Vijay Kumar Gaba

 Exploring India – Part 3

In the past couple of weeks, we travelled to the states of Punjab, Himachal Pradesh (HP) and Haryana. In our nine days of travelling, we covered ten districts of Punjab spread across three divisions, viz., Jalandhar, Rupnagar and Patiala; six districts of HP spread across two divisions, viz., Mandi and Shimla; and eight districts of Haryana spread across five divisions, viz., Gurugram, Rohtak, Hissar, Karnal, and Ambala.

It is pertinent to note that these three states in the present form came into existence in November 1966, after enactment of the Punjab Reorganization Act 1966. Through this act, the erstwhile province of East Punjab was divided into largely Punjabi speaking state of Punjab and largely non-Punjabi speaking state of Haryana. Some areas of East Punjab were transferred to the union territory of Himachal Pradesh, and it was granted a full state status. The city of Chandigarh also became a union territory, serving as temporary capital of Punjab and Haryana. The division of East Punjab was a consequence of the Punjab Suba Movement led by the Shiromani Akali Dal.

Many historians find roots of the Punjabi Suba Movement in the demand for a separate country for Sikhs during pre-partition days. The Punjab Reorganization Act did not satisfy the Punjab leaders who were now insisting on a constitutional autonomous state.

A highly violent movement for an autonomous Sikh state took place in the 1980s; killing several thousand innocent civilians; invasion of the sacred Golden temple by Indian army to flush out the separatists hiding there; followed by gruesome murder of the then prime minister Mrs. Indira Gandhi. A small section of the majority Sikh population still continues to agitate for autonomy. The reorganization left many issues unresolved, which continue to affect the relations between Haryana and Punjab to date.

I may now share some observations made during the trip.

Socio-economic assessment

·         Haryana is making significant progress in the area of gender equality.

·         The obsession with overseas migration is catching up fast in HP and Haryana. The immigration consultants and IELTS coaching centers are mushrooming in many smaller towns. Canada and Australia are the most favorite destinations for the aspiring immigrants.

·         Both Haryana and HP are witnessing a significant surge in the number of students aspiring for medical and engineering courses. JEE and NEET coaching centers are visible in every town.

·         Farmers in all three states appeared stressed due to unusual weather conditions. It was unusually wet and cold for the month of April. We witnessed good snow in HP. Rains, hailstorm and snow damaged the standing and harvested wheat crop; apple flowers and vegetables. For wheat crop, the margins of many farmers could be materially lower despite higher crop; since the cost of harvesting could be higher and realization poor. The market price is reportedly lower than MSP and FCI is not procuring normal quantity.

·         Small industries in Punjab and Haryana appear to be recovering from the Covid led slowdown, but expect a long road to normalcy. Many micro unit owners indicated that significant investment might be needed to reach the pre Covid level of profitability. A decent number of SME unit operators indicated that the relaxation in credit parameters as part of Covid stimulus packages has helped them significantly in sustaining, upgrading and advancing.

·         The tourist services (guides, transports etc.) are mostly unregulated and malpractices are rampant. In popular places like Manali, Shimla etc., it appears as if a mafia is firmly in control.

·         The infrastructure has improved materially over the years; but the administration remains insensitive to the plight of tourists.

·         In Punjab we could see a Gurudwara, on an average, every five kilometers. Many of these Gurudwaras have been constructed in the past few decades. But in the neighboring Haryana and HP, which have significant Punjabi population, few new Gurudwaras seem to have been constructed in post 1966.

General observations

We made some observations during our trip, which may be true for most of the country. These are important since these highlight the changing behavioral patterns in our society.

·         The construction in the hill state of Himachal Pradesh may be ignoring sustainability concerns, not learning anything from the neighboring Uttarakhand which is facing fury of nature for pursuing unsustainable development. Cloud bursts, stone falling, and landslides may become more common in HP in a few years.

·         Traditionally, on highways the truck drivers were considered to be the most efficient and innocent users of the road. They would drive slow and mostly in the left or middle lane; never overtake; and mostly avoid driving side by side. This paradigm seems to have completely changed. A significant proportion of truck drivers are now the most ill-trained and risky drivers. They overspeed; drive rashly; frequently overtake; and drive side by side blocking two or more lanes forcing the car drivers coming from behind to take undue risk and overtake them dangerously. This practice could be seen even in hills.

Apparently, a large number of less trained or untrained drivers have entered the truck driving profession. Interaction with some older drivers indicate that the fleet owners may be compromising on the quality of drivers to save wage cost. Another reason is that the pressure on drivers to meet tighter timelines has increased. Besides, there could be unreasonable resetting of delivery schedules accounting for time saving due to Fastag, GST and better roads.

·         Motorcycle has been one of the major traffic nuisances in most parts of the country. In the hill state of Himachal Pradesh, small passenger cars (especially Maruti Alto) have emerged as a serious challenger to motorcycles. Most local taxis are now small cars. Besides, a large number of households own small cars. Rash driving and irregular parking are common problems. In Punjab two-wheeler drivers usually do not wear helmets. They driving on expressways and highways are a major safety hazard for all road users.

·         Motorcycles and small cars are a significant component of households’ occupational necessities; Public transport in non-metro towns, cities and villages is not showing significant improvement; and the affordability quotient of lower middle-class households has improved. The demand for personal vehicles, especially small cars may therefore sustain.

·         The construction practices of NHAI contractors are worsening. They are totally insensitive to the convenience of the users who use the road while the construction is continuing. They blatantly violate the safeguard and obligations provided in their contracts; seldom care about the pollution control norms; do not follow safe practices for their workers and road users. The worst part is that the road construction quality is below par in most cases.

Political assessment

·         Himachal Pradesh people appear satisfied with the recently elected Congress government. The incumbent chief minister is not doing anything to disturb the status quo and continuing with the extant practices, schemes and programs.

·         The Punjab population appears to be vertically divided in their opinion about the incumbent government. Large farmers, SME operators, students and public servants are disenchanted with the government, while laborers, artisans, small farmers and government contractors appear happy. The state has always been divided on caste lines. The abyss may be widening further. Law & Order is becoming a core issue with people. Many people complained about the rise in corruption, citing that the incumbent government may be losing control over lower bureaucracy and law & order enforcement machinery.

·         The Haryana population is also divided in their opinion about the incumbent government. Traditional Jat voters, especially women, who had supported the incumbent BJP government in past two elections, seem to be disenchanted and looking to return to Congress. INLD and its various offshoots, AAP, BSP etc however are not in much favor.

The perception about the incumbent government’s performance is mixed. It is scoring well on corruption parameters; while on execution it is scoring poorly.

·         The visibility of Prime Minister Modi in public spaces is very poor in HP and Punjab.

·         In 2019 Lok Sabha elections, BJP secured 16/27 seats, while Congress secured 8/27 seats in these three states. If Lok Sabha elections are held today, in my view, BJP might secure 10-13 seats, with Congress taking 8-10 seats.         

Also see

Exploring India – Part 1

Exploring India – Part 2

 Ricky Ponting, the former captain of the Australian cricket team, commented during a TV show on Sunday that Indian team may not be able to score 200 runs in the fourth inning of the third test match played in Sydney. Ponting was obviously trolled badly on unforgiving social media for his “prejudiced” and “audacious” forecast. India went on to score more than 300 runs and even managed to draw the test. Ponting later clarified that his “view” was based on the condition of the pitch on fourth day. The pitch did not deteriorate on fifth day as expected. Nothing much should be read into his statement. He need not have presented his defense. The social media would have forgotten his statement in couple of days, anyways.

The stock market experts (strategists, analysts, fund managers and seasoned investors etc.) who stick their neck out and make forecast about the market trends and likely levels of benchmark indices often face the situation like Ponting; especially for past 2 months those who are cautious on the market and warning a sharp correction are consistently at the receiving end. Regardless, the markets will keep rewarding investors and keep having corrections.

Moving on to business, I found the following five points worth noting from media reports in past couple of days. In my view, these five points aptly highlight the internal conflicts and challenges within the policymaking framework, and pose potential risk for the seemingly unstoppable stock rally.

1.    The road transport and highways minister Nitin Gadkari, highlighted that probably steel and cement manufacturers have made cartels to keep the prices artificially higher. The two being the key inputs for physical infrastructure development, may lead to material rise in the cost of development and even hamper the viability of projects. He even proposed a regulator for monitoring process of steel and cement (see here).

In UPA-1 tenure, the then finance minister tried to hit the cement cartel by introducing differential tariff structure based on price per bag, Rs190 being the differential point. Should the market expect something similar in weeks to come? In 2007-2008 the differential pricing and price regulation only helped the government in raking higher revenue. The industry and private consumers did not benefit much. (see here)

Besides, the suggestion for a pricing regulator also highlights the tendency of the government to impose deeper and wider regulation to control various segments of the economy. This is obviously contrary to the commitment of “less government more governance.” It also confirms the rising policy unpredictability.

2.    WPI inflation has now risen for seventh consecutive month led by food (see here). Energy prices have also been rising steadily over past few months. This may require a rethink on the RBI premise that food inflation may be mostly a seasonal phenomenon and wane in few months due to base effect. If the food & energy inflation persists, the second round effect may begin to become pronounced from the next quarter. The hopes of a meaningful monetary easing may be belied; and even fears of a rate hike might begin to bother markets.

3.    Many analysts are interpreting higher food inflation as good for rural income (and hence consumption demand); and higher energy prices as good for languishing energy sector stocks. “Cyclical” is projected to be the mood of this spring (see here). Higher energy prices shall reduce at least some of the cost advantage of cement and steel producers that has led to sharp earnings upgrades.

4.    The finance minister has earnestly committed a historic budget 2021. She went on to say that this shall be a budget unlike any presented in past 100yrs (see here).

There is no empirical evidence to support the finance ministers’ inclination to think radically or take risks. During the course of 2020, she made many attempts to enthuse the markets with a series of “historic” stimulus packages; but was hardly found inspiring by the markets.

The good thing is that markets may not be placing much high hopes from the budget; and the finance minister has a chance to surprise the markets this time. The bad thing is that no one is expecting higher taxes; even though the reports are indicating a serious discussion within the government about a Covid cess (see here). The ugly thing is that LTCG is again in the agenda of various budget discussions.

5.    TCS has reported an excellent set of numbers. Most other IT companies are expected to follow the suit. The Nifty IT has yielded a return of ~66% in past 12 months; ~89% in past 24 months; and 122% in past 36 months. In past 1 month, the IT sector has yielded a return of ~18% vs (~17% for Nifty in past 12 months). In past couple of months, most brokerages have published uber bullish reports on the sector, forecasting strong returns over next 2-3years. IT sector along with pharma, has been a massive outperformer for past 3yrs, over all other sectors.

The question is whether risk reward in the sector is still as attractive as it was a year ago?

In my view, the market is now running like a Formula One car. It can see the challenges and obstructions but cannot afford to stop or slow down. So far it has negotiated the sharp turns and obstructions brilliantly. But at least I cannot say with confidence that about the next mile. I am therefore happy watching the race sitting at the fringes, till it lasts. I have no intention of entering the track with my Alto K10 to compete with Ferrari SF90.