Vijay Kumar Gaba: February 2017

Tuesday, February 28, 2017

A visit down memory lane

"Violence among young people is an aspect of their desire to create. They don't know how to use their energy creatively so they do the opposite and destroy.'

‑ Anthony Burgess (English, 1917-1993)

Word for the day

Meritorious (adj)

Deserving praise, reward, esteem, etc.; praiseworthy.

Malice towards none

An equity analyst's comment on La La Land's performance at Oscars - "Results below expectation, all positives priced. Downgrade to Hold."

First random thought this morning

The latest round of elections is drawing to close. In next two weeks we would know the broad winners and losers. The local body elections in this round have mostly gone in favor of BJP. A win for BJP in UP will decimate the Congress Party, and we may see a fresh round of desertions. Whereas a win for SP-Cong alliance will keep it alive, though still on life support system.

in the meanwhile the side shows (Punjab, Uttrakhand, Goa and Manipur) may throw burst some firecrackers, the smoke of which will last for few weeks.

In the meanwhile an AAP senior leader claimed that they are in driver's seat in Punjab and Congress is coming third!!!

A visit down memory lane

Global equity markets have been largely buoyant for past five months. They look distinctly tired now.

There are more words of caution than encouragement for traders and investors alike. To the trend followers this hint of fear is the only supporting factor for staying fully invested in the market. Otherwise, it is hard to find much rationale for sustainability of current market levels.

To the contrary, there are enough indications suggesting that the markets will have strong reasons to correct sharply in the coming months.

I say this for both domestic as well as global markets.

A quick recap of events since July 2007 will show that the global markets have corrected sharply at least on four occasions. The triggers were collapse of a large bank (Lehman Bros), fiscal crisis in some peripheral European economies (Portugal, Ireland, and Greece), debt ceiling crisis in US and CNY devaluation by China.

Though, the "whatever it takes" approach adopted by central banks in US, Europe, and Japan since 2010 provides comfort that the financial markets may not freeze this time, unlike 2008-09, it is evident that the central bankers might have already spent all arrows in their quivers. Moreover, none of them appears keen to continue with the non-conventional monetary policies in vogue since 2010.

So a less negative outcome of crisis is all that is assured. But there is little positive in the air.

We dreaded Grexit. But we already have Brexit.

With IMF and ECB crutches, Greece looks only a shade better than 2011. The situation can revert to pre bailout position in no time.

We were jittery when CNY was devalued last year. Since then CNY has been depreciating. Formal announcement of Trade War with US, may prompt PoBC to devalue it more, rather dramatically.

We are at the threshold of another debt ceiling debate. March 15 is the date when the previous relaxation expires.

We dreaded a Trump victory, fully aware that an American president is far less powerful than popularly believed. US as a society is least nationalist. But that is certainly not true for Germany and France. Imagine a German Trump and/or French Trump and/or Italian Trump, at a time when UK formally begins to withdraw from the common European market.

On domestic front, the incumbent government shall complete 3years in May. From October onwards, we enter a critical election phase (Gujarat, MP, Chhattisgarh) that will last till next general election.

All said and done, there is little sign of industrial recovery on the ground. The specter of El Nino revival is already looming large on the horizon. Services, especially construction, are showing no sign of pick up, despite elections and higher budgetary allocation.

So what may keep market higher.....to continue tomorrow

Thursday, February 23, 2017

In rush for gold, don't leave the family behind

Thought for the day

"Only on the edge of the grave can man conclude anything."

—Henry Adams (American, 1838-1918)

Word for the day

Excoriate (v)

To denounce or berate severely; flay verbally:

to strip off or remove the skin from, e.g., Her palms were excoriated by the hard labor of shoveling.

Malice towards none

Recent newspaper reports have frequently proclaimed that Yamuna is dead and Ganga is good only for walking on Ghats, and dangerous if you take a dip.

I did not see anyone's blood boiling over this.

Neither self claimed protectors of Hindu interests; nor the custodians of Ganga-Yamuni tehjeeb; nor any politician; and nor those NGOs who have gulped billions in the name of cleaning the two rivers.

First random thought this morning

Nowadays everything happening or not happening is seen as a referendum on PM Modi.

The AIDMK crisis in Tamil Nadu, Assembly elections in various states, Municipal elections in Maharashtra, tax collection under various disclosure schemes, economic growth, farmers' suicide, employment generation, etc. etc. - for everything PM Modi is directly accountable and responsible. So much so that the incumbent chief minister of UP is accusing PM of not creating enough jobs in his state.

At first it seems ridiculous. How a single person could be held accountable for all things happening (or not happening) in a country of India's size. But then you realize, it's actually his doing. He centralized everything to PMO and started proclaiming "I did that" and "I did this".

In rush for gold, don't leave the family behind

In past few days, I have written about my views about the problems with the current development paradigm of the country. Some readers have objected to my views, as being overly cynical. Some have gone to the extent of terming my views nearly Maoist. I do not want to waste my time and energy in offering them any clarification or justification.

I may however make it very clear that I firmly and unconditionally believe in free markets. I strongly oppose the crony socialism as well crony capitalism.

The point I have tried to raise in my recent posts is that the quasi colonial model of development, that our successive governments have adopted, is not desirable. Considering the diversity of our country, and character of our democracy, we need to follow a participative model of development, where the local communities are made equal partner in the process of development. The focus of development should be people and not markets.

I may cite two simple examples (there are 100 others) to elucidate my point.

(1) Most of the highways in the country appear to have been planned without consulting the people whose life shall be affected by these highways. They are just informed about the decision taken by government authorities. These people are also not engaged in the construction process.

I am not getting into the question of land acquisition here.

The highway planning is totally market oriented. It mostly ignores people. The authorities plan how much people will gain from highways in terms of better market access. But they seldom consider that highway will not only take the produce and people out of one place. It also will bring in people and goods from outside. And this inflow of people and goods could affect the life of people tremendously, through immense social, economic and cultural impact. In many cases to the extent of trauma.

(2) A few months ago, reports suggested (see here) that Niti Ayog has made a strategy to win 50 medals in 2024 Olympics.

A government obsessing so much about Olympic medal sounds inappropriate (for lack of a proper word) to me. In my view, the government should focus on the integrated growth policy for the country's children. This policy should, inter alia, deal with issues like basic education, health, character building, vocational skill & training and building advanced infrastructure for promoting excellence in various fields. It must be ensured that all children engage in some physical activities to stay healthy and develop good habits like team spirit, punctuality and discipline. If some child has the ability he/she will compete and win medals. But this cannot be a policy objective.

The government has three ministries - Sports and Youth Affairs (implying that sports is only for youth); Child and women welfare (implying child is responsibility of only mother and has nothing to do with sports); and HRD (implying sports has nothing to do with human resource development). This explains the point I am trying to make.

Wednesday, February 22, 2017

This highway - my way

Thought for the day

"Politics, as a practice, whatever its professions, has always been the systematic organization of hatreds."

—Henry Adams (American, 1838-1918)

Word for the day

Craquelure (n)

A network of fine cracks or crackles on the surface of a painting, caused chiefly by shrinkage of paint film or varnish.

Malice towards none

Sasikala seeks transfer to Chennai jail, so that she can run the state government more efficiently.

First random thought this morning

The so called intellectual commentary on the standards of political debate and the narrative of public discourse set by prominent political personalities is amusing.

The regular faces on TV, preposterously claiming to be intelligentsia and rightful custodians of the interests of the billion plus people of this country, are telling us that this degeneration is unprecedented.

Nothing could be far from truth. I can vouch from personal experience that in past three decades, the standard of political debate in India has consistently remained abased. In fact, I like that. Because that assures me that our democracy is functional. Our politicians do actually come from the common populace; they reflect their mindset; and speak their language.

This highway - my way

The young chief minister of Uttar Pradesh has been proudly boasting constructing a super highway in record time. The union minister responsible for highways also loves project his superlative performance in construction of new highways.

I would like to invite both of them to come on a drive with me on highways of Uttar Pradesh, for a reality check.

I had earlier written about the chaotic driving experience on the famous Yamuna Expressway a few years ago. (see here)

Trust me nothing has changed in all these years. In fact conditions have worsened materially.

In past couple of months, I have been frequently driving on NH-24, NH-74 and NH125 (all parts of Asian Highway (AH) - 2) in western Uttar Pradesh. I did also drive on the much acclaimed Agra - Lucknow expressway.

These highways have been developed with the objective of accelerating the growth of the country, besides metamorphosing the lives of people living alongside.

Unfortunately, none of the potential beneficiary seems to have been engaged in the whole development process. For them it's like journey to space without any training or preparation. Someone just came to them one fine morning and told them Sir, you are flying to space in two hours from now!

The people living and working alongside highways lack any kind of training. They drive on the wrong side. They ride their horse carts, bullock carts, bicycles, tractor trolleys ominously overloaded with sugarcane, wheat hay, bricks and cattle, & people right in the middle of the highways; and often coming from the wrong side. Wearing headgear for motor cycle riders is a matter of great insult. Audaciously ignoring all requests for 'right of way' by other user of the road is their swagger.

This way they considerably slowdown the traffic, besides endangering the lives of many. No surprises that the accident rate is quite high, and rate of fatalities in the accidents even higher.

High rate of people and animal fatalities on highways has also raised doubts in the minds of many people, about the utility and desirability of highways.

Another striking feature of expressway planning is the total lack of planning at the port of landing. For example, one engineer working at Agra - Lucknow highway told me that the highway is projected to take over 5000 additional passenger vehicles (mostly cars) to Lucknow from delhi, Agra, Mainpuri, Unnao etc. There is virtually no preparation in Lucknow to receive so many additional vehicles and people. No parking. No additional hotel rooms. No public conveniences. Nothing.

This is true for all the towns along side highway, that are expected to get materially higher number of vehicles and people. No one seems to have learned from the chaos in Agra, Mathura and Vrindavan caused due to increased numbers of cars arriving after opening of Yamuna expressway.

...to continue

Tuesday, February 21, 2017

Could we see a USD100bn Desi food gaint?

Thought for the day

"He too serves a certain purpose who only stands and cheers."

—Henry Adams (American, 1838-1918)

Word for the day

Fress (v)

To eat or snack, especially often or in large quantities.

Malice towards none

The second season of Yadav Family drama in UP will start after Holi. Regardless of the election results.

First random thought this morning

Potato farmers in UP and Punjab are in deep distress. The standing wheat crop promises to further escalate the problem, as prices are likely to fall post harvest. Pulses are now trading below MSP in many states. The pressure to allow import of duty free sugar to overcome the shortfall in production to poor cane crop in southern India, may curtail the honeymoon of sugarcane farmers also. On top of all this, some international agencies are predicting revival of El Nino later in the summer of 2017.

Hope of any remarkable recovery in rural spending might remain elusive, for now at least.

Could we see a USD100bn Desi food gaint?

Many national newspapers prominently reported yesterday that local sweet and snacks maker Haldiram’s revenues crossed Rs 4,000 crore in FY16. The Indian snack major is now twice the size of Hindustan Unilever's packaged food division or Nestle Maggi and larger than the India turnover of the two American fast food rivals Domino’s and McDonald’s put together.

To me it's like if my daughter scores 95% in her 12th board examination. I would not know whether to celebrate or rue her performance. For, she would do extremely well relative to all her past performances; outperforming my achievement by full 50%. But unfortunately, she would not get admission to any of the reputed colleges!

I admit that indubitably it is no mean feat. But, In a country inhabited by millions of connoisseurs, Haldiram took 80yrs to come into the reckoning. It may take another 50 to match the global scale of its global peers.

Moreover, given that this rising sun sells sweets and fried snacks in the diabetes capital of the world (akin to someone selling combs in the city of bald), some doubts about the sustainability and desirability of its growth are natural.

The question is how we create a $100bn food giant, befitting our country's rich culture, tradition and knowledge of culinary science?

In my view, it is entirely possible. The first step would be to get past the family prides and ego, and work towards consolidation of large 15-20 regional players with the national players like Haldiram, Bikanerwala etc. The second step would be to move focus from mostly celebratory products to day to day healthy regional food served in a convenient packing (easy to carry and eat). Third, step would be to address the mass market at lowest possible price point. Healthy, affordable, convenient food that matches the local taste and preferences could make the combined entity a global player in two decades, in my view.

But that is not the point here.

The point I trying to raise is that 'Food' is one of the greatest strengths of Indian economy.

The ready to eat food business employs many more workers than the textile, leather, gems and jewellery put together. But I have not heard any government incentive, scheme, program to promote this business. (I am rejecting the Shiv Sena's "Shiv Vadapav" scheme in Mumbai as poor political gimmick and Amma canteen in TN as nationalization of food business).

On the contrary, restaurants are frequently subjected to excessive taxation and street food vendors are victimized by municipal authorities.

Also, I observe that this segment is mostly ignored in the missions like Make in India, Skill India, Start up India etc.

Out of the list of priorities, this segment is saddled with many social and economic problems like child labor, food adulteration, poor hygiene standards etc.

As per NSSO report^{^[1]} on the status of employment in India, "he population in the age group 15-59 years, which is considered to be economically active, comprised about 60 per cent of males and 61 per cent of females in rural areas and about 66 per cent each of males and females in urban areas."

However, only about 40 per cent of population participated in the labor force, meaning offered themselves for work. Participation was significantly lower for females than for males in both rural and urban areas.

A large majority (52%) of the workers are engaged in self-employment. Moreover, about one third of workers were under casual labour category. Only 18% were found to be regular salary/wage earners. The share of casual labour in the total workforce of rural areas was about 35 per cent as against the corresponding share of 15 per cent in the urban areas.

This in my view is an alarming situation. Most of the self employed people are either underemployed or employed in disguise, both in urban and rural area. A stroll across the street or any market area would show you a large number of youth pretending to engage in petty jobs as laborer and hawker etc., who work and earn much lower than potential.

All those who vehemently opposed the FDI in multibrand retail trade in the Parliament a few years back, need to go an ask a person who runs a 24*7 daily neighborhood Khomcha, how much he earns after working 17-18hrs a day.

My experience suggests it is much lower than what a counter boy at Big Bazaar earns, in a 10hr shift, in a dignified, secure, and air conditioned environment with no investment risk and without any botheration about the municipal raids.

I have met many fruit and vegetable hawkers in past five years in connection with my NGO work. More than one quarter of them cannot afford to send their kids to even government schools who do not charge any fee, and provide books, uniform and mid day meal for free.

Moreover, overall 49% of all participating workers were engaged in agriculture activities. For female workers the ratio was substantially higher at 63%. A large majority of these workers are self employed with no financial or social security. These are also unemployed or underemployed for a large part of the year.

To harness the potential of Indian youth demographics, it is therefore essential that an integrated approach is adopted to increase employability, employment and productivity level.

Political bickering or prejudices notwithstanding, a serious relook is needed on issues like land reforms, labor mobility, labor laws, skill development, gender equality, integrated rural development, cottage industry, MSME sector, technology innovation and business facilitation.

The incumbent government has made many positive statements in this regard. I hope to see implementation of these ideas in next few years.

[1]68th Round Survey (June 2011-June 2012) published in June 2013.

Friday, February 17, 2017

What about demographic liability

Thought for the day

"Our greatest weakness lies in giving up. The most certain way to succeed is always to try just one more time"

—Thomas A. Edison (American, 1847-1931)

Word for the day

Sine die (Adv)

Without fixing a day for future action or meeting, e.g., The assembly adjourned sine die.

Malice towards none

ISRO launched 104 birds in the space. A record of sorts.

I wonder, do we already have a traffic protocol for outer space!

At this pace, the traffic there could be as bad as Chandni Chowk, in a few years.

First random thought this morning

A record 27 Us Congressmen are scheduled to visit India from February 25.

It could be anything, but is certainly not a sign of hostility towards India.

The statement of foreign secretary, after a second extension of term, that president Trump needs to be better understood, clearly points to deepening and strengthening ties.

Anyone who is worried about disastrous impact of Trump Sarkar on Indian business interests should better wait and watch for few more months, at the least.

What about demographic liability

"India’s share of working age to non-working age population will peak later and at a lower level than that for other countries but last longer. The peak of the growth boost due to the demographic dividend is fast approaching, with peninsular states peaking soon and the hinterland states peaking much later." — The Economic Survey 2016-17

Millions of reams have been used to write and publish about the demographic characteristics of India. Many stories, themes and strategies have been built around the young demographic profile of 1.25bn Indians.

Almost all these stories and strategies recognize the young Indian as a great opportunity - "Demographic dividend" for the Indian economy. Of course few of them have words of caution also. Failure to channelize this vast reservoir of energy into productive streams may not only dissipate the demographic dividend but also prove to be counterproductive in terms of widespread civil unrest and violent disruptions.

I have however not come across any presentation that classifies this demographic profile as the solemn accountability and responsibility of India to the world. Considering that the global community has always valued the resource rich nations and expected them to behave in a responsible manner to preserve the global order.

The capital rich western world has been expected to help the poor and starved of the world. The world looked forward to them to fund technological advancement, preservation of cultural heritage, assisting global growth and development. Even after taking full cognizance of the allegations of imperialism and suppression, I believe that financially rich communities have worked for the betterment of human life by funding technological innovation, life science research & development, productivity enhancement, and development assistance to the economically lagging world. Similarly, nations rich in natural resources like minerals etc. have been expected to prospect and exploit these resources in optimum manner to assist the sustenance and growth of the global economy.

My point is that now since India possesses the largest pool of prospective workers for the world, should it not be responsibility of Indian government to prospect, grow, and develop this resource for the larger benefit of the global community.

This is even more pertinent in the context of the current global financial crisis. In places like Europe and Japan the root cause of the crisis could be traced to the aging demographic profile. China is also like to join the club in a decade or so. Under the circumstances it is the responsibility of India to provide educated, skilled and trained workforce to the global economy.

A number of research papers and surveys have shown that (a) Child and mother nutrition level in India is sub-standard consequently child mortality rates are poor; (b) higher and professional education standards are extremely poor consequently a large number of Indian graduates are unemployable even in routine jobs; (c) There is acute shortage of competent scientists to scale up research and development (R&T) activities to make Indian businesses competitive at global stage....to continue

Thursday, February 16, 2017

Miles to go before you sleep

Thought for the day

"I never did a day's work in my life. It was all fun"

—Thomas A. Edison (American, 1847-1931)

Word for the day

Spoony (adj)

Foolishly or sentimentally amorous.

Malice towards none

Entire country seems to have fallen in love with Taimur.

After all, what's in a name!

First random thought this morning

The coverage of Tamil Nadu events and UP elections by TV channels in past one month raises many questions.

While the national English channels devoted disproportionately longer hours discussing the TN events, national Hindi channels did not give any prominence to the drama.

Similarly, while Hindi channels are devoting more than 50% airtime to UP elections alone, English channels are not assigning much importance to the these election, especially after the SP family soap opera ended.

So what is the message here?

Miles to go before you sleep

Last evening a visit to the local garbage dump site was a revelation in many sense. A casual discussion with the rag pickers gleaning the household garbage to pick pieces of paper, plastic and metal, was quite enlightening.

Out of seven people diligently scanning the stinking dump, three were children under the age of 14, including one girl, and three were youth in the age bracket of 19-27.

There was a police PCR standing just 10mtr from the site. The personnel occupying the PCR were blissfully unaware of the laws relating to right to education, child labor, dumping of garbage in open areas etc.

On being asked why they chose to do this menial, risky (health wise) and stinking job, when they have relatively decent options like pulling a cycle rickshaw or even driving an e-rickshaw, working at a nearby auto garage, cleaning cars in nearby housing societies etc., the youth politely answered like this: "We are doing this job for past 12-15yrs. How could we change it now."

On prodding further, one of them admitted that many of their peers live on hope that "Someday they will find treasure in the garbage. More years you have put in the job, greater the chances of you hitting on a treasure." Though, the best they could cite of a treasure find was a gold bangle found by one of their seniors 8yrs ago.

The discussion did two things to me: (a) it prompted me to drop the search of the lost earring of my wife, which she thought could have been dumped there with the daily kitchen waste, with the hope that it may complete the treasure hunt of some child; and (b) raised numerous pertinent but disturbing questions in my mind.

Some of the questions need immediate answers. For example:

(a) After seven decades of independence, we are still struggling to eradicate manual scavenging. Though many NGOs work in this area, so far not many policy makers have been seen speaking about eradicating the practice of manual handling of garbage; particularly, employing minor children for the job. It may take many more decades before this issue is addressed.

(b) The police force (including traffic police) is trained to prevent and detect crime, which is grossly inadequate in my view. Moreover, in practice they are more focused on detecting and prosecuting criminals rather than taking preventive actions. The system of "no complaint no action" needs to be dumped.

I feel, their training and responsibility should be to proactively protect peoples' life, dignity and property.

(c) If we want to reap the demographic dividend, beyond selling more and more motor cycles, smart phones, and apparels, we need to overhaul our education and training system. Moving backwards (board exams etc.) will further damage the already ailing system.

Wednesday, February 15, 2017

Change the development paradigm

Thought for the day

"To have a great idea, have a lot of them."

—Thomas A. Edison (American, 1847-1931)

Word for the day

Calliopean (adj)

Piercingly loud; resembling a calliope in sound, e.g. a calliopean voice.

Malice towards none

Pakistan threatens to boycott US!!!

Well....hmmmm....duh.

First random thought this morning

Out of the five states currently going through elections, Manipur has virtually stayed out of the national discourse. While Uttrkhand and Goa have seen multiple opinion polls, psephologists have completely avoided the north eastern state. To me it means three things:

(a) In spite of all brouhaha over mainstreaming of north eastern region, the work on ground still remains mostly notional.

(b) Many of opinion polls might have been done on phone and Google.

(c) In this digital age also, the intensity of national news is directly proportionate to the proximity to Delhi. Most know Arvind Kejriwal. Few know Pawan Chamling.

Change the development paradigm

Three things are quite clear to me, insofar as the problem of stressed corporate balance sheets and poor asset quality of banks are concerned:

(a) Key infrastructure areas like power, telecom, roads, and mining etc are suffering from poor capacity utilization (due to low demand); and material number of incomplete and delayed projects (leading to substantial cost escalation impacting the midterm viability of projects when completed). This stress is not likely to ease in next couple of years at the least. On the contrary, there are signs of stress deepening in telecom and power sector. Not certain, but implementation of GST might open new areas of stress in MSME sector.

(b) There is little visibility of private sector capital formation (capex) registering any notable growth in next couple of years at the least.

(c) The outlook of capacity enhancement at public sector banks', which have historically supported risk appetite of private enterprise, continues to be clouded. The implication of bank officials in many cases of fraudulent dealings has impacted the morale and hence risk taking capability of bank managers. There are sufficient indications that the government wants them to raise capital for growth at market terms.

Under these circumstances, the traditionally acceptable debt:equity mix of projects with longer gestations and unpredictable revenue models would need to be changed. The infra projects may need to be funded more by equity and less by debt; just like the start ups in digital arena.

"The Economic Survey 2015-16 emphasized that addressing the stressed assets problem would require 4 R’s: Reform, Recognition, Recapitalization, and Resolution."

There has been material progress in Recognition of the stressed assets. But on the other three, there is little progress.

In my view, however, these 4 R's would only solve the problem temporarily. Like the way, it did in mid 1990's. The other things remaining the same, the solution will last only till the next credit boom. A more sustainable solution will be to Recognize the economic reality of the country and Reform the development paradigm.

The government should build and provide the enabling infrastructure for the growth. This should include the physical infrastructure like roads, public transportation, power, water, and ports etc; and the social infrastructure including health, education, sanitation and security. The development should be done by empowered public authorities keeping in view the global standards and practices. The resources for development should be raised through higher but equitable taxation.

For example, highways could be funded by annual tax on vehicles (no toll on roads); solar power installation on road sides; higher cess on fuel; etc. Similarly, the social infrastructure could be funded through estate duty; higher property tax; higher sin tax; payback by students etc.

The payoff for higher taxation could be through meaningful freedom to the private entrepreneurs (including foreigners) to do business.