Vijay Kumar Gaba: June 2014

Friday, June 27, 2014

Entrepreneurship is not best always

Thought for the day

” God is not willing to do everything, and thus take away our free will and that share of glory which belongs to us.”

- Niccolo Machiavelli (Italian, 1469-1527)

Word for the day

Peckish (adj)

Somewhat hungry; Rather irritable.

(Source: Dictionary.com)

Teaser for the day

Where is Rahul Gandhi and his youth brigade?

Entrepreneurship is not best always

In past two decades, since 1995, India’s economy has grown at an average rate of 6.9%. However, the total employment in economy during this period has grown at just 0.3% CAGR.

In this period the number of self entrepreneurs has certainly increased in the country. This has coincided with the sharp fall in public sector employment. The aggregate private sector employment level has not been able to compensate for fewer opportunities available in public and unincorporated private sector. Consequently, the total number of employees on live payrolls has fallen sharply since early 2000’s.

The combination of two – lower employment opportunities and liberal business rules – has perhaps forced people towards entrepreneurship that keeps them underemployed for most of the time.

The number of self owned enterprise has swelled in past one decade. As per 67^th round of NSSO survey (June 2011), there were 58million unincorporated enterprises in India (excluding agriculture, construction and those registered under Factories Act).

Over 85% of these enterprises are run by the owner himself, without any hired worker. 44% of these were run from the residence of the owner. These enterprises employed 108mn people against just 39mn on the live payroll in organized sectors, including 11mn in private sector. (Source: RBI, NSSO)

There has been a definite shift in employment away from agriculture towards manufacturing, construction and service activities. The share of agriculture has declined continuously from 59.9 per cent in 1999-00 to 48.9 per cent in 2011-12 whereas the share of construction sector has consistently risen from 4.5 per cent in 1999-00 to 10.6 per cent in 2011-12.

This highlights the popular myth that MNREGA has led to reverse migration of labor to rural economy and had adversely affected the availability of labor for manufacturing and construction sector….to continue on Monday

Thursday, June 26, 2014

Capitalize on human capital

Thought for the day

”The new ruler must determine all the injuries that he will need to inflict. He must inflict them once and for all.”

- Niccolo Machiavelli (Italian, 1469-1527)

Word for the day

Garboil (n)

Confusion

(Source: Dictionary.com)

Teaser for the day

Should government consider scraping degree as eligibility condition for all government jobs (including IAS)?

Instead it may institute an exhaustive eligibility test followed by a 3-12 month orientation program for all new recruits.

Capitalize on human capital

In a recently published working paper the Reserve Bank of India highlighted many interesting facts about the status of employment and its elasticity to the GDP growth. I find it pertinent to highlight some of the observations made in the said working paper.

In particular the change in occupation structure of the economy in past 15years is worth noting; because it helps setting up the agenda for future growth. It is important to note that one of the key promise of incumbent government is to make growth job oriented (hence inclusive) as opposed to jobless growth (therefore exclusive) growth achieved during past few years.

The working paper finds that aggregate employment elasticity (change in employment due to economic growth) of Indian growth has fallen considerably in post 1991 period. In this period for every 10 per cent change in real GDP, there had been about 1.8-2 per cent change in employment. The current statistic is even poor.

Moreover, elasticity varies considerably across sectors. While agriculture has witnessed negative elasticity, services including construction have generally been employment intensive. Manufacturing employment elasticity has hovered in the range 0.29-0.33.

Within manufacturing, the employment elasticity for organized manufacturing sector based on various estimates seems to be higher, in the range 0.42-0.57 for 2000s and it has risen over the previous two decades. Given the huge productivity and wage differentials between organised and unorganised sectors, greater employment generation in organised manufacturing is crucial as it has larger multiplier effects.

Subsequent to 2011, India has seen significant moderation in its GDP growth rates, particularly during 2012-13 and 2013-14. While employment numbers are not yet available for these years, Labour Bureau quarterly surveys as well as various private agencies’ information point towards moderation in employment generation. If these data sources are any hint, then one might see some changes in employment elasticity depending upon the relative pace of moderation in employment generation vis-à-vis growth.

The working paper suggests that going forward, it is the relative cost of capital vis-à-vis labour and the nature of investment demand that will determine to what extent growth would be job-creating.

Increased capital to labour ratio in the organised sector for a labour abundant country like India is a concern that has been well-highlighted. I have also been highlighting this rather frequently and to the annoyance of some of my government readers.

If India has to meet the demographic dividend challenge, focus should be on industries where employment elasticity is higher. On a rough basis, about 10 million people would need a job every year for the next 15 years. Finding productive jobs for such huge numbers is a big challenge, and clearly the answer lies in stepping up growth, and importantly, stepping up the employment intensity of growth….to continue tomorrow

Wednesday, June 25, 2014

Bitter pill alone is not enough

Thought for the day

” Hence it comes about that all armed Prophets have been victorious, and all unarmed Prophets have been destroyed.”

- Niccolo Machiavelli (Italian, 1469-1527)

Word for the day

Drake (n)

A valley with steeply sloping sides

(Source: Dictionary.com)

Teaser for the day

Narendra Modi to Shankracharya Swaroopanand Saraswati – “O’ lord thou are supreme amongst all wise, a truly elevated and enlightened soul, please enlighten me ‘what is Dharma’ and ‘who is God’?

Bitter pill alone is not enough

Two people who would certainly be delighted by the decisions to hike rail fares, and proposal to hike energy prices are former Prime Minister Dr. Manmohan Singh (MMS) and former Finance Minister P. Chidambaram (PC). Despite their best effort and intentions they could not do this due to pressure from party (read Ms. Sonia Gandhi) and supporting parties and allies (read SP, BSP, DMK, NCP and TMC).

I am sure incumbent Prime Minister Narendra Modi (NaMo) and Finance Minister Arun Jaitely (AJ) are completely conscious of the fact that not letting the short term political expediency overwhelm economic compulsions has decimated the national level influence of Sonia Gandhi, Mulayam Singh, Mayawati, Karunanidhi, Shard Pawar and Mamata Banerjee; even though these people would still like to believe that it was inefficient handling of economy by MMS and PC that led to their electoral rout.

Having said the obvious, I would like to flag this to the NaMo and AJ that the medicine that can completely cure a serious disease in early stages may be totally ineffective in the late stages of same disease even in materially high dosage. In such circumstances either surgery is a completely different line of treatment is warranted.

The diseases of inflation and fiscal impropriety in case of Indian economy are, in my view, have advanced to a higher stage.

A small fiscal correction through subsidy rationalization and disinvestment in public sector enterprises (PSEs) though critically important may not be sufficient measures.

In my view, besides effectively and immediately containing their spillover effect on consumer inflation these measures must be adequately supplemented by necessary structural corrections. The “bitter pill” given alone may break the proverbial camel’s neck (in a potentially drought year) and kill the still fragile recovery in sentiments.

In particular, I feel, the following must be considered for almost immediate implementation:

(a) Dismantling of monopoly of public sector enterprise over sale and distribution of energy. Oil marketing, coal mining and sale, natural gas sales and distribution infrastructure businesses should be opened to free competition with adequate constitutional protection (unlike last time when oil marketing was opened to private entities without appropriate assurance as to sustainability of the model).

(b) The purchasing power of household consumer should be adequately protected and enhanced both through fiscal and monetary means, especially considering that implementation of GST will likely hit him most.

A line, clear and thick, should be drawn between compliant and non-compliant businessmen. Those who are in habit of defaulting should be severely punished. But consider adequately supporting the “good” enterprise to immediately kick start the investment cycle.

Tuesday, June 24, 2014

Committing on the front foot

Thought for the day

“A wise ruler ought never to keep faith when by doing so it would be against his interests.”

- Niccolo Machiavelli (Italian, 1469-1527)

Word for the day

Comely (adj)

Pleasing or agreeable to the sight; good-looking.

(Source: Dictionary.com)

Teaser for the day

What is more important--

(a) Know to drive or having driving license;

(b) Having PUC or keeping vehicle clean;

(c) Playing or watching sports on TV;

(d) Becoming a parent or having a child;

(e) Learning or passing exam?

Committing on the front foot

The cricket enthusiast would know that many good batsmen, who could have become great but did not just because they had the bad habit of committing to a stroke much before the ball pitched in front of them. Vinod Kambli is one such classic example.

As I suggested yesterday, many of the Modi government ministers are making the committing the same mistake.

Our health minister Dr Harsh Vardhan, in all his sincerity and with good intentions has suggested steep hike in cigarette prices to discourage smoking. The proposed hike as per his suggestion will result in additional tax revenue of Rs3800crores.

Now look at the internal contradictions and paradox in his suggestion.

(a) Is he conceptually clear about what he wants to do – augment revenue of the government or discourage people from smoking?

In case the objective is to discourage people from smoking, is the price hike best way to achieve this objective? Has any study been conducted by his ministry to find that in past few decades what had been the effect of cigarette price hikes on smoking habits of people? Have stopped, reduced smoking or shifted to cheaper (more harmful) variety of tobacco consumption?

There are enough examples of prohibition and higher taxes on liquor resulting in higher sale and consumption of spurious liquor. But I am yet to notice any trend indicating lower consumption due to higher taxes.

Would it not be better if BJP sets an example by enforcing strict “no smoking” rule for all its members, and then appeals to its voters not to smoke and then ask the nation to quit smoking, in that order.

If this suggestion is found ridicules, Dr. Harsh Vardhan’s suggestion is even more so, in my view.

Anyways, if this objective is achieved, then the substantially lower cigarette demand will have adverse revenue implications.

In case the objective is primarily to augment revenue, does the government have sound ethical and constitutional backing for this?

I would also like to know –

(a) What is the proportion of tax earned from production and sale of liquor, cigarette, chewing tobacco, pan masala and bidis etc. has been spent on running de-addiction centers and rehabilitation of addicted people? Why it should not be at least 50%?

(b) How many people have been fined in past one decade for smoking in public places? Why the fine be just Rs100 and not Rs10,000?

If my questions are found causing little discomfort, I would suggest that PM and his team should give top priority to building a conceptual policy framework for governance. Making emotional, populist and mostly undesirable speeches and comments will only strengthen the popular belief that BJP and Congress are sides of the same coin.

Monday, June 23, 2014

Don’t rush, stitch it tight

Thought for the day

“The promise given was a necessity of the past: the word broken is a necessity of the present.”

- Niccolo Machiavelli (Italian, 1469-1527)

Word for the day

Epithalamion (n) A song or poem in honor of a bride & bridegroom.

(Source: Dictionary.com)

Teaser for the day

Modi should address the nation and say in unambiguous terms:

(a) All citizens of India are free to use whatever Sch-VIII Language they are comfortable with. The government will accept and honor the communication.

(b) Our God, Goddess, scriptures, religion, culture, languages, Tricolor, etc. are supreme and beyond insult by ordinary mortals. Therefore ordinary people should feel free to write, draw, or narrate whatever they wish about them.

Don’t rush, stitch it tight

The conduct of new government in past couple of weeks has raked up some completely avoidable controversies. Some of these expose the dichotomy between ordination and intent of ministers, especially those influenced by cultural nationalism propagated by RSS; while the other have emanated from the exigency imposed by the leader himself.

In my view, it is imperative for the new government to take strong and effective steps to bring back the aberrant socio-economic conditions to the right path. But it certainly does not mean that everything must be set correct in conventional “100days” inaugural period itself. I believe, after suffering for so long the people of this country are resilient enough to weather another year of hardship.

The “jugaad” mindset therefore needs to be given up in favor of strong conceptual framework and highest standard of quality. The stitches at the loose ends should strong enough to last at least two generations if not more.

I would like to highlight the following instances in particular:

Firstly, the RSS grooming of our home minister has desired to make Hindi language as medium of promoting national pride. A BJP spokesperson from UP suggested that Hindi Speaking people are often subjected to derision and face discrimination at various places.

Without going into the merit of this suggestion I would like to flag to him that Narendra Modi, Shivraj Singh, Raman Singh, Nitish Kumar, Akhilesh Yadav and Arvind Kejriwal all are “Hindi Speaking” and certainly not appear to have faced any derision or discrimination for their linguistic preference.

Believing that this government really intends to be comprehensively inclusive, I suggest that it should stay out of my home, office, school bag and place of worship at the least. It has no business guiding me what and how to communicate, work, study or worship so long I am not violating the constitution or any other law of the land.

If the government is seriously interested in promoting equality, quality and therefore efficiency of Indian populace, it should encourage all citizens to communicate with the government in the language they feel most comfortable with. It should be duty of the government to equip all its offices, courts and police stations with adequate linguistic skills for this purpose.

Any visitor to Mumbai, Patna and Lucknow would know the rules relating to promotion of language have led to degeneration of local language. If you have not noticed, see the following:……………………to continue tomorrow

Friday, June 20, 2014

Bewildered markets picks up wrong threads

Thought for the day

“A return to first principles in a republic is sometimes caused by the simple virtues of one man. His good example has such an influence that the good men strive to imitate him, and the wicked are ashamed to lead a life so contrary to his example.”

- Niccolo Machiavelli (Italian, 1469-1527)

Word for the day

Scofflaw (n)

A person who flouts the law, especially one who fails to pay fines owed.

(Source: Dictionary.com)

Teaser for the day

Was US war against global terrorism just an extended exercise to enhance homeland security post 9/11?

If yes, in hindsight should Europeans regret joining the war?

Bewildered markets picks up wrong threads

She came, she spoke, and she sent stocks to a new all time high. That is perhaps the simplest summary of what Janet Yellen did yesterday when, as a result of her droning monotone, she managed to put the VIX literally to sleep, which closed at the lowest since 2007 and the resulting surge in the S&P was a fresh record high, because despite the "concerns" Fed member have about record high complacency, all they are doing is adding to it.

And now that apparently the Fed has a market "valuation" department, and Yellen can issue fairness opinions on whether the S&P is overvalued, the only question is whether today, as a follow through to yesterday's "buy everything, preferably on leverage, sincerely - the Fed" ramp, the VIX will drop further. (Zero Hedge)

Yellen brushed aside concerns about quickening inflation, diminishing labor-market slack and asset-price bubbles in a prepared statement and press conference, emphasizing the Federal Open Market Committee’s view that rates are likely to stay low “for a considerable time.” (Bloomberg)

The Federal Reserve continued to reduce its monthly bond-buying program and held interest rates near zero even as it debated persistent conflicting signals in the economy. In addition to continuing the scaleback of its monthly money-printing efforts, the Fed slashed its outlook for full-year economic growth, cutting gross domestic product growth forecast to 2.1 percent to 2.3 percent. (CNBC)

On sidelines:

Argentina threatened to default on its debt on Wednesday when the government called it "impossible" to pay bond service due on June 30, citing a U.S. court decision earlier in the day increased pressure on economically-ailing country.

Remember, Buenos Aires is locked in a 12-year legal fight with creditors who refused to participate in two restructurings that followed Argentina's 2002 default on $100 billion in bonds.

The long impasse in the U.S. courts has kept the country from accessing international capital markets as its economy stagnates, inflation soars and central bank reserves fall. (Reuters)

Ukrainian troops and pro-Russian separatists were locked in fierce fighting in the east of Ukraine on Thursday after rebels rejected a call to lay down their arms in line with a peace plan proposed by President Petro Poroshenko, government forces said. (Reuters)

Iraqi government forces battled Sunni rebels for control of the country's biggest refinery on Thursday as Prime Minister Nuri al-Maliki waited for a U.S. response to an appeal for air strikes to beat back the threat to Baghdad.

If you are wondering why I have chosen to reproduce miscellaneous global reports instead of analyzing the events back home; my clarification is that is what our market is more concerned about with PM Modi preferring to maintain silence and his minister dressed in combat gears, searching for the threads where they can begin their “jobs”.