Vijay Kumar Gaba

Thursday, November 21, 2013

Whatever goes around comes around

Thought for the day

“Don't fight forces, use them.”

- R. Buckminster Fuller (American, 1895-1983)

Word of the day

Inexorable (adj)

Firm; determined; unyielding; unchangeable; inflexible; relentless.

(Source: Dictionary.com)

Shri Nārada Uvāca

Package for Sugar Industry in UP, package for Bihar, 50% cheaper electricity in Delhi, G-Sec yields above 9%, INR back to 63/USD levels – everyone seems to be attacking P. Chidambaram’s red lines with vengeance!

Whatever goes around comes around

Dear Mr. Modi, on a rather simplistic analysis of the present economic conditions we could reasonably trace the roots of some of the malaise to economic crisis of late 1990s and early 2000s when incidentally NDA government was in power.

We acknowledge that asking NDA government to share some of the blame for current inflation, corruption, unemployment and slower economic growth etc. might sound preposterous to many. But in our view a sustainable solution could only be provided if the root cause of the problem is identified properly.

The economy was substantially opened up during economic crisis of late 1990s and early 2000s (exacerbated by economic sanctions post nuclear blast in May 1998). For example, regulations in sectors like coal, power, roads, telecom etc. were liberalized substantially. Selective land, labor & tax reforms were sought to be introduced through SEZ scheme. Financial sector regulations were liberalized to attract greater foreign flows. This was incidentally the period when the global liquidity taps were opened to full flow. This was also the time when China entered WTO and got a license to flood Indian markets with its cheap manufactured goods.

Y2K led global ITeS boom, easy credit led private investment surge, Cheap Chinese import led consumer spending and massive government spend on infrastructure funded by public sector and deficit financing created a mirage of India shining. Unfortunately the higher income-higher consumption and savings-higher investment effect of all this reflected in data with a lag during early years of UPA I regime (2004-2007).

The real problem however is that all this liberalization, investment etc. was done (a) without creating any conceptual framework; (b) without instituting adequate and appropriate institutional and regulatory framework; (c) without addressing sustainability concerns; and (d) without making appropriate financial viability study.

Some of the consequences are-

(a) Rampant corruption in public offices, as allocation of liberalized national resources to private parties was left mostly at the discretion of politicians;

(b) Widespread obstructions and delays in execution of mega projects as these projects conflicted with the sustainability objective and environmental concerns;

(c) Advancement of future investment demand impeding financial viability of projects and creating massive stress in financial system;

(d) Decimation of domestic SME and household sectors which could not compete with cheap Chinese imports leading to structural pressure on currency; current account and general employment level;

(e) Unmanageable rise in aspirations of youth population leading to substantial changes in consumption patterns and thus pressuring household savings and consumer prices;

(f) Sharp rise in rural land prices making food inflation a structural problem.

To continue…

Also read:

Letter to Mr. Narendra Modi

Wednesday, November 20, 2013

Letter to Mr. Narendra Modi

Thought for the day

“A man cannot be too careful in the choice of his enemies.”

- Oscar Wilde (Irish, 1854-1900)

Word of the day

Moiety (n)

One of two equal parts; a half.

(Source: Dictionary.com)

Shri Nārada Uvāca

On World Toilet Day, a World Bank report says 53% Indian households defecate in open. No one has so far challenged this report.

Should all politicians making claims of development, equity and social justice be barred from public life forever for making false claims, lying and misrepresentation of facts?

Letter to Mr. Narendra Modi

Since you were declared PMship candidate of BJP two months ago, you have very aggressively accused the Congress Party for all the mess in the country. In particular, you have raised issues of food inflation, corruption in public life, poor governance, incompetence, nepotism (dynasty), and dichotomy of power sharing between 7RCR and 10 Janpath.

You have usually not held any bars in attacking the Gandhi family and Prime Minister, accusing them for all round failure. While the issue of propriety and morality of personal attacks is debatable, the mood of people so far appears forgiving. However, the moot point is whether highlighting incumbent governments’ failure is reason enough for voting BJP led NDA to power or people would want to see something more.

While you have repeatedly cited the Gujarat Model of development as cure to all malaise, unfortunately we have really not heard any concrete proposals, programs and policies you would want to implement (if voted to power) to take the country out of this mess.

For example, people may want to know -

1. Would you be able to control food inflation? If yes, how and in how much time?

2. How would you ensure that corruption is eliminated from all public offices?

3. What would you do to bring an end to dynastic politics?

4. How would you ensure elimination of Nagpur-New Delhi dichotomy?

5. If you form government with the help of multiple regional parties, how would you ensure good governance and competence in the ministries and departments administered by non-BJP constituents?

6. How would you improve fiscal balance without substantially cutting on subsidies, without raising taxes and tariffs, and continuing with MNREGA, Food Security entitlement and Right to Education enforcement?

7. How would you bring INR/USD level back to below Rs50/USD level?

8. What would you do to create millions of new jobs urgently needed to employ burgeoning workforce of the country?

9. What would be your policy to improve bilateral relations with neighboring countries?

10. Would you free the “caged parrot” or implement Lokpal legislation and bring CBI under this independent constitutional authority?

We appreciate that the incumbent administration may be suffering from fatigue and appears totally demoralized. It has probably lost the plot and perhaps has no ideas as to how to get out of this socio-economic mess.

A change is therefore most desirable. But the change if not properly managed could create more problems rather than solving any.

In coming days we shall highlight why you may like to be little more careful in your criticism. With warm regards and best wishes.

Tuesday, November 19, 2013

Side effects of food security

Thought for the day

“Without leaps of imagination, or dreaming, we lose the excitement of possibilities. Dreaming, after all, is a form of planning.”

- Gloria Steinem (American, 1934-)

Word of the day

Commix (v)

To mix together; blend.

(Source: Dictionary.com)

Shri Nārada Uvāca

Is the Congress’s failure enough reason to vote for BJP?

What would be the shape of next government if BSP gets 38-40 seats?

Side effects of food security

Travelling from Delhi to Lucknow on NH24 a couple of weeks ago we were stuck at Fatehganj (west) railway crossing for over 2hours. This is a critical highway which connects national capital Delhi with state capital Lucknow and important towns like Moradabad, Bareilly and Shahjahanpur. Most traffic from the industrial towns in Uttrakhand Rudrapur, Kashipur and hill station of Nainital also flows through this road via Rampur. The work on the rail over bridge at the crossing was over 90% complete. But we did not see any worker on the site. On enquiry we found that most workers have gone back to their villages for festivals and would be back only by mid December after sowing season is over. The site manager was a worried man. He cribbed that this project like many others has faced delays due to this labor indulgence, primarily a direct outcome of job guarantee under MNREGA.

While various opinions on MNREGA side effects are yet to be substantiated by serious research, it is clear that it has led to – (a) changes in historical labor migration pattern and (b) rise in average wage for unskilled, agriculture and construction workers across country.

Prompted by the discussion with this particular site manager, we attempted to make an assessment of likely socio-economic impact of newly introduced food security during our recent trip across some north Indian states. The key highlights of our findings are as follows:

(a) A large majority of small and marginal farmers in India engage in farming for sustenance purposes only – meaning they grow cereal crops mostly for self consumption. A small part of the crop is sold to pay for other necessities.

Once they are assured of sufficient cereal supplies at Rs1 or 2/kg, they would have little motivation to undertake farming activities. This may result in short to midterm demand-supply inequilibrium for cereal crops. The consequences could be inflation in cereal prices (not seen so far), and short supply necessitating imports (watch CAD).

On positive side, many of these farmers may turn to cash crops, thus improving their income levels. The rural women and children in particular would have better opportunities to acquire better education and skills.

(b) A part of child and women labor, especially in household, farm, retail, and SME sectors could quit if they have food security. In fact better enforcement of right to education (RTE) could significantly enhance school enrollments and dropout rate may also decline.

The short term negative would be rise in cost for affected sectors. However, the structural positive could be augmentation of skilled workforce and improved quality of life indicators.

It would be interesting to see how the next government plans the implementation of National Food Security Act (NFSA). Failure in anticipating the likely demand-supply gap well in advance would definitely make things complicated and unmanageable. The last week’s vegetable loot incidence of Malda, West Bengal might become a trend and eventually culminate in food riots.

Monday, November 18, 2013

Can we?

Thought for the day

“Most people are other people. Their thoughts are someone else's opinions, their lives a mimicry, their passions a quotation.”

- Oscar Wilde (Irish, 1854-1900)

Word of the day

Serotinal (adj)

Pertaining to or occurring in late summer.

(Source: Dictionary.com)

Shri Nārada Uvāca

Could the “vegetable loot” incident of West Bengal become a trend?

Can we?

Hum ko maloom hai jannat ki haqeeqat lekin, Dil ke khush rakhane ko Ghalib ye khayal achha hai (I am aware heaven is an illusion; but I do not mind striving for it) – Mirza Ghalib

Since long Taj Mahal has been used to symbolize the India’s history, tradition and culture. In recent time, Yamuna Expressway, a highway connecting the National Capital Region (NCR) to Agra, the city of Taj Mahal, has become a popular metaphor for economic development and growth of India.

In our recent trip of some north Indian states we took this less traveled road to assess the state of India’s glorious past and promising future. What we observed though not surprising but was certainly disconcerting.

We found the administration and people in general are (a) unaware and unproud of our history, culture & tradition and (b) mostly unprepared for faster economic growth. Gurudev Rabindranath Tagore would have been a sad person today to see that after 66years of political independence - neither the minds are without fear nor the heads are held high.

On the much acclaimed world class Yamuna express way, we observed that it is almost impossible to drive fearlessly as-

· villagers freely cross the expressway with fuel wood, animal feed etc. on their head;

· youth on motorcycles are frequently seen driving in wrong direction that too without helmet;

· some revelers were seen doing beer party with their vehicles parked dangerously on the road;

· even state transport busses were stopping illegally to pick and drop passengers;

· almost every motor vehicle was seen speeding over the permissible limit.

After exiting the expressway, the next 10kms to Taj Mahal is a torturous journey, passing through some narrow lanes and bridges that might take upto 75-100mins on a bad day. On reaching Taj you are welcomed by a strong stench of horse and camel dung as over two hundred camel carts and horse carts are used to ferry visitors from the parking lot to main entrance of the monument. You find serpentine queues at ticket window and security checkpoints. It usually takes more than 1hour to enter this modern wonder.

The visitors are chased by a mob of tourist guides who promise to save you from this 1hour wait period for a fee of Rs300-500. All these touts work closely with the security personnel posted at the monument entrance.

Inside this symbol of Indian spirit shoes and shoe covers were indulgently littered all around. Overall, the sight appeared a classical example of complete condescension for history and culture.

Given the contempt for history, culture & tradition, civic disobedience and obstructions to speed the faster and stronger economic growth that FM and planning commission deputy chairman are frequently talking about appears not only infeasible but undesirable too.

Wednesday, November 13, 2013

Food inflation conundrum - Case Study

Thought for the day

“Who seeks shall find.”

- Sophocles (Greek, 496-406BC)

Word of the day

Roger (Interjection)

All right; Ok; message received and understood

(Source: Dictionary.com)

Shri Nārada Uvāca

Is it a good strategy for BJP to invoke history in all their election rallies?

Food inflation conundrum III

After discussing with many farmers, agriculture scientists, government officials, bankers & social workers working in rural areas and agriculture related departments we discovered that small initiatives at village and panchayat level could enhance agriculture productivity substantially. The more complex reforms (land, labor, administrative, legal etc.) though highly desirable are not necessary to achieve the initial productivity gains.

We witnessed one such initiative in Shahjahanpur district of western UP, named after the Mughal emperor Shah Jahan.

Case Study

Shahjahanpur is primarily an agriculture district. The district has a population of over 3million with a literacy rate of over 60%. Over 70% population is engaged in agriculture related activity. Sugarcane, potato and mentha are main crops. Industrial landscape consist of Reliance power Rosa thermal power plant, KRIBHCO fertilizer plant, Defence clothing factory, a paper mill, some small sugar mills, couple of distilleries & some small menthol mills.

A large majority of farmers are small, having land holding of less than two hectare. Many marginal farmers have holding size of less than 10bigha (0.5 hectare). Electricity supply is restricted to 3-4hours a day. Land is fertile and ground water level good at 15-20feet. Most large farmers have leased out their land to landless farmers.

Most farmers rely on traditional agriculture techniques and manual labor. The average cane productivity is 150-175qtl/acre and potato yield is 1000qtl/ acre. The average net earnings for a small to medium size farmer is Rs35000. The official land price (circle rate for stamp duty purpose) is Rs7,50,000/acre.

Last year, a couple of enterprising youth took initiative to improve the farm productivity. They pursued around 70 farmers in 4 villages to engage in collective farming and successfully aggregated a 450acres. They engaged with the scientists of the Shahjahanpur Sugarcane Research Institute and Indian Agriculture Research Institute, New Delhi and obtained know how for improving productivity.

Improved potato seeds and cane saplings, solar power operated pump sets (at 50% subsidy) and cooperation from banks for financing 5 tractors, and 3 planters, and fencing of the farm to safeguard against wild animal raids (primarily boars and neelgai) helped the yields to rise by 40-50% 300/qtl for sugar cane and 1500qtl for potato.

A contract with a large processed food manufacturer meant 30% better realization for potato crop. With all infrastructure in place, they could take three crops in a year, along with mustard sown in between.

Since electricity supply usually comes for 3-4hours around midnight, the group has created 3 artificial ponds to store water, with the help of government subsidy. These ponds will also be also used as fish farms and efficient channel for deploying fertilizer and fungicides.

The average yield for the farmers came to Rs75000/acre despite damage due to excess rains. This may improve further as a part of the income is invested back in further mechanization.

Tuesday, November 12, 2013

Food inflation conundrum II

Thought for the day

“If the facts don't fit the theory, change the facts.”

- Albert Einstein (German, 1879-1955)

Word of the day

Lam (v)

To beay; thrash

(Source: Dictionary.com)

Shri Nārada Uvāca

A large majority of Delhites indulge in a variety of corrupt acts in their daily routine –squatting on public land being the most popular act of corruption.

No political party has spoken about this so far.

Food inflation conundrum II

…continuing from yesterday

As we suggested yesterday, to bring down food inflation on a sustainable basis, it is critical to make agriculture a viable business.

In our view it would take a combination of administrative, legal, social, economic and financial sector reforms to achieve the objective.

In short the following three things need to happen, viz., (a) Substantial rise in productivity; (b) Substantial rise in price of agriculture produce; and/or (c) fall in price of agriculture land.

Rise in productivity

Our discussion with many farmers, agriculture scientists and rural activists across states in North India, suggests that a substantial rise in productivity is possible without cumbersome land, marketing and labor reforms or building expensive infrastructure.

Some aggressively promotion of collective farming, institutionalization of farm equipment rental business, creating more awareness about intensive farming and moving the farmers away from traditional cereal crops towards cash crops could enhance yields by 50-100% in most cases.

In our view, the Food Security Bill, if implemented in right earnest could transform Indian agriculture from a mere self sustenance activity into a truly commercial activity.

Financial inclusion is another tool that could enhance productivity by making affordable institutional credit to small and marginal farmers.

Substantial rise in prices of agriculture produce

A substantial rise (2 to 3x) in most agriculture produce could potentially bring back interest in agriculture sector and incentivize substantial investment leading to higher productivity and eventually lower food inflation.

This one time measure could help making taxation of this sector politically and finically feasible thus improving the fiscal balance of the country.

The negative could be substantial rise in food inflation in the short term leading to higher rates and thus lower industrial growth and lower overall household savings.

Substantial fall in land prices

Substantial fall in prices of agriculture land could also help in improving yields and therefore attract fresh investments in the sector.

Such a fall, however could have serious impact on the consumer discretionary spend, as a large part of the growth in discretionary spending has been contributed by the wealth effect created through higher land prices.

The best solution therefore would come only from a mix of the above three. Any solution on these lines would take 3-5years to implement and another 3-5years to have a meaningful impact on structure of food inflation.

Tomorrow we shall discuss a real life case study to illustrate our point.

Monday, November 11, 2013

Food inflation conundrum

Thought for the day

“If you can't explain it simply, you don't understand it well enough.”

- Albert Einstein (German, 1879-1955)

Word of the day

Novitiate (n)

The state or period of being a beginner in anything, especially religion.

(Source: Dictionary.com)

Shri Nārada Uvāca

Do you find any similarity in the most popular prime time English News show and popular TV show Big Boss?

Food inflation conundrum

The economic and political commentary in past few months has emphasized a lot on positive impact of above average monsoon on the Indian economy, especially food inflation. Most have hoped that bumper crop would help bring down the persistent food inflation that would eventually lead to much needed monetary easing.

In past one week, we made an effort to assess the validity of this argument and found it thoroughly invalid in the current circumstances. After examining the economics of Indian agriculture, we concluded that food inflation will only accelerate in next many years, even if things start changing at fast pace from today.

We interacted with a number of farmers in Delhi, Haryana, MP, Punjab, UP and Rajasthan to understand the economics of Indian agriculture. The key highlights of our findings are as follows:

(a) In past one decade, the rise in the price of agriculture produce has lagged the rise in land prices significantly. Consequently, the yield on agriculture land has collapsed in most areas. For example, in Delhi, Haryana, Himachal, Punjab, Rajasthan, Western & central UP and many of parts of MP the yield in now even less than fixed deposit rates.

Land priced at Rs5-10lac an acre yields less than Rs75000/year for a medium and large farmer. For a small and marginal farmer the yield is Rs25000 to Rs50000 per acre/year, excluding the cost of self labor. If we adjust the yield for one crop loss every three year, lease rent and 24-30% interest that small and marginal farmer pays, agriculture is completely unviable business.

If we factor in rising labor cost and lower subsidy in input prices (fertilizer, electricity, diesel and water) the viability gap will likely only increase going forward.

(b) A large majority of farmers in India are landless. Many of these farmers take land on lease. The rent varies from Rs5000/acre to 50% of produce. A lost crop puts such farmers in a debt trap that may take up to 5years to get out.

The next generation of landless farmer is therefore least likely to prefer agriculture over construction or industrial labor. Availability of agriculture labor is likely to shrink even further from the current alarming levels.

(c) Given the low returns, the current generation of medium and large farmers is also not much interested in taking farming as occupation. Most would want to sell the land or convert it into non-agriculture land.

Given the uneconomical holding size, low yields, unavailability of formal credit, and lack of interest in large farmers, mechanization of agriculture is not happening at desired pace.

In our view, to make agriculture a viable business and control food inflation on sustainable basis one or more of the three things need to happen, viz., (a) Substantial rise in productivity; (b) Substantial rise in price of agriculture produce; and/or (c) fall in price of agriculture land.

…to continue tomorrow

Friday, November 1, 2013

Congress has much more to worry than mere losing power

Thought for the day

“A pessimist is correct oftener than an optimist, but an optimist has more fun, and neither can stop the march of events.”

- Robert A. Heinlein (American, 1907-1988)

Word of the day

Obsequy (n)

A funeral rite or ceremony.

(Source: Dictionary.com)

Shri Nārada Uvāca

Is Arvind Kejariwal new Kanshi Ram?

Congress has much more to worry than mere losing power

The opinion polls conducted so far have predicted substantial losses for Congress Party in the coming election, both at the state and center level. If the current mood of people prevails till 2014 elections, there is strong possibility that Narendra Modi might lead the next government with Congress getting reduced to its lowest strength in the Parliament.

The popular debate presently is focused on (a) who will emerge winner Modi or Rahul in this contest of personalities; Modi seems to have clear initial advantage; and (b) whether Modi will be able to stitch together a larger enough alliance to be able to form a comfortable government to carry out his economic reform and development agenda; the jury is still out on this issue.

In our view, a win for Narendra Modi may not mean a mere loss of power for the Congress Party. It could have much more serious repercussions for the Party in general and many of its leaders in particular. We feel the Congress Party needs to take Modi challenge much more seriously rather than being dismissive of it. For example consider the following:

(a) The chasm between old feudal lordship within Congress Party and young turks has been widening since past few years. Loss in 2014 election will embolden the old guards. With Mrs. Sonia Gandhi not in best of her health, and Rahul being rejected by the people of India, we might see some Kamraj, Morarji Desai, Jagjiwan Ram, Biju Patnaik, Mamata Banerjee, Jagan Reddy Mohammed Alimuddin and Bhajan Lal sort of rebellion against the family. Nonetheless there could certainly be more episodes of Kamalapati Tripathi, Sharad Pawar and Sitaram Kesari sort of misadventures.

Priayanka Gandhi has not been tested yet, but in our view, faced with such a situation she may not be as successful as Mrs. Indira Gandhi was in overcoming the threat from Syndicate in late 1960’s.

(b) Absence of any recognized national level leader outside Gandhi family will encourage more secession on lines of Sharad Pawar, Mamata Banerjee, Jagan Reddy, et al. This could be especially true in case of states where Congress enjoys reasonably higher vote share but is doing poorly in terms of electoral wins, e.g., UP and Gujarat.

(c) With Narendra Modi at the helm, the secularism vs. communalism debate will become almost irrelevant breaking the very fulcrum of opportunist alliances that have kept Congress in contention since mid 1990’s. In a communally neutral political environment the regional parties would be more amenable to BJP which does not compete with many of these at state level and has demonstrated better track record in center – state relations.

(d) With Congress likely out of power for 5years, much reduced strength in Rajya Sabha and only a few states under its rule (forecasts suggest it losing Andhra Pradesh too, leaving it with just one big state under its rule, i.e., Maharashtra) the already meager cadre may further splinter away, making a comeback even more unlikely.