When I took up writing for Glasnost I was asked to write “stuff that explains what’s written in those business papers”. These conversations mostly went something like this:
Me: We could do a piece on Janet Yellen’s appointment and what it could mean for India.
Me: Dude, the new chairman of the Federal Reserve.
Friend: What is that?
I laughed and agreed that I would try, to the best of my knowledge, explaining terms and institutions we come across in the business papers every day. However, I didn’t write explanations so far because it would be in a way derogatory to the readers as I thought it was an isolated case or at best a set of exceptions.
My position has changed since then; I have been brought to believe that it is in fact a widespread demand and if I didn’t believe that then I could put an article up and ask the others to weigh in on the kind of writing they wish to read. So this is the article that will help me determine how I can best bring value to the time you spend glancing through my posts.
Here it goes..
Knowledge of the terms used in pink papers is essentially a question of familiarity. In that sense it becomes a question of exposure and in time knowledge. This is obviously contingent on individual interests and the understanding reflects just that.
For instance, if I were to be asked to explain the term “Khaleesi” or describe “Tyrion Lannister”; based on two and a half episodes worth of knowledge, I would at best come up with explanations like the “the queen of that belligerent guy” and “the dwarf who messes around”. Sounds stupid right?
That is because I don’t know enough and therefore I can provide neither detail nor context to my answer. Similarly, if one sat down to describe terms like “fiscal deficit”, “forward markets commission” or something as voodoo as doing a “short strangle using put and call options”. One would struggle to explain, understand or provide context.
I sat and thought about the various ways that we could go about understanding the jargon. I realised the best way to do it is to treat it like reading a book when one initially picks up reading. If you don’t understand a word, you open the dictionary and look it up. So in these “understanding the jargon” pieces, I plan to take up a paragraph of commercial news that is doing the rounds and explain the essential words involved in it.
The first bit of news I wish to take up is this piece by posted on the Indiarealtime blog of the Wall Street Journal:
“The economy is far more stable and far more stronger than it was 20 months ago,” Mr. Chidambaram said.
He said the country’s current account deficit — which had pushed the rupee to record lows last year — is projected to narrow to just about $35 billion in the current fiscal year, less than half the $88 billion deficit in the year March 31, 2013”
The first major term that requires to be understood is “current account deficit”. It is an indicator of the financial position of State with respect to trade in the ordinary course of business with other States. If value of import of goods is higher that value of export then the State runs a deficit. In essence it means a shortfall in the money required to meet the cost of imports as the exports are not sufficient to pay for the imports. This happens because in the present day all foreign import needs to be paid for in US Dollars and one receives consideration for all exports in US Dollars. The State usually makes up for the shortfall by borrowing money.
So, when someone says the deficit has reduced from $ 88 bllion to $ 35 billion they mean that the US Dollar shortfall has reduced to $ 35 billion. Therefore, only that amount needs to be made up for through borrowings.
However, it is essential to understand that a narrowing of the fiscal deficit does not necessarily mean an increase in the exports of the State. For instance, a large part of improvement in India’s position is due to the stringent restrictions that have been imposed on the import of gold. This is a measure of reducing demand in order to reduce the deficit.
The relationship between “current account deficit” and “rupee sinking to record lows” is a question which I shall seek to answer in my next post, which shall depend on the relevance of and response to this post. Do comment on this to let me know whether this post is relevant to you.