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.

Monday, March 30, 2015

DBT : Opting out

The Prime minister made a request to the people of India that anyone who can afford to buy the LPG gas cylinder without subsidy should opt out of the direct benefit transfer (DBT) scheme. This will reduce the subsidy burden of the government marginally, he said. The austerity has hit the DBT scheme, and what makes it more interesting is, it came out of the PM’s speech, who was recently not-so-austere on his dresses for special occasions. Let’s take a look at this request in reality.

It is true that few thousand citizens opted out of the subsidies and registered themselves to pay in full for their LPG cylinders. This action is definitely out-standing. But I am not sure, if it is an intelligent economic decision both in the eyes of the “out-standing” consumer and the exchequer.

In poor and developing nations, you always see this “save this/that” or “conserver this/that” movements. With water, electricity, trees, environment, forests, etc. There is always a feeling that something is not right like before and we could make a little adjustments here & there, and that would “fix” the problem and it’s all great from there. For years and years, we in India have seen this “save water” advertisements initially in radios, then on televisions and in the print media. It instructs the individuals to save water usage at home. It asks me not to take a bath in two buckets but to wash myself in a single bucket. The problem with this argument is that – not everyone is on board. The extra bucket I didn’t consume is used by the neighbor next door. On top of that – I do not like him to start with. So what is my incentive to consume less for which I know – will only be used or wasted by someone else. There is absolutely no incentive. Moral comfort – It’s just an excuse. In real-time, it just a strategy that doesn’t work. It never works with human nature at play. The whole thing is a mockery. We should also note that, when these advertisements where played again and again, the water usage by the rich and powerful has only increased and the ordinary people have little water now than say a decade before. In the meanwhile there were no new measures that increased the amount of water for the population. In other words, the government wants its citizens to under-consume the water, but it hasn’t tried to solve the problem at its end. How many liters of water reaches your home every day? How much has it fallen over the years? It is not because we used so much water every single day, but the government has not been able to marshal its resources to provide sufficient portable water to its people. Even partial linking of rivers has not been initiated. Successive governments have sat on it and have provided only lip service during elections.
On the other hand, In developed world, you do not hear these empty rhetoric. Things are planned more efficiently and delivered, mostly by a private player with a intention to profit. There is abundant water for households. There are some studies that say, the amount of water flushed out in American restrooms, is more than the amount of water used by few households in India. It is not a arrogant behavior. It is all about doing what is necessary. The system has been set-up and is maintained that works. This has ensured, that people are not starved of their essentials. Moreover doing it in a better way has ensured, there is minimum wastage. It is a common in the street of our country, where drinking water goes out into the road because a water pipe is broken and it would take days and weeks to fix it. Emphasis is the delivery model - the way water is procured and delivered. They have evolved over time to be better and better. What we need to do in our country is to replicate those ideas and allocate resources. We are not the only country in the world - that uses water!

The giving up of LPG subsidy is just like the “save water” hypocrisy. Why should someone forgo, the subsidy they “deserve”? If you give it to the other guy, why can’t you give it to me? If you are not giving me that money, what happens to that money? I am positive it will be squandered on something else. Frankly, for a family of 4-5 people, the number of LPG cylinders needed would be 6 to 8 per year. But the governments maintains it at 12 per year as part of its vote bank politics. Instead of dealing with those issues, the government is trying to create sympathy and is begging the normal guy to pay for it and share the burden. The ultimate “fix” to this problem is to get rid of subsidies. The market will determine the price.
In fact, the government is in the midst of the LPG cylinder business and the whole thing is messed up.


Friday, March 27, 2015

Freedom of Speech is Freedom of Speech

The supreme court of India has struck down the controversial Section 66A of the Information Technology Act as unconstitutional. This is a welcome decision.

This is one such judicial case on top of other millions, that the courts are spending their precious time on. The ruling is an eventual reprieve, but does it really need an explanation/debating. Everyone who has read civics book in school knows, it is a fundamental right of every Indian citizen to "say" whatever he or she wants. This is his right to freedom of speech. There is no distinction between what he is saying in a microphone or if he is saying something online. It just doesn't matter. Freedom of Speech is Freedom of Speech. Both the Congress and the BJP have encouraged section 66A during their times in power - so there is no good guy here.

With the rapid rise of Internet penetration in the country, social networking sites like facebook, twitter, google, news-sites are becoming tools in everyone's hand - in the form of their mobile phones. People convey their opinions in a split second. Opinions / feedbacks / comments are all over the social media. This has changed the way conversations happen in human society. During the age of phones, you have to call a person of your preference to say something or to hear something. Now with the global black-board of social media, the concept of posting comments are viewed by many in the next second. It just too much information that flows really too fast. The few smart people are able to jump on this mania to use it to their advantage. A lot of famous people - feed the media with their tweets and facebook posts. I hardly wonder, if everyone reads everyone's tweets unless its a close following. Wonder how long this culture based on virtual connection with "hundreds of friends" would last. It always conveys your presence, but not your proximity. It has reached a point where people think - It is rude to call by phone. Why can't they text message me!!

Somewhere in this midst, there are also instances where the government of India did not "like" or "agree" - what someone told on-line. Arrests were carried out and of course you can obtain bails quickly (they give bails for any crime in our country). It is not about being punished for a mistake - it is about making you go around a horrible system that is chronically slow. Just think about the Man-hours that go through it. It would be better off, had we did something else that would benefit the society. Provisions in this section 66A, is just to please the "superiors". There are lot of online post that insults/discredits friends. You or me cannot walk into a police station and complain or file FIR about that. You will be thought of to be mentally retarded. At the same time, at the orders of the "Government" - and with the only motive to satisfy "leaders", the police would go and arrest someone for saying something derogatory, online. It can only be used to settle political vendetta or to incite fear on the rest of the people. A law provision like that is practically not implementable. With 1.25 billion people in this country is it even possible to control who says what on social media? Can someone sit there and keep checking what someone says about a particular leader or government. The section itself is a "threatening proposition", rather than good intentions.

A society that has free flow of speech, would side-line controversial people over time. In a country like India, where still the human ethics are above legal ethics, there cannot be few bad apples that mislead masses in a way contrary to truth. People are really smart. They can best differentiate what is right and wrong for them and consume then online intelligently. Government has no role to play here.

The right to freedom of speech is supreme for democracy. It is not complex phenomenon that needs some Ifs and Buts. Freedom to speak whatever you want, to convey your point of view - is a birth right. It doesn't have to be trivialized. The people understand it better.

This is what the country needs : Any citizen can say whatever he wants, online included. If it leads to violence (as the government fears) - the first act of violence is punishable. There is clear difference between speech and action. Speech is not punishable, violence is a crime.

In our country, there are political leaders who get arrested for provocative speech. Why arrest them? Let them talk whatever he/she likes to. If he leads a mass to violence - deal with the violence with iron hand. If the violence is dealt with according to law, the society would be lot better. Peace-full gatherings / groupings with an intention of information propaganda is not bad. Everyone has his right to opinion and can propagate his opinion to one or more people. There should be none - who can stop that. The society is well positioned to separate what is good and bad for itself and the country. A bad leader with a provocative speech can't lead a society in the bad path. The society and the people are lot more mature, than what the parliamentarians think it is.

Right now - the right speech is applied selectively. This is well exploited by the modern politicians. Recently there are lot of instances, where you wouldn't know a particular politician unless he makes a controversial statement. The media jumps on them. The ruling BJP has been embarrassed multiple times by its own MPs, making highly controversial statements without any end-effects. It just runs through the news channel as though that was reflection of the party, government, the PM and everyone in power. There is high pitched voices from the opposition who champion for the victim of the hate speech. Everyone is kept busy for 2-3 days. The debates on televisions appear as though the whole country is in the dark because someone uttered this. The person who created the controversy gets some good media time and face recognition with the masses. Usually he stands by his statement for a couple of days, only to be retracted later or to apologize later. They refuse to do that initially - that is the kick. But somehow find their feet later. This has happened over and over again in the nine month Narendra Modi government. It is just a periodic head-ache for the BJP's top political management team representing the government. Instead of dealing with the problems of the country, they end up wasting time dealing with the abstract news item that is bound to die. How many parliament sittings have been washed out to this play. But in our political scene this just doesn't stop. The media is being fed with "hyper" news that it could live-on for a couple of days. Its all about sensation.

The same drama plays out, when new movies come out. It is just fine to make any movies you want to, on any subject. If there are people who wants to see it, so be it. There should be absolutely no restriction. Movies are just freedom of expression. Creating controversies over movies is just waste of time. Politicians are not good judges to decide what the people have to see or not. The censor board just have to rate it to help viewer choose before he goes out to watch it. 

Clear understanding with awareness is what, is needed about freedom of speech. We are argumentative Indians - why deprive society without that pleasure.

Sunday, March 15, 2015

The hidden cost of lakhs of crores

Recently the spectrum was auctioned for a whopping one lakh crores. The coal block licensing was also sold for two lakh crores. It has been all over the news as a positive story trying to depict how the government has managed to "raise" the money through its auctions, particularly after it failed to get the money leading up to the 2G scam few years before. With the fiscal deficit target fixed at 4.1% for the current financial year, this is a welcome boost to the government treasury.
Just like the famous "Broken window" economic story (Economics in one lesson), the public is being brain-washed to believe how this "new" money was generated that the government can use for people's welfare, also known as the redistribution of wealth. But what is not often said or discussed in public forums has been - who has paid this money and what is his incentive to part his cash. In other words, someone has invested in the auctions and the investor is planning on getting returns on his investment. Ideally more that what he invested.

Lets take a look at the blind spots in these unimaginably high revenue transaction.

In any transaction, there is a buyer and a seller.

The seller economics

The first and the foremost negative of the auction is, there is an assumption that the money raised is going to be put to effective use. What is the government going to do with this much huge sum. Does it have a game plan to make efficient use of this money? Probably not. Usually governments all over the world, and particularly in India collects a lot of money from the haves' and then wastes it in the guise of helping the have-not's. I am pretty sure, this time its going to be no different. Why would the government need this money? Water supply is erratic, roads are horrible and the power supply is not regular - on top of it - the people pay for all these services in the way of water bill, tolls and electric bills. Petrol and diesel - the lifeblood of the economy is heavily taxed. So in-spite of all these earnings that the government benefits from these huge sums are really fat-fat bonuses the government can play with. It would be ideal, if the money is put to efficient use? but if we have to go with past performance, then even this would be perennially wasted on welfare schemes that will not reach the actual beneficiary but will be sucked up by the corrupt bureaucratic system in place. Even if you would want to use this money on capital incentive project like metros in few cities, how would you invest this pan-India money on say developing a particular infrastructure like a metro in few particular cities. What happens to this money is never known unfortunately, except it gets lost overtime. Taking this money to fill a hole somewhere else is a usual way how these are used. Want to pay interest on an already existing loan!

The buyer economics

Now lets talk about the giver The companies that paid for the auctions have to find a way to retrieve this money by doing a business. It so happens, when the cost of doing business goes high (like here) the profits are squeezed. The money is absorbed in through its customer base. If you take mobile spectrum - a huge chunk of people are charged more to retrieve this money from. The companies are left with no option but the charge more for existing services. In the case of spectrum - the customers are charged extra and in the case of coal - the buyers are charged more, who in-turn charge the customers more (with high utility bills). Just imagine - the price is just 10% of what it has been. Then the companies can afford to share that windfall with its customers. It would not be possible for the companies to charge lot more, when they got with less money. The companies are there out there to win more customers with less fees. This money that the company saves - the remaining 90% would be put to use for a different investment that will again benefit its so-called customers. And more importantly - this private money would be invested wisely unlike the government. It will not be wasted. More often these companies have shareholders - who again are common man - who reap the fruits of better investment. In a real free society - businesses do good for the society. In societies that have crony capitalism like in India - the government loots all the money instead of productive companies. What doesn't happen - is the climate of crony capitalistic society being gotten rid off, instead of the government trying to fill in those shoes.

The public get a feel good feeling - where the government "successfully" managed to suck the "extra" money from big corporations and in the process has got ample money to serve its poor but "good" people. The sad part of this transaction is - the public never see the benefits that WOULD HAVE happened had this auction not happened involving such a huge sum.

Inflated prices - of any commodity is bad for society. It merely reflects that the Indian rupee is losing value.

Bottom line the citizens of India LOSE A LOT from these huge deals. The establishment is successful that the blind spots are not highlighted and discussed in civil society. Its all bash the rich and praise the government attitude. The way they are supposed to operate, governments can never do profitable business, they always lose financially. Unfortunately the media and the society in which we operate highlight it in a "non-productive" or "not realistic" approach. Awareness has to spread on who really can make a difference in the way we live our life. Rise in our quality of living is what every citizen wants and there is absolutely no-one who is an exception to it.

Friday, March 13, 2015

The low hanging fruits

The new BJP government at the center and the AAP government in Delhi are voted in for radical change. The so called non-performing Congress government both in the center and the state of Delhi is replaced by these new leaders. We have seen a lot of promises all round but unfortunately not lot of work. This blog would reflect on what needs to be done.

There are lot of talk about what needs to do done. But so far the BJP government has talked the talk but has not walked the talk. Recently I read a business today article whose cover story was  about smart cities in India. There is a ambitious proposal to create 100 smart cities in India in the next 10 years or so. I was introduced to this term my the BJP government's manifesto and hence was curious. I read the cover story by Business Today magazine and surprisingly still didn't understand what it was. There are lot of proposals on what needs to be done but how and when part is completely missing. I am not blaming the article, but the lack of ideas on what it is and even if its feasible is the bigger question. Wonder if its just a talk rather than action. I would like to give more time to the new government and do not want to judge them now. Even though the concept of creating smart cities is good., but the preliminary details of how and when are just as puzzling as what will be done. Wonder if it is a 50 year plan or something. Creating a society that has high-quality of living is what it intends to achieve. I am not sure, if the government can do it as the way its trying to explaining the concept of smart cities.

As soon we talk about smart cities, wind goes through your ears on what about land acquisition for it, what about getting land from poor farmer and handing them over to the developers? Handing over the land to some greedy MNC? These things come to the forefront and its often a boring rhetorical discussion where no one agrees.

Bottom line, the intention of the idea is to build a place that is just livable. Not many parts of India are like that unfortunately. For a decent living, lets come up with a list on what we need at home

1. Home with ample greenery around and within parking for 2 cars at least.
2. 24-hours of unlimited power supply
3. 24-hours of unlimited pumped-in portable water supply
4. Park in the vicinity for healthy exercising / recreation / games for children
5. Hospitals
6. Schools/Colleges
7. Quality roads and access to public transport

That's it.

We just have to create "communities" ALL around the country that has these facilities available and move people from else where to here. As soon the government helps to create this, people would be willing to move in with delight. This can be periphery of cities and villages.

Just say, I have the money to build such a community today and want to house 1000 families. Can the government of India assure me of 24/7 power and portable water? No. That is the problem.

What India needs is a "high-standard" living for MOST of its people. It is possible, smart cities can create this in BULK. But nothing stops us from doing it now in smaller cities TODAY.

Instead of coming with huge ambitious plans that don't get completed by say 10-20 years, the government of today should work on supply side of power, water and roads. That's all the people need. They can figure out the rest. The problem today is without the unlimited power, water and roads - any plan to modernize will fail. Innovation should happen in these fields and government should facilitate that. Not sure how Modi's foreign trips are going to make changes to this. There are people who want to manufacture in India, but that should take care of living standards in India. Just imagine a person is rich. He can afford to buy cars and drive. He can afford a nice garden at his home. He can afford a A/C in the entire house. The problem with the current set-up is - There isn't enough power/water/ road to create this set-up. I recently heard someone say, that India's problem is not corruption but lack of infrastructure. which sounds a nice way of thinking and could well be right.
Once we have proper infrastructure all our routine problems "go away". Believe me - it is lot easier. The entire western world has did it.. why can't we. Just that the private entrepreneur with profit motivation can alone do it. The government can't.

Even the Swach Bharat scheme introduced by the government is the symptom of the same problem - lack of infrastructure. No one wants to throw garbage on the street. But there are no dumpsters - that is the problem. No one wants to urinate on the street, when there are good, decent toilets available. Government has to find ways to facilitate the happening of these new changes.

Talking about the uncleanliness in our society is a good thing. At least the government acknowledges that it is a problem. Good start. But the way to solve it is not by make people cleaning them. No one can do it everyday. There can be awareness to not make the place "dirty". But cleaning using a broom by citizens just doesn't work. But instead what woks - Is create infrastructure where in  - it is not possible to throw garbage on street. Make road pavements in cement with greeneries so that no one take a leak there.

There are lot of low hanging fruits the government can pick up on. They will make a huge difference in every citizens life. Modernizing the railways in one great thing the government is trying to do. This is long overdue.

The following would make a huge difference. I would do it, if I was the government.

1. Multiple water projects to convert sea water to portable water. Abundant drinking water supply.
2. 24 hours of power supply. Ensure ALL cities/towns never have a power cut.
3. Upgrade ALL state road's width. make the 2-ways into 4-ways. Make the 4-ways into 8-ways. Make the 8-ways into 10 ways.
4. Complete sanitation within cities. (the villages would solve it themselves)

The municipality and corporations have been utter failures. Non-performers should be fired out and new management with professional skills at the IAS cadre level should take in-charge.

If the government take huge initiatives, the people would behave. It is all in one together. The state government has to do the bulk of heavy lifting. It is very unfortunate that the leadership is slow on making these changes.

What we need is smart communities (areas within cities). keep expanding them. A lot of things needs to be done and its high time we start acting on them.

Coming up with long term ideas are good, but doesn't make a difference except for newspaper fillings. Big ideas start small. We need to demonstrate what we are trying to achieve in a chosen city and see how it goes. Rectify and apply the formula else where. Modernize the way construction is done. The current way of building houses with cement and sand takes lot of money and time. Lot of things should be pre-fabricated buildings.

In the article, it was mentioned Barcelona is a successful smart city. There is lot of history behind that city. I am pretty sure they re-planned it, rather than re-building it from scratch. We need to do exactly that.