The prime minister Narendra Modi carried out one of the largest cabinet changes today evening. Twelve of the incumbent ministers were asked to resign from their respective posts and 43 new ministers were sworn in. Most of the omitted ministers are senior politicians with vast political and administrative experience. Whereas many of the newly inducted ministers are young and relatively less experienced.

The media has been running live debates and discussions since evening to analyze the import of the latest cabinet reshuffle. A number of political experts, senior journalists and observers have been intensely discussing the inductions and omissions. The participants in debate include many of the so-called liberal intellectuals who have been critical of the Modi government performance on various parameters.

The most unfortunate part is that discussion totally exposes the bankruptcy of participating experts. Most of the participants are refusing to believe that India is a secular democracy that has afforded a fundamental right of equality to all her citizens. The experts are disgustingly analyzing the council of ministers through the prism of caste, community, gender, and region. None of the participant has bothered to run a google search on the newly inducted minsters to find out their ideas and vision of new India; their commitment to the constitutional values; their past track record of supporting innovation and enterprise etc.

The participants seem more interested in attributing the appointment to the loyalty to the party leadership and/or RSS and election winnability. The opposition parties’ spokesperson are also predictable in their commentary. Most have criticized the reconstitution, without offering any substantive argument.

The state of affairs is truly disgusting and frustrating.

 The city of Merrut in Western UP is famous for many things. In the ancient history, the town finds mention in both Ramayana and Mahabharata. In Ramayana, Merrut is the birth place Ravana’s wife Mandodari; while in Mahabharata it is part of the Hastinapur, the Pandavs’ kingdom. The medieval history of the town goes back to Indus Valley Civilization. In the modern history, the town was an important cantonment of British. It was in Merrut, where the first organized uprising against the British started in 1857. In post independent era, Merrut emerged as one of the famous education centers in UP. However, it became more notorious for the infamous Hashimpura massacre by the Provincial Armed Constabulary (PAC) in May 1987, when Virbhadra Singh of Indian National Congress was the Chief Minister of Uttar Pradesh. With that one incident started the decline of Indian National Congress. Congress lost power in the key States of UP and Bihar forever after that and could never form a majority government in the center.

Outside the history and politics, the city is famous for two things – scissors and publishing houses. The mint established by the Mughal Emperor Akbar in Merrut, resulted in development of foundries in the town. It emerged as major source for producing swords for Maratha and Sikh rulers. Finally it ended as the famous producer of scissors and blocks for printing presses. The publishing industry started in Merrut in middle of 19^th century and evolved into a major cottage industry.

The burgeoning printing presses motivated a large number of pulp fiction writers in the town. At one point in time Merrut was publishing 10 new novels every day. There were hundreds of ghost writers who were writing day and night for the popular household names. Manoj, Rajvansh, Ved Prakash Sharma, Surendra Mohan Pathak had become household names in 1970s and 1980s. The pulp fiction published in Merrut was a popular travel companion for most Hindi speaking population travelling by road or railways. The novels published in Merrut entertained and enthralled the readers for several decades. Young, old, man and woman all were obsessed with these novels. 

The genre however started losing its charm to popularization of TV in mid 1990s. The online entertainment dealt a severe blow to the popularity of Merrut pulp fiction.

The recently released Hindi movie Haseen Dilruba attempts to give a new lease of life to Merrut brand of pulp fiction. It is definitely a cult film in that sense.

Set up in a small town (Jawalapur, Haridwar), this is a brilliant story of love, passion, aspirations, and families at crossroads of modernity and traditions. Given that these types of stories are firmly rooted in typical Indian middle class neighborhood, one does not need an ensemble star cast. Though this movie has star cast in Tapsee Pannu and Vikrant Messay, future movies of this genre could even do with rather unknown faces from a local neighborhood.

Tapsee (a disillusioned and aspiring middle class girl) and Vikrant (an educated common youth with a very strong emotional quotient) have played their part in Haseen Dilruba absolutely brilliantly. The direction, script, dialogues are all perfect for the setting.

I am sure this is just an experimental beginning and we shall see many more such film in future. OTT streaming provides a perfect platform for this genre of entertainment to flourish.

Even if this movie does not do well now (I wish it does), it will be remembered as beginning of a brand new trend in Hindi cinema.

The status of Covid19 may no longer be that of a pandemic anymore. A large majority of countries have seen significant decline in the number of active patients, after having experienced the peak of infection cases. The fatality rate has declined materially, especially due to acceleration in the vaccination drive.

However, in past few weeks, many countries in the world have seen reemergence of Covid19 cases in some clusters. Scientists are claiming that the rise in number of cases may be due to mutated variants of the Sars-CoV-2 virus. A fear has been expressed that we may soon see a third wave of the pandemic, primarily due to the emergence of new variants of Sars-CoV-2 virus, some of which might be immune to the vaccines available presently or the doses of vaccine being administered presently.

The pandemic has changed a lot of things in past one year. The lockdown and mobility restrictions have materially impacted our personal, social, and economic lives. There is a great deal of the discourse on how the businesses and societies must “prepare for a post Covid19 world”; much like we have learned to live with HIV – exercising precautions and restraint.

I strongly feel that post Covid19 world may be a realty in this decade. It may even take couple of decades to materialize. It would therefore be pragmatic to “prepare to live with Covid19”. In fact this thought has already started to gain currency. For example, Singapore government is reportedly “preparing its population to deal with Covid-19 as part of their daily lives and people will be able to work, travel and shop without quarantines and lockdowns, even with the coronavirus in their midst.” The Singapore administration believes that “With enough people vaccinated, Covid-19 will be managed like other endemic diseases such as the common flu and hand, foot and mouth disease” as the plans for Singapore to transition to a new normal are outlines.

"Finally, whether we can live with Covid-19 depends also on Singaporeans' acceptance that Covid-19 will be endemic and our collective behavior. If all of us shoulder the burden together - workers keeping their colleagues safe by staying at home when ill and employers not faulting them - our society will be so much safer," the ministers was quoted as saying.

I think, we In India also need to accept Covid19 as a long term companion, and prepare to live with it. The preparations must be done at the following five levels:

1.    Personal: Observe Covid19 protocols till 80% population is vaccinated, and herd immunity is achieved. It may take another 12-15 months. Till then continue to avoid non-essential travel and socializing; observe social distancing to the extent possible; and follow a healthy lifestyle to strengthen our internal immunity.

2.    Social: Accept Covid19 as a normal flu and not attach any stigma to it. Reimagine social and religious ceremonies and pilgrimages.

3.    Business Increase the investment in technology to reorient our business processes. The idea should be to institutionalize the decentralized working and adopt more collaborative work practices.

4.    Finances: Cut leverage at both personal and business level, maintain a decent level of liquidity, enhance financial and social security for ourselves and co-workers and build an emergency corpus for future natural disaster and pandemics.

5.         Governance: Include Covid19 in the normal budget. Provide for building, maintaining and improving healthcare infrastructure, keep running awareness campaigns, invest in vaccine research and innovation, and be ready for annual seasonal spikes in cases.

In its latest Annual General Meeting, Mr. Mukesh Ambani, Chairman of Reliance Industries announced an ambitious plan for setting up new energy business. The plan includes building four Giga factories to produce photovoltaic modules, advanced energy storage batteries, electrolyzers for the production of green hydrogen; and fuel cells for converting hydrogen into motive and stationary power.

The announcement has added more energy to the already popular trade in alternative and new energy. Even though the media narrative has been more focused on the renewable energy and electric mobility, from stock market perspective, the most popular trade has perhaps been in the sugar manufacturers who have set up decent ethanol manufacturing capacities in past one decade or so.

The Government of India had announced an ambitious ethanol blending program (EBP) in 2018, through a National Policy on Biofuels-2018 (NPB-2018). The program included interest rate subvention for setting up molasses and grain-based distilleries (DFPD). The Bureau of India Standards (BIS) prescribed standards for E5 (95% Petrol and 5% Ethanol), E10 and E20 blends of ethanol and petrol. Initially the target was set to achieve E20 stage by 2030 in line with the Sustainable Development Goals (SDGs). However recently, the E20 target date has now been advanced to April 2023.

NBP-2018 in perspective

To put the NBP-2018 in perspective—

·         At the end of FY21, the ethanol production capacity in India was 426 crore liters from molasses-based distilleries, and 258 cr liters from grain based distilleries.

·         To Achieve E20 target by 2025, India would need a total of 1500cr liters capacity to cater to the blending demand and other demands, e.g., liquor, sanitizer etc.

·         It is estimated that the molasses based capacity shall get increased to 760cr liters (from present 426cr liters) and grain based distillery capacity shall get enhanced from the present 258cr liters to 740cr liters by 2025.

Obviously, the larger focus would be on grain based distilleries rather than sugar based distilleries. To produce the required ethanol to E20 target, total 6 million MT of sugar and 16.5million MT of grains would need to be sacrificed.

·         Technically E20 target could be achieved without any significant modification in the vehicle design. However, when using E20, there is an estimated loss of 6-7% fuel efficiency for 4 wheelers which are originally designed for E0 and calibrated for E10, 3-4% for 2 wheelers designed for E0 and calibrated for E10 and 1-2% for 4 wheelers designed for E10 and calibrated for E20. However, as per SIAM, the efficiency loss could be further reduced through some modifications in engines (hardware and tuning). SIAM has assured that E20 material compliant and E10 engine tuned vehicles may be rolled out all across the country from April 2023.

·         The present transportation fuel consumption mix in India is 65% Diesel, 28% Petrol and 7% Jet Fuel. NBP-2018 addresses only the petrol blending.

·         The dispensing pump infrastructure would need to be developed to enable dispensing of E0, E10, E20 and E20+ separately. Presently, only a handful of fuel stations are equipped to dispense the variety of blends. Besides, the entire supply chain and logistics of OMCs needs to be augmented to store, handle and dispense different blends.

Objectives of NBP-2018

From various discussion papers and policy documents, it is not clear what is the primary objective of the EBP. A plain reading of NPB-2018 would suggest that the current account deficit is the primary driver of EBP.

As per “The Roadmap for Ethanol Blending in India 2020-2025”, published by NITU Aayog, “India imports 85% of its oil requirement. The Indian economy is expected to grow steadily despite temporary setbacks due to the COVID pandemic. This would result in a further increase of vehicular population which in turn will increase the demand for transportation fuels. Domestic biofuels provide a strategic opportunity to the country, as they reduce the nation’s dependence on imported fossil fuels.” The positive impact on environment is mentioned as an incidental benefit.

However, at places energy security and commitment to emission reduction under SGDs are also mentioned as primary objectives of EBP.

It is pertinent to note the following in this context:

·         EBP, in its present form addresses only 28% of India’s fuel mix, i.e., petrol used as transportation fuel. It does not address the more polluting diesel which forms 2/3^rd of India’s transportation fuel mix.

·         To achieve E20 target, about 50% of the ethanol requirements would be met through sugar based ethanol. Sugarcane is highly water intensive crop. In that sense, it would not be environment friendly to increase the acreage of sugarcane crop.

Secondly, sugarcane is not an all India crop. Most of the sugar cane is produced in three states, viz., UP, Maharashtra and Kanataka. Tamil Nadu, Andhra Pradesh, and Gujarat, and some other states are minor contributors to sugarcane crop. Naturally, most of the ethanol producing capacity is located in UP, Maharashtra and Karnataka. Transporting this ethanol to various locations for blending and storing it there, could be a significant energy consuming effort in itself. Storage is even more critical since sugar is a seasonal industry. Most of the molasses is produced between November and March, while the consumption would take place 365days in a year.

The role of grain based distilleries therefore could be more important than the sugar based distilleries over a longer period. This brings me to the other area of reforms which is work in progress.

As per the 01 May 2021 press release of the Press Information Bureau (PIB), “With the vision to boost agricultural economy, to reduce dependence on imported fossil fuel, to save foreign exchange on account of crude oil import bill & to reduce the air pollution, Government has fixed target of 10% blending of fuel grade ethanol with petrol by 2022 & 20% blending by 2025.”

It further reads, “To increase production of fuel grade ethanol and to achieve blending targets, the Govt of India has allowed use of maize and rice with FCI for production of ethanol. Government has declared that rice available with FCI would continue to be made available to distilleries in coming years. The extra consumption of surplus food grains would ultimately benefit the farmers as they will get better price for their produce and assured buyers; and thus will also increase the income of crores of farmers across the country.”

While EBP addresses a part of the current account problem, the implementation of three laws to reform the farm sector in 2020, could potentially address the fiscal deficit problem by improving the condition of the agri economy. Reforming the Food Corporation of India (FCI) by restricting its role to maintaining a strategic food reserve and substituting the public distribution system (PDS) of providing subsidized ration to poor with direct cash transfer (DBT) may result in significant savings for the government. However, this shall mean redundancy of the system of minimum support price (MSP) for wheat and rice. A strong demand vertical for wheat and rice in the form of grain based distilleries could be a good facilitator in this reform process.

Ethanol could impact the fiscal balance adversely at least in initial years. As of now Petrol is not covered under GST regime, whereas ethanol attracts GST. The GST on ethanol works out to between Rs 2.28– 3.13/litre, while the central excise duty on petrol is approximately Rs 33/litre. As per various estimates, E20 EBP might result in direct revenue loss of Rs100bn to the central government. Besides, poor fuel efficiency of blended fuel may need further subsidies to motivate the adoption of E20 fuel.

Sugar to ethanol – impact on sugar companies

The general view so far is that the EBP shall enhance the profitability of the sugar companies materially and also reduce the volatility in their earnings. In this context it is pertinent to note that-

·         The government took care of volatility in sugar prices, and hence earnings of the sugar producers, by prescribing a minimum selling price (MSP) for sugar in 2018. The MSP so prescribed affords a minimum profit to the producers, even in the seasons when the sugar production far exceeds the demand.

·        

·         Besides, ethanol pricing under EBP, has made the production of ethanol more remunerative for the sugar mills.

However, the forecasts made by various analysts might not be fully factoring in the following trends in their calculations:

At present pricing, ethanol produced directly from cane juice yields an EBIDTA of ~10%, which is half of the EBIDTA yield if ethanol is produced from molasses. It is therefore less likely that mills will be shifting majorly away from producing sugar at all.

As the sugarcane crop becomes more profitable, we may see further rise in acreage and productivity of sugarcane; in which case the problem of plenty may persist. Besides, in the year of drought when production of sugarcane is low, ethanol might have to take a backseat, impacting the projected profitability of sugarcane companies materially.

The biggest challenge would however come from material fall in global prices of fossil fuels due to popularization of alternatives like electric vehicles, worsening of demographics, and structural shift in travel habits and needs.

Electric vehicle

Sugarcane being a highly water intensive, and therefore energy intensive, crop in India, the more sustainable solution to current account and carbon emission would be electric mobility. The purpose is not served meaningfully if the electric vehicles are run on the power generated by thermal plants using the imported coal.

The salvation therefore lies in materially increasing the electricity generation through non-fossil sources; and developing technology for storage of such electricity using non-polluting sources. Hydrogen cells and other technologies mentioned in RIL vision for future will therefore be critical to achieve multiple objectives of sustainability, energy security, trade balance and fiscal improvement.

Now a question would arise, “Should we be buying the stock of Reliance Industries?” Well this is a question that does not fall in my domain. The readers may look elsewhere to find an answer to this.

 The tremendous rally in US technology stocks and global chip shortages have been two prominent themes that prompted many rich Indians to invest in US an Greater China equities in past one year. The investment advisors have used the opportunity to push for a global diversification of portfolios. The number of mutual funds offering global investment opportunities have multiplied in past one year.

Recently, a number of advisors of have started pushing for a material exposure in European equities. The push has gathered more force after the recent FOMC meeting. This seems to be a global trend as most investors and traders are finding the valuations in European equities much cheaper; ECB and BoE more supportive, and volatility lower. In fact, over the past few weeks, European equity flows have been at the highest levels in three years.

It seems that lot of investors might be crossing the Atlantic to land at European shores this summer. Some adventures ones may even cross the Caspian Sea and Travel all the way to Greater China.

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The US Federal Reserve in its latest policy briefing hinted that “it might begin to think” that “when it should begin to think” about the change in its policy stance of near zero interest rates. From whatever the 18 members of the US Central Bank might have uttered at the meeting of FOMC or thereafter, a broad conclusion has been drawn that the wolf might be sighted sometime in the year 2023. There are few who “fear” that wolf may surprise the markets by advancing its appearance in 2022 itself. Notwithstanding, there is a sizable number of experts who continue to believe that wolf of rate hike may not be coming in 2022 or 2023 or even 2024. Some also believe that this wolf does not exist only.

Ms. Market, on its part, has realized that there is nothing to worry for next 12months, insofar as the Federal Reserve’s monetary policy is concerned. She has therefore decided to follow the “will cross the bridge when we reach there” approach.

The younger brother ECB has decided to side with the markets. The ECB’s President Christine Lagarde recently emphasized “the policy maker has room to cut rates if needed.” It may be pertinent to note here that so far in 2021, no developed country has changed its policy rates. Amongst emerging markets, only Indonesia has cut rates, while five countries (Mexico, Brazil, Russia, Turkey and Czech Republic) have hiked rates.

In its latest policy statement, the Reserve Bank of India did hint that easing inflationary pressures have provided some “policy elbow room”, while reiterating that “at this juncture, policy support from all sides is required to regain the momentum of growth that was evident in H2:2020-21 and to nurture the recovery after it has taken root.”

It would therefore be reasonable to assume that as of today there is no certainty that the next rate move of most central banks would be a hike.

The actual decision to hike or cut policy rates is mostly dependent on real economic data, not perceptions and intuitions. Usually the hikes are after the economic activity has picked materially, output gap has shrunk and inflation has started become threatening. A rate hike under such circumstances is healthy, for economy as well as markets. There is strong evidence to indicate that markets have usually done very well after healthy rate hikes.

However, at this point in time the worrying aspect is not the probability of rate hike by Fed and other central banks. What is really disconcerting is the incongruence of policy minds. They are not able to define the primary threat to the stability of financial system and economy.

While the popular narrative is moving around inflation and economic recovery, there are distinctive signs indicating that the current inflation may be a supply shock and therefore is transitory.

Insofar as the economic recovery is concerned, it may be Schrödinger's cat. It is possible that the economic recovery is entirely based on the persistent infusion of abundant liquidity and prevalence of near zero or negative rate of interests. A hike in rates or significant withdrawal of liquidity might actually lead to the economy faltering. There is no way to test this hypothesis unless the rates are hiked or liquidity support is withdrawn; and no one would dare do that presently. I say so, because this could upset Ms. Market and she would certainly not like it.

This brings me to a very pertinent question “what is more important at this point in time for the policy managers – markets or sustainability?

Inarguably, one of the strongest pillars of the global economic recovery in past few years is the wealth effect created by rise in the prices of financial assets. Bonds, equities, and crypto currencies in particular have yielded superior returns, catalyzing the consumption and investments. Any event that might lead to material erosion of this wealth effect will be resisted by politicians and policymakers alike.

However, trillions of dollars in negative yielding debt, fiscal deficits running at arguably unsustainable levels, signs of unsustainability in asset prices must be bothering the minds and consciousness of the people on the side of righteousness. The innovative monetary policies adopted post Global Financial Crisis (GFC 2008-09) have miserably failed on sustainability aspect. The inequalities have risen to appalling levels. The dependency on government support for sustenance has increased even in most developed countries, as not enough sustainable employment opportunities are being created. The treasuries are riding the strongest tiger on the earth. They will have to find some innovative way to end this ride, before the tiger stops on its own to have a meal.

In this context, I note some interesting viewpoints:

Dr Lucy Hunt, a well-known economist has made a strong argument that deflation -- not inflation -- will win the day going forward, because the current debt, demographic and technological trends are very deflationary. The flood of new $trillions in monetary and fiscal stimulus are just not making it out into the real world. The fabled liquidity is just sitting in bank reserves and will continue to remain that way.

Dr Hunt said in a Webinar, “This reveals an important limit of central bank policy. There is a point of diminishing return at which the Fed is truly "pushing on a string". It can shove as much new money into the banking system as it wants, but there's no guarantee that money will make it out into the economy.

And as some of that money invariably finds its way into asset prices, causing them to inflate, corporate executives have a mal-incentive to invest their capital into financial assets vs productivity. The end result is that overall economic productivity is depressed.”

Lisa Beilfuss of Barron’s, raised a direct question at Fed. She wrote, “Investors are calling the Federal Reserve’s bluff. They are right to do so. The Federal Open Market Committee’s latest policy communications raised more questions than answers. Perhaps the biggest one: Can the Fed ever really raise interest rates?”… “The prospect of further fiscal spending would itself make tapering bond purchases a tall order. The Fed has become such a dominant force in the bond market and would presumably need to keep buying the additional debt as the Treasury incurs it. (The Biden administration has proposed a $6 trillion budget for 2022).”

There is strong evidence to indicate that a material part of price may actually be a supply shock and not demand shock, and may need more stimulus to mitigate. The infrastructure push of Biden, Xi Jingping, Narendra Modi et al, are all indicating towards this.

For records, US inventories are running at 30yr low. The shelves at supper markets are fast getting empty, mostly due to supply chain disruptions.

The demand for used trucks in US is feverish and prices are sky rocketing. As per Freightwaves, “New truck production, beset by shortages of microchips that power critical vehicle functions, and through-the-roof commodity prices, is only beginning to recover but manufacturers are having difficulties hiring enough workers.

It is in the context of this strong market that new truck production is struggling to keep up with strong demand and limiting the used truck market from realizing its full potential,” Tam said. “By all indications, demand continues to outpace supply, and for that reason, it should come as no surprise that truck prices continue to increase.”

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 I have been a morning person all through my life. The morning chirping of birds is my favorite music. The rising sun has always been a source of motivation and positivity for me. Watching the amber ball rising from the darkness at dawn and gaining light and energy in an hour, lends hope. It reminds me the classical poem of legendary Sahir Ludhyanavi “रात भर का है अंधेरा, किसके रोके रुका है सवेरा” (The darkness is ephemeral, dawn is inevitable).

I regularly go for a walk in the morning to listen to my favorite music and look at the rising run. I find it a perfect start to the day. However for few days something has been bothering me. Whenever I go for the morning walk, the security guards posted in our housing society salute me with a distinct display of servitude. They might have been instructed to greet the residents by their managers, but I could distinctly see the subservience in their attitude. The guards tired after struggling with mosquitoes the whole night, rising from their seats and saluting the morning walkers with sleepy eyes is a rather discomforting sight to watch early morning.

I find it immensely embarrassing. I fail to understand why the security guards who safeguard our household should be subservient to us. In that sense, these guards are no less than the soldier manning our international borders. Ideally, we must be showing our gratitude to them by greeting them rather than they saluting us.

However, these feelings of gratitude towards guards dissipate in one hour, when I see these guards harassing the domestic maids, milk & newspaper delivery boys, car cleaners visiting the society for their daily jobs. I find their behavior unacceptable, considering that these daily visitors mostly belong to the socio-economic strata of guards. The only difference is that guards are wearing a uniform and a police cap. They remind me of the Indians who joined British police and army during Raj, and tortured their fellow countrymen.

The worst part is that these security guards are mostly unfit, untrained and unarmed. They are in position to confront a trained or armed intruder. Most of these guards have never seen a real explosive device. They mechanically take a peek into the bonnets and trunks of vehicles without knowing what they are looking for. None of them is trained to understand that it a running vehicle is less likely to have a live bomb under the bonnet and more likely to have it in the glove box, under the seat or in briefcase or handbag.

From my observations, I have realized that the whole business of private security in India is superficial. The security guards deployed at various establishments (commercial, religious, educational, and residential) are mostly untrained and inadequately equipped to handle a serious threat. Very few establishments in India will actually pass a basic security audit.

The exponential growth in business of private security is indicative of the inadequacy of the policing system, growing crime culture and lack of awareness & self-defense training amongst citizen.

Even after 74years of political independence, a section of Indians still secretly loves the vanity of the British Raj. This section has put their feet into left over British shoes and want the society to be subservient to them. The concept of dignity of labour does not appeal to them in any measure. We fail to understand that “dignity of labour” is pre requisite to a just, equitable, inclusive and progressive society.

 About a quarter of a century ago, I had just joined a midsized investment banking firm. My team of three people was assigned a mandate for IPO of a real estate company. We worked very hard (of course on our Excel Sheets and without the help of Saint Google) on the mandate and prepared a proposal which suggested that IPO may be priced in the band of Rs12-15. After the initial presentations were made, the team went to the promoter with the promoter of our firm for final presentation. After a detailed slide show was made, our boss told us to excuse them for 10minutes. After 10minutes, our boss came out and instructed, “IPO is in Rs28-30 band, prepare to file the documents for approvals.”

This being my first experience, for a moment I was in a position of shock. I found the pricing ridiculous. I even told my senior that this IPO cannot be sold at this price. My senior who had experienced many such situations before just smiled and told me to shut my mouth and get on the job. Eventually, the IPO was a success and the stock went on to become a compounder for the shareholders.

After reading and listening the expert commentators on various media platforms about the decision of the US Federal Reserve last night, I am getting a strong feeling of déjà vu. Millions of “experts” like me advised the FOMC about what they should be doing in the meeting and what the Chairman Powell should be saying after the meeting. But they have done and said what is most expedient for everyone – markets, government, economy and bankers. The novice may cry foul, but experienced ones know how does it work.

“Dot Plot” is a new buzz word that Indian electronic media has decided to learn. There are zillions of experts who are discussing the dot plot on social media platforms in India. It is heartening to note that we have become buzz word compliant.

“Dot plot” is a simple form of data visualization that consists of data points plotted as dots on a graph with an x- and y-axis. These types of charts are used to graphically depict certain data trends or groupings. US Federal Reserve uses this tool to present how the members of the Federal Reserve Open Market Committee (FOMC) perceive the benchmark bank rate over next few years.

The market experts discuss this “Dot Plot” intensively after every FOMC meeting. There is however little evidence to indicate that the actual trajectory of Fed benchmark rates has followed the dot plot. There is also little correlation between the actual trading positions and dot plot beyond 2days before and after the dot plot.

I like to compare the dot plot with the exit polls of elections in India. These are discussed intensively. They impact the market for two days (between exit polls and actual results). But there is little evidence to suggest that exit polls have a strong correlation with the actual election results; or any political strategy is formed on the basis of the results of exit polls..

The latest dot plot indicates that 13 of the 18 FOMC members believe that there will two rate hikes (from present 0-0.25%) in 2023, i.e., two years from now. 7 of the 18 FOMC believe that rate hike may actually happen in 2022.

I see there are many traders who want to trade on the basis of this dot plot. For all these enthusiast, my suggestions are as follows—

(i)    It is good to be buzz word compliant, but placing trade on these buzz words is not good idea.

(ii)   The actual decision to hike rates is always dependent on real economic data, not perception. Usually the hikes are after the economic activity has picked materially, output gap has shrunk and inflation has started become threatening. A rate hike under such circumstances is healthy.

(iii)  There is strong evidence to indicate that markets have usually done very well after healthy rate hikes.

For the record, FOMC has indicated that the US economic activity is recovering strongly. However, there is not enough evidence to warrant a rate hike in next 12months. A strong US economic recovery is good for global economy and markets; and continuing low rates and comfortable liquidity for next one year should continue to support the risk trade. Rest all is the TV discussion on exit polls.

 One of the few positives of Covid19 pandemic induced lockdown is the rise in birth rate in the Parsi communities. Reportedly, 61 babies were born to Parsi couple in the year 2020. The central government is motivating Parsi couple to increase their birth rate through Jiyo Parsi scheme. Regardless, it is highly unlikely that Parsi community in India may survive to see 22^nd Century, as their population continues to dwindle consistently. The fertility rate of parsi community is now close to 0.5, much below the replacement rate of 2.1, that is needed to keep the population constant. Amongst other minorities the fertility rate of Sikhs and Jains is also materially below the replacement rate as reflected in the decline in their population.

I am mentioning this because of two reasons – (i) the latest popular narrative of population control law; and (ii) the fading prospects of demographic dividend of India, that has formed the basis many investment and business strategies.

As per various estimates, the fertility rate of India has already fallen to 2.1 in 2020 from 4.5 in 1981. The replacement rate in India could be 2.2 (against international standard of 2.1) due to still high child mortality rate, the present fertility rate. Which means the population growth rate of India may have already peaked, or may peak in next 4-5years. The other things remaining the same, the youth character of Indian demography may begin to change in 2030s and the prospects demographic dividend may exhaust in two decades. The talk of a population control law at this stage is as ridiculous as it could be.

The proponent of the population control law are purportedly arguing that Muslim population is growing faster than the Hindu population hence a law is needed to maintain the demographic balance in the population.

This contention needs to be tested with the some facts. As per the census data of 2011, the fertility rate of Hindu women had declined from 3.2 in 2001 to 2.2 in 2011, a decline of 1.0; whereas for Muslim women it had declined from 4.1 in 2001 to 2.7 in 2011. The decline in fertility rate in the 2001-2011 was much sharper in Muslim women as compared to Hindu women. The same is true in case of Hindu backward classes and scheduled caste also. It is estimated that post implementation of Right to Education Act, and a slew of incentive schemes to promote education of minority and underprivileged girls, the literacy rate has improved further amongst Muslim and SC girls. This will certainly reflect in further decline in their fertility rate in 2021-22 census. The census of 2021-22 may explode the myth about disproportionate rise in Muslim population.

In my view, this is high time we focus on exploiting the remaining demographic dividend and maintaining the fertility rate at replacement ratio, rather than wasting time and energy on population control law. We need to learn from Chinese experience, which is now incentivizing people to produce more children.

The balance that needs to be urgently maintained is the regional demographics. The fact is that the population in southern and western states has already to decline. It is the North & Central India (UP, MP, Bihar, Rajasthan, Jharkhand and Chhattisgarh) and north east India where the population growth is happening. These are the areas where most youth population is located, while the most employment opportunities are happening in South and West. This is leading to massive migration of workers from central and North India to the South and West, leading to demographic changes in these states. This is bound to become a cause of civil unrest sooner than later. Especially when the delimitation exercise for parliament seats happens in 2031, the more populous states will get disproportionately high representation in the parliament at the expense of southern and western states. This may cause immense resentment amongst the losing states. More states may follow the Maharashtra example for local reservation and restriction on migrant labour. North vs South and East vs West divide would be more harmful to India Story than the ratio of Hindu and Muslim in the population.

Besides, as I have always been highlighting that the imbalanced economic growth in India needs to be corrected fast by creating meaningful employment opportunities in the most populous states; which incidentally happen to be the poorest also.

The reverse migration of labour back to home states due to lockdown is an opportunity that needs to be fully exploited. A strategy must be worked out to keep this labour home, while incentivizing the industrialized states to invest more in automation to compensate for the loss of labour.

Estimates of TFR for all religions, Hindus, and Muslims across states (excluding Jammu & Kashmir) from Census 2011, and comparison with Census 2001 estimates

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As per the latest data published by Centre for Monitoring Indian Economy (CMIE), the unemployment rate in India was 11.9% (10.18%) in May 2021 (June 2020). The urban unemployment was much higher at 14.73% (11.68%), while the rural unemployment stood at 10.63% (9.49%). As per CMIE data, India’s unemployment rate was 6.5% in March 2021, just before the second wave of Covid19 pandemic hit India. It is therefore possible that the rate of unemployment normalize back to 6-7% range when the economy opens up in next 2-3months, as the intensity of pandemic has already subsided materially.

The more worrisome trends highlighted by CMOE data however are-

(a)   The labour participation rate is beginning to fall sharply after 55yrs o age. It is below 25% for the 60-64 age group –

(b)   Unemployment rate is 35% in 20-24 age group. For youth in 20-29yr age group it is above 10%.

(c)    The employment rate is 19.3% for the persons who have college degree. It is just 0.2% for the uneducated; and 9.3% for persons who have studied upto 10-12^th standard.

(d)   Labour participation rate is below 50% in most of the states. Amongst the most populous states, it is 36.3% in Bihar; 35.2% in UP and 38.5% in MP.

(e)    Haryana and Rajasthan have the highest unemployment rates of 26.4% and 22.4% respectively.

The rise in life expectancy is not reflecting in higher labour participation rate for above 60yr of age. Even in most populous and most poor states like UP and Bihar labour participation rate is close to 35%, implying high dependency ratio. Female labour participation rate is even worse in these states. This also reflects on the cultural and traditional impediments. High income states like Haryana and Goa have much higher unemployment rates as compared to national income.

The worst part is the highest unemployment rate amongst workers with college degree. This could imply two things, among another, i.e., – (i) the skill level afforded with a college degree is quite poor to get employment; and/or (ii) the economy is not adding enough white collar jobs. Most of the incremental employment is happening in low paying low skill jobs.

Further, if I factor in anecdotal evidence collected during my frequent travels to states and hinterlands, I do not feel comfortable with this data of unemployment. In my view, the real unemployment is much higher and wider. There are plenty of youth who are underemployed and unemployed in disguise. There are numerous cases where, two sons work in father’s shop even if the father alone is sufficient to manage it; or a full family of 5 people works on a 3 bigha farm, whereas it needs only two people.

In my view, the better way to estimate the level of unemployment would be assess how many workers are earning at least the minimum wage prescribed for their respective category, e.g., skilled, unskilled, industrial, agriculture etc. On this parameter, my crude guess is that the unemployment rate might be in excess of 20%.

 Presently, a large part of the market analysis and commentary is focused on the stock rally from the low prices recorded in March 2020. The popular narrative is that investors have made extraordinary return on their equity portfolios, in what was a once in a decade opportunity.

In my view, this narrative suffers from a serious lacuna. This narrative assumes that—

(a)   Investment is a discreet process and not a continuous one. Investors make investments only on occurrence of some event and exit as soon as the impact of that event dissipates.

(b)   The economic behavior of a majority of investors is rational. They are able to control the emotions of greed and fear very well.

(c)    Most of the investors have infinite pool of investible surplus, and they are able to invest material amount of money at their will.

Unfortunately, none of these is even half true.

Investment is a continuous process. Most of the investors stay fully invested in markets at most of the times. Usually, they reduce their exposure to risk assets like equity when down trend is fully established. So in March 2020, investors were raising cash not investing fresh money.

The economic behavior of a majority of investors is not rational. They are materially influenced by the forces of greed and fear. In summer of 2020, fear was the overwhelming sentiment. Expecting investors to increase risk in their portfolio at that time is akin to expecting a patient lying in ICU to worry about the sale in neighborhood grocery store.

An overwhelming majority of investors have a finite pool of investible surplus. A large part of this surplus remains invested at most of the times. The crash in March-April 2020 resulted in erosion in the market value of these investments. For the investors who could stay invested in the fall, the erosion has been mitigated by the subsequent rise in prices. The investors whose risk tolerance was breached by the fall would have exited their positions and therefore there losses would have become permanent in nature. Very few investors would have made material incremental investments close to the market bottom last year. Only these investors have some reason to celebrate. For most others, it is business as usual.

Statistically, if we eliminate the fall in March and April of 2020 and subsequent V shaped recovery and assume a market in ad continuum, Nifty is up about 26% from the pre Covid high recorded in January 2020. The past two year (June 2019 to June 2021) have yielded a near normal return of ~13.5% CAGR.

Small cap (55%) and Midcap (52%) have given better return than Nifty (26%) since pre Covid high of January 2020. However, if we consider the return of mid and small cap for past two years, there is hardly much to distinguish.

Most notably, PSU Banks and Media sectors are yet to reach their pre Covid highs. Banks, Realty, FMCG and Services are all underperforming Nifty if we consider data from pre Covid (January 2020) period. Metals, IT and Pharma are the only sector that have outperformed Nifty meaningfully in Past 16 months. These sector put together account for less than 30% weight in nifty.

The point I am trying to raise is that the investors must cut the noise out and focus on their investment strategy, which must be in full consonance with their and aptitude and risk appetite. Listening to the popular narrative and getting overwhelmed with the feeling of missing out (FOMO) will only lead them to make mistake that may cost dearly.

The principle and overriding function of the securities market regulator, The Securities and Exchange Board of India (SEBI) is to protect the interests of the investors in the securities market. The other functions, viz., orderly development and regulation of securities markets are secondary, in my view. However, there is overwhelming anecdotal evidence to indicate that the regulators have given precedence to market development and regulation over the principle objective of investor protection. There are many instances in past 3-4years alone to indicate this. In the episodes of IL&FS, Franklin Templeton, Yes Bank, Jet Airways, Karvy etc., the interests of the investors in these entities were compromised. Moreover, little efforts were made to ensure that prospective investors are given full disclosures about the risk and reward of investing in the securities of these entities.

Recently, we have seen repeat of this tendency. On Monday, the 7^th June 2021, evening, DHFL informed stock exchanges about the resolution plan approved by the Mumbai bench of NCLT. It was clear from the resolution plan that in the successful bid of Piramal Group “No value was attributable to the equity shares as per the liquidation value of the Company estimated by registered valuers”. Besides it was also made clear in the communication to the exchanges that equity shares of DHFL shall be delisted upon completion of the resolution.

Clearly, the resolution plan envisaged zero value for the shares of DHFL Limited. Despite this the stock was allowed to be traded on Tuesday, the 8^th June 2021. To make the matter worse, it was allowed to rise 10% (the maximum permitted as per the applicable price band). Over 14cr shares were traded on NSE alone and investors took delivery of over 9crore shares valued close to Rs200cr. All this money will be lost. No broker warned the investors on Tuesday. The exchanges did not advised the brokers to caution their clients. SEBI did not asked the exchanges to suspend the trading. To compound the mistake, the stocks continues to be traded on both the exchanges despite the company formally informing the exchanges that the worth of equity shares is Zero. About 5 million shares were traded on Wednesday also. To be fair, many brokers did advise their clients on Wednesday.

Many “knowledgeable” investors in DHFL have been allowed to unfairly transfer their risk to unsuspecting gullible investors in past two days.

In this context it is pertinent to note that the model bye laws prescribed for the exchanges require that—

“The Exchange shall provide adequate and effective surveillance and monitoring mechanism for the purpose of initiating timely and pro-active measures to facilitate checking and detecting suspected or alleged market manipulation, price rigging or insider trading to ensure the market integrity and fairness in trading. For this purpose, the Exchange may, from time to time, apply, adopt, determine and implement various measures, mechanisms and requirements, as may be provided in the relevant Regulations and as may be decided by the Relevant Authority from time to time.”

It is therefore also the duty of the exchanges to act proactively to ensure fairness in trading. In this case the exchanges could have easily anticipated that some people have advantage of knowing the details of the resolution plan. An analysis of trading data for Tuesday will clearly show that the trading in DHFL was not fair. Not suspending the trading this stock is even more unfair to “unaware” investors and traders.

 In recent months the critics of the Indian government have spoken much about the achievements of the neighbour Bangladesh more than India. The point that Bangladesh economy may be recording faster growth rate than India has been emphasized to highlight the underperformance of Indian government. I am not sure if this criticism is valid, given the differences in the size and diversity of Indian and Bangladesh economies. Besides, on purchasing power parity India is presently much better Nonetheless, rising beyond politics, I must say that the performance of Bangladesh is impressive. The country has focused on its strengths (primarily agriculture and abundance of cheap labour) and evolved a sustainable economic model that suits it best. It has followed a conventional labour intensive manufacturing led growth model to fully exploit its demographic dividend

As per the latest IMF data Bangladesh has a per capita income of US$2,227, a growth of 9% over previous year. This compares with India’s per capital income of US$1,947 at the end of FY21. However, if we consider on like to like basis, Bangladesh economy resembles more the economy of Uttar Pradesh, Bihar and West Bengal. The per capita income in these states is materially lower as compared the Bangladesh, even if we consider purchasing power parity. In FY20 Bihar has a per capita income of US$659; Uttar Pradesh US$1,043, and West Bengal US$1,634. These three states are home to one third of Indian population, numbering more than 2.5x of Bangladesh population.

Bangladesh population growth rate is now close to 1% down from ~3% at the time of independence in 1971. The median age of population is ~27years, up from 17years in 1971. Given that the fertility rate is stable at the ideal replacement rate of 2.1% for 15years now, the demographics shall remain supportive of growth in mid-term.

Of course, illegal migration helps Bangladesh growth materially. As per the World Bank estimates, every year about 5,00,000 uneducated and unemployed youth illegally migrate from Bangladesh to other countries, ensuring a steady stream of remittances for the economy. Given that the high growth of the economy is sustaining and foreign investment is accelerating, this trend in migration may reverse in next decade.

On social parameters, Bangladesh is faring better than India, and significantly better than the comparable states like UP, Bihar and West Bengal. It has lower infant mortality rates, higher life expectancy and better youth literacy. The urbanization is close to 40%.

The best feature of Bangladesh economy is higher female labour force participation. The Bangladesh labour force comprises 30% female workers; while in India it is only 20%. In India this ratio has deteriorated from 30% in 1990 to 20% in 2020; while in Bangladesh it has improved from 20% in 1990 to 30% in 2020.

The low female participation in workforce is not only an impediment to higher growth. Rather, it reflects poorly on the culture, traditions, and law & order situation in India. Even in the capital city of Delhi, common women are scared to venture out alone after 8PM.

My fear is that if it continues the way it is, in 15yrs “illegal Bangladeshi immigrant” will be part of history. Many of our small businesses and households would have lost a cheaper source of labour; and Bangladesh and Sri Lanka would be implementing their own versions of NRC to prevent “illegal Indian migrants” from entering their land. It might sound seditious paranoia to some, but the point still remains – do we need a national mission on women development or not.

 Do you remember Tulsi Bhabhi, the protagonist in one of the most popular TV soaps on Indian television? The character was adored by all as it was widely considered to be an epitome of quintessential Indian – caring, selfless, affectionate, tolerant, accommodating, and family person. Even though there are plenty of Indians who may not exactly match this description, but a vast majority does find these characteristics desirable to have.

In our cinema and literature, protagonists are not only expected to possess these characteristics; but they are also supposed to demonstrate these in a rather non- subtle manner. Most of the successful and admired product promotion campaigns also target this emotional aspect of Indian populace. The sellers of Insurance, Chocolates, clothes, jewellery, steel, cement, adhesives, real estate, trucks, motor cycles, cars, etc., all try hard to touch the emotional cord of consumer.

I am sure all politicians and bureaucrats are cognizant of this phenomenon. I would therefore expect that the promotion campaign for government schemes and programs must address to this core of the target audience.

This understanding was however not visible in the campaign against the spread Covid19 pandemic. The citizens were told to “protect themselves” by “maintaining distance” and “wearing masks”. The policy makers ought to understand that a quintessential Indian would not work hard to protect himself. They would not wear mask or maintain distance to protect themselves, simply for the reason that the other family members might feel offended and find them “selfish” or overzealous”. The campaign would have been much more successful if it asked citizens to protect their loved ones by wearing masks and keeping distance. Most people would have obliged - if not voluntarily, then just to demonstrate how much they care.

Another policy incongruence that attracted my attention recently, related to the record production of food grain in the country. The agriculture minister recently told media that due to the efforts of the farmers & scientists; and policies of the central government India shall achieve a record production of food grain for the fifth consecutive year.

As per the latest data, rice production is pegged at a record 121.46 million tonne in the 2020-21 crop year as against 118.87 million tonne in the previous year. Wheat production is estimated to increase to a record 108.75 million tonnes in 2020-21 from 107.86 million tonnes in the previous year. In 2020-2021, our domestic wheat and rice consumption are expected to be ~105 million tonne and 107 million tonne respectively.

It is widely accepted that—

(a)   Wheat is not a native crop to India and may not be most suitable source of nutrition for Indian DNA. Most nutritionists attribute the sharp rise in cases of diabetes and obesity to over consumption of wheat. They advise more consumption of native grains like millets and sorghum to stay healthy.

(b)   Over cultivation of rice has depleted the ground water in many states. Most geologists and agriculturists are advising against the rice cultivation in states like Punjab, Western UP, Haryana, MP etc.

Given these circumstances, the government policy should be to —

(i)    discourage the wheat plantation;

(ii)        encourage plantation of native grains like millets and sorghum;

(iii)  run an extensive campaign to promote consumption of native grains due to their health benefits; and

(iv)   Supplement the promotion campaign with adequate incentive schemes to encourage wider cultivation and consumption of native grains.

It is pertinent to note that once considered food of poor people, Bajra (pearl millet), Ragi (finger millet), Jhangora or Kavadapullu (Barnyard millet) Kuttu (Kodo millet) etc. are selling in the market at 2x to 4x of wheat and rice prices. Their availability is also an issue in many parts of the country.

The function of policy must be to—

(a)        promote and propagate what is right for the common people;

(b)        correct the past inconsistencies, anomalies  and mistakes; and

(c)        drive the economy on a faster and sustainable growth path.

Celebrating higher wheat production; higher tax collection driven by fossil fuel, cigarettes etc. may not be the best thing to do for a progressive government.