Some food for thought
Between saying and doing, many a pair of shoes is worn out.
—Iris Murdoch (Irish Author, 1919-1999)
Word for the day
Claddagh (n)
A ring in the form of two hands clasping a crowned heart, given in friendship or love.
First random thought this morning
The people in Vedic society were classified in four categories
based on their physical and intellectual capabilities and aptitude. They were
assigned professions/vocations as per their classification. In the most
simplified terms, performance of the work thus assigned to best of their
capabilities was termed as their Dharma.
Important to note, Dharma had nothing to do with lineage of a
person. It was purely a managerial assignment to ensure optimum utilization of the
available human resources to maximize productivity so that all get rewarded adequately,
commensurate with their contribution.
The society functioned in an orderly fashion so far everyone adhered
to their respective Dharma. All digressions were dealt with exemplary punishment,
to protect the sanctity of the social order.
There is enough evidence to suggest that Vedic Society was
civilized, scientific, dynamic, egalitarian, gender neutral, and evolutionary.
The subject "how the Vedic Society declined" has been a
matter of intense debate in past couple of centuries at least. Logically, the
import of science, technology, education, civilization etc. could not be the
reason, as the Society was evolved enough to export all this to the world. So was
it the influence of the indulgent foreign life style that overwhelmed the strictly
disciplined Vedic society? Or it was something else.
I am thoroughly incompetent to answer these questions. Let the
experts debate for another century and find an answer. But what I have realized
that if a person with strong mental faculties and intellect is assigned a task to
do some business or service to the Society, there are very good chance that he
might fail terribly. Such a person is best suited for teaching and research and
must confine to that arena.
I would like to address the current debate over the role of
former RBI governor Raghuram Rajan in the economic problems being faced by the
country, in the above light.
However, the allegation of NITI Ayog vice chairman is much
beyond the line of absurdity. Passing of few accounting entries (Transferring
the debt from one category to another category) cannot and certainly has not
impacted the economy, for sure.
Chart that caught my attention yesterday
Lighting 1.3bn lives
The electricity sector in India has been an enigma for
investors. Despite holding huge potential in terms of demand supply mismatch, supportive
government policies, and conducive growth environment it has failed in generating
anticipated adequate returns for investors. To the contrary, it has caused colossal
losses to lenders.
According to a report of the Parliamentary Standing Committee, as
of March 2018, non-performing loans and slippages of the power sector exceeded
Rs1.8trn. The Committee found that about 66GW of conventional energy is under
various degrees of financial stress.
Power producers have generally attributed the stress in the
sector to delayed payments by state owned power distribution companies
(DISCOMS), lack of long term power purchase agreements and erratic coal
supplies. Many of these stressed power assets face imminent bankruptcy
proceedings.
To make the matter worse, the stressed assets in power sector
are not even attracting adequate investors' interest, as was the case in steel
and cement assets. If the present situation prevails, many of these stressed
assets may actually have to be liquidated, causing huge losses to both, the
investors and lenders.
All these are complicated matters, overwhelmed by technical
jargon to be deciphered by the discerning experts.
But for a common man like me it is no less than a shock. I mean,
how a business that deals in an absolutely essential commodity, for which
demand is still outpacing the supply, can face so much stress!
What I could make out from various readings and discussions with
the people connected to the business, the reasons for the stress in the sector,
include:
(a) Delays in
execution of projects, lading to substantial cost overrun.
(b) Poor working
capital cycle due to delayed payment by discoms.
(c) Highly
optimistic demand projections by the Central Electricity Authority and other
agencies, leading to building of overcapacity.
(d) Poor industrial
demand for electricity, leading to decline in the share of industrial sector in
overall electricity demand.
(e) Erratic and
inadequate supply of feed stock (gas and coal).
(f) Subsidies for
renewable sector.
(g) Enhanced focus
on energy savings through popularization of LED lights and energy efficient
appliances.
(h) Frequent policy
changes and increased litigation.
(i) Corruption in
the conduct of promoters and lenders.
(j) Elevated level
of transmission and distribution losses.
(k) Vast disparities
in regional demand and supply balances.
(l) Higher cost of
capital.
A number of steps have been taken in recent years on policy
front which should help alleviate the stress and the sector. The most notable
being National Tariff Policy 2016; BIMSTEC Trans-Power Exchange and Development
project; long term fuel supply arrangements with Coal India; UDAY; coal mining
auctions; National Policy on biofuels; encouraging FDI in the sector through
various means, etc.
However, the important step in my view was the decision to
reduce GST rate on household electric appliances like air conditioners and washing
machines.
India has one of the lowest household penetration rate for electric
appliances even in the emerging world. Globally, the household sector is the
largest consumer of electricity. As the economy grows the share of services
sector increases in the overall economy. The service sector is usually less
energy intensive than industrial sector. The balance of demand supply can therefore
only be restored if the household consumption rises.
In India despite rise in affordability, the penetration of household
appliances has not increased to the desirable levels. This was primarily due to
the policy makers' mistake of treating these as luxury items and taxing these heavily.
The policy makers failed to understand that to exploit the work
force to the optimum extent, it is important to encourage higher use of
appliances at household level, so that the women could also go out and work in
large numbers.
I hope better sense shall now prevail.
I believe that the sector should revive in next two years, as
the stressed promoters and investors make the way for stronger players who
shall get the assets at attractive valuations. The manufacturing growth also
appears picking up, along with the household income and demand for appliances.
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I shall look to invest in a mix of companies in the sector over next couple of years. My investment universe will include (a) Couple of strong producers; (b) One stressed producers who are likely to survive the difficult phase; (c) couple of equipment manufactures and EPC players in the T&D sector; and (d) 3 to 4 appliance producers.
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