Do it yourself

Thursday, April 20, 2017

Non Compliance - impediment to growth

"I have found that, in the composition of the human body as compared with the bodies of animals, the organs of sense are duller and coarser. Thus, it is composed of less ingenious instruments, and of spaces less capacious for receiving the faculties of sense."

—Leonardo da Vinci (Italian, 1452-1519)

Word for the day

Avarice (n)

Insatiable greed for riches; inordinate, miserly desire to gain and hoard wealth.

Malice towards none

BJP and Congress are the same side of the same coin.

It is just that BJP is currently in its Indira Gandhi (1971) phase, and Congress is BJP of 1984.

I just dread to imagine "what would be the Ram Temple" for Congress revival?

First random thought this morning

In spite of all the reforms in energy sector, and massive reduction in petroleum product subsidies, and high dividend policy, ONGC stock price is down about ~30% from its 2014 highs.

At the same time with all its attendant problems of low growth and high NPLs, SBI is just 15% lower from its all time high seen in 2010.

Is it an anomaly in pricing or collective wisdom of market is telling to go short on energy stocks like ONGC and Coal India.

Non Compliance - impediment to growth

When you see these pictures, what comes to your mind first.

Are these funny? Are these worth appreciating? Do they highlight the quintessential Indian character? Do you care?

Now tell me—

· Have you heard of anyone protesting or suing Amir Khan for openly desecrating the historic Red Fort, a heritage building in movie PK?

· Did you find engineering students drinking alcohol in college campus in 3 Idiot, acceptable?

· Did you find Amir Khan riding a scooter in the critical care ward of a Hospital acceptable?

· Did you noticed that Salman Khan is romancing on a motorbike without wearing a helmet?

· Did you find this overloaded lorry in Fevicol advertisement impressive or funny?

· Did you ever thought of complaining about the famous and celebrated Mumbai Dabbawallahs blocking traffic, causing inconvenience to passengers in local trains, or you find it regular or rather part of a great service to the nation?

· Does the latest TV advertisements of Sporto sportswear and CEAT tyres, that describes Indians as incorrigibly non-compliant, offend you, or you would just laugh it off?

Last week I sent these photographs to 50 people, randomly selected from my contact list, for their comments on these pictures. The mail was sent without any preamble. The results of a second survey on Whatsapp are awaited.

No surprises there. None of the respondents pointed out any problems with these pictures.

28 respondents just found the pictures funny and answered in LoL emojis. 3 respondents said, Amir Khan is any day better than Salman Khan. 5 respondents have asked who is the actor jumping the road divider and dancing in front of the motorbike. Two of them also wanted to check whether there is Govinda amongst the Dabbawallas' group seen in the given picture.

14 respondents have answered with just "???"

The respondents include professionals working with MNC banks, large IT firms, infra developers, exporters and Indians working in foreign countries as senior managers. 20 are women. All are in 35-50yr age bracket.

The point in case is that "compliance" does not appear to be high on priority agenda of even most educated, wealthy and responsible citizens.

In my view, this indifference towards civic and regulatory non-compliance, and admiration for "Jugaad" is one of the top impediments to achieving sustainable high economic growth in India.

The current government should be credited with identifying the problems and taking some baby steps in direction of their resolution....to continue.

Read with the following

The 10 Propellers

Growth is a collective, consistent and continuous effort

First piece in place

Wednesday, April 19, 2017

First piece in place

Thought for the day

"Just as courage imperils life, fear protects it."

—Leonardo da Vinci (Italian, 1452-1519)

Word for the day

Smattering (n)

A slight, superficial, or introductory knowledge of something.

Smattering (adj)

Slight or superficial.

Malice towards none

Besides being an efficient administrator, PM Modi is inarguably the biggest showman in Indian politics, after Mahatma Gandhi.

First random thought this morning

The way start ups and ecommerce service providers are burning money, globally, it appears that this business model is the replacement of traditional Communist State.

These enterprises are collecting money (capital) from the rich and indulgent across the globe and spending it on providing decent jobs to thousands of people from lower middle class; paying taxes to the governments; subsidizing goods and services for millions of consumers (mostly middle and lower middle class); besides sustaining many small businesses whose produce they sell or consume.

Unfortunately, just like the communist state, this business model may also not survive for more than few decades.

First piece in place

Financial inclusion unarguably has been the single largest reform focus in India, in past 5 decades.

Beginning with nationalization of banks in 1969, the government policy has always been biased towards providing credit to poor. Setting priority sector (farm, MSME and BPL) lending targets for banks and creating specialized institutions such as cooperative banks and regional rural banks (RRBs) were two primary medium used to achieve the success.

These efforts did not yield much success, till a few years ago, as the policy focus excluded the other aspects like building a deposit base, promoting savings culture, or extending the payment network.

In past one decade a paradigm shift has taken place in India's financial inclusion agenda. The concerns over structural macroeconomic lacunae and governance shortcomings, e.g., massive leakage in delivery of public services and subsidies; consistently falling household savings rates; rise in physical savings, especially in gold etc., have forced the measures like direct cash transfer of subsidies (DBT), push to digital payments, expansion of banking network, through new banks, small banks, payment banks, and banking correspondents, expansion of well regulated MFI institutions, etc.

The banking outlets in villages grew 9 fold in six years from a total of 67,694 in March 2010 to 5,86,307 by March 2016.

Hitherto financially excluded household and MSME were forced to deal in cash, and therefore had limited options for building assets of saving for future financial security. This also made them susceptible to exploitation by moneylenders, scrupulous operators of sham schemes and touts.

In past three years, in particular, this drive has gained tremendous momentum, the effect of which can be seen with naked eyes. Humongous drive to open bank accounts (Jan Dhan); promotion of NPS by removing anomalies; launch of crop insurance and personal insurance; bringing more and more subsidies under DBT scheme; giving UIDAI a statutory status and making it an effective KYC document has certainly helped. The move to replace 86% of currency in circulation and thereby forcibly inculcating the habits of digital and banking transactions amongst masses has provided tremendous push to the financial inclusion efforts.

In my view, this piece of the faster growth is now at the right place. In next decade or so we may see material improvement in the household debt to GDP (presently ~9% compared to Thailand 83% and China 37%) ratio. We shall also see significant rise in savings of household, which have been declining since past couple of decades.

To put things in perspective, the household savings have declined from a high of 33% in 1990s to below 20% in 2016. The share of net financial savings in this is around 7.5%, whereas the rest is physical saving.

The deployment of financial savings in corporate shares and debentures was less than 1% in March 2016, against a peak of over 10% in mid 1990s.

I am therefore quite optimistic from the side of supply of growth capital, regardless of the trends in global flows.

Read with the following

The 10 Propellers

Growth is a collective, consistent and continuous effort

Tuesday, April 18, 2017

Growth is a collective, consistent and continuous effort

Thought for the day

"Nothing strengthens authority so much as silence."

—Leonardo da Vinci (Italian, 1452-1519)

Word for the day

Sententious (adj)

Given to excessive moralizing; self-righteous.

Malice towards none

The pendulum has definitely swung to the other extreme.

We have reached at a point where even blatant rights violation by men in uniform will have to go unchallenged.

Anyone daring to challenge will be trolled down to hell.

What is right and what is wrong - who knows, and frankly who cares!

First random thought this morning

Some ancient Hindu scriptures describe the desirable body figure of a woman, to judge her health (fertility). Even today, millions of men in South India apply talcum powder on their face to appear less dark. Many North Indian middle class people almost mourn if a dark girl is born in their families. I have seen some rich Bania families in Delhi, who happen to have inherited dark skins, willing to forgo dowry, if their sons could attract a fair skinned Punjabi girl so that they could have fair skinned grandchild.

So what the hell are we protesting on social media and why are we threatening to arrest a book publisher, who might have unwittingly printed the truths of our society.

Growth is a collective, consistent and continuous effort

· North Eastern Development Finance Corporation Ltd. (NEDFi), a development bank for the North Eastern States of India.

· The target under Indira Awas Yojna doubled from 4 lakh units annually to 10 lakh units annually.

· A National Social Assistance Scheme is been proposed to provide — (a) minimum old age pension of Rs.75 per month to BPL people above 65 years; (b) Rs5000 lump-sum survivor benefits to poor households, on the death of the primary bread earner; (c) sustenance for pre-natal and post-natal maternity care to women belonging to poor households for the first two births. The social assistance package will be complemented by a new Group Life Insurance Scheme of the LIC which will be implemented by Panchayats in rural areas.

· Mid day meal scheme being run by some state governments has a beneficial impact on child health and attendance. Central government should participate in expansion of mid day meal scheme.

· Tenth Finance Commission (TFC) recommends a substantial increase in transfers to the States. Despite the severe constraint on the Centre’s resources, the Government has accepted the recommendations.

· Establishment of IRDA is proposed.

· Proposal to introduce legislation to establish central depositories.

(Some of the proposals made in the budget speech of Dr Manmohan in March 1995)

The setting up of the Unique Identification Authority of India (UIDAI) is a major step in improving governance with regard to delivery of public services. This project is very close to my heart. I am happy to note that this project also marks the beginning of an era where the top private sector talent in India steps forward to take the responsibility for implementing projects of vital national importance. The UIDAI will set up an online data base with identity and biometric details of Indian residents and provide enrolment and verification services across the country. The first set of unique identity numbers will be rolled out in 12 to 18 months. I have proposed a provision of Rs.120 crore for this project.

(Proposal made by Sh. Pranab Mukherjee in his budget speech February 2009)

An effective tax administration and financial governance system calls for creation of IT projects which are reliable, secure and efficient. IT projects like Tax Information Network, New Pension Scheme, National Treasury Management Agency, Expenditure Information Network, Goods and Service Tax, are in different stages of roll out. To look into various technological and systemic issues, I propose to set up a Technology Advisory Group for Unique Projects under the Chairmanship of Shri Nandan Nilekani.

(Proposal made by Sh. Pranab Mukherjee in his budget speech February 2010)

In my last budget speech I had advised Banks to provide banking facilities to habitations having a population of over 2000 by March, 2012. The Banks have identified about 73,000 such habitations for providing banking facilities using appropriate technologies. A multi-media campaign, “Swabhimaan”, has been launched to inform, educate and motivate people to open bank accounts. During this year, banks will cover 20,000 villages. Remaining will be covered during 2011-12.

(Proposal made by Sh. Pranab Mukherjee in his budget speech February 2011)

· Government has initiated an ambitious IT driven project to modernise the postal network at a cost of `4,909 crore. Post offices will become part of the core banking solution and offer real time banking services. I propose to provide `532 crore for the project in 2013-14.

· A comprehensive and integrated social security package for the unorganised sector is a measure that will benefit the poorest and most vulnerable sections of society. The package should include life-cum-disability cover, health cover, maternity assistance and pension benefits. The present schemes such as AABY, JSBY, RSBY, JSY and IGMSY are run by different ministries and departments. I propose to facilitate convergence among the various stakeholder ministries/departments so that we can evolve a comprehensive social security package.

· It is proposed to start a fund for urban housing to mitigate the huge shortage of houses in urban areas. I propose to ask National Housing Bank to set up the Urban Housing Fund and, in consultation with RBI.

· All scheduled commercial banks and all RRBs are on core banking solution (CBS) and on the electronic payment systems (NEFT and RTGS). We are working with RBI and NABARD to bring all other banks, including some cooperative banks, on CBS and e-payment systems by 31.12.2013. Public sector banks have assured me that all their branches will have an ATM in place by 31.3.2014.

(Proposal made by Sh. P. Chidambaram in his budget speech February 2013)

You would be wondering why I am reproducing excerpts from the budget speeches made by various finance ministers from the Congress Party in past 22years.

Well, I just want to highlight three things:

1. Financial Inclusion is the single largest reform that is taking place in India in past 25years.

2. This reform is taking place irrespective of the form (minority or majority) and constitution (single party or multi party alliance) of the government.

3. The current regime has achieved remarkable success in implementing the programs. The government has very ably demonstrated that intent is not sufficient. It needs to be supplemented by strong execution capabilities. But, it cannot be denied that the vision is collective, consistent and continuous, and this fact nourishes the hope...to continue tomorrow

Thursday, April 13, 2017

The 10 propellers

Thought for the day

"The sovereignty of scriptures of all religions must come to an end if we want to have a united integrated modern India."

—B. R. Ambedkar (Indian, 1891-1956)

Word for the day

Rebarbative (adj)

Causing annoyance, irritation, or aversion; repellent.

Malice towards none

Is it only me, or you are also noticing that many non-NDA parties in India are compromising with national interest in their fight against dominance of PM Modi on Indian politics.

First random thought this morning

As he completes 100days in office, President Trump's negotiating skills will be put to severe test during last week of April, when the US Congress would reconvene on April 25th after Easter vacations, and will be required to pass the government spending bill in four days to avoid shut down of government on 29th April.

Senators are going to bargain hard in lieu of their approval to the Spending Bill. Mexican Wall is one of many things that may fall during the negotiations.

The 10 propellers

From my experiences, observations and discussions with number of common people during my recent travels across the country, it is abundantly clear to me that India, as represented by her people and their aspirations, is changing faster than most of us would like to believe.

Unfortunate part though is that not all changes are positive or in desirable direction. The speed of change also varies on regional basis as well as on the basis of the area of change. The impact of the change therefore is not strong enough to change the general perception about the country.

Moreover, this disharmony in the direction and speed of the changes is creating an optical illusion of goal incongruence and holding up the overall development and growth from gathering required pace.

Notwithstanding the current positive sentiments on India which seem driven by TINA factor to a large extent, there are serious doubts over India's capability to sustainably grow at faster rate to become a high income country, unlike the peers like Brazil and China.

In my view, India has the potential and capability to become a high income country in next 5 decades, provided it can manage the necessary escape velocity through a mix of economic, social, cultural and religious reforms. The key would be to pursue all reforms simultaneously, earnestly, and vigorously.

I have identified the following ten areas of change that could propel India to a higher orbit.

(1) Financial inclusion

(2) Compliance standards

(3) Water and Electricity

(4) Farm sector

(5) Economic integration

(6) Social integration

(7) Human resource development

(8) Social reforms

(9) Religious renaissance

(10) Political establishment

Some of these areas have seen phenomenal developments in past few years, the most notable being financial inclusion. In recent months, sincere efforts have been made to improve compliance standards in areas like taxation, road safety, emission norms, real estate development etc. Implementation of GST, completion of dedicated freight corridors, expansion of national highways, especially in east and north east, and national markets for agri produce, etc. would be big steps towards economic integration of the country.

In next few weeks, I shall share my views on all these areas, especially what needs to be done.

Readers are cordially invited to share their thoughts on any reforms in any of these areas.

Wednesday, April 12, 2017

Seeking escape velocity

Thought for the day

"Political democracy cannot last unless there lies at the base of it social democracy. What does social democracy mean? It means a way of life which recognizes liberty, equality and fraternity as the principles of life."

—B. R. Ambedkar (Indian, 1891-1956)

Word for the day

Frenemy (n)

A person or group that is friendly toward another because the relationship brings benefits, but harbors feelings of resentment or rivalry.

Malice towards none

हमें उनसे है वफ़ा की उम्मीद
जो नहीं जानते वफ़ा क्या है|

#कुलभूषण जाधव

First random thought this morning

London, Paris, Brussels, Stockholm - in recent past terrorist strikes have happened at places usually considered most safe and secure.

One, it surely and certainly signifies that extremism has taken roots in most geographies, and need not be imported from anywhere now. The security paradigm therefore needs to change.

Two, resisting immigration and erecting walls may not be an appropriate security solution. A racially diversified society could much safer than a parochial society threatened from within.

Seeking escape velocity

In past one year or so, a number of orders of government, SC and NGT have created intense debate in the society. The most prominent of such orders include abolition of high denomination currency notes, restrictions on production, sale and consumption of beef, closure of illegal abattoirs, restrictions on sale and consumption of alcohol, prohibition of manufacture and sale of vehicles not complying with BS-IV emission norms, etc.

The economic and financial experts have mostly criticized these orders as unjustified and prejudicial to the economic interests of the country in general and investors in particular.

Loss of revenue, loss of jobs, and risk of antagonizing foreign investors, are the primary arguments extended by this group in the support of their argument.

I personally do not find much conceptual or fundamental basis in their line of arguments. Mostly, these arguments seems to have been made as a matter of record, that could be used by respective experts later to claim "I told you so" high ground.

I say so, because I do not see any of them placing any material stake, financial or otherwise, on their arguments.

The social groups and political parties have expectedly reacted on social, religious and party lines. Again, these groups are supporting or opposing a particular move as per their convenience, rather than conviction.

In my view, evaluating the changes that are taking place in socio-economic milieu of the country from conventional wisdom may not be a good idea in present day context.

As the outcome (so far) of the sudden move to abolish 86% of the currency in circulation shows, the country (people and aspirations) has changed and the experts are lagging behind in assimilating the change. This perhaps is always the case. They would certainly change their views as more empirical evidence emerges.

Insofar as my personal view is concerned, I feel the Indian Economy is positioned for takeoff. It needs escape velocity to break past the gravitational force that has been holding it back for past few decades.

At this stage it is necessary to take some massive steps that would shake the ground, and loosen the gravitational hold over the economy.

The currency ban move, for example, has reinvigorated the financial and taxation system of the country. Inclusion and compliance are two massively positive outcome of the move. Historically, these two have been the pre-requisite for evolution of any emerging economy into a developed economy.

Loss of jobs & revenue argument has led to phenomenal rise is firecracker, chewing tobacco and bidi industry in the country for long. Regardless of the fact that these are extremely harmful products. The same logic applies to liquor, unregulated meat & dairy industries.

In next couple of days I shall share my thoughts (somewhat radical though) on what steps could provide necessary escape velocity to Indian economy.

Tuesday, April 11, 2017

Sir, please guide me, what should I do?

Thought for the day

"Indians today are governed by two different ideologies. Their political ideal set in the preamble of the Constitution affirms a life of liberty, equality and fraternity. Their social ideal embodied in their religion denies them."

—B. R. Ambedkar (Indian, 1891-1956)

Word for the day

Ostensible (adj)

Outwardly appearing as such; professed; pretended, e.g., an ostensible cheerfulness concealing sadness.

Malice towards none

When would Dr. Manmohan Singh retire from public life?

From economic viewpoint - his incremental contribution is negligible!

From aspirational viewpoint - he has no more heights to scale!

From social viewpoint - he is a misfit in young India.

First random thought this morning

This could be one of the most unfortunate things to occur to a society when the TRP potential of an issue decides social, political and religious priorities.

As highlighted earlier also, the life insurance advertisements in India are blatant in depicting Indian women as totally dependent on their spouse and fathers. This does not outrages and feminist, whereas a dress code or restriction on mobile use in campus prescribed by an educational institution does.

Similarly, CEAT advertisement on TV implying that common Indians are non-compliant and have no road sense has not seen blood of anyone boiling. Millions raised hue and cry when Ms. Kiran Rao pointed out that non-compliance is rising in India, and she fears it.

Sir, please guide me, what should I do?

Shri R. K. Damani is certainly one of the most revered names amongst the financial investing community in India. Thousands of investors like me have grown up following his footsteps.

Long known as known as true value investor, in past few years he has established himself as a successful businessman through his retail venture popularly called D-Mart.

The company owning D-Mart retail business recently made an IPO priced at Rs299/share. The share price has raced to ~Rs800 in less than 3weeks of listing of IPO. Every day there is virtually a stampede in the market to buy stocks of this company.

As per consensus earning estimate, the stock is trading at ~40x FY20 earnings. The company has indubitably performed much better than all its peers. It has been profitable, mostly due to cost and procurement efficiencies. It mostly owns the premises where its stores are run, thus saving on rental cost.

In past Infosys has used this model of owning most of its business premises. But Infosys has the advantage of getting land at highly subsidized rate and tax rebates. Moreover, the company has the entire world as its business area.

PVR, the leading film exhibition company in the country, also started with this model, but changed the course midway. The growth post change in business model to leased premises has been phenomenal.

D-Mart, is in a business that needs to be located within or close to residential areas. Finding such places is difficult and expensive proposition. This business has low entry barrier, is intensely competitive and facing serious challenges from large online retailers. There is little proprietary technology involved. The procurement and marketing innovations cannot be patented and would be emulated by many.

Though certainly not impossible, it is tough to foresee it growing from present 118stores to 1000 stores in next 10yrs, while maintaining same profitability and business model.

What I am pondering, before jumping onto the bandwagon is—

(a) If the stock could have been sold at Rs1000 in April, as most market participants are telling me today, why did a seasoned investor like Shri R. K. Damani sold it for Rs299 in March?

(b) If this company was not owned by Damani ji, would he be buying this stock today as a value investor?

(c) If as one of his disciples, I take this idea of buying a grocery store at ~40X FY20 earnings to him, what would be his reaction?

(d) The people who are buying at Rs800, what is their return expectation?

Till the time I get answers to my inquisitions, I am just holding my horses back and resisting the lure to own pure gold.

The army of Damani Ji's fans may please forgive me for the blasphemy I might be guilty of committing here.