Indian Economy

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Modi Sarkar and The Farmer : The Achilles Heel

Published May 2, 2015 by vishalvkale

MODI SARKAR : THE ACHILLES HEEL

It has taken a long time to manifest itself, but at long last, we see a developing Achilles Heel in our famed Modi Sarkar; a sad development indeed, given that this is the best government we have had in the past several decades. The only good thing is that the Achilles Heel has manifested itself from a totally unexpected direction; not only that, it also holds serious potential of rekindling a genuine opposition on a national scale, which is a needed and vital component of a functioning democracy.

It has taken twin developments in two connected areas for the weakness to manifest itself : Farmers’ Suicides, and The Land Bill. Taken together, this has created a situation in which, if properly strategized, the opposition can rebuild itself, while simultaneously undermining the central government.

THE CONGRESS : AWAKENING
The sad part is that once again,  it is the Congress that has the opportunity to rise from the ashes. This is sad because it has yet again failed to democratize, and has placed its faith on Dynasty. I have nothing against Rahul Gandhi; he may be an excellent potential leader for all I know; then again, he might not. That is not relevant; what is relevant is the fact that The Congress does not have any leader it feels can connect with the people, despite having some good people on its roster.

Be that as it may, the  Congress has taken what seems to be the right step; change track from the all-too-familiar “communal politics” track to a far more sensible and development oriented focus : that of the farmer and their issues. This bodes well for our democracy, for our economy and for our society, as now there is a chance the real issues might get a much needed attention and focus.

The best way to tackle communalism is not to fan it; all the while building solid relationships within communities. A politically charged message has a polarizing impact, and if the community specific plank is being abandoned by all parties, this is a development worth celebrating. If all parties can abandon a community specific focus, the only way India can go is up and forward. Aag ko jitnaa tool doge, jitni hawaa doge, utni failegi.

And harping on the communal message, which was not making a connect with any definable voter base was always a suspect strategy. Besides, there has to be a provable base for such a strategy that can be directly traced back to your opposition; and this is clearly absent in the BJP.


THE BJP : SLEEPING!
The BJP, meanwhile, is basking in the glory of its rise to power, and ignoring these undercurrents, which might yet turn into a deluge. While it is doing excellent work in any number of areas, its approach and presentation to the people on these two issues is strange and more than a little disturbing, given the party’s admirable understanding of the pulse of India and the Indian people.

Please note my choice of words : in this article, I am taking no position on the Central Government’s Agricultural and Land Policies – that is the subject of another, research based and supported article/s that I shall take up a little later on the Agricultural challenges being faced by India. I am only analyzing the potential impact of the presentation in front of the people, and the angst among them.

It adheres to a top-down development ideology, counting on investment in infrastructure, amenities to drive rural upliftment and employment, while attempting to ensure good governance at all levels of Government. It has also taken a few good steps in the Agriculture sector {Analysed on my blog here : Union Budget Analysis}; these will require time to properly strategise and implement.

What is more pertinent that it has done little to meet head-on the anti-farmer label that is being leveled against it by some, beyond messages to the farming community by the PM. More and more parties and  groups are now coming into the open, calling its policies as pro-Urban India and anti-farmer. The most important aspect that the BJP seems to have forgotten is the population of India – the top 200 Urban Agglomerations account for only around 15.46% of population as per Census 2011

Thus, any message targeted at the rural community that is focused not on ideology, religion, regionalism but rather on their bread and butter is certain to get the attention of the people. That is a foregone conclusion; the needs of the stomach will take primacy; that is a primordial fear. The BJP is giving a message of development : how is this message being received by the population? Is it making a connect with the people?

THE HISTORY
For Urban India, it means investments, growth and jobs. What does it mean for Rural India? What have the prior experiences of Rural India been in this regard? It should mean the same for them : but is this the way it is being perceived in Rural India? Farmers stand to lose their lands; what will they get in return? Each piece of land further supports landless labourers, input vendors etc – we are talking of snatching an entire ecosystem.

What is the history, the prior experiences of the farming community in India? As This Article : Why Farmers Have Every Right to Feel Gypped explores in painful detail – there is a sad, almost terrifying history of governmental failure of monumental  proportions behind this rising tide of protests against the BJP Government with regard to the Agricultural Sector;  what is sad is that this Government has actually started a series of steps that drive some hope into the refurbishment of this sector in the budget, which makes this image of anti-farmer a real tragedy in itself.

And look at the third and recent case reported this month in The Times of India which makes you want to cry and laugh – both at the same time!
The gist of the case is: in 1998, the Railways acquired land from Mela Ram and Madan Lal to lay the Una-Amb track in Himachal Pradesh. As usual, the Railways adopted delaying tactics when it came to paying up. The farmers filed a case for enhanced compensation. After a fair amount of legal to-ing and fro-ing,  in 2013, the HP High Court directed the railways to pay the money within six weeks. “But the railways hasn’t deposited the amount until now”, the farmers’ advocate AK Saini said a few weeks ago. Typical.
So, on April 9, 2015, Mukesh Bansal, the additional district and sessions judge of Una ordered the attachment of the train if the railways failed to pay compensation to the two farmers!! The court said if Mela Ram and Madan Lal did not get Rs. 8.91 lakh and Rs. 26.53 lakh respectively, the train would be stopped at Una station at 5 am on April 16 and attached by it. The farmers were asked to select one out of four trains – and they selected The Delhi-Una Janshatabdi Express!


SUMMARY
My point is simple : the steps taken by the BJP Government have exposed a chink in their armoury, one that is now being exploited by the opposition. This is the Achilles Heel; their weakness. And there is nothing they can do about it; not over the short term. I have purposely taken an isolated case history above : the point is that there is a feeling of inadequacy and helplessness that is rooted in genuine truth and a terrifying history of crass incompetence on the part of successive central governments over the years.

And this atmosphere is giving rise to an opposition movement that is, for the first time in my memory {correct me if I am wrong}, focused on real issues that make a powerful connect with the target audience in Rural India as on solid whole. For the first time, we now have an issue-based discussion in Indian Politics, which is bringing this issue mainstream.

All it really requires to bring the BJP juggernaut to a grinding halt is a solid loss in a few upcoming state elections; were that to happen, coming on top of the shock in Delhi, things will get interesting, as the BJP will be forced to recalibrate and reassess its approach and its communication. Unless the BJP can get its house in order and connect with Rural India and its real issues in light of the historical experience and the on-ground realities and challenges in Rural India, they stand to lose ground…

Book Review : India, Uninc. By Prof. Vaidyanathan

Published April 8, 2015 by vishalvkale

Book Review : INDIA, UNINC

By Prof. Vaidyanathan

About The Author : R. Vaidyanathan is Professor of Finance and Control and UTI Chair Professor in the area of Capital Markets. His areas of interest are Corporate Finance, Investments, Portfolio Management, Risk Management and Pensions. He is the Chairperson for the Centre for Capital Market and Risk Management [CCMR] at IIMB. He is a National Fellow of ICSSR. A graduate of the Loyola College, Madras and a Masters from the Indian Statistical Institute, Calcutta he obtained his Fellow in Management (Doctorate) from the Indian Institute of Management Calcutta where he also taught for four years… Read his full and very impressive Biodata and achievements Here


ABOUT THE BOOK

photo

The book is about the unsung and discounted sector of the Indian Business Environment and Economy in the first part; it goes where no book has gone before, at least not in my readings. This is a book that looks at the Small and Medium Enterprises, or more specifically, the unincorporated sector and its contribution to the Indian Economy in exhaustive and nevertheless entertaining detail

The second half is where the real fun and games begin, as the author takes you into deep insights and truths about the Indian Business Environment, in a roller coaster journey that will leave you breathless. These are not words that can normally be used to describe a business book, but fit the bill nonetheless. The Author has skillfully managed to connect culture with business, in a fashion that makes eminent and practical sense. How? Read on! 

This is a book that should be compulsory reading in each and every Business School and in each and every organisation. Why? Read on!

THE REVIEW

The first part of the book is a treat in numbers, and more numbers – and when you get tired, you get treated to even more numbers. Then, you get exhausted. And, as a welcome relief, you get an even greater variety of numbers. The beauty lies in the presentation – an easy to understand tabular presentation that drives home the point the author makes. Then, the long and uninterrupted series of numbers are never boring, because each is cogently explained by the text, as well as concern a variety of areas and sectors, keeping the reader riveted. 

This is a point that needs to be underscored, as the Author has presented a theory that shakes many a concept in our minds – making it vital that the theory be supported by data. What is even more important, the author has relied on authentic and irrefutable data from official sources, and has also presented a multitude of perspectives and data sources from various data-collection and presentation sources, ranging the entire gamut of available data. 

The Unincorporated Sector
The book looks at several aspects – contribution of the Unincorporated Sector in GDP, Income, National Savings, Employment. The data is conclusive; the unincorporated sector is the major contributor to the Indian Economy, whereas the corporate sector contributes only 18%. If you add Unorganised Agriculture, the contribution of the Unincorporated Sector comes to a humongous 60%+, which is a shocker, and a wake-up call, as the data forces you to rethink quite a number of concepts. {I shall go into details in further articles, as this is a book that can spawn several lines of thought and analysis}

Factors of Business
It looks at the important factors of business – especially credit offtake from banks and support mechanisms, the role of Social Support Groups, Chit Funds, NBFCs, Taxation coverage, Bribery as well as the challenges faced by this sector bringing you face to face with a rather uncomfortable reality of the problems faced by these organisations. The most important is the data-supported contention that Bank Credit is not easily available to this sector – which contributes the most to our Economy. 

Service Sector
The book takes on a life of its own in two segments – the Service Sector, and the social aspects of business. The data and logic presented in the entire section on the Service Sector is superfluous, as the argument presented is completely logical and intuitively sensible; you end up wondering why didnt you see or think of this, as you see it around you every single day! 

We think of the service sector as the or in terms of the IT industry, in our uninformed or prejudiced urban metro MBA-schooled viewpoints; here is data – irrefutable data – that proves that IT isnt even a drop in the ocean as on date; it brings you face to face with the intuitively logical reasoning that IT is only and only an enabler, and that the real service sectors’ contribution far outweighs not only IT but a good many other sub-sectors; we are referring to {“we” as I fully agree with the Author here} the innumerable retail kiranas, travel shops, restaurants, transport, real estate, construction services etc. 

And in this sector, the unincorporated sector has a 75% contribution, dwarfing the other corporate contribution. I find it hard to refute the statement that conversely, it is the corporate sector that is garnering the lion’s share of the focus of everyone in India, whereas the data shows that reverse should be the case. We should actually be celebrating the innate ability of the small Indian Entrepreneur to succeed, given the environment and the chance. 


The Social Aspects of Business
This is the frontispiece of the book, the piece de resistance. In 4 or 5 short chapters, the author has presented what can be called the real Indian way of doing business, and this is something that needs no data proofs – it is obvious to anyone who has been in business in India, and has seen and observed keenly. The way Indian Entrepreneurs leverage social contacts and social structures to create a business, open markets, gain access to working capital, employment is evident in the cornering of various verticals by various groups in India – numerous examples can be quoted, and have been extensively quoted in the book. 


The Role of The Stock Markets
The book contains all this and more; it looks at the inflated role of the stock markets, and the obvious conclusion that they arent representative of the Economy {we intuitively knew that in the recent past, comparing the stock indices which is diametrically opposed to the fundamentals of the economy; it was an amazing sight : disturbed and shaky fundamentals,and yet a robust stock market!}; here you find the data to back that intuitive logic. 
If corporate India contributes 18%, and Unincorporated 45%, Agriculture {unorganised} 17%, if 34%-41% of manufacturing is by the unorganised sector, if 70% of national savings are by households and unorganised sector, then by no stretch of imagination can an index representing 30 or 100 or even 500 stocks be called representative. Period. End of argument as far as I am concerned. And yet, the focus is all on Corporate India. 


Summary and Criticism…
I am purposely summing them in one, after expostulating the many positives of the book; the reason is that this book is a must read despite its weaknesses. The book draws a contention that the unincorporated sector succeeded despite the corporate sector and the government, and draws a clean line of separation. That cannot be strictly true – only partly true; as the role of the corporate sector and the government in creating opportunities that could be exploited by small units, travel shops, restaurants, hotels, construction etc cannot be denied.
Having said that, it is equally true that, given the paucity of Bank Credit, and an attendant lack of focus, the achievements of this unsung and real-cum-most-important sector  of the Indian Economy are truly fantastic in the past 2- years. That cannot be doubted. It is equally evident that this is a feat that required commendable ingenuity, planning, strategising, courage as well as superb execution skills to achieve. That is a given. 
The other weakness is the rather critical tone that is taken on many aspects, and the sometimes flippant attitude; but this is not a major concern anywhere in the book. Yes, it does stray significantly in one conclusion – FDI in retail, where I dont agree with the contention that FDI and organised retail will destroy Indian retail. The book itself is the greatest proof-  the small entrepreneur has succeeded because of self-driven passion, and without much support; hus, the contention that organised retail will inconvenience them in any way seems fanciful at worst, and premature at best, to be honest. 


Summary…
This is a book that brings to face to face with the real India, the real Indian Economy – not the one extolled by the Pink Papers, or other Media Outlets and Business Pundits. This is a book that brings you face to face with your business prejudices, and raises several deep and penetrating questions in your mind, its shortcomings notwithstanding. This is a book that presents a fact-based, extensively data-supported and nearly irrefutable chronicle of all that is wrong in our approach individually and severally, and that India is different to The Great West in just about every way from Religion to Culture, and from Economics to Trade. 

This is a book that introduces you, possibly for the first time in your business career, to the Real Indian Business, The Real Indian Economy, and the real way forward. But that is another story, to be told in another blog post; for now, suffice it to state that this book stands as one of the most powerful, entertaining and educating books I have ever encountered in my entire life…

India Versus Japan 1947

Published April 2, 2015 by vishalvkale

One of the most common rejoinders of our failure to develop ourselves, at least among the Urban Educated Indians, is a straight-on comparison with Japan, about how it was destroyed by World War 2, and how it is now a developed country, taking on The West on its own terms, standing tall among the committee of nations as a developed country with a tremendous set of achievements in its past 60 years, a nation with every comfort the West has, and more; whereas we stumbled from mistake to mistake, resulting in a massive gap between the two of us.
From an outside perspective, it seems like Japan and India were at comparable stages; 2 destroyed economies; and that today, Japan is years ahead. While the above statement is completely true in every respect, it also hides the reality that lies underneath. Let us peel away the above statement and take a look at the reality of the situation, which goes a long way in explaining this riddle. While we did make some mistakes, we cannot extrapolate those mistakes to the complete story, not without looking at some underlying facts that tend to throw rather a different light on things.
Just one statistic is enough to drive home the difference between Japan and India – and that we cannot compare the incomparables. The literacy rate in Japan in 1929 was 43.8%, with over 90% enrollments in schools. In India, in 2001, the literacy rate is 62.8%. Japan was at this level of literacy around 1960 or thereabouts. Whatever economic strategy we took, we would never have been able to catch up Japan, given this reality.
The net result of this high level of education in Japan can be seen in the inventions that happened between 1900 – 1945. Inventions and discoveries like The Power Loom, Aberic Acid, B Vitamin, Portable ECG Machine, VectorCardiograph, Epinephrine, Thiamine, Monosodium Glutamate, Japanese Typewriter, Electric Rice Cooker were all discovered or invented by Japanese scientists between 1900 – 1950. These are symptomatic of the overall climate in Japan in those days, as well as act as indicators of the readiness and potential of the Japanese to innovate. For, War can take away everything – but it cannot take away the basic indices of Human Development; in which Japan in 1947 was already approaching developed economy levels. War also cannot take away the culture of innovation and the internal climate from the people.
It is thus a complete fallacy if we compare India and Japan in 1947, or indeed today. The Japanese were as ahead of us in 1947 as they are today. You cannot compare the incomparables. In 1947, India was a new nation, whereas Japan was a colonial power with established nationhood concept going back a century or more. India was a shattered and demoralised new nation, who had achieved near-static GDP growth between 1900 – 1945, whereas Japan had clocked a GDP growth rate that fluctuated between -0.53 to as high as 15.85% in the run-up to 1939. There were only 4 negative years; the others were between 4 – 16 %! Japan was the first non-European country to Industrialise in 1868. Japan had hospitals, schools, basic infrastructure in place; India had nothing. Japan had an educated population with a per capita GDP that India enjoys today. In fact, as far back as 1868, the Japanese per capita GDP was 740 dollars – and the Japanese were independent to boot.  It would not be wrong to state that we are only today at the position where Japan was at in 1947!
It is thus no surprise that Japan is where it is today. And, unless we set basic parameters – Education, Health etc – we will never be able to catch up Japan – regardless of the economic model we follow. The Japanese success is the demostrated success of concentrating on the Human Development Indices. And the most critical difference of all: Japan was a colonial power, India was not. It had access to colonies, which it could harvest so that investments could be made in their own country. This is a vital factor; for 80 years, the Japanese were brought up on a diet of we-are-as-good-as-the-west; this fuels national sentiment and confidence. Take this factor, add high education levels, and established record of innovation – the result is there for all to see.
Japan is ahead today because it was comparably ahead in 1947 – along any parameter you may choose to assess. And I have not even considered the factor of diversity and national size- and the attendant difficulties being faced by a diverse  large nation as compared to a small homogenous nation. I have not even started to look at the absence of the basics of life and governance in newly independent India, or its security challenges, its internal problems or its varied challenges. We could have done better with better economic planning, yes – but that does not change the fact that Japan is ahead, primarily because it always was ahead… as we shall see in detail in this series, as I move into the Mieji Restoration in the next part…
We can be justifiably proud of our achievements, even while acknowledging our mistakes. Our mistakes harmed only us, not anyone else – unlike The West, whose mistakes destroyed civilizations and resulted – and still do result – in untold and incalculable misery across the planet. We have developed ourselves, fought our own battles, made and learnt from our own mistakes, paying for them ourselves. And in the light of the status we were in at Independence, our achievements are tremendous and a matter of intense, and thoroughly justifiable pride and celebration! Be confident of this lovely miracle called India, of this lovely, mesmerising and stunningly beautiful nation we call Bhaarat!

Jai Hind!  

{In the next part of the article, I shall look at the Japanese Mieji Restoration, and try and draw learnings for Modern India}

Make In India – A Critique

Published March 17, 2015 by vishalvkale

Make in India is the flavour of the season, almost – with Media going overboard on its prospects, and waxing eloquent on the benefits it holds for India. Lost in all this panjandrum are the voices – some small, like mine, and others highly influential, who have been raising questions {not objections} on this entire affair. Let us look at some hard facts, conclusive facts that can drill a hole through this initiative, or at least raise some serious questions. 
1) India is a primarily agricultural economy with employment in agriculture being at around 57% 
2) The total number of dependants on agriculture can easily be around 500-700 Million people, perhaps more 
3) Data supports the above : let us look at just one data point – number of land holding in agriculture. There are 121 Million individual land holdings in India. If you assume one family per holding, you are straightaway staring at a figure of around 500 Million. Add landless labour and support services, and you have a humongous number. 
4) Another proof can be had by taking a look at Census Data; more than 75% of the population stays in Rural India. The population of the top 200 Urban agglomerations do not exceed 20%. It was 15.4% as pre census 2011, and 14.4% if you take out the agglomerations and list only the cities. That is the reality. 
5) The Indian Economic structure is not a large-company structure; Corporate India – towards whom this plan is pointed – contributes less than 20% {I think it is less than 19% even} of national income. Ditto on any other parameter you may care to check up on. 
6) Another proof is the data on employment, which also shows a skewness towards unincorporated and unregistered employments, as also data on Rural-Urban split of employment 
7) Consumption data is another interesting data point, with the consumption of the bottom layers of economy having grown by around 1% since 1978, and by 3% in the top layers of the economy, thereby proving that increased economic activity does not lead to riches for all. We do not have consumption trends of consumables, unfortunately – so we have no way of knowing the relative speads of this increased consumption 
India isnt just about Corporate India, which is a rather insignificant contributor to any economic number you may care to anaylse; and there is a strong possibility that Make In India might not directly benefit the people who need change the most – the rural population, whose needs and challenges are not the same as those of Urban India; the same can be said of the economically deprived segments of our society.
In order that the potential of the bottom 80% of the population is unlocked, and the impact of growth is felt across all sectors and income-levels in a more equitable distribution, some basic steps are vital. In fact, it may even be possible that the absence of these steps might actually stall the entire MII initiative, and ground it fully and finally. I havent seen any indication from the GoI that it intends to do these; if it is in the works, excellent. If not, we are still hurtling form one crisis to the next. 
1) Agriculture ; Data again clearly show that nearly 93 Million of the 121 Million holdings are losing money on every crop {NSS – 2005; am not aware of any survey conducted after this}. This indicates that earning for the farming community have to improve; which means that the entire ecosystem needs looking at : viz subsidy structure and outlay, inputs, market access, price controls, APMC, price realisation at farm level, education of farmers in latest techniques, spread of knowledge from ICAR and other research places to farmers, etc. Not one point from these is being talked about. 
2) Unless the farmers and those dependent on agriculture earn real money, there is zero chance that they will educate their children beyond the basics – and even that is doubtful. Literacy does not mean education – and economic growth requires education, not literacy 
3) Rampant Health Problems in rural India; economic growth means health is a prerequisite. And we as an economy spend among lowest on health worldwide. Fact. 
4) Education{1} – IITs and IIMs are not required, where the focus currently lies – and quite a few of these people run away from India, and that leaves out scores of colleges that require upgradation. Why should we focus on building capabilities that enable those who dont want to call India their home encash and leave, forgetting their mother? Not all leave, I admit – but then again, we do not require more IITs and IIMs for internal candidates – it is far better to upgrade existing infrastructure that will benefit not the select few but the large majority! That is the need of the hour!
5) Education{2} – For the mid and lower level colleges to perform better – another input is the quality of incoming students; improving their education levels requires investment in primary and secondary education. This isnt happening – GoI is not spending on these 
6) Education{3} – Participative growth requires education that enables people to take advantage of the opportunities. This will not happen under the current MII plan, that is a foregone conclusion 
7) Education{4} – Education is a state subject, or a subject in the concurrent list, What initiatives are being taken by the states? What pressure is there on them to improve, to ensure proper education and implementation? 
Ditto Agriculture – with focus being on freebies and irrelevant matters like GM Crops which will have no impact whatsoever. Ditto health. It is one thing to give them money – which is excellent; quite another to ensure its proper utilisation. RBI report on states budgetary health 2013-14 categorically lists the improvements as well as shortcomings of the states of India, as I stated in an earlier article. Please google and read.
It is indeed a laudable objective that GoI has undertaken – MII; but the question remains, is the timing right? Can it be postponed will we have the right infrastructure and mechanisms in place? Of course it can; these years can be far better utilised in building strength and capabilities across the board rather than undertake a high-risk venture like MII. 
An initiative like MII requires a few basics to be in place for it to be successful and implemented smoothly without which, delays are inevitable, as also massive cost overruns as businesses find a lack of requisite resources playing spoilsport. Some, like a digital backbone, can be implemented side-by-side {see data at the end}; others cannot. These others are matters related to people parameters like health and education. 
1) Factories require workers, Where will you get them? If you get them only from Urban or Semi Urban India, the time taken for the percolation to reach rural India will ignite resistance as the perceived gap between Rural and Urban India increases. The objective is to make all India a wealthy nation – not just Urban India. Does rural India have the ability as of now? I do not think so. As I stated above, there is a massive difference between literacy and education. We need education, not literacy.
2) They require Land. Where will you get land? Create draconian laws that ignore the interests of farmers? You do that – and you are guaranteed failure. We are a democracy, and have an excellent judicial system. The only result of ignoring the land-owners interests will be court proceedings, resulting in stalling of the entire MII initiative fully and finally. Irrefutable historical evidence exists of this. There is no option but what the UPA did- approval of 70% {pecentage negotiable as per me; point is community interests need taking care of} of the community who stand to lose. 
Urban India has no conceptualisation of Rural India; MII only stands to benefit the Urban population, not the interiors. And the result of a skewed growth will be another crisis as Urban India will not find the resources to fuel their growth as they go into hinterland, leading to a massive crisis of gargantuan proportions, given Corporate India’s idiotic penchant of investing without proper analysis and on half-hearted reports created by people living in secluded AC environs of Metros, from excel sheets and data inputs which are highly suspect for their content and accuracy. 
That leads me to the most vital set of reforms – proper data collection, and statistical analyses; and digitisation of everything – which includes digitisation of land records, economic activity, data collection authentication and analysis, everything. Please remember that Millions of our enterprises are unregistered, and Millions more do not reveal the full story. For a proper reasoned analysis – data is vital; and unless captured properly and completely, surprises will arise that will cause hiccups, delays and wrong turns.
There will be tax and legal repercussions that will need to be thought through – which is relatively simple; It will also require taking various vested interests on board, which is exceptionally hard, and the only real challenge; vested interests who will see no benefit in lieu of losses in various ways – not without the concurrent reforms in the comments above. The result? More delays. 
On the dream of digital India etc, please take a look at the reality in a national perspective. Coverage alone will suffice, we need not go into the aspect of quality of coverage, which is a subject unto itself. Data Points in the coverage do not support the contention of most people that India is a digital nation. And data is sufficiently important a factor for it to merit an independent analysis, given that we are in the information age. The reality is starkly exposed by data :
Average Data Usage Per Customer Per Month on GSM : 62.16 MB; CDMA : 192.99; Avg Tot : 70.10
Broadband : 68 Million; Narrowband : 190 Million subscribers approximately

Data Arpu, while it is growing, is still in the doldrums; the average Indian consumer consumes less than 500MB as per this news article – a figure that is corroborated by the TRAI report.
The figures above are again borne out in this report : http://www.trai.gov.in/WriteReadData/WhatsNew/Documents/PR-TSD-80-05122014.pdf, which clearly states on page 12 that the number of user in India on 31st October accessing speeds of greater than 512kbps is 75.73 Million, including 60.61 Million from mobile devices.
We are a nation of 1.27 Billion! Penetration is abysmal; can we afford to wait till penetration rises? Will it rise in the absence of other reforms – or will it hit a glass ceiling? The data clearly states that only a small insignificant segment of our population stands to benefit from the data revolution as of now; things are changing fast – but this is where it stands today. This goes hand-in-hand with income – for the people in the bottom income levels to gain, they should be educated, and earning enough to have access to the services. 
We do not, as per me, have the proper ecosystem to sustain such an initiative; at least not one that can ensure fast devolution of benefits to the lower income segments. We run the risk of increasing the income differential. Furthermore, MII requires an ecosystem conducive to it, not rhetoric.Is it rhetoric? Or is it real? We dont have enough data to make a definitive conclusion of that as yet. But the indicators are worrisome. Let us see.

India – Bridging The Gap, and Facing Our Mistakes

Published March 6, 2015 by vishalvkale

It has taken a long time coming, but at long last some central government is at least talking about the right things – Defence, Education and Health. It is a separate matter that they aren’t doing anything about it, hemmed in as they are with issues, expectations and pressures from all sides, and with the attendant demands and needs of a myriad set of sub-groups and institutions that are present in a diverse and multicultural democracy such as India, especially given its income distribution and economic structure.
One of the reasons for this inactivity, or rather inadequate acrivity, is admittedly the lack of funds and the difficulty in generating excess funds, or allocating enough funds, or generating resources internally for the same. There are other issues – I shall deal with these in another article, as they are equally vexatious, dealing with implementation problems and tackling vested interests.
What amazes me is that people in India seriously believe that several hundred highly qualified and intelligent people {As are present in the Government} cant get together, rise above their vested interests and create some fiscal space for Defence, Health and Education expenses, the current demands and pressures notwithstanding. All it requires is a will, a determination, a clear directive, hard decision, and some sacrifice somewhere; in other words, setting the priorities and the direction
The directions of the Government, while speaking rightly, and passionately, in favour of these basics, are clearly towards an urban tilt, with infrastructure thrown in. Is it the contention of the Media, the people as well as the Government that the lot of the balance 80% – the people in the bottom 80% income profile – especially the bottom 40%, will improve by smart cities, IITs, IIMs, Infrastructure investments {which wont get implemented as too many structural hurdles are present. I can myself name 2 or 3 with detailed proof} and Corporate India – focus? 
Fine, Job generation may happen. How will people who are malnourished, and lack a decent education, partake in that job growth? That is a manifest impossibility. How will MNREGA and other social sector expenditure {which is essential, but how much is the question} ensure that the disenfranchised will be able to partake in that growth? That just ensures survival! Don’t these people – Indians like us – have the to grow and have a decent life? Or are we to condemn them to a slow and painful growth? How can they grow, if they do not possess the tools, the education for it, or are not healthy enough?  The result will be richer cities, richer Middle and Above classes – meaning you and me – and next to nothing for the rest of India,  as India continues to give low focus on Defence, Health and Education, and Agriculture
These classes – those who stand to benefit, people like you and me – make up less than 10% of India, and even that is a huge exaggeration. And as regards Corporate India, anyone here who thinks Corporate India drives the Indian Economy is advised to study the Indian Economy in detail. The contribution of the unorganized sector far outweighs the corporate sector. The contribution of Corporate India to any economic number is nothing to write home about., be it NDP, Savings, Employment – anything. Corporate India is not in the biggest contributors. 
What we are in effect saying is, the Poor can survive on doles from the Rich, and they have no right to self-development at the same rate as the rest of India. In order that people get greater income, they require better education, easier access to health, and solution to the main problems impacting their lives, not one of which is benefited too much by your IITs and Smart Cities, keeping in mind that a large majority of the people live in rural India, and are employed in agriculture. We are effectively throwing money after the Rich, who dont need it and can afford higher expenses
Next, Defence. What happens {God Forbid}, if we are pushed into a face-off? No less than 2 army chiefs have openly criticized the delays. Please read the works of General VP Malik, who stands as one of the most respected Army Chiefs in Indian History. Look up the leaked letter of yet another highly regarded chief, General VK Singh. A General has even openly stated that “we will fight with what we have”. 
Respect, Sir! To the entire Indian Armed Forces. None to the people of India, who are by and large too self-centred to even think of this matter. Respect even to the Government, who are trying to do a near-impossible task, given the scale of challenges, pressures and demands – most genuine and some ingenuine,  they face in other fields – and are yet spending 246000 Crores on the Armed forces, although it requires more. 
Why should the Government do more – when the people themselves dont care to tell them, we can take some more hardship, please focus on the Armed Forces first? The Government takes a hard call; it is not an easy decision to put off these expenses, Pressure distorts perspective, and the pressure is on them from all sides for economic growth jobs etc; and none for the upliftment of the Armed Forces, We are after all a democracy; the government is a mere reflection of the desires of the society.
Question is, can anything be done to find a way out? No easy answers – but yes, a lot can be done. Even a relative layman like myself can find ways, although none are easy. You have given 8% more to the states – you can take it out of that. How the states fund their budgets – perhaps they can look to being more fiscally responsible – like some states in South and East India have already done? Or reduce expenses. Or do any number of other tactics. Alternative, dont do anything. 
And then go on an emergency purchasing binge when a problem occurs, which means you lose your negotiating power, and close deals in a rush at the other party’s choice. 
A small example : you are giving crores in support to the Railways or PSUs as a budgetary support. Why? Why not increase rates? You can allocate that expense to the Defense, or to Education {hopefully defense}. Even 67 years after independence, PSUs, Railways {at times even banks} are dependent on the Central Government for support. Far better to tell them no, fund yourselves! Improve internal efficiencies, cut flab, get competitive strength. Tell them generate your own expenses through your own operations; Cut The Umbilical Chord! It is far better to throw them aside, and force them to compete and improve themselves, teaching them to fend for themselves.
Done properly, in a phased manner, with proper planning and thought, this is doable. These are unpopluar measures, but doable. Or reduce the size of your bloated Government- that is pure revenue wastage, given the levels of productivity. I could go on and on for a fairly long period of time.  All such measures are doable, but hard. And this is a majority government. They can pull it off. Let us see if they do… there can be only one reason for their reticence – the lack of numbers in the Rajya Sabha… I know I am clutching at straws, but at least this Government is saying the right words!
The problems related to agriculture are varied, serious and huge, and cannot be taken up as a sub-point; I shall look at these subsequently, as I shall have to look at Agricultural Inputs, Market Access and Legal points etc. Even in that, our current Government does have the right ideas, only the speed of execution is a matter of concern.

The Union Budget 2015-2016 : Glaring Holes

Published March 1, 2015 by vishalvkale

For all the article my key resource is the complete text of the speech of the Finance Minister, available here : Full text of Budget 2015-16 speech, which I have perused in full before and during answering this question. 

Please click on the link and keep it open on another page, I have extensively referred to this document throughout the article

I am frankly surprised at the high-decibel coverage at this non-event, given that it does nothing that was not expected, as also it does nothing of import in most fields… I am more than a little disturbed to see a continuance of the status quo that we have been used to… and I am shocked that few commentators, a select few apart, have not noted the fine print of this budget. 

Before I rip into this budget {My focus is on the negatives} – let me place on record that the current Government is the best we have had in a long time… but democracy gives me the right to criticize what is wrong and disturbing. More than disturbing – it is stunning to say the least. And at no point do I deny the more than a few good points of the budget. Other people have covered them; the negative is however very disturbing. Let me also place on record that points nos 16{i-x111}, 18, 19, 20, 21 and 22 of the Budget document has done a great analysis of the problems being faced by the nation. 


DEFENCE
The defence budget is at 1.75%, continuing a steady decline. Furthermore, this now the lowest it has been since 1962, when it was around 1.5%. And this when we are surrounded by enemies and real threats on all sides.


The Indian Armed forces need major induction of Weapon Systems as well as ammunition on nearly all fronts. This has been a part of the public record for some time now. Further, the threat from Pakistan, China and the ISIS is growing every day. In this backdrop, this continuing reduction in percentage allocation to defence is deeply disturbing. Not only that, 10 months into this Government, there is again zero movement on procurement and allocation of weapon systems that are critically needed – like the MMRCA – beyond mere words that mean nothing. 

It is a given that compromises have to be made in a developing economy that is strapped for resources.  But the continuing bloated Government expenses, subsidy bills and lack of real action on Black Money places this in rather a different backdrop. How long can we put off the needed re-capitalisation of the Armed Forces? We ignore security needs at our own risk. It is sad to see few people pointing this out. Praise the good points – there are many – but dont overlook that massive errors!

This Government has passed over major decisions, while tom-tomming news like this : Narendra Modi govt clears defence projects worth Rs 80,000cr – The Times of India. The more vital projects are pending, and we can see no speed in implementing the re-arming of the nation’s protectors. Rather than compromise defence, the focus should have been on reducing expenses on some other aspects less vital so as to fund the Defence needs. And there are many that can be identified. 

The clincher : “Among the three services, the air force has been allocated the lion’s share of the capital Budget – Rs 31,481 crore, compared to the navy’s Rs 23,910 crore and the army’s Rs 21,574 crore. Even so, the air force allocation remains stagnant, indicating the government has not budgeted for buying the Rafale medium fighter, which would have required about Rs 15,000 crore as the signing amount.” 


What the hell is going on here????? This is deeply worrying! 


AGRICULTURE
Everything seems in place here, with one caveat : there is no plan to address the third critical problem : imbalanced fertilizer utilization, and the imbalance in the subsidy of the same. This is a much-needed and long-overdue reform that has been put off yet again. 

In another example, in point 33, the FM makes a clear reference to the prices commanded by the farmers, but neither in this document, or in any action of the Government, anyone has thought of the APMC Act, or scrapping it. The Base Panel had recommended scrapping or altering it way back in 2011 {Review APMC Act to check cartelisation: Basu panel}, and correctly identified it as a needed step to check cartelisation. Unless you free the farmer, how will he command prices? As on date, we are still discussing and passing the buck from State to Centre and back again, without doing anything practical. {CII panel to study impact of APMC Act in six states}


These are another big-bang change/s, that requires the Government to take on the vested interests and vote banks. Words are nice – how will you do it? It cant be done without taking apart your own vote-bank, and amending or scrapping APMC, Fertilizer Subsidies alteration, Re-visiting Urea Policy etc. Point 29, 30, 31, 32, 33 are only words, without a clear implementation roadmap. Perhaps, one may emerge : let us see. 


FUNDING THE UNFUNDED, JAN DHAN TO JAN SURAKSHA

The piece de resistance of the budget, respect sir – respect for the entire points nos 34, 35, 36, 37 and 38; as well as the next section – points 39, 40, 41, 42, 43, 44 and 45

Bankruptcy Laws, TReDS and MUDRA bank are much needed, given that the Indian Economy is driven largely by the Unorganised sector, contributing 57.3% of net domestic product, 34% in manufacturing NDP at factor cost, as well as nearly 40% of national savings . {Interested People can follow my blog, where I shall review India, Uninc by Prof Vaidyanathan on this sector of the economy}. 

Having said that, the statement in point 42 regarding unclaimed PPF deposits to be utilised will need clarity as well as a defined framework, let us see if this comes…


EDUCATION AND SKILL INDIA
This refers to point nos 75-89 of the budget document. 

Jaitley proposed to set aside Rs.69,074.76 crore for education in 2015-16, as against Rs.70,505 crore in the revised estimate in 2014-15. The revised budget for 2014-15 has reduced the education allocation to Rs.70,505 crore from Rs.82,777 crore as was pegged in the budget estimate. Of the total outlay for 2015-16, Rs.42,219.5 crore was pegged for the schools sector and Rs.26,855.26 crore for higher education. Allocations to the school sector was cut by around 10% in its planned outlay from Rs.43,517.9 crore in the last budget to Rs.39,038.5 crore in the year that begins on 1 April. In comparison, higher education has been given a plan allocation of Rs.15,8555.26 crore in 2015-16, as against Rs.13,000 crore pegged in the revised budget for 2014-15. In other words, the higher education sector saw an increase of nearly 22%.



What the hell is going on? I quote from the Budget document : 16-iii mentions employment for every house, 16-iv reduction of poverty, and 16-vii specifically mentions a school “. To ensure that there is a senior secondary school within 5 km reach of each child, we need to upgrade over 80,000 secondary schools and add or upgrade 75,000 junior/middle, to the senior secondary level“. And then, you CUT  the allocation to schools!!!!!!!

What the hell is going on????????


TAX PROPOSALS
Again, no mention of the best news to come to India for a long time in just about any Media : please refer to points I{1-8}, II{1-14}, III{1-4} in Customs section of the annexure; I{1,2,5,6 and 8} in Excise section of the annexure. 

This is a long standing demand for a correction that has now begun; the reversion of the inverted duty structure. The full import of this section will only be known after some time, as more analysis and experts go into the nitty gritty of the budget. But, as it seems now, a much-needed correction has begun. Respect, sir!

Point 109 : GAAR postponed, yet again. Recall Pranab Mukherjee? The General Anti-Avoidance Rules (GAAR), aimed at companies and investors routing money through tax havens such as Mauritius, had been scheduled to be implemented from April 2014. They will now come into effect from April 1, 2016. “The indication from the government seems to suggest attracting capital flows is imperative for the economy and to fund the current account deficit,” . {Controversial GAAR norms deferred to April 2016}. It is being claimed that all recommendations are now being critically appraised. What was happening for the past months and years? Were the people sleeping? 

Wow. What can I say? Will these ever see the light of day? Your guess is as good as mine!



CONCLUSION


This budget has been justifiably praised on any number of points; sadly, it has got no praise for the two biggest points in its favour : The focus on the unincorporated sector, and the change in the duty structures. But most critically, there has been little critical appraisal of its faults, which are numerous. 

This is a budget for Corporate India, and the top 20% of society. As I noted in my previous article on this budget {Vishal Kale’s answer to What are your expectations from the Union Budget of India (2015-16)?}, Defence, Education, Health and Rural India are the priority sectors for us.

If poverty is reduced, in addition to a growing economy, we also require an educated and healthy population, which means an effectively functioning primary and secondary school set up, increase in facilities and so on. We already have an excellent higher education set up. If on the one hand you are pitching yourself as pro-poor, and on the other, you are increasing focus on high education and cutting on schooling spends in terms of a percentage, this does beget the question : are the priorities correct? 

What we are in effect saying is, Corporate India, Middle Classes can reap immediate benefit, while making no efforts to tackle the real problems beings faced by Rural India, like reducing middlemen, education, etc. This is a majority government, they can easily take hard decisions. And yet they are not doing so – as I had foretold much earlier. And that is what makes this budget completely unimpressive, and very UPA 3-ish. 

My rating : 2 stars. As I expected….

Asia’s third-largest economy spends about 1 percent of its gross domestic product (GDP) on public health, compared with 3 percent in China and 8.3 percent in the United States. Indian states manage their health budgets separately. From : India keeps tight rein on public health spending in 2015-16 budget

We still dont have our priorities in place… and that is the most disturbing!


Jaago, Sonewaalon!

NaMo, The International Prime Minister

Published December 30, 2014 by vishalvkale

Our Prime Minister, Mr Narendra Modi, has seen a remarkable rise in his overall popularity and perception as a leader on the international stage. This has been done by partly some aggressive and bold diplomacy, firm positions and tough negotiations at various stages and with various players on the international stage. This has been further supported by his extensive touring abroad, so much so that I recently read one article asking when is NaMo in India, or words to that effect. 

Let us not forget a simple reality : we are a developing country with limited financial resources of our own. The fulfilment of the need can be either internal through home grown capital or external through FDI-FII etc.  And that is where the positive international perception of our leader is so vital. However, international perception of a leader, and of a nation is not entirely based on diplomacy; rather, in some ways, achievements in diplomacy are in reality based on a few internal factors.


International Perception is driven primarily by : 

1) Returns to be had from investments into that nation, 

2) The safety of those investments, 

3) The strategic utility of relations with that nation, 

4) The depth & breadth of the financial markets and currency markets, 

5) Internal legal setup, 

6) Conformance of laws with international standards, 

7) Ease of enforcement of laws and contracts and 

8) Stable political atmosphere. 

Note that Democracy is not a pre-requisite; equitable income distribution is also not a factor.Strong diplomacy is also not mandatory. In many ways, these two are intertwined – the internal strength of a leader gives potency to the diplomatic moves; the successes in diplomacy tend to strengthen the leader domestically. But the base of the leader is his or her own bastion, the mother country. 

It is inarguable that Narendra Modi’s international reputation is very favourable at this point in time; further, this favourable impression has actually improved India’s standing and image as well, as also his reputation of being a strong, tough, aggressive and pro-business leader.  A strong leader gives a hope, a direction and a clear vision – and, as of now, Mr Narendra Modi has brought all three to the table on the international relations arena, which bodes well for India especially since that vision is largely in line with the interests of international money. 

Analysing the points above, we can easily see that 1) – 8) all points are hugely in Narendra Modi’s favour. Hence, the perception of India is bound to rise in the global race. Add to the above one additional point : the ability of the nation to propound, present and enforce its views and interests in international negotiations. As we have seen in Trade, Climate and Indo-US talks, India is in no mood to compromise on anything, period.  Our successes in that sphere have been driven primarily by the points enumerated above; thus supporting the hypothesis that our international standing has improved; while simultaneously further buttressing the standing of NaMo!

On a global scale, it is all all about trade and money, pure and simple. The modern world is a connected world, and money drives the world. Further, we are an investment starved nation, and need investors – who will need a return on investment. From a trade perspective, money put into India will get superior returns to the tune of several percentage points over and above investments in the developed world, given the interest rate differential. That is the single most vital factor driving investments into India – be it NRIs, PIOs or FIIs or MNC Firms FDI Investments. 

In a finite world, it is primarily a question of attracting surplus funds in the global economy. Few people do it for patriotic reasons, or developmental reasons, or for strategic relations. Money drives money. Even our own NRIs and PIOs {exceptions only prove the rule} invest in India only and only due to better returns, driven by more attractive special packages for them, and the better returns from the economy; not patriotism. 

It thus becomes a question of creating a conducive internal atmosphere for investments and economic growth. Given that atmosphere, even sworn enemies will trade, like India – China – Pakistan. And when we the matter view from that perspective, this government has taken steps, or offered promise/s like : 

1) Giving a chance of a stable future, given its majority in Parliament 

2) Taken steps perceived as pro-business, like easing of Land Acquisition Laws, GST, roll back of Taxation problems, negotiation on peripheral matters 

3) Taken steps to simplify trade, with steps like  the promise of the GST and action starting on the same

4) Shown firm intent, as demonstrated by the Ordinance on the Land Bill recently

5) Taken steps to improve governance w.r.t. to the matters above

This is not to state that there aren’t real and present worries regarding any number of issues related to the Economy, Social matters, Politics and other issues in India. I myself am on record raising a few of these in no uncertain terms. But credit where credit is due; let us understand and appreciate the good that is happening while pointing out the negatives, in the highest traditions of our democracy. 

I respectfully submit that the points raised by the critics are thus not relevant to the international public at large, and Governments in particular. Particularly since their time-frame in the short to mid-term. And the true impact positive or negative of the points raised by others will show up in the long term, unless something is done now. And between then and now, a lot can happen, there are other internal social and economic parameters to be considered that are not relevant to this discussion. These parameters may curdle it, or may solve the issue; but that is another story…

All {or at least some of the points} are {or may be} accurate; granted. But I was talking from the external POV, or, in other words, how much will Rs 10 fetch if an international investor invests in India, in what level of security of the capital investment, under what economic / demographic conditions vis-a-vis investment in other nations for the same parameters. That is what will drive investment in India, which will benefit us as a nation given our finite resources

It is a question of attracting excess liquidity in the Global Economy, and offering a better return on investment vis-a-vis other comparable nations, nations with a higher chance to reach middle-income levels. And on that, with our professional legal, financial and currency setup, with the current status of the economy combined with the demographic factors – is where we are scoring under the current political dispensation, with their aggressive approach on the international front, building relations while providing, or trying to provide a conducive atmosphere at home for the business community. 

It is too early to take any call on these matters yet; this Government is only 7 months old. While on some other matters 7 months is more than enough time to gauge direction and intent; on these matters, it will take a little time to see and gauge the results, and see whether the signed agreements and promises convert into tangible gains for us as a nation. Our Prime Minister has made an excellent start by getting these in place through his extensive touring and outreach to other nations, now the task for us as a nation is the conversion of these promises into results and tangible benefits for all of us…

Note & Disclaimer : These points are my own analysis; having said that, my views are formed on the basis of my study of the following reference material :

1) Breakout Nations – Ruchir Sharma {Book Review Here}


2) Pax Indica – Shashi Tharoor {Book Review Here}


3) Fault Lines – Dr Raghuram G Rajan {Book Review Here}


4) Assorted business newspapers and diplomatic and political analyses in various news media both in print and on the digital medium