be that "you also did so" or "where were you when something like this was happening earlier". This may be valid grievances but are invalid arguments.

So what do you do with the Social Media pouncing on all and sundry for every word of what they say?

Not much. They too have a right to disagree and protest (non violent and non-intrusive). The saner voices can wait for the initial dust to settle and then come with better analysis and inputs. But what is going on currently is that everyone has an opinion and everyone has found a channel to vent it. And there are many forces working in all possible selfish directions. To top it all it is not a perfectly competitive market - so there are parties with varying degree of advantages.

Yet all that is happening, though chaotic, is not necessarily bad. All parties including the audience will come out wiser from the experience. I believe that India is on a road to become a wiser and a more matured country after several such irrational - emotional outbursts. Will it be a more developed one - lets wait and watch the next three years of this Government.

Yakub Menon received fair trial - justice is subjective

Finally Yakub has been hanged. There was a lot of debate on whether he should be hanged or not.

Extreme opinions were exchanged. One group thought it was anti-national to think of any sympathy for him - another group identified what they called "mitigating circumstances" to show clememncy in awarding him punishment.

Some points
1. He is guilty because a fair court has held him guilty (and we must understand that the court is the competent authority to have looked into evidence and take a balanced judgement on the issue)

2. He had been given a fair trial - he has presented his case through three layers of our justice system. He had supporters (those who could empathise with his perspective) outside and inside the courts.

3. We can have a healthy difference of opinions with the court (and also with the law) but no one can question the fairness of the process in this case.

4. Many people compare outcome of this case with cases of Gujarat riots or other accused of 26/11 blast cases or that of the Rajeev Gandhi assination cases and hence feel that memon was targetted at. This may be factully true and is still a "कुतर्क". Legal system is not consistent and it cannot be consistent and it is not consistent anywhere in the world - thats because human beings run the legal system. However, each case is expected to go through the same process and each has its own merits to be judged on.
This is not to say that we must not improve the system but that we must accept the outcome of the system (which sometimes may be at variance from what we believe)

5. In the same breath we must not brand those who empathise with Yakub as anti national or apologists. We must understand that this is the beauty of this country. It allows for dissent and disagreements and so, huge debates. Those on the side of Yakub are not necessarily anti-nationalists and screaming "anti-national" at them is only killing this spirit of coexistence with differing opinions.

6. Also there is a political angle to it. Many believe that the alacrity with which he was hanged is unparalleled specially because there are many languishing in the jails still to be hanged. For many the mercy petition is stuck in the home ministry or with the president for years. Many people feel - this is because there is a political dispensation at the helms, who is out there to prove that they are decisive.

Even if this is true - I think this is not relevant. We can counter argue that the opposition was also taking political mileage by wanting to delay the hanging and that earlier governments have been delaying the execution of many others to appease their vote banks.

The fact is that there was a Government at one time who would have taken excessively guarded steps before executing a guilty and then there are Governments (may be the current one is one such) who would be less guarded. Time will test both the approaches.

In nutshell - yakub's case was fairly tried and a considered judgement made. One hopes that was the case in every such case.

CAT 2015 - New conction in old bottles

For me it is almost a ritual - writing an analytical note on the expected changes in CAT, almost every two years. Just as I sit to write this one I am remembered of my earlier post on the same.

CAT-2015 notification is out and with it is the proverbial cat out of the bag. Like always CAT brought some surprises to the aspirant students and so I am back with some loud thinking on the changes and to explain how it impacts you

Lets analyse each change one by one

1.    CAT 2015 will be conducted in two sessions in one day. The exam will be held on 29.11.2015 (Sunday).

This is in tune with the larger strategy of keeping the CAT fair. Some of you will remember that year before last CAT-2013 was conducted over a 24 day window in two slots each day. That was the most controversial CAT ever with mountains of litigation happening throughout the country questioning the fairness of the score normalization and then subsequent ranks allotted to the students. The situation improved when CAT2014 was conducted over just two days. A single day CAT would mean a more reliable ranking as it would require little or no normalization for difference in test and its toughness levels. So, we can trust this CAT results to be as fair as ever.

There is however a silverlining in the date – it provides the students with almost an extra month to prepared for as the date of CAT is now almost a month later than the anticipated date going by last 4-5 years of experience.

So, those who might have been cutting corners till now – here is your little window of opportunity to reenergize and prepare well

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2.    Duration of the examination has been increased to 180 minutes instead of 170 minutes.

No impact of this on our performance – because it affects everyone equally and hence there is no relative gain except a psychological comfort of having more time to negotiate the test.

3.    There will be three sections, ‘Quantitative Aptitude (QA)’, ‘Data Interpretation & Logical Reasoning (DILR)’ and ‘Verbal and Reading Comprehension (VRC)’. QA and VRC will have 34 questions each, and DILR will have 32 questions.

A quick back of the hand calculation will tell you that this is a cosmetic change. Till a few years ago, CAT was actually a three section neatly divided into QA, DI/LR and VA. Couple of years ago it was made a two section test by dividing the DI/LR section into two – and by attaching the DI section with the QA one and that of LR was attached with the VA section. This year it has been decided to be brought back to the original format which was followed for many years. The distribution of number of questions is actually exactly the same as was last year and they have just been regrouped. So no big surprise here.

However, this change has an important message for aspirants. The importance of the Language section has increased tremendously as was the case earlier too when it was a three/four section format. Over the last couple of years many students had resorted to the practice of doing the LR questions in the second section by devoting it a lot of time and largely bypassing the verbal portions of the second section. I have been in touch with many students who maintained that they simply do not try any of the RC passage and instead they focus on doing all the LR questions right.

So, once again Language section will become a dominant factor in ensuring a winning percentile. Time to take up your central ideas and vocabulary exercises with stronger focus.

4.    Candidates will be allotted exactly 60 minutes for answering questions in each section and they cannot switch from one section to another while answering questions in a section

I know you can visualize me smiling when reading this change. We at CH EdgeMakers have been pleading with you to create a more or less even strategy of attacking the CAT because time and again our statistical analysis told us that this is the best approach to scoring one’s highest. A timed section would just mean that the CAT itself is ensuring that you follow that strategy.

This change also underscores the fact that the CAT has increased the importance of the language section again. The students will not be allowed to shift some of their time from the verbal ability section to the QA or the LR section. Shifting some to substantial fraction of time from the verbal ability section was the predominant behavior of the students in the earlier two section format of the CAT. Further, we are forced to devote 60 minutes to 34 questions of VRC – this means that the VRC section could also increase in its toughness – which had mellowed down a bit over the last two years.

I guess for the students with a strategy the timed section does not make much difference because hopefully they were following it anyways. However, it does enforce a certain discipline in the execution of the test. Finally, do remember that you must take the language section in more depth because in any case you have devote 60 minutes to the Verbal and Reading Comprehension Section – So, it’s important that you do well there.

5.    Some questions in each section may not be of multiple choice type. Instead, direct answers are to be typed on the screen. The tutorials will clearly explain this change.

By far, this is the most interesting and fundamental change this year in the format of CAT. Initially, this was being interpreted as addition of descriptive questions to the test. Some websites went on to suggest that the students will have to type solutions on the screen.

However, this is not correct. Note the above line – taken directly from the IIM Ahmedabad press release “Instead, direct answers are to be typed on the screen”What this means is that in those questions where you do not get multiple answer choices – you will have to key in the final answer (not write the entire solution). Prof. Tathagata Bandyopadhyay Convener of CAT 2015, IIM Ahmedabad clarified in an interview later “We have decided to introduce a few questions which will require candidates to solve the problems and key-in the correct answer/s instead of just selecting the right options among the given choices. This we are planning to introduce for reducing the impact of guess work on the performance.”

If there was any proof needed that CAT cannot be cracked on the basis of so-called “tricks/short cuts/formulae” – here is one more added to it. Obviously this change has been brought about to ensure that those with conceptual clarity and depth in comprehension will do better. Guessing the answer on the basis of options are a thing of past. If one were to make a guess on what kind of questions will not carry multiple choice of answers – it would be safe to say that they would be questions which earlier could have been done/guessed by simply trying out values from the options. This means one will have to be clear of one’s approach (process) of solving a question rather than hunting for the right answer in any which way.

If you have been following my advice on CAT ever – you must have noticed the stress I give to solving each question till the very end to ensure that we get the concept right. If you have been following the above tenet – you do not have to worry much. This change actually favours you against the students of those “proverbial coaching classes/expert websites”  who are hell bent at teaching students ways and means to bypass the question through some fancy guessing or through reverse working from possible answers. 

6.    Also, we will allow use of basic on-screen calculator for computation.

While I do not like this change but it’s here for you. This change recognizes the fact that some students are generally more comfortable with numbers and they have a natural advantage over those not so familiar with numbers. The use of basic calculator takes away one’s focus from calculating to understanding, structuring and hence approaching the question right. In a way this is good because it tests more important skills needed to be a manager/leader and at the same time it is not that good a step because someone with good familiarity with numbers and an ability to work through them with back of the paper gut too is an important skill for a manager.

Anyways – it is now allowed. So how does it impact us. If one thinks logically – even the use of the basic on the screen calculator is cumbersome and time consuming exercise. So if one is good at mental calculations and quick approximations that can surely be an advantage over the competition. Remember that CAT is a relative test and not using the calculator can be a competitive edge. So my advice would be to work on one’s calculating abilities and to use the calculator only in case of long, cumbersome calculations or those calculations that need accuracy to the decimal point (which I doubt CAT ever demands).

So, my suggestion here is to ignore the fact that you will be allowed to use the calculator and keep preparing. In the actual test however, use it for cumbersome calculations and for those that requires pin point accuracy in answering the questions.

So that’s it – the changes brought about the CAT 2015, I dare say, in nut shell. J I hope this note helps you focus your energies in the next four months better. If you have any questions or doubts (even arguments against what I have written here) feel free to mail them to me to akash.sethia@chgroup.in

Most such notes that I have written over the last couple of decades, mention that “this CAT is old wine in new bottles”. But, I must say for CAT 2015 that this one may not be completely new wine, and yet it’s a new concoction in an old bottle (structure).

Reforms in Reverse Gear

Almost two decades ago, when I was studying at IIM Lucknow - I became aware of one big mistake in Economic policy of India during the Indiraji/Rajeev Gandhi era. Maintaining Governments control over the Monetary system of India. My generation is a witness to the Economic reforms under the stewardship of Dr. Manmohan singh over these two decades.

A key tenet of these reforms, an independent RBI seems to be going into the reverse gear now. Recently the Govt. announced a draft policy called the Indian Financial Policy that seems to severely restrict the autonomy of the RBI. Here is why this should not happen

 If anything we must learn from history and not repeat past errors. Indira Gandhi was an admirable leader and yet she was so wrong in creating a tight fisted control of the Government on the Indian Monetary system. She was the person behind nationalisation of the banks. What followed was decades of fiscal and monetary profligacy. Two terms that we learnt and used a lot back then were "Monetisation of Fiscal Deficit" and "Double digit inflation".

Even to an amateur in economics like me, it was easy to establish the connect. The Government of the day ran high fiscal deficit - ostensibly in the name of development - and as the system goes the fiscal deficit actually built due to non-development expenses like irrelevant subsidies, political dole outs and loss making PSUs. One of the major routes to finance this high fiscal deficit was to print more notes (monetisation) and hence increased liquidity in the system which led to runaway inflation resulting in falling value of Rupee, which in those days the RBI (read the Govt.) will maintain at artificially high levels through draconian laws like FERA and by not allowing Rupee convertibility.

Obviously it resulted in exports losing competitive edge while imports becoming very attractive. They then needed to be managed by high tarrifs, import duties and quantitative restrictions. This was a major reason (mind you not the only reason) for the economic mess we were in 1991 (for those who do not know - we were at the edge of defaulting on our payments because of a hugely deteriorated Balance of Payment (BOP) situation).

We gradually clawed back to normalcy and then quite remarkably into a high growth scenario of close to 9% GDP growth rate and modest inflation rates of 3-4% for close to a decade. This was possible because of far reaching reforms taken by subequesnt Governments both UPA and NDA. The key architect of this recovery was Dr. Manmohan Singh, first as the FM and then as the PM.

A lot of this economic mess in those days was ascribed to we having an RBI which was considered a slave of the Government. The RBI Governor in those days was expected to toe the line of the Government. Dr. Manmhan sigh who had served earlier as the RBI Governor too understood the importance of an autonomus central bank in managing the moetary policy effectively. This was ofcourse vindicated by the largely autonomous central banks of almost all developed nations at the time (which remains largely true till date).

As a result some of the key reforms focussed on a more autonomous and stronger RBI. Fiscal Responsibility Bill was passed that committed to a maximum limit of monetisation of fiscal deficit. Monetary policy was largely left to the RBI governor and it was decided that beyond the limit of monetisation Govt. will finance its fiscal deficit through Market operations. All these helped ensure debate on key areas of reforms and policy. Healthy disagreements between the FM and the RBI Governors have often resulted in rethinking and reevaluating of options. Many believe with some strong basis that India managed to cruise through the 2009-10 Global Financial meltdown triggered by the sub-prime crisis in the US, quite admirably largely due to prudent policies on the part of the RBI (and also due to fairly expert management by the FM/PM/planning Commision head of the fiscal economy).

So what is alarming about the draft Indian Financial Policy issued by the Finance Ministry? It seems to be undoing this body of work done over close to three decades. The draft suggests formation of a "Monetary Policy Committee" that would decide key rates of the Monetary Policies. What is interesting, is that out of seven members in the committee four are proposed to be those appointed by the Central Government and only two to be appointed by the RBI. This effectively means that the RBI Governor has effectively lost control on decisions related to key monetary policy parameter. An earlier draft allowed for a veto with the RBI Governor in case he/she disagreed with the commitee's decision - this draft does not allow even that safeguard against an overzealous FM.

Further, The revised IFC is also silent on the setting up of a Debt Agency Advisory Council that was proposed in the earlier draft to advise the Public Debt Management Agency. The revised draft has also toned down the FSAT and removed the provision empowering it to review regulations. This in short means we are not to expect any reforms towards strengthening the monetary/banking system of the country anytime soon.

Now I am not saying that we are anywhere near the economic mess of 1991 and yet it would not take more than a decade at today's pace to be there - if we do  not learn from our past mistakes. Whatever be your criticism of the Manmohan Singh government - one credit he must get. His government created strong institutions that were allowed to work autonomously - and each one of them helped/is helping transform the sector. Eg. SEBI, TRAI, IRDA, UID etc. Limiting their autonomy would be counter productive in the medium term.

Most well meaning Indians should express view on such an important piece of legislation that threatens to take us back tens of years on a piece of reform that has actually worked. In fact we need a Government that that takes these reforms further by expediting the formation of Debt Management Agency which is a crying need of PSU banks that are already reeling under the increased levels of NPAs. The Government can do so much to ensure a strong India and facilitate Economic recoery - taking away institutional autonoy from key functions is the last thing they should target. Is someone listening.

$1B SBI Loan - Benefit of Doubt to Modiji

Lot of criticism has erupted as Adani Mining the Australian Subsidiary of Adani Enterprisesigned an MOU with SBI for a loan upto $1 Billion.  As I browsed through the morning papers this is the sense I could make out. Those of you not interested in technical fact based posts may avoid reading this one. :-)

First, let's collect some facts
1. Debt Position
As on Sep 30, 2014, the long term debt of the company : Rs 55,364.94 crore. 
The short term debt : Rs 17,267.43 crore. 
Hence, the total debt : Rs 72,632.37 crore.

The total debt of the company has shot up by Rs 7653.33 crore in a last six months.

2. Loan Repayment Ability
The total operating profit over the last four quarters : Rs 8999.92 crore. 
The interest paid on its debt in the last four quarters : 5,733.77 crore. 
This means an interest coverage ratio of around 1.57
However, the Interest Coverage is deteriorating over the last four qrtrs.  at 2.67 in march, at 1.58, in June 1.12 in Sep 2014.

Another unconfirmed figure that is doing the round in discussion is that the total asset value of adani enterprises is $72 B. (please note I could not confirm this figure - however this does not look like impossible).
So, the company does look like an over leveraged one even if on a solid asset base.
And at the same time the company does not like it is going down the drain. Banks offer loans to much worse balance sheets - not always because there are paybacks - but also because thats what they are supposed to do - take calculated risks.

3. Viability
Globally, coal prices have been on a downtrend in the last three years and are at the lowest levels since 2009. Prices of steam coal, a slightly lower grade that is used in power generation, have halved since 2011 to $62 per tonne now. The prices have fallen 30% and are expected to remain low for a few years according to many leading analysts.

In fact, Much bigger coal rivals, like BHP Billiton and Glencore, have also shelved coal developments in Queensland at a time when a third of Australia's coal output is making losses.
This does raise a question mark on viability of the project too.
A business standard article neatly sums up the risks in the project here.

How risky is it?
Depending on which side of the fence are you on, these figures may look as a risky bet to offer loan to - or it may appear to be an acceptable risk.

Now I am no financial wizard to opine authentically on the above numbers and yet to my sense - a company that is into projects like mining which are long term projects at least at this stage it does not look so dangerously risky. Specially because the company seems to be backed by the Govt. of the day.

What does SBI have to say on this?
Read this article - "SBI defends loan to Adani"
well as always - a misleading headline it is. There is no defence built by SBI chairperson Arundhati Bhattacharya, instead she explained the current position on the MOU. A better story to read is in The Economic Times - here 

Lets summarise the main points 
1. At present the bank has only entered into a memorandum of understanding (MoU) with the group. 

2. It will do "proper due diligence" before sanctioning the $1-billion (about Rs 6,000 crore) loan to Adani Mining  

3. If the board approves the loan, SBI's net exposure would be to the tune of $200 million, as there will be some repayments also from the company. 

 So, she makes it sound as if the Loan can still be cancelled. Technically true. But I guess its a forgone conclusion when announced in this manner. One can be easily forgiven to conclude that what SBI was doing by signing the MOU at the time when Adani was in Australia along with the PM, was that it was giving positive signals to authorities in Australia. It would be naive to believe that the PMO does not have a hand in it.

And yet there are three things to note

One, there is nothing wrong in a Bank signing an MOU subject to due diligence - even if just to help improve the client's chance to clinch a deal - if it believes that will reduce the risk in the project. In fact Banks are supposed to support ventures which in their view have fair degree of chance to succeed. (That they should do so for small entrepreneurs as well is another story - another post - another time)

Two, the Bank has let the deal be open to closer scrutiny by the media as well. So the Bank's intention should be viewed with less scepticism.

Third, the net exposure has to increase by much lesser (200 million) according to SBI chair person. If so, this may be a deft step in managing NPAs by getting the group to repay a large portion of earlier loan and starting a fresh credit line with fresh safeguards.

The Political Angle

So we inexplicably reach that aspect which is the biggest concern. The politics behind this loan. It is an open secret that Adani is a close connect of Modiji. Most ardent supporters of Modiji will also not disagree that, the media jamboree that Modiji has been able to generate and sustain has been possible because of the open flood of resource made available by the likes of Adani. So one may be easily forgiven to conclude that this is payback time.

Hence the cries of crony capitalism, back door kick backs etc. How do we make sense in this clutter? Most supporters like a asst. prof at the respected XLRI or a respected economist/author in Mumbai and many others have had less concrete things to say. Some glimpses
1. This is not yet sactioned loan. It is just an MOU.
weak retort this is. An intent to offer the loan is anyway good enough. Is SBI expected to decline now.

2. SBI has offered such loans earlier too and to  likes of Tatas, Birlas and Jindals
Again very Bhakt like response. Does the above truth make this loan fine. The intent of the current Government was to clean the UPA mess. If they hide behind the logic "they also did it" then where is the change. 
A mere point of distinction (equally bad an argument though) is that at least Tatas & Birlas weren't such all out supporters of UPA/Congress as Adani has been to Modiji.

3. the cries of crony capitalism rest on a form of guilt by association.
Correct, but then do you wish us to bring concrete evidence admissible in the court. Comeon - the UPA/Congress also has maintained all the time that they had no hand - did the bhakts listen then. The facts are too good to ignore. Adani's close links to Modiji, He present in australia along with the PM, deal inked in Australia, MOU signed in India. Come on too naive to accept that these are "mutually exclusive independent" events just to borrow a phrase from mathematical probability.

If at all Bhakts want these criticism to be wished away they should ask Modiji to clearly state that his Media circus is not funded by the likes of Adaniji. Till he does that, the Guilt by association, though not legally tenable, is very compelling otherwise.

4. The PM has a role in forwarding Indian Interest - even if it   benefits a few individuals and companies.
By far the strongest argument in favour of Modiji. 
Well historically, PMs and Presidents of countries have been instrumental in bringing about deals and projects which shall in the long run lead to development. One can argue whether this project is one such. But the fact is Energy security is a Big issue for our country. Our country is a net importer of Coal and is expected to remain so for years. So if such deals are happening - even with little help from the PM - its fine.

Having said that - there is one difference. The imagery is compelling. As I explained earlier, the guilt by association logic strongly suggests that the tax payers money has been put to risk for funding the media exercise to bolster Modiji's image.

Further, Earlier PMs and Presidents took a host of industrialists on board to benefit from such interactions and initiatives of the Govt. This one looks pretty biased.

5. The Govt. of Queensland also has promised financial support to the Project
True and thats more dangerous. First the Govt. of Queensland has committed an undisclosed amount. Going by the inclination for hyperbole now a days - the real figure could be the proverbial 20% (as it turns out in most cases attached to modiji :-) ) 
Further, what this means is that in case of default the recovery cases will have two parties the Queensland Govt. and the SBI. The case would most probably be tried in an Australian court. The chances of SBI recovering its loan are anybody's guess under the circumstances.

However, my criticism is also technical. The australian Govt. committing its bit certainly leads more credibility to the project.

On the other hand Congress and others opposed to Modiji call this the worst case of crony capitalism. BJP says they don't have a hand in this loan. 

Here is what I think - Modiji/BJP have been criticising crony capitalism for last decade but once in power they look simply a saffron copy of the earlier dispensation.
On the other hand - Congress who raises the bogey of crony capitalism now has probably been one of the worst offenders on the issue.

So where does this all leave the General Public - US.
Bhakts should continue to be dismayed as the drama unfolds and they realise that Modiji is just like many other politicians, although he is a more active and visible PM on the world scene.

In this case however we should give the benefit of doubt to Modiji. If as a country we installed him as a PM to change the way things are. His intentions will have to be trusted for some time. Yes, he seems to have been biased and yet every PM will require his trusted aides to bring about change.

There is a very thin line between quick and decisive decision making (what Modi stands for) and passing favours to close aides, friends and relatives (what long bureaucratic decision makings tends to avoid). Its a tight rope walk and the jury on Modiji is still out. This is just the start of the Firework. My suggestion is to hold the broadside till more details of the deal/loan/political connect emerges. 

CAT changes colours yet again - should you be worried

More than a decade and a half ago when we used to prepare for CAT we used to practice on a large variety of mock patterns because every one with some know how will say one thing without fail - expect surprises from CAT. That was then - today life has transformed in more ways than one can imagine - including the fact that the CAT throws surprises three months in advance.

The structure of CAT has undergone some important changes as announced by the IIMs yesterday. So I decided to write a post on understanding those changes, how they impact preparation & strategies of a sincere CAT aspirant.

Change 1

The CAT this year will happen on just two days (16^th Nov. and 22^nd Nov.) unlike a 20-25 day span in the last two years.

Impact

if you are a student you must smile at this development. This means that you have almost a month more to prepare.

Second reason to smile is that conduction of test in just four slots (two on each day) means the test can now be more or less of same mix and toughness levels in all the slots. Last year many students felt that they were unfairly treated because of varying toughness levels and mix of questions across the slots followed by an esoteric standardization process that few understood and most doubted because of some pretty weird results. It is to be expected that a more standardized test would automatically make the test a fairer one.

Change 2

Duration of the examination has been increased to 170 minutes from the existing limit of 140 minutes.

Change 3

The questions in each section Quantitative Ability & Data Interpretation, Verbal Ability & Logical Reasoning have been increased to 50 in each section from the existing 30 questions.

Change 4

Candidates have the flexibility for devoting more or less time to each section according to their ability and they can switch over from one section to another section during the examination timing.

Impact

The above are by far the most important changes made to CAT from student’s perspective.

A close to three hours test means it’s going to get more exhausting. Improve on your stamina to sit for long hours in front of a computer screen and concentrate. For those of you who get bored reading just one page of this post – this means extra hours of study every day in a single sitting. J

An increase of 66.66 percent (100 from 60 earlier) in number of questions and a disproportionate 21.5 percent increase in time means that you will have less time available per question than was available in the earlier format. So it is time to try and increase your speed of doing questions. This also means that eliminating options, working backwards or keen observations will get some advantage. 

Another possibility is that the general level of test could moderate a bit. If this happens it is good news for students especially those from the non-math background as one expects the higher mathematics portion to tone down a bit. This in simple terms means – arithmetic and geometry could again be in favour in the QA section and better approximation at DI can be very fruitful.

Flexibility to decide time distribution between sections is a double edged sword. When used well this could work to a great advantage to the sincere test taker. Because the Test Taking strategy can make a winning difference to one’s score. The flip side of this flexibility is  that  it is tempting to shuffle across the test and hence one could lose valuable time affecting performance adversely. Time for you to revisit your strategy when you attempt the CAT.

There is one more thing. A sixty question test had made accuracy very crucial. Even a couple more errors than normal used to weigh very heavily against a student in the earlier format. This pressure is a bit relaxed because in general the number of attempts will have to increase for a better score. What this means is that the probability of a bright student missing the bus because of a couple of incidental unforced errors has reduced. This is again good for all sincere CAT aspirants.

Change 5

The candidates have no option to prefer the dates. The dates will be allotted by CAT Centre 2014 on random basis.

Impact

While this has no direct impact on students. Some gyani had earlier theorized that appearing in CAT on certain days is more advantageous than on days like Sundays when many with work experience appear in the CAT. While the above was any way baseless – now there is absolutely no basis whatever for such unscientific assertions as the allotment of slots and days will be random.

Change 6

The purchase of offline Vouchers has been discontinued from this year and the candidates have to make the payment of Registration fee through online modes only by Credit Card, Debit Card or through Net Banking.

Impact

Once again no big impact here and ofcourse it has no academic relevance – except that many students may find it a bit difficult to arrange for a credit/debit card or net banking facility.

One thing has to be said however, since the time CAT has turned into a Computer Based Test (CBT) it is once again turning to be an elitiest test. it is an empirical truth that since the test became a CBT the greatest percentage drop in number of CAT takers have been in the states of MP, CG, Rajasthan where the Internet and Computers has not yet become a way of life for a majority. Now only online payment is one more step in alienating the sub urban rural masses of this country.

CAT has had this character of changing colours almost every two/three years. So to us watching it for last 20 years this is not surprising. All in all the changes in this year seem to be addressing some anomalies that have crept in the CAT process over the last few years. It is overall good news for most sincere CAT seekers. It is time for CAT aspirants to avoid the rumour mills that invariably start with such changes and to keep focus because like most changes in CAT this one also can be summed up in the phrase "old wine in new bottle"