Vijay Kumar Gaba

Wednesday, February 22, 2017

This highway - my way

"Politics, as a practice, whatever its professions, has always been the systematic organization of hatreds."

—Henry Adams (American, 1838-1918)

Word for the day

Craquelure (n)

A network of fine cracks or crackles on the surface of a painting, caused chiefly by shrinkage of paint film or varnish.

Malice towards none

Sasikala seeks transfer to Chennai jail, so that she can run the state government more efficiently.

First random thought this morning

The so called intellectual commentary on the standards of political debate and the narrative of public discourse set by prominent political personalities is amusing.

The regular faces on TV, preposterously claiming to be intelligentsia and rightful custodians of the interests of the billion plus people of this country, are telling us that this degeneration is unprecedented.

Nothing could be far from truth. I can vouch from personal experience that in past three decades, the standard of political debate in India has consistently remained abased. In fact, I like that. Because that assures me that our democracy is functional. Our politicians do actually come from the common populace; they reflect their mindset; and speak their language.

This highway - my way

The young chief minister of Uttar Pradesh has been proudly boasting constructing a super highway in record time. The union minister responsible for highways also loves project his superlative performance in construction of new highways.

I would like to invite both of them to come on a drive with me on highways of Uttar Pradesh, for a reality check.

I had earlier written about the chaotic driving experience on the famous Yamuna Expressway a few years ago. (see here)

Trust me nothing has changed in all these years. In fact conditions have worsened materially.

In past couple of months, I have been frequently driving on NH-24, NH-74 and NH125 (all parts of Asian Highway (AH) - 2) in western Uttar Pradesh. I did also drive on the much acclaimed Agra - Lucknow expressway.

These highways have been developed with the objective of accelerating the growth of the country, besides metamorphosing the lives of people living alongside.

Unfortunately, none of the potential beneficiary seems to have been engaged in the whole development process. For them it's like journey to space without any training or preparation. Someone just came to them one fine morning and told them Sir, you are flying to space in two hours from now!

The people living and working alongside highways lack any kind of training. They drive on the wrong side. They ride their horse carts, bullock carts, bicycles, tractor trolleys ominously overloaded with sugarcane, wheat hay, bricks and cattle, & people right in the middle of the highways; and often coming from the wrong side. Wearing headgear for motor cycle riders is a matter of great insult. Audaciously ignoring all requests for 'right of way' by other user of the road is their swagger.

This way they considerably slowdown the traffic, besides endangering the lives of many. No surprises that the accident rate is quite high, and rate of fatalities in the accidents even higher.

High rate of people and animal fatalities on highways has also raised doubts in the minds of many people, about the utility and desirability of highways.

Another striking feature of expressway planning is the total lack of planning at the port of landing. For example, one engineer working at Agra - Lucknow highway told me that the highway is projected to take over 5000 additional passenger vehicles (mostly cars) to Lucknow from delhi, Agra, Mainpuri, Unnao etc. There is virtually no preparation in Lucknow to receive so many additional vehicles and people. No parking. No additional hotel rooms. No public conveniences. Nothing.

This is true for all the towns along side highway, that are expected to get materially higher number of vehicles and people. No one seems to have learned from the chaos in Agra, Mathura and Vrindavan caused due to increased numbers of cars arriving after opening of Yamuna expressway.

...to continue

Tuesday, February 21, 2017

Could we see a USD100bn Desi food gaint?

Thought for the day

"He too serves a certain purpose who only stands and cheers."

—Henry Adams (American, 1838-1918)

Word for the day

Fress (v)

To eat or snack, especially often or in large quantities.

Malice towards none

The second season of Yadav Family drama in UP will start after Holi. Regardless of the election results.

First random thought this morning

Potato farmers in UP and Punjab are in deep distress. The standing wheat crop promises to further escalate the problem, as prices are likely to fall post harvest. Pulses are now trading below MSP in many states. The pressure to allow import of duty free sugar to overcome the shortfall in production to poor cane crop in southern India, may curtail the honeymoon of sugarcane farmers also. On top of all this, some international agencies are predicting revival of El Nino later in the summer of 2017.

Hope of any remarkable recovery in rural spending might remain elusive, for now at least.

Could we see a USD100bn Desi food gaint?

Many national newspapers prominently reported yesterday that local sweet and snacks maker Haldiram’s revenues crossed Rs 4,000 crore in FY16. The Indian snack major is now twice the size of Hindustan Unilever's packaged food division or Nestle Maggi and larger than the India turnover of the two American fast food rivals Domino’s and McDonald’s put together.

To me it's like if my daughter scores 95% in her 12th board examination. I would not know whether to celebrate or rue her performance. For, she would do extremely well relative to all her past performances; outperforming my achievement by full 50%. But unfortunately, she would not get admission to any of the reputed colleges!

I admit that indubitably it is no mean feat. But, In a country inhabited by millions of connoisseurs, Haldiram took 80yrs to come into the reckoning. It may take another 50 to match the global scale of its global peers.

Moreover, given that this rising sun sells sweets and fried snacks in the diabetes capital of the world (akin to someone selling combs in the city of bald), some doubts about the sustainability and desirability of its growth are natural.

The question is how we create a $100bn food giant, befitting our country's rich culture, tradition and knowledge of culinary science?

In my view, it is entirely possible. The first step would be to get past the family prides and ego, and work towards consolidation of large 15-20 regional players with the national players like Haldiram, Bikanerwala etc. The second step would be to move focus from mostly celebratory products to day to day healthy regional food served in a convenient packing (easy to carry and eat). Third, step would be to address the mass market at lowest possible price point. Healthy, affordable, convenient food that matches the local taste and preferences could make the combined entity a global player in two decades, in my view.

But that is not the point here.

The point I trying to raise is that 'Food' is one of the greatest strengths of Indian economy.

The ready to eat food business employs many more workers than the textile, leather, gems and jewellery put together. But I have not heard any government incentive, scheme, program to promote this business. (I am rejecting the Shiv Sena's "Shiv Vadapav" scheme in Mumbai as poor political gimmick and Amma canteen in TN as nationalization of food business).

On the contrary, restaurants are frequently subjected to excessive taxation and street food vendors are victimized by municipal authorities.

Also, I observe that this segment is mostly ignored in the missions like Make in India, Skill India, Start up India etc.

Out of the list of priorities, this segment is saddled with many social and economic problems like child labor, food adulteration, poor hygiene standards etc.

As per NSSO report^{^[1]} on the status of employment in India, "he population in the age group 15-59 years, which is considered to be economically active, comprised about 60 per cent of males and 61 per cent of females in rural areas and about 66 per cent each of males and females in urban areas."

However, only about 40 per cent of population participated in the labor force, meaning offered themselves for work. Participation was significantly lower for females than for males in both rural and urban areas.

A large majority (52%) of the workers are engaged in self-employment. Moreover, about one third of workers were under casual labour category. Only 18% were found to be regular salary/wage earners. The share of casual labour in the total workforce of rural areas was about 35 per cent as against the corresponding share of 15 per cent in the urban areas.

This in my view is an alarming situation. Most of the self employed people are either underemployed or employed in disguise, both in urban and rural area. A stroll across the street or any market area would show you a large number of youth pretending to engage in petty jobs as laborer and hawker etc., who work and earn much lower than potential.

All those who vehemently opposed the FDI in multibrand retail trade in the Parliament a few years back, need to go an ask a person who runs a 24*7 daily neighborhood Khomcha, how much he earns after working 17-18hrs a day.

My experience suggests it is much lower than what a counter boy at Big Bazaar earns, in a 10hr shift, in a dignified, secure, and air conditioned environment with no investment risk and without any botheration about the municipal raids.

I have met many fruit and vegetable hawkers in past five years in connection with my NGO work. More than one quarter of them cannot afford to send their kids to even government schools who do not charge any fee, and provide books, uniform and mid day meal for free.

Moreover, overall 49% of all participating workers were engaged in agriculture activities. For female workers the ratio was substantially higher at 63%. A large majority of these workers are self employed with no financial or social security. These are also unemployed or underemployed for a large part of the year.

To harness the potential of Indian youth demographics, it is therefore essential that an integrated approach is adopted to increase employability, employment and productivity level.

Political bickering or prejudices notwithstanding, a serious relook is needed on issues like land reforms, labor mobility, labor laws, skill development, gender equality, integrated rural development, cottage industry, MSME sector, technology innovation and business facilitation.

The incumbent government has made many positive statements in this regard. I hope to see implementation of these ideas in next few years.

[1]68th Round Survey (June 2011-June 2012) published in June 2013.

Friday, February 17, 2017

What about demographic liability

Thought for the day

"Our greatest weakness lies in giving up. The most certain way to succeed is always to try just one more time"

—Thomas A. Edison (American, 1847-1931)

Word for the day

Sine die (Adv)

Without fixing a day for future action or meeting, e.g., The assembly adjourned sine die.

Malice towards none

ISRO launched 104 birds in the space. A record of sorts.

I wonder, do we already have a traffic protocol for outer space!

At this pace, the traffic there could be as bad as Chandni Chowk, in a few years.

First random thought this morning

A record 27 Us Congressmen are scheduled to visit India from February 25.

It could be anything, but is certainly not a sign of hostility towards India.

The statement of foreign secretary, after a second extension of term, that president Trump needs to be better understood, clearly points to deepening and strengthening ties.

Anyone who is worried about disastrous impact of Trump Sarkar on Indian business interests should better wait and watch for few more months, at the least.

What about demographic liability

"India’s share of working age to non-working age population will peak later and at a lower level than that for other countries but last longer. The peak of the growth boost due to the demographic dividend is fast approaching, with peninsular states peaking soon and the hinterland states peaking much later." — The Economic Survey 2016-17

Millions of reams have been used to write and publish about the demographic characteristics of India. Many stories, themes and strategies have been built around the young demographic profile of 1.25bn Indians.

Almost all these stories and strategies recognize the young Indian as a great opportunity - "Demographic dividend" for the Indian economy. Of course few of them have words of caution also. Failure to channelize this vast reservoir of energy into productive streams may not only dissipate the demographic dividend but also prove to be counterproductive in terms of widespread civil unrest and violent disruptions.

I have however not come across any presentation that classifies this demographic profile as the solemn accountability and responsibility of India to the world. Considering that the global community has always valued the resource rich nations and expected them to behave in a responsible manner to preserve the global order.

The capital rich western world has been expected to help the poor and starved of the world. The world looked forward to them to fund technological advancement, preservation of cultural heritage, assisting global growth and development. Even after taking full cognizance of the allegations of imperialism and suppression, I believe that financially rich communities have worked for the betterment of human life by funding technological innovation, life science research & development, productivity enhancement, and development assistance to the economically lagging world. Similarly, nations rich in natural resources like minerals etc. have been expected to prospect and exploit these resources in optimum manner to assist the sustenance and growth of the global economy.

My point is that now since India possesses the largest pool of prospective workers for the world, should it not be responsibility of Indian government to prospect, grow, and develop this resource for the larger benefit of the global community.

This is even more pertinent in the context of the current global financial crisis. In places like Europe and Japan the root cause of the crisis could be traced to the aging demographic profile. China is also like to join the club in a decade or so. Under the circumstances it is the responsibility of India to provide educated, skilled and trained workforce to the global economy.

A number of research papers and surveys have shown that (a) Child and mother nutrition level in India is sub-standard consequently child mortality rates are poor; (b) higher and professional education standards are extremely poor consequently a large number of Indian graduates are unemployable even in routine jobs; (c) There is acute shortage of competent scientists to scale up research and development (R&T) activities to make Indian businesses competitive at global stage....to continue

Thursday, February 16, 2017

Miles to go before you sleep

Thought for the day

"I never did a day's work in my life. It was all fun"

—Thomas A. Edison (American, 1847-1931)

Word for the day

Spoony (adj)

Foolishly or sentimentally amorous.

Malice towards none

Entire country seems to have fallen in love with Taimur.

After all, what's in a name!

First random thought this morning

The coverage of Tamil Nadu events and UP elections by TV channels in past one month raises many questions.

While the national English channels devoted disproportionately longer hours discussing the TN events, national Hindi channels did not give any prominence to the drama.

Similarly, while Hindi channels are devoting more than 50% airtime to UP elections alone, English channels are not assigning much importance to the these election, especially after the SP family soap opera ended.

So what is the message here?

Miles to go before you sleep

Last evening a visit to the local garbage dump site was a revelation in many sense. A casual discussion with the rag pickers gleaning the household garbage to pick pieces of paper, plastic and metal, was quite enlightening.

Out of seven people diligently scanning the stinking dump, three were children under the age of 14, including one girl, and three were youth in the age bracket of 19-27.

There was a police PCR standing just 10mtr from the site. The personnel occupying the PCR were blissfully unaware of the laws relating to right to education, child labor, dumping of garbage in open areas etc.

On being asked why they chose to do this menial, risky (health wise) and stinking job, when they have relatively decent options like pulling a cycle rickshaw or even driving an e-rickshaw, working at a nearby auto garage, cleaning cars in nearby housing societies etc., the youth politely answered like this: "We are doing this job for past 12-15yrs. How could we change it now."

On prodding further, one of them admitted that many of their peers live on hope that "Someday they will find treasure in the garbage. More years you have put in the job, greater the chances of you hitting on a treasure." Though, the best they could cite of a treasure find was a gold bangle found by one of their seniors 8yrs ago.

The discussion did two things to me: (a) it prompted me to drop the search of the lost earring of my wife, which she thought could have been dumped there with the daily kitchen waste, with the hope that it may complete the treasure hunt of some child; and (b) raised numerous pertinent but disturbing questions in my mind.

Some of the questions need immediate answers. For example:

(a) After seven decades of independence, we are still struggling to eradicate manual scavenging. Though many NGOs work in this area, so far not many policy makers have been seen speaking about eradicating the practice of manual handling of garbage; particularly, employing minor children for the job. It may take many more decades before this issue is addressed.

(b) The police force (including traffic police) is trained to prevent and detect crime, which is grossly inadequate in my view. Moreover, in practice they are more focused on detecting and prosecuting criminals rather than taking preventive actions. The system of "no complaint no action" needs to be dumped.

I feel, their training and responsibility should be to proactively protect peoples' life, dignity and property.

(c) If we want to reap the demographic dividend, beyond selling more and more motor cycles, smart phones, and apparels, we need to overhaul our education and training system. Moving backwards (board exams etc.) will further damage the already ailing system.

Wednesday, February 15, 2017

Change the development paradigm

Thought for the day

"To have a great idea, have a lot of them."

—Thomas A. Edison (American, 1847-1931)

Word for the day

Calliopean (adj)

Piercingly loud; resembling a calliope in sound, e.g. a calliopean voice.

Malice towards none

Pakistan threatens to boycott US!!!

Well....hmmmm....duh.

First random thought this morning

Out of the five states currently going through elections, Manipur has virtually stayed out of the national discourse. While Uttrkhand and Goa have seen multiple opinion polls, psephologists have completely avoided the north eastern state. To me it means three things:

(a) In spite of all brouhaha over mainstreaming of north eastern region, the work on ground still remains mostly notional.

(b) Many of opinion polls might have been done on phone and Google.

(c) In this digital age also, the intensity of national news is directly proportionate to the proximity to Delhi. Most know Arvind Kejriwal. Few know Pawan Chamling.

Change the development paradigm

Three things are quite clear to me, insofar as the problem of stressed corporate balance sheets and poor asset quality of banks are concerned:

(a) Key infrastructure areas like power, telecom, roads, and mining etc are suffering from poor capacity utilization (due to low demand); and material number of incomplete and delayed projects (leading to substantial cost escalation impacting the midterm viability of projects when completed). This stress is not likely to ease in next couple of years at the least. On the contrary, there are signs of stress deepening in telecom and power sector. Not certain, but implementation of GST might open new areas of stress in MSME sector.

(b) There is little visibility of private sector capital formation (capex) registering any notable growth in next couple of years at the least.

(c) The outlook of capacity enhancement at public sector banks', which have historically supported risk appetite of private enterprise, continues to be clouded. The implication of bank officials in many cases of fraudulent dealings has impacted the morale and hence risk taking capability of bank managers. There are sufficient indications that the government wants them to raise capital for growth at market terms.

Under these circumstances, the traditionally acceptable debt:equity mix of projects with longer gestations and unpredictable revenue models would need to be changed. The infra projects may need to be funded more by equity and less by debt; just like the start ups in digital arena.

"The Economic Survey 2015-16 emphasized that addressing the stressed assets problem would require 4 R’s: Reform, Recognition, Recapitalization, and Resolution."

There has been material progress in Recognition of the stressed assets. But on the other three, there is little progress.

In my view, however, these 4 R's would only solve the problem temporarily. Like the way, it did in mid 1990's. The other things remaining the same, the solution will last only till the next credit boom. A more sustainable solution will be to Recognize the economic reality of the country and Reform the development paradigm.

The government should build and provide the enabling infrastructure for the growth. This should include the physical infrastructure like roads, public transportation, power, water, and ports etc; and the social infrastructure including health, education, sanitation and security. The development should be done by empowered public authorities keeping in view the global standards and practices. The resources for development should be raised through higher but equitable taxation.

For example, highways could be funded by annual tax on vehicles (no toll on roads); solar power installation on road sides; higher cess on fuel; etc. Similarly, the social infrastructure could be funded through estate duty; higher property tax; higher sin tax; payback by students etc.

The payoff for higher taxation could be through meaningful freedom to the private entrepreneurs (including foreigners) to do business.

Impact of twin balance sheet problem - not modest by any mean

Thought for the day

"Everything's got a moral, if only you can find it."

— Lewis Carroll (English, 1832-1898)

Word for the day

Deleterious (adj)

Harmful; injurious, e.g., deleterious influences.

Malice towards none

It's Time for Rajni Sir to come into action.

Take over reigns of Tamil Nadu to save the State and her people from unscrupulous politicians and wannabe politicians.

First random thought this morning

In this Post Truth world, I find there are four type of people:

(a) Those who have opinion on everything happening, or not happening, around. Few care.

(b) Those who do not have opinion on anything happening, or not happening, around. Few care.

(b) Those who people expect to have opinion on everything happening, or not happening, around, but they refuse to oblige. Many disappointed.

(c) Those who people expect to have opinion on everything happening, or not happening, around, but they refuse to oblige. Many disappointed.

Impact of twin balance sheet problem - not modest by any mean

The Economic Survey does rather candidly admits the problem of bad assets and stressed balance sheets. However, it inaccurately estimates the realized and potential impact of twin balance sheet problem, in my view.

The Survey finds the impact of the problems to be modest. For example, it reads—

"One reason for the modest consequences comes readily to hand. In other TBS cases (e.g., in US, Europe, South East Asia), growth was derailed because high NPA levels had triggered banking crises. But this has not happened in India. In fact, there has not even been a hint of pressure on the banking system. There have been no bank runs, no stress in the interbank market, and no need for any liquidity support, at any point since the TBS problem first emerged in 2010. And all for a very good reason: because the bulk of the problem has been concentrated in the public sector banks, which not only hold their own capital but are ultimately backed by the government, whose resources are more than sufficient to deal with the NPA problem. As a result, creditors have retained complete confidence in the banking system."

Firstly, it would be wrong to say, that it has not impacted the growth. On like to like basis (old GDP series), the growth has structurally moved down to 5-5.5% range from 7-8% witnessed during the credit boom period. There is little visibility that the economy will return to higher growth trajectory in near future. The Survey itself admits that "For some years, it seemed possible to regard TBS as a minor problem, which would largely be resolved as economy recovery took hold. But more recently it has become clear that this strategy will not work. Growth will not solve the problems of the stressed firms; to the contrary, the problems of the stressed firms might actually imperil growth."

Employment conditions have worsened materially and real wages are just not growing. In spite of strong focus of the government on this, there is no visibility that employment conditions will improve anytime soon.

Secondly, private sector capex has collapsed. Despite moderation in interest rates in improvement in liquidity conditions, the businesses are showing no confidence in adding capacities. Average credit worthiness remains poor. Capacity utilizations are persistently close to 70-75%.

The Survey fails to mention the massive wealth destruction effect of the problems. Corporate valuations have collapsed, in many cases by over 90%. Realty prices have crashed in real terms. Household debt has gone up. Education loan up with low employment growth visibility, a new stress area is emerging.

As the Survey itself admits, the authorities have little clue as to the solution. The solutions implemented so far have failed miserably. "Two dozen firms have entered into negotiations under SDR, only two cases have actually been concluded as of end-December 2016. And only one small case has been resolved so far under S4A."

...to continue

"Need" is not always "demand"

Thought for the day

"But I don't want to go among mad people,' said Alice. 'Oh, you can't help that,' said the cat. 'We're all mad here."

— Lewis Carroll (English, 1832-1898)

Word for the day

Bonzer (adj)

Remarkable; wonderful.

Malice towards none

How many of those who are challenging Sasikala's claim to Tamil Nadu CM post, on the grounds of competence and probity, did actually speak against appointment of Rabdi Devi as CM of Bihar?

First random thought this morning

I may be alone in this; and I may be wrong in this. But somehow I am getting this feeling that the government strongly believes that all BJP leaders, including those who have joined the party from other parties, have been absolutely clean in their economic, social and personal conduct.

While, we have seen cases and inquiries on grounds of economic, social and personal impropriety on many opposition leaders, BJP leaders have been mostly spared.

Seems PM Modi does not believe in the maxim that any cleansing must necessarily begin from home.

"Need" is not always "demand"

The problem of non-performing asset is not merely a financial problem. It has a distinct moral hue.

Usually, broad based non-performing asset occur when the economic cycle turns down, and businesses that had added capacities to cater to the rising demand during the up cycle fail to service their debt as the capacities remained unutilized due to lack of adequate demand.

In conventional ways, these bad debts are managed by banks through (a) extending the repayment time; (b) easing the payment terms by lowering interest rates and waiving the late payment penalties etc.; (c) waiving a part of the interest and/or principal amount where the borrower's appears to be severely damaged; and/or (d) converting the debt wholly or partly into equity.

In some cases, especially where the interest of relatively poor people is involved, the State comes to rescue of the beleaguered borrowers by subsidizing their borrowing, either by making complete repayment on their behalf (e.g., farm loan waiver) or by providing interest subvention.

On lenders' part, normally, these are business decisions, taken keeping in view the sustainability or otherwise of the borrowers' business ability of the incumbent management to navigate through the tough times. Given that most meaningful lenders are publically owned and accountable to their shareholders, usually management of bad debt should not involve the question of morality and political expediency.

However, it has not been the case in Indian context.

In my view, the investment cycle that started in early 2000s was mostly 'hope' driven and not demand driven. To ward off the impact of economic sanctions post 1998 nuclear tests and the bust of dotcom bubble, the government had given up control on many sector, more notably energy (oil & gas, coal and power) roads, and telecom.

Many private players jumped into the fray, probably without assessing the demand scenario. Many, including the bankers and government, mistook the "need" of infrastructure (power and road etc.) for "demand" of infrastructure and structured their business models accordingly. Built on weak and faulty foundation, these businesses were doomed to fail from very inception.

Ideally, in the given condition of Indian economy, the task building infrastructure should have been done by the government itself, as it was in a position to borrow at 6% for 30-40yrs.

To make the matter worst, it opened the sectors like coal, power and roads to private sector without preparing any conceptual framework. The sustainability concerns were mostly disregarded; and so were commercial and financial viability.

Public sectors banks were perhaps forced to fund - disregarding the financial and commercial viability criteria. The outcome is that about 80% of all NPAs are concentrated in PSBs, where NPA ratio has reached 12%, almost same as the capital adequacy.....to continue