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So act that you use humanity, whether in your own person or in the person of any other, always at the same time as an end, never merely as a means - Immanuel Kant's Formula of Humanity

Wednesday, April 29, 2015

The political alliance of the Executive and Judiciary

A lot of things annoys us about India. The close nexus between the politicians in power and the court systems are one such. I just read a news, saying the Mumbai high court has ruled that the decision by the Maharashtra government to ban beef is valid. I am pretty sure, the litigation will be moved to higher courts and would be struck down.

Bottom line, it makes no sense for the government to dictate what its citizens have to eat. It would be individual liberty. If there is a market for it - so be it. Passing a legislation to ban a particular kind of meat doesn't sound a rational decision. The government has no role to play in this, with sufficient other things to do, on its plate. Would it ban a particular vegetable next? How to enforce that? The police in the vicinity should go around the city to make sure - there is no one out there slaughtering cows? And make sure, the place that slaughters goats is not slaughtering cows ? Can this be done daily, 24 x 7 for the rest of the foreseeable future? Cops have to go around looking for beef-eaters?  There are many states in our country that sells alcohol. Lately we don't hear bans on them.

This is a classic example of government trying to do needless things. Why do they pass legislation like this, if it cannot be enforced. This is to please a section of the party or its followers. Just that. In reality - nothing would change. There will definitely be a black market for beef.  Local heavy weights and unlawful but powerful big-shots make a dishonest living of this. Only in our country people make a 30-40 year career doing "unlawful" petty stuffs. The mere existence of insane laws help them. The corrupt policemen and government officials exploit the situation.

Law - is a serious doctrine that people of a country or a region should abide by. They are gospel like. Making such "unenforceable" laws make the rest of the laws look bad too. Why would you abide by some of it and not abide by some of it. There is no "weightage" of any kind around them. They all should be "equally enforced" in real world.

When a particular party is in power, the courts and the government seem to be in the same page. Cases against ruling party men suddenly go cold. There is no word of it in the media. But cases against its political rivals speed up. We read this in newspapers daily. This is very confusing. We were all taught in schools, that judiciary and executive are two separate pillars in democracy. In reality, both the government and the courts are in same line at any given time. An independent and authoritative court system is what India needs. If they are hand-in-glove with the current government - the reason they exists do not hold good. What is funny - people just cope with it. They are willing to wait for another five years, to see the other side. When the congress is in power, lot of BJP MPs/MLAs are dealing with courts. When the BJP comes to power, all congress leaders are involved in fighting cases against them. Naveen Jindal is charge sheeted for his role in obtaining coal blocks in Jharkhand. Why is he being charge sheeted now? Why not when Manmohan Singh was the Prime minister? Where were the courts then? We don't hear an explanation about that ever.

This is very obvious in the southern state of Tamil Nadu. The DMK and the AIADMK have rotated being in power alternatively for 25-years. As soon as the DMK comes to power - all cases against AIADMK politicians come to the forefront. Media pages are filled with this entertainment. When the AIADMK is voted to power after 5-years, you don't hear about those cases anymore. Instead it will be about the court cases against the DMK politicians. Media pages are filled with this entertainment now. All along this entertainment creates a false feeling among the people that - the judiciary is working and doing its job. But it isn't for anyone - who can think!

Foisting cases on political rivals after coming to power - is a ritual in our country. It makes sense, court cases are initiated when a new government comes to power. However what doesn't make sense is, when these people come back to power again - the cases go cold from there. The notion of independent judiciary is just imaginative. Instead of trying to fix the rule book better - it would be wise to throw it out and write a small rule book - that is clear and unambiguous. There has to be clear distinction between bailable and non-bailable offences. Right now - everything is at the discretion of the judge. Lets get that word out from the rule book. Some people are stuck in jail for a murder, but some are out there on bail for the same kind of offense. It just doesn't add up.
Make the rule book simple - so that the common man can understand. Do not make it such that only the lawyers can interpret.

Tuesday, April 28, 2015

Land acquisition - Government as a land broker

If you had a chance to venture into the suburbs of major cities looking for a piece of land - you would have had an opportunity to see that anyone without a "proper job" is a land broker. With no proper livelihood or savings to depend-on and the lucrativeness to make easy money by connecting the buyer and seller - this unskilled worker has moved from a productive human being (as an agriculture laborer or a factory worker) to a land broker who just hopes the luck favors him with huge commissions. (Some people make money doing this. But most lose)

Looks now the government is trying to do the same. Believe me - the government isn't smart.

Land acquisition bill tabled in parliament is a hot topic in India right now. The subject has gathered momentum after a farmer hangs himself in a tree, at the venue of an opposition rally to oppose the bill. Ever wonder why the government is involved in Land acquisition? It doesn't have to. It shouldn't. Most of the discussion around this topic has been abstract. We usually don't hear specifics.

Land, labour and capital are primary requirements for a business. The government has to create an ecosystem where these are available in "plenty" for the business to be viable. It helps itself by building ample infrastructure "through out" the country and effectively helping the private local employers to unleash their potential by setting "for profit" industries and factories utilizing them.

India is a vast country with abundant natural resources including land. It is the seventh biggest country in the world in terms of area. The optimum climatic conditions assures most lands are habitable and usable to its full potential unlike countries like Russia or Canada whose vast land masses are ice-cold most of the year. In terms of availability of land, we are no Singapore or Israel either. Then why the fuzz? However what is missing is most of the land mass is underdeveloped - meaning lack of access to roads, portable water, electricity, sanitation and security. For the limited availability of quality land - there is a conflict to get it. The government is trying to get itself involved in the process of "resource allocation". A free market would itself allot the right land, labor and capital. Government intervention just tweaks the natural flow - causing failures. Government is the last entity - that can do efficient allotments. What should instead be happening is - make efforts to make the entire land to be "high-quality" land - by providing the necessary infrastructure like roads, electricity and water. Instead of fighting the disease - the Indian government is fighting the symptoms of the problem.

Land can be acquired for public service or a private service. If roads need to expand or new roads to be laid - the government has to acquire the land for the private sector to construct a road. Public would eventually benefit from this labour. Not many people oppose this including those individuals who give up their land. The private contractor collects toll on the road. That is to only compensate for his contribution to the construction of the highway. There cannot be much difference of opinion. With rapid economic development of the country, a viable and a modern infrastructure is very essential. Roads need to expand to become express ways, railway lines need to quadruple. New water pipelines might need pathways and tunnels. A well planned long term government plan will definitely get cooperation from the people who eventually benefit from this new infrastructure. Compensation for these lands are to be fair and at least the market price, so that individual citizens do not lose a lot because of the acquisition. Acquisitions should be in overall national interest for a common good. It should be planned such that - there wouldn't be "more" expansion that would once again need acquisition for say the next 100 years or so. It should be one time - long term solution. This "can be" enforced by the government.

Some common source of conflicts in land acquisition for roads, is a farmer loses his livelihood by giving up his land. But the neighbour to the property sells the land for astronomical price by citing the existence of the new road. This leads to social problems in the local society. What should instead happen is - just like any expressway in the world - the road needs to be fenced. Access needs to be restricted only to pre-determined points and not all along the highway. This would reduce the property boom caused by these expanding roads. The booms would be restricted to only the authorised points which is relatively better. Even though projects are designed at the top bureaucratic level, during implementation the local politicians or heavyweights can adjust plans based on preferred interest. Some would get preferential treatment over others. These conflicts have to be taken care of humanely and in the right spirit.

Expansion in railways is not that complicated as they already own a significant portion of the land on either side of the tracks. Similarly laying of tunnels for movement of essentials (water, fuel etc) need to be developed without any effect on the farmer's livelihood. Things need to be implemented better and sooner without affecting crop cultivation.

The tussle however is doing land acquisition for the private sector and in already thickly populated urban cities. The plan would require few individuals to give up their land, so that a private entrepreneur can construct a industry/transportation with the motivation for profit. This is not necessarily a government's job. Just like the government is not involved in procuring raw materials for private businesses, it should not be involved in procuring land for private businesses.
This passing of the bill could definitely bring favouritism in allotting land for private people. This will eventually lead to crony capitalism. Going by past performance of our politicians and bureaucrats- there is no trust it will work out. I recently read an article where few houses need ten to twelve thousand acres of land for industrial development. Really wonder what sort of industry is that - how much jobs they can provide the society. There is also a notion that lands can be better utilized than doing agriculture and the farmer is under utilizing the resource, but an industrialist can put it to more use. There is no truth to this whatsoever. It is the small bank of quality land that everyone is behind.

Instead of the government becoming land brokers, it should try to become land developers. It should concentrate on big infrastructure projects in the entire country. It should provide new roads and make nook and corner of the country connected by expressways. We need more roads and lot broader roads. We need water pipelines reach the new areas and become habitable. The landscape of the country would change. Right now - everyone is dumped in cities that gets congested, polluted and exploited environmentally. We need to interlink prominent rivers to fully utilize its water. Only those high-value investments would reap major benefits in the long term.

Ask any entrepreneur who wants to start a business in this country. Is his problem - non availability of land? He might not get it or afford it close to his house. But drive 50-75 kilometers on any direction - he can buy just plenty of land for affordable prices. Getting the machine / workers / produce to that place is his problem. The government should fix that. A viable infrastructure will ensure that people can commute any significant distance to get to work. That is what is needed. It is not uncommon in developed nation for people to commute to work for 100 miles a day. We are just talking about half of it here. In Japan - the shinkansen (bullet train) hits 300 miles per hour. Just imagine these trains crisscrosses our country. You could easily commute between Bangalore and Chennai for work daily.

An RTI petition found out that 80% percent of the projects that are "stuck" in India has reasons other than land. It is lack of funds / infrastructure / confidence or other factors. Lack of land - you should be kidding, aren't you? What really insults people's intelligence is - the government (politicians and babus) would decide who takes what!

Tuesday, April 7, 2015

Real Estate prices


Recently I was having a conversation with few of my friends on the topic of real estate prices in India particularly in major cities. In the Indian context, real estate, either refer to a piece of land to construct a house or an apartment in a housing community. The prices of them particularly in the metros are stunningly high. It all points to properties that are astronomically priced, such as a 3-bedroom flat would cost more like a crore or more. If you don’t want to get stuck with others in an apartment complex, people plan to buy a ground (usually 5-6 cents) so that they can construct a house. The land cost alone could exceed lot more than a crore. Of course, if you want to construct a house – that would need an equal amount. Wonder how a salaried family can afford it. Does the price really match the comfort the families expect?

For a nice residence, a typical family would like to have a home with a reasonably good plinth area,  unlimited portable water available through the city corporation. It would need 24x7 power supply, with back-up generators in case of any outages. It also needs a perfect sanitation set-up without open ditches. A perfect greenery around with play grounds in the vicinity for kids and to go for a walking during the evenings. Ample wide roads with walking pavements in the entire community. It should be close to public transportation and also have designated parking places for residents, so that cars don’t pile up on the road-sides within the community. Other facilities like schools, colleges should be in reachable distance and approachable. More than that, an atmosphere of calmness without dusts or pollution and a community with bullet-proof security. An unsecure neighborhood are nightmares. Finally a more ambient place to raise a family and kids.  Unfortunately these highly-priced real-estates have absolutely none of them.

Except very few real-estates that are often in completely out-of-reach prices – most have some or all of the below problems.

  • Bare-minimum water supply
  • Erratic power supply 
  • Open ditches and poor sanitation 
  • No designated parking lots for cars except on roads that interfere with traffic 
  • Narrow lanes within community 
  • Dusty roads without proper pavements 
  • Noisy crowd with no security

But the problem is – THEY still cost a lot.

In economic terms, these real-estate entities are called assets. The pricing on them are called asset-pricing. In India, for the past 7-10 years, we have seen many fold increase in asset-pricing. The prices of items that we shop daily like groceries, fruits, vegetables, fuel are noted in the CPI (Consumer Price Index). It grabs attention when they go up. Hence, there is always a check. But asset-price inflation is never tracked in the big picture. The prices of them keep going north without logic. Easy availability of bank credit to the nucleus families has only exaggerated this boom. A lot of buyers chased very few properties. With the interest rate now being held-up high for the past 2-3 years, the credit boom has come down. The correction to the market is underway now. This explains the rise in NPA in banks, and the gross under-performance of many real estate firms. Most real estate firms have enormous debt and are deeply in distress. The sorry state of Sahara India and the plight of its owner is a classic example of how bad things are.

I think, the prices of assets have really hit the roof. The value you pay, is not worth it in current financial terms. Except for a bad government policy like - future devaluation of the Indian rupee could only make these asset purchases a right decision.

Real-estate price distortions can be identified very easily.

The first indication – is the rent, the properties can fetch. In the past decade, we ourselves have experienced that even though the prices of assets have gone up many folds – rents have not kept pace with them. These one-crore properties don’t even fetch Rs.25,000/- on rents. In monetary terms – it would take 34 years to recoup the price of the property with this amount (without interest). There is an argument that the property can be flipped for more for a capital gain on a later date. The argument does not hold well, because the buyer in that transaction – has to deal with the SAME Rs. 25,000/- rent. What would be his incentive to pay more? It would take more years to get back his investment. On top of that it costs to maintain the property. Economically smart people – always rent their houses. This makes sure they have easy payments to make as rents without any long-term commitments. On the sign of first trouble like – insufficient portable water, unsafe neighborhood, they would vacate it to find a better home somewhere else.

The second indication – Banks chip in for inflated prices. The developers lure in the financial institutions to get the ordinary guy “get in”. Without the bank-loan, he would not be a player at all. He just would not be able to afford it. Interestingly, it is a habit among us, to price the property in the selling price. Most of the time, people borrow money from the banks and pay EMIs on them. What is often overlooked is the price on the property is not the selling price, but instead it is the initial payment plus the cumulative amount paid to the bank as EMIs. With high interest rates now – a one crore property would double when paid over a ten-year loan term. So the price of the property is two crores and not one crore, as often described in conversations.

The third indication - the source of funds is always another real estate deal. The money earned to buy the high-priced real estate is obtained by selling another piece of real estate. It is like, selling a rural home or a rural agriculture land, and investing the proceeds in a apartment property in the city. Ideally the money to buy a commodity should be earned through "some other means". The means should be derived from a productive labor of the individual in some other profession - like profit from a business, agriculture income, etc. A debt-based purchase with the anticipated future income is not a smart investment.

The fourth indication - Rapid appreciation of property is predominant goal of the purchase. People consider it investment. The simple rule in home-buying is - If you buy a house and go live in it, then it is NOT an investment. It is consumption.

The fifth indication - the price of the property keeps increasing just “by word of mouth”. The facilities would have all sorts of performance problems, but the price keeps going up artificially. The price to sustain what is “already present” would always increase. The price can improve only as quality of the asset increases, but seldom is the case.

With lagging infrastructure worries in our country – people are being fooled into high-priced assets in the name of modernity. People expect a lot and go for it and then get stuck. Luck plays a role for some, so that they end up with better homes. Unfortunately the whole country can’t be lucky. A viable and performing infrastructure set-up would make the cost of all real-estate prices to go down. This is what would grow the economy. In a real growing economy – prices come down and hence affordability rises creating enhanced quality of living. As of now, there is no real growth in the way real estate is being practiced in India. India is not a land-deficient country. It is a vast country and we need a make-over in the way people live in their homes. Homes should have "all necessities" by default - their location shouldn't matter - if they are in the middle of the city or in the outskirts.

All we need is the work-force of our country work hard (and diligently) to resolve “our” neighborhood problems. Majority of our human resources should be working for professional companies that “solve” these infrastructure issues for us. Instead what we see is a majority of our skilled people who are highly smart, referred to as the cream of the society, working for multinational companies that makes life better for people living in some far-away countries. We need to export stuffs too – but the primary motive should be for development within.

Wednesday, April 1, 2015

SEBI's women

Securities and Exchange Board of India (SEBI) introduced a new regulation recently to have private companies appoint at least a woman on its management board. The deadline was this week, and companies promptly responded by appointing their wives, daughters, mothers, relatives’ on the board. The regulation has been implemented on paper (1/3 didn't do it yet). Media is filled with those news items as accomplishments. Women have been finally did a favor.

Did SEBI really reach its objective? Hold-on - what is the objective?

It was felt women were not properly represented on corporate boards. This is somehow seen as an insult to the women in India. To represent this section of the people – SEBI, having leverage on these companies had a good intention to fix it, by forcing it. Intentions were good, but end effects have been horrible. Did they want the spouses on the board?

Let’s go back in time for a moment. Historically women have always been out of the labor force. It is only recently they started to work for employers. In most part of the world, usually men worked and women took care of the family. Not until a few decades ago, did women enter the labor force in the western countries like the USA and UK. There was a time, where one income to the family was quite sufficient and the women had the luxury to stay at home and raise a family. Things changed sometime in the 1960s and 70s, where the one income was no longer sufficient. The women's salary was found to be an added advantage. So it started as a choice. The extra money came handy to fund other consumption needs. Right now though, most women work in western countries. It is not a voluntary act or a privilege that women are working. It is more kind of forced labor to make ends meet.

In India, even now – Men are predominant workers. Women raise the family. Some metros may be exceptions, and we can leave them out.

It can be argued I am being biased on gender here. I am not. I am just trying to be realistic.

Barring a very exceptions, everyone in this world works because they have to. Reminds me of a Peter Schiff analogy. The first thing a person does on winning a lottery is – they quit their jobs. They don’t want to work anymore because they have more money than they need. They do not want to wake up early in the morning and get to work. They want to stay home and relax. They want to spend their day with leisure activities. The want to have fun. No one goes to work for the sake of going to work. They do it because they cannot afford, not to do it. This is bread and butter. If the husband made enough money, the wife could afford to stay home. Usually the wife takes care of kids and spends a lot of time raising them. She has a bigger role than her husband at home. Because of this – they don’t have enough time to work in a job. They take long breaks during pregnancies. So they were never trusted to be those kind of persons – who would want to move up the corporate ladder. They always were seen as those who could possibly quit the job, to take care of family needs. Most women treat their job as a means to make a salary (just that) and do not have career paths or ambitions at work. So unlike men, women do not match the count of people in corporate upper management or in dominant designations in companies. It is also true, in real world – men get paid more than women on comparable jobs.

As an entrepreneur or a private company – you want the right talent to be hired and want them to lead the company. If there are women – who are better that their colleagues, it makes perfect sense to make them move higher in the rank and file of the company. More efficiency brings more profit.  All private companies run with an eye on profits. If there are carrier oriented women who is suitable to sit on a corporate board – the company would do it voluntarily. SEBI doesn’t have to say them that. There is more incentive for the company management to get the better performing women to the board. So with this regulation – what has happened now is – spouses have taken a seat in management. Not all of them are qualified to be there. They occupied a seat which would have been occupied by some “smarter men”. So the quality of the board has definitely diminished. Corporate boards are important entity in a business enterprise. Long term goals are formalized, planned and discussed. Having one member “less effective” or “non-professional” is definitely going to have a bad impact on the company’s performance.

The same is true for constituencies in elections that are reserved for women. Seasoned politicians nominate their spouses and remote control them. Even though the objective to have a percentage reserved for women is good, in real-world – they get misused. The society would be better off without these laws.

Almost fifty percent of the people are women in this world. What we need is, rise in human development. Policies must be devised to increase the quality of living in the society. The women who are part of that, will automatically come up.  India wouldn’t be what it is without the role of its women. They add a lot of economic value to the society. They are instrumental in teaching the kids who grow up professionally successful in future. They take care of them 100% right from birth to death. In the process – they create a productive and disciplined society. Each and every day they prepare food, maintain the residence, for the whole family and make sure – the bonding exists and create a healthy environment. It is almost impossible for men to do that work. They do it every single day – all days of the year. Men bring in money – women do everything else. It is very interesting to note – that Indian women excel in sports more than men. They are more physically fitter. They excel particularly in those physically tiring sports like athletics, shuttle, kabaddi, hockey, tennis etc.

The current set-up works really great in our country. We just have to allow these women to evolve with time – so that they can lead corporate boards by themselves and not by some stupid laws.