Tuesday, December 6, 2016

In search of solutions - 3


"Good people do not need laws to tell them to act responsibly, while bad people will find a way around the laws."
—Plato (Greek, 427-347BC)
Word for the day
Bruit (v)
To voice abroad; rumor. Used chiefly in the passive and often followed by about, e.g., The report was bruited through the village.
Malice towards none
In religious terms - when a person is taken as dead?
First random thought this morning
After UK and US, the popular sentiment in Italy has also rejected the new normal. People there have also voted for returning back to the conventional means. It is to be seen whether German and French voters will also reject the new normal and vote for the return to conventional means of socio-economic subsistence.
I am not sure whether the return to roots could be selective. The pre-globalized world was after all imperialist, polarized and always at war.
The positives could be that most modern day scientific inventions were made in those days. The new world order has perhaps seen slowest growth in the field of pure sciences and literature. The best art, literature and philosophical works were also produced in pre-globalization era.

In search of solutions - 3

To a person sitting in Mumbai, Bangaluru, Chennai or Hyderabad, the state of Uttar Pradesh (UP) may not mean much more than – Taj Mahal, Varanasi, Lucknow, Kebab, taxi drivers and construction labor. Very few residents of the western and southern states appreciate that UP is as diverse as India itself. Various regions of the state, i.e., Awadh, Brij, Rohillkhand, Bundelkhand, Purvanchal, and Doab, have distinctly identifiable history, food, dialect, customs, deities, and problems.
People from Bundelkhand and Doab regions in particular have been agitating for a different political identity for themselves since long. The regions also differ in terms of caste, community, and religions dynamics. Differences in terms of weather, water and electricity availability, crop patterns, flood-draught cycle, political influence, urbanization, physical infrastructure, income disparities and other social indicators are also rather stark. Same holds true for many other states also.
Unjustifiable socio-economic disparities amongst various states and regions within states, materially different socio-economic status of various castes and communities in different states, has frequently led to demands and agitations for new administrative units (states and districts).
The legislatures have been mostly unsuccessful in developing and adopting a consensus framework for federal structure of the country (Though some attempts like Sarkaria Commission have been made). Certainly there has been a marked improvement in state-center relationship in past 25years, but this could be more due to political compulsions rather than any structural change. This has been the period when regional parties have played critical role in government formation at the center. The strains in center-state relations have reemerged as soon as a single party government got installed at center in 2014.
It would therefore not be unreasonable to say that the post independence political organization of the country designed primarily on lingual basis may no longer be relevant in the current context.
Moreover, the tradition to appoint by nomination rather than purely on the basis of election has killed meritocracy in politics and promoted inequality.
The political problem therefore is to develop a political organization that fully assimilates the aspirations of the people, addresses specific local problems, promotes mutual trust & harmony, bars incompetence and knavery from public office, and insures that the best is selected and prepared to rule for the common good.
For my seemingly Utopian solution to this problem of political organization - see this space on tomorrow.

Friday, December 2, 2016

In search of solutions - 2

"We still think of a powerful man as a born leader and a powerful woman as an anomaly."
—Margaret Atwood (Canadian, 1939)
Word for the day
Laicism (n)
The secular, control of political and social institutions in a society (distinguished from clericalism).
Malice towards none
Could I be a nationalist and still not support BJP?
First random thought this morning
The life these days is much easier. I am saved from the trouble of taking a host of supposedly personal decision for myself.
The government, judiciary and society (khap) are deciding for me what should (or should not) I eat, drink, wear, sing, listen, watch, study, read, show, do, own, keep, give, drive, etc.
I am eagerly waiting for rules/guidelines that will decide my sleeping & waking time!

In search of solutions - 2

 
(Book IV, The Republic, Plato)
A few months back, a group of self claimed righteous people started a new political movement. These people had been part of the India against corruption movement of Anna Hazare and its offshoot Aam Aadmi Party (AAP). The leaders of the movement mentioned that to them dynastic politics, women safety, corruption in public offices, electoral malpractices, inequality and social injustice are the key problems that India faces today.
I liked their ideas & intent and expressed my desire to join them, provided they tell me how they propose to solve these problems. For last two months I am waiting to hear from them.
I am not signaling anyone out here. I am just highlighting that in an environment where everyone is just talking about problems, we need people to start discussing solutions.
The other point I want to highlight is that most of the problems people are highlighting may just be the symptom of the problem and not the problem in itself. Beware that in finding solutions, we would need to focus on the underlying problems and not merely the manifest symptoms.
For example, in an electoral democracy son of a politicians contesting and winning election should not be a problem. After all it is the people who have elected the son to a public office, just like anyone else. Especially when no one is complaining about poll rigging etc.
The true problem here is the unequal opportunity. And this problem is not limited to politics but to every sphere of the life - education, law, medicine, art, business, religion, etc.
All those complaining about the dynasty in politics fail to provide a solution because they are scared of addressing the underlying problem, which pervades deep into our personal and social lives.
To my mind therefore it is critical to define the underlying problem before any attempt is made to find the possible solutions.
I now begin by stating my understanding of the political problem.
The political problem in India is to develop a political organization that fully assimilates the aspirations of the people, addresses specific local problems, promotes mutual trust & harmony, bars incompetence and knavery from public office, and insures that the best is selected and prepared to rule for the common good.
...to continue on Tuesday

Thursday, December 1, 2016

In search of solutions

"Little girls are cute and small only to adults. To one another they are not cute. They are life-sized."
—Margaret Atwood (Canadian, 1939)
Word for the day
Quinquennium (n)
A period of five years.
Malice towards none
All rhetoric, no substance - new normal in public discourse.
First random thought this morning
SC wants all cinema goers to listen to the national anthem by standing in honor - Great. A noble thought.
Why not begin all court hearings, schools, offices, theaters, comedy shows, police stations, rail journeys, with the national anthem?
What if a foreigner wants to watch movie in an Indian theater but does not want to stand in honor of our national anthem?
How this diktat is different from "Agar Bharat meni rehna hoga toh Bharat Mata ki Jai kehna hoga".


In search of solutions

As indicated yesterday (see here), these days I find that a large majority of people, especially the people who matter the most, are talking only about the problems.
To make the matter even worse, the public discourse has become mostly rhetorical with little substance in it.
Only a few 'Radicals" have the courage to offer solutions. The elites naturally have problem in assimilating these solution as these do not conform to the conventional knowledge. On the other hand the commoners, distraught and disillusioned as they are, are enthusiastic and willing to experiment with these radical alternatives even if not sure where they will be led to.
In my view, this march towards the unknown with inadequate luggage, is the most worrisome aspect of the present day life. The unpredictability, mistrust that has permeated the system is also adding to the misery.
Empirically, such experiments with radicalism have shown diverse results and as such no pattern is available. For example — Hitler and Stalin failed miserably. Deng Xiaoping and Lee Kuan Yew are widely believed to be remarkable success stories. Castro, Mao, Nixon and Regan are still debatable. Back home, Sanjay Gandhi and V. P. Singh are mostly considered failures, while Atal Bihari Vajpayee and PV Narasimha Rao are celebrated for breaking the status quo.
In past five odd years, I have made multiple attempts to understand the problems that have been ailing the Indian society and therefore the Indian economy. From the experience I gained through wandering across the vast landscapes and meeting thousands of common people in hinterlands, I can claim to have earned some understanding of the problems, I mean rhetoric apart. I have in fact been sharing my understanding with the readers.
Moreover, since I enjoy the advantage of not being a formal student of economics, statistics, finance, politics or sociology - I can certainly take liberty to assess the problems from a common sense viewpoint and devise solutions that do not necessarily conform to the established conventions.
Since I have written on these issues frequently and consistently, my old readers may find the presentation that follows in next few days, repetitive. However, I still find this exercise worth doing as it reinforces my commitment and faith in the great India story.
In next few days I shall discuss the social, political, and economic problems afflicting my country. I would also take the liberty to offer some solutions that I believe could solve many of these problems.
Remember, this is to initiate a larger debate on the desirable social, political and economic order for the country. I have been accumulating thoughts on this for past five years. The readers may pick whatever they like, debate it, improve it and introduce back in the stream. It is important to clarify that I do not claim any proprietary rights over these thoughts. I claim to have liberally and unabashedly plagiarized the thoughts of various common and eminent people; published wisdom; and my own experiences.

Wednesday, November 30, 2016

In support of "The Radicals"

"Some people mistakenly think nature is very nice and benevolent and never betrays"
—Margaret Atwood (Canadian, 1939)
Word for the day
Toggery (n)
Clothes; garments; togs.
A clothing shop.
Malice towards none
BJP and SAD should contest forthcoming Punjab elections separately.
If need be, they could come together post election, like BJP and SS did in Maharashtra.
First random thought this morning
I am unable to find an appropriate expression to describe the present state of affair of the Congress Party.
It's got to be more than a tragicomedy, when the usually sober people like Dr. Manmohan Singh and P. Chidambaram start talking like the usually indecorous people like Digvijay Singh and Rahul Gandhi.

In support of "The Radicals"

It would be fair to assume that most students will leave the answer sheets blank leave the examination hall, distraught.
Some may try to test their ingenuity and offer literary solutions to the complicated problems, still hoping to score zilch.
A few would however contend that being students of literature, they are naturally the only genius around. These few would offer detailed literary explanations which may not make any sense to the conventional students of physics or literature; and still insist that the solutions offered by them are the best. Hoping to pass with distinction, they might also take this opportunity to ridicule the students of physics and celebrate their superiority. This small group is popularly referred to as "The Radicals".
I am inclined to view the present day global economy as the examination hall described above. Almost none of the participants (economists, bankers, administrators, politicians, regulators, traders, borrowers, lenders, consumers, producers, et. al.) seems to have any clue.
Absolutely clueless most may be about solutions, they can apparently read the problems. And that is precisely what they are doing day and night - reading the problem; sometime in hush-hush sounds; sometimes raising the decibel to the maximum; sometimes in the secret chambers and sometimes in front of the mammoth crowds; sometimes with audacity and sometimes with jitters in their spine.
The Radicals are the one who are offering solutions. Totally unassimilated, these solutions naturally do not appeal to the conventional mindset.
These solutions are therefore mostly liable to be rejected as hazardous, for these seek to rattle the status quo.
These are also condemned to the derision of the conformist and purist, as they approach the problem from a completely unexpected tangent.
Admittedly, these solutions may very well fail to solve any of the problems, global economy is facing today; or even exacerbate the problems. Although this cannot be known today. As Shakespeare would tell us “There are many events in the womb of time which will be delivered.”
What matters today is to make an effort, howsoever radical or unassimilated it may seem. That is what is needed to administer a sense of calm on the stressed nerves of the common people, who are finding the current conditions unfairly severe to them.
On my part, therefore, I fully appreciate what the Radicals like Trump and Modi are doing or may try to do. I would like to wait what the time delivers.
In next few days, I would like to share my thoughts on the problems India is facing and today, and what could be the solutions to these problems.

Tuesday, November 29, 2016

I am done and over with

" For years I wanted to be older, and now I am."
—Margaret Atwood (Canadian, 1939)
Word for the day
Soliloquize (v)
talk to oneself.
Malice towards none
Attended a marriage last night.
I am sure a lot of cash is being hoarded by the families who have marriage in family.
All this money will flock the markets as marriage season ends in December.
First random thought this morning
BJP, RSS et. al. want to impose their idea of good governance on the country, considering it to be inarguably the best alternative. Some may find it against the basic tenets of parliamentary democracy. But I have no problem with this. If it is good for the country, it is good. Regardless of everything and anything.
My problem is that they want to experiment with their ideas at my expense.
BJP & RSS canteens are neither Swach (clean) nor cashless. BJP and RSS have not issued any whip or request to its members and elected representatives to not to deal in cash any further; donate 2hrs a week for cleaning of public places; not to attend or arrange lavish marriages or birthday parties; I visited 7 Patanjli stores in Delhi yesterday. None accepts payment otherwise than cash.

I am done and over with
I have also spent at least 70hours, studying, analyzing, explaining, arguing, criticizing, defending and writing about the measure in past three weeks. I feel it's high time that I get past this whole issue and focus on the road ahead. I would therefore like to close the discussion with the following summary of my final understanding, view and opinion on the issue. I totally concede that there is huge scope for disagreement. But I am in no mood to take this discussion any further. All comments are totally unwelcome.
·         I firmly believe that the latest exercise of the government and RBI does not qualify to be demonetization in any measure. It's simply replacement of currency notes. I am reasonably confident that by the times cows come home, Banks and RBI would have received more old currency notes than the RBI balance sheet showed as outstanding at 8:30PM on 8 November 2016. Other things remaining the same, the note printing press can rest for next 2-3yrs, after working overtime for two months.
·         The exercise may lead to direct transfer of some INR50-70K crore to the lower strata in the socio-economic pyramid of the country. This combined with the additional cash flows to the middle of pyramid through 7th Pay commission and OROP payouts, and better Kharif realizations for farmers, there are sufficient reason to believe that the consumption slowdown due to disruptions since 9 November, may get fully neutralized by 1QFY18. No surprises if the consumption surprises on higher side as the propensity to consume is much higher in the "receiver" lower half of the pyramid as compared to the "transferor" upper half of the socio-economic pyramid. The positive sentiment amongst the common public shall also aid consumption. The GDP of FY17 may be lower by 30-40bps but with upside risk. FY18 likely +8%.
·         Political rhetoric apart, the time spent in ATM/Bank Qs does not matter much in terms of productivity loss. Most people standing there are either employed in disguise or underemployed.
·         This exercise will prepare a solid ground for smooth implementation of GST in FY18 or FY19. Most small businesses will get tech savvy and less resistant to "white" payments.
·         The plastic money may grow at least by 50% in next 2-3 years, leading to higher velocity of money (sustainable higher liquidity) and lower cost for banks. Lending rates could fall on sustainable basis, adding materially to economic growth.
·         This exercise and reactions thereafter have introduced significant unpredictability in the system. This shall logically lead to break in status quo and coax higher compliance. Property and gold businesses will change structurally and for the good.
You may also like to read the following:
·         Worrisome & encouraging
·         Mistrust & Unpredictability
·         Sir, I beg to differ
·         Cash and Real Estate

Friday, November 25, 2016

Good times for realty market around the corner

"Gardening is not a rational act."
—Margaret Atwood (Canadian, 1939)
Word for the day
Savoir-faire (n)
Knowledge of just what to do in any situation; tact.
Malice towards none
PM Modi has played the trump card, which AK played in last Delhi election - "Anyone who does not support me is corrupt!"
If this card works - expect 280-290 seats for BJP in forthcoming UP elections, and a majority in Goa and Uttrakhand.
Punjab is tough and Manipur unpredictable.
 
First random thought this morning
The move to abolish the extant currency notes has seemingly brought the opposition parties together for the time being. However, it appears more as a floor management strategy than a political game plan.
Imputing any larger motive to this or expecting any substantial outcome from this may be political naiveté.
Except for few jokers, most of the opposition leaders have seen the Emergency in 1975 and the subsequent events. They know very well that two and a half year period (to the 2019 elections) is too long a period in politics. A majority of the voters would not remember the hardship they suffered due to this move.

Good times for realty market around the corner

Commenting on my yesterday's post (see here) Many readers have highlighted that one major source of land for real estate development is the surplus land with the civic administration. The civic agencies sell these land parcels to users or developers at a relatively lower rate, who in turn are able to sell these at the market determined rates, accepting the "gain" part of the compensation in cash. This cash adds to the stock of black money in the system and perpetuates the cash element in the real estate dealings.
In my view, this was true till a few years ago. Now a days, most of the sale by civic authorities, except housing for economically weaker section, is at near market price; and the sale is also through a mostly transparent process of computerized draw or auction. In Delhi, for example, many flats offered by DDA have remained unsold vs. 100x demand two decade back. Many commercial sites sold by DDA in past decade have also remained unviable for the buyers.
Now coming back to the main topic - I firmly believe that the expectations of a major correction in real estate prices in short term may not come true. To the contrary, after a short period of subdued activity, we may actually see prices firming up.
Top five reasons for my positive view on real estate are as follows:
(a)   The real estate prices have been correcting in most micro markets since past 5years. In many markets, like NCR, Punjab, Haryana, UP, Gujarat, Rajasthan, West Bengal, MP, Punjab, etc. the prices have seen material correction. In many other markets, we have witnessed time correction. The commercial real estate prices have reacted fast to the interest rate cycle and have already started to firm up in past few quarters. The housing demand may have bottomed out. With rise in affordability, lower rates, and better tax incentives, this segment may also see better days soon.
(b)   In many micro markets, the current market prices are not very far away from the cost of construction and government prescribed floor rates (circle rate or stamp duty rates). The scope for prices to fall further therefore is limited. The cost may actually rise in the short term.
(c)    The stress in real estate market in past few years, new regulatory regime, new land acquisition laws and now currency abolition has ensured that the smaller, unorganized, inefficient developers go out of the market and the markets get consolidated with 4-5 large player in each micro market. This consolidation will bring the pricing power back to developers.
(d)   More money in bank accounts, and better tax compliance will enable lot many more people for bank credit and demand for residential and commercial estate shall begin to firm up.
(e)    There could be supply constraints in short term as the holders may be reluctant to sell for various reasons.

Thursday, November 24, 2016

Cash and Real Estate

"Heroes need monsters to establish their heroic credentials. You need something scary to overcome."
—Margaret Atwood (Canadian, 1939)
Word for the day
Duende (n)
Charm; magnetism.
A goblin; demon; spirit.
Malice towards none
Who has created this illusion that the government has demonetize 86% of Indian currency?
The current effort is just an exercise to replace the old high denomination notes (HDNs) with the new HDNs.
The assumption that some of the existing HDNs may not be presented for replacement is just that - an ASSUMPTION.
First random thought this morning
Till May 2014 many termed PM Modi as divine intervention that will cure India of all its ills. The detractors termed him as Taliban, who will destroy the core fabric of the Indian society by communalizing it.
Both the extreme views have proven to be mostly wrong.
The history is repeating itself with Donald Trump.
Will history repeat again with Donald Trump?

Cash and Real Estate

Continuing from tomorrow (see here), I would like to share my understanding of the real estate market dynamics in India with the readers. Admittedly, my views do suffer from limited knowledge of the real estate markets, as I know about the practices only in 10 states. I assume the practices are similar in most states.
To estimate the impact of the abolition of old high denomination notes on real estate market in the country, it is important to understand the role of cash in the market dynamics.
·         A large part of the land parcels for development of real estate projects, originate from the farmers or sick industrial units that have closed operations. In recent times, the government has also announced release of land parcels owned by CPSEs etc. for redevelopment.
In case of farmers, there is no capital gains tax on sale of agriculture land, hence no tax motivation to receive payment in cash. The farmers receive cash in consideration of land sale either out of habit of dealing in cash, or buyer willing to pay little extra so that he could save on stamp duty and registration fee etc. In some cases buyers are willing to pay little extra as they do not have sufficient white (accounted and legal) money to pay as consideration.
However, in case of sick industrial units, great motivation to receive cash is present due to (a) first right of lenders on any sale consideration received; (b) huge tax liability on capital gains; (c) unwillingness of promoters to share the sales consideration with minority shareholders; (d) corruption of the nominees of financial institutions on the board of such companies.
In case of redevelopment of government/CPSE properties, the role of cash is mostly limited to the corruption in the award of contracts.
·         It is not necessary that the involvement of cash always leads to inflated value of the underlying deal. In many cases cash involvement leads to both parties agreeing to lower sales consideration as they save on taxes and duties.
·         In many cases, the buyer has to convert his white money into black, as the buyer insist that a part of the sales consideration be paid in black money. In a large number of cases, buyers are black & white agnostic.
·         The stock of black money perpetuates the role of cash in real estate deals as the seller insists on cash because he has to pay cash in the subsequent deal he is negotiating.
·         The smaller developers accept cash from buyers, as they sell cheaper and try to save cost by saving on VAT, Service Tax, etc. payable on the construction material and construction related services
·         The sources of cash that is used in the real estate deals are primarily (a) bribes received by public officials; (b) money earned through illegal means like smuggling, drugs, ransom, extortion; (c) tax evasion by not accounting the full revenue or accounting fake expenses...to continue