Tuesday, February 28, 2017

Demonetization - my perspective

No government and no Prime Minister has persistently focused on bringing back or eliminating black money. Even if we all make fun at the campaign promise the PM made regarding the money he will deposit in everyone's bank accounts got from Swiss banks we cannot dispute so many measures taken to attack the black money. Starting with appointment of Special Investigation team (SIT) to probe the black money on Day 1 of the government and secondly, the PM announced several Income tax declaration window with penalties (even though this didn't yield much results). It also signed tax treaties with Singapore, Mauritius, Cyprus (double taxation avoidance) to prevent round tripping. Round tripping is a phenomenon under which money that goes out of India comes back through foreign investment and evades taxes. Also, to consider is the fact that political party funding is a major source of black money and the government's announcement that any amount above Rs.2000 has to come through cheque or digital means (as announced in 2017 Budget) are serious attempts to tackle black money.

With no measure done till date giving any fruitful results the PM announced something on Nov 8th 2016 that will forever be a watershed moment in Indian political history. 8th Nov 2016 8 pm the PM announced Rs.500 and 1000 cease to exist as a legal tender starting that midnight creating ripples and shock waves not just in the country, but also across the borders. Counterfeit currency is widely printed in Pakistan and is circulated and it completely rendered useless.

Hard facts: 86% of total money in circulation is Rs.500 and Rs.1000 and there are 201,861 ATM's across the country.

Nov 8th v/s Nov 17th Date of Demonetization:

RBI had planned for Demonetization in advance starting Feb 2016 when the government seriously thought of the idea and expressed it to the RBI. If RBI had planned in open by announcing the game plan then the whole exercise would have been known to the public. So, it secretly began taking several steps like printing the new currency of Rs.2000. As part of this exercise RBI also found that several ATMs didn't dispense Rs.100 notes and instead Rs.500 and Rs.1000. So, it passed a circular on Nov 2nd that 10% of select ATMs (20,000 ATMs) should take out the cartridges dispensing higher denomination with that of Rs. 100 (Click here ). RBI called this move as calibration and not "recalibration" because re calibration involves removing some cartridges from the ATM and replacing them with something new. Let's imagine for a second if these selected ATM's were re calibrated then people would have sensed something fishy. RBI itself gave a deadline of 17th Nov 2016.  Had 17th Nov 2016 passed the ATM's would have had Rs.100 in circulation which went badly missing since the demonetization exercise was announced on Nov 8th. Why did the PM chose to go public on Nov 8th instead of Nov 17th? Was this intentional or accidental? A politically smart person like the PM would have definitely done this intentionally. There must have been strong reason for this announcement without waiting till Nov 17th. No one will probably ever know.

Even if one discounts the above fact of Nov 17th RBI cannot escape the reality that it fell short even in its planned execution of printing and distributing Rs.2000. It also failed in taking stern action against banks who made ATM's dysfunctional.

How much black money exists:

No one can estimate this. Black money means unaccounted money. When money is not accounted how can you account it? Economists can only give estimates and these are just estimates. Economist Amartya Sen says 6% is the total black money. There is no concrete evidence of this claim.

Read this special report drafted by our current President Dr. Pranab Mukherjee (who was then Finance Minister in 2012 UPA government headed by Congress). This report says no one can estimate the amount of black money that exists and one can only arrive at estimates.  Indian economists estimates $1.2 trillion is stashed abroad in Swiss banks, whereas Swiss Govt says it is only $2 billion. This document clearly is an evidence that amount of black money cannot be accounted leave alone the cash component.

So, any success is being estimated by these numbers. However, calculating the success or failure of the move is inaccurate with incomplete and non-deterministic data.

Immediate Effects of Demonetization

1) Depletion of cash and fall in property and commodity prices ( a mini Deflation)

Once demonetization was announced, the effects were more pronounced on all sections of life. With cash being mode of majority of transactions it brought life to stand still. Auto wallas, taxi wallahs, small businesses, street vendors, housewives, aged people, middle class, poor - every category was hit. India had never been exposed to this extreme demonetization. The last such move was taken by former PM Moraji Desai in 1977. However, high denomination currency in circulation at that time was very less so the effects were not steep. The current government probably underestimated the usage of cash or did not adequately ensure RBI is ready to circulate with newer currency and smaller denomination currency. If either of them was executed as planned there wouldn't have been this level of agony and pain. True, an exercise of this sort cannot be planned with perfection. However, the imperfections and inefficiency of RBI to deal with the situation will go in history as a sad moment of improper execution of a good intended policy decision. Lines before ATM's everywhere hit all cities and towns. Some banks were closed, several ATM's were out of order and long lines made headlines every day.  The country experienced deflation. Prices of commodities and real estate fell. Real estate prices fell by about 40% in several cities including the capital New Delhi. The most severe impact was on people who had saved the money for immediate expenses, medical emergencies and savings for long term and ordinary labors whose wages and spending was purely in terms of cash.

2) Swell in gold purchases:
It is a well known fact that several jewelers had kept their stores open and people flocked to convert their money to gold. The prices of gold and silver surged.

3) Fall in GDP :
The real GDP fall is yet to be witnessed. However, GDP based on estimates will fall to less than 6.5%. Before demonetization we were growing at 7.5% and we were the fastest growing economy. Former PM Manmohan Singh's prediction that it will fall 2% points may or may not happen and only time will tell.

4) Impact on Kashmir and Naxal belts:
Kashmir was so much used to people saving money in banks that the impact was not grave. It is widely known that Kashmir is prone to terrorist attacks. So, amidst this fear several people deposited cash in banks. The lines were fewer and it got worse only when ATM's and banks began to delay or shut down.  The reduced incidents of violence as claimed by the PM may not be entirely true. Two months before this announcement the violence had come down as the army cracked down on militants.

In Naxal belts like Bastar (Chattisgarh) and southern parts of Orissa there was news that said Rs.7,000 crores was stored in dumps by Naxals and they forced farmers and other poor people to store this money in banks so that they could take it later. This task reduced Naxalism drastically because cash Naxals had couldn't be used to buy any weapons or carry out attacks.

5) Spike in cashless transactions:

The most positive impact on Demonetization is the increased pace of cashless transactions. Several companies that allow e-payments saw spikes never witnessed before. As examples

Ola - 1500% increase in recharge
Paytm - 435% increase in traffic
Razorpay - 200% increase in traffic
MobiKwik - 15 times its normal traffic

The RuPay cards that were launched with Jan Dhan account saw 316% spike in transactions. Seizing the moment government introduced few more encouraging steps such as waiving of transaction fees for transaction amounts up to Rs.2000, discounts for using card payments in fuel purchases, toll plazas, insurance policy purchases. Railways initiated cashless mechanisms at several railway stations.

The PM also launched BHIM - that has over 1 million downloads. The app makes it simple to make payments between your bank and any other party extremely easy. It is impossible to think of suddenly developing this app within days of demonetization announcement. This app must have been developed over several months in advance. More on BHIM can be read here.

6) RBI flip flops confusing everyone:

Here's the link that lists complete list of flip flops made by RBI that made the entire exercise look very weak.

Here's  a youtube video that also describes the same.

7) Money laundering thrives:

In several cities money laundering brokers thrived. People were looking to convert their accumulated cash of old currency into new ones. Brokers were available to convert this at 50% commission in some cases. Obviously, this couldn't be possible without a nexus between these brokers and bank officials.

Why is that RBI couldn't keep a watch on several bank managers and employees who openly polluted the system when money hoarders began to bribe them and park the cash in fictitious bank accounts. The government cracked down on several of such incidents (Source 1Source 2). 50 Banks were raided to find new currency without any account (Source). 5.7 Crore Rupees in new currency was found in Bangalore. (Source). The central government did a good job on announcing these raids, but the pace of such incidents outpaced the manpower of tax officials. Therefore, no matter how many raids were done that came into the media highlight- the undeniable fact is that several people still continue to have this high value currency earned through unaccounted means in several fictitious accounts. As these raids continue we may never even know all the people who were involved in this.

How do you evaluate this was success for failure?

The government estimates 15.44 lakh crore high denomination currency existed on Nov 8th.

Based on this article the amount of money deposited in the banks was close to 13 lakh crore. This means nearly 80% reached the banking system.  Some say the government didn't expect this and that is why it is a failure. However, the PM clearly said to India Today as below (Source):

We were, in fact, clear from the beginning that high-value notes should return to the financial system. Why else would we give the banking system so much time and options for the return of the notes? Why else would we allow acceptance of such notes through a host of avenues, ranging from petrol pumps to government dues till 15 December? Hence, a large part of the notes not returning to the banking system was never an expectation or agenda of the government.

What this means is that Government clearly did expect all money not to come back into the system. 

Impact of such a policy has never been measured. This continues to baffle several economists who are not able to judge the effects accurately. The situation is exceptional because of two main factors - large population and dominance of cash in the market. No country with both these factors has ever applied such a policy. Some economists argue this was totally unnecessary when the country was doing so good in terms of GDP. Some argue that the PM has taken the end upon himself and won't see the end of the tunnel. Some argue that this was needed since cash transactions had to be curtailed.  There are quite a few economists who agree that real black money is not cash, but gold and property that people pile up to cover black money and evade taxes. This is true. The main question is how does one precisely get a count of how much black money exists, how much exists as cash and how much as property.  

How much is the cost of printing the money and the rate of printing:

India has 4 currency printing press locations - Nashik, Dewas, Salboni and Mysuru. Nashik and Dewas are owned by central govt through Security Printing and Minting Corp of India. The latter two are owned by RBI's subsidiary Bharitya Reserve Bank Note Mudram Pvt. Ltd. The presses at Salboni and Mysuru can print 16 billion notes in two shifts/year. In two shifts 26.66 billion notes will be printed and in three shifts 4 presses will produce 40 billion notes. Going by this order to meet the current number of 14 lakh crore few months are needed and not 50 days as promised by the PM. It is now end of February and the entire country is now more or less out of cash crunch. The cash crunch certainly did not end in 50 days as promised by the Prime Minister.

Expected Long term impact of demonetizaton

While no one can predict the long term impact of such a move the surge in bank deposits clearly indicate capital flow to the government in way that lending will get cheaper in the long run fueling growth. Adding to this move the introduction of GST will only widen the tax base since no business can escape being part of GST - be it small, medium or large.  The increase in indirect tax collection will change the face of the economy.

Indians have shown remarkable patience and resilience even though it affected them in every way. The PM's personal popularity has increased and the way he presented his case changed people's perception about him despite all inconveniences. There is also a section of the society that will probably never forgive him. The PM politically may not reap enough benefits, but if he consistently pushes for cashless economy it will have long term positive effects on the economy. BJP must keep in mind that overselling demonetization can only boomerang on its political fortunes.

Drastic policy changes often will not win elections. Without winning elections no government can deliver its promises. This is exactly the point where the PM faces his biggest risk. The PM has to change his narrative else he will risk losing significant gains he has made in the past two years. The real black money also lies with political party funding and it needs to be tackled. For people who believe corruption will be eliminated they are absolutely wrong because this can be changed only through perception and bringing in transparency in the local municipal bodies where maximum interaction between citizens and the government takes place.

Saturday, April 16, 2016

Rapid pace of Rural Electrification of 18,452 villages

In months that I have been tracking this particular news it is heartening to know that an entire team of Power Ministry is working extremely hard to ensure no village remains without electricity. The PM Modi had announced all remaining 18,452 villages to get electricity in 1000 days since Aug 2014.

Since then the pace at which this is being achieved is unprecedented in the history of independent India. There are several villages where electricity was only dreamt of. To see an electric pole or wires transmitting electricity was a distant dream. As of April 2016 - 7,146 villages are electrified. The govt is extremely serious about this issue and this can be just gauged by the fact that the Power Minister - Piyush Goyal has opened a real Android/iphone app to track this and has made public all the field engineers in charge of every village so that they could be contacted right away for any issues. The dashboard keeps getting updated as the implementation progresses.

However, electrification doesn't mean 24 hour electricity.  The intention is once you have the grid to every village - it is only a matter of time that the grid can be supplied with uninterrupted electricity. If one looks at the progress the government has  - 1) Already achieved annual goal of 5000MW of Solar energy 2) Reduced Coal import by Rs.28,000 Crore because of record coal production through transparent mechanism. 3) ensured that 66 out of 100 coal plants had no coal at all before 2014 - but no plant today faces any coal shortage.

There are villages that are also provided electricity through renewable sources and are currently off grid.

In short, until 2014 because of the coal scam during the UPA II government electricity generation through coal was drastically reduced; mining coal came to a halt; country was importing high amount of coal causing enough load on fiscal deficit. These no longer exist. On the contrary, India has stopped coal imports this year completely (Source)

Should India celebrate then? No, it is too soon. If we don't see electricity cuts for 2 successive years we would have achieved something unthinkable since Independence.

Here's a reality check of 7000 villages being electrified on NDTV. Interestingly, 85% of villages in UP are now electrified.

There are numerous such success stories on how life is changing for these villages where electricity is reached

In Saharanpur there was no electricity since independence. It is amazing to see how life has changed for people now. Here's the article published in Navbharat times

The eastern states - Bihar, Odisha, Arunachal Pradesh, Jharkhand, Assam - are having the highest number of unelectrified villages after Uttar Pradesh in the north. The key to electrification is how quickly government can electrify these.

Earlier, a village was considered electrified if its public places and 10% of its households have electricity. This criteria has been now changed and the new field officers - Gram Vidyut Abhiyantas (GVA) verifying that the entire village is electrified. The approach is to not use state government's data alone, which is found to be error prone. These GVA's update the dashboard and make it public to everyone as they notice the progress.

"Hindu"(Source) newspaper reported that these GVA's numbers show discrepancy as well - but out of 7000 villages only 30 could not be guaranteed as "electrified" even though dashboard shows it. This is still a very low error rate compared to 7000 villages.

There cannot be any iota of doubt with the fact that the government is so serious about bringing in the transformation of lives by electrifying villages.  The target now is 3074 villages to be electrified through off grid mainly because of geographic barriers and 438 villages by the state governments themselves. If this pace continues surely within a year all villages will be electrified.

Building the infrastructure to supply electricity is one good thing, however, the best thing that can happen is round the clock electricity without any load shedding. Is the government really doing enough on this? The answer is mixed bag. However, if the electricity generation supply surpasses the demand it will be a breakthrough.

Sunday, January 3, 2016

Top 12 Initiatives/Policies from the government that has had positive impact on common people

Since the Modi government came to power in 2014 it has been facing relentless criticism for good and bad reasons. No government is perfect and healthy criticism is always needed. After Rahul Gandhi made a statement that Modi govt is that of "Suit boot ki Sarakar" - I began to introspect if this is indeed true.  The irony is that it is the same suit boot (industries and corporates) stand to benefit the least from the government's policies so far. Industries, corporates and small start ups are waiting for drastic reforms in ease of doing business that hasn't happened. 

So, does this mean the government has done something in other non-corporate sectors? The answer is "Yes". There are several initiatives and policies whose implementation has to begun to show concrete results. I list just some of them that has had an impact on the common people. This is in no particular order of preference.

1) MUDRA Yojana - (Micro Units Development Refinance Agency) - a scheme to promote entrepreneurs, especially, in the lower strata of the society.  The government will provide financial assistance and proper guidance in setting up a company or a business whose proposal is accepted by the banks. The lending amount is 50,000 (SHISHU), 50k-5 lakh (KISHOR),  5-10 lakh (TARUN). The objective is not just to finance these budding entrepreneurs, but also guide them from a technical stand point and help them in registration and official set up of the business venture. Once a proposal is accepted MUDRA scheme will finance from banks, financial institutions (Non-banking) and micro financial institutions. Close to 44,000 crore rupees have been sanctioned so far under this Yojana. Even though the pace of the growth is not as expected the initiative has helped nearly 66 lakh people, mainly women, who are able to run their own small company. The PM himself made a mention of a lady in Madhya Pradesh (source) who is now able to make wallets and supply to her village and district because of Mudra Yojana.

MUDRA is good only for selected people who have had no access to capital. This cannot be used for agricultural or corporate needs. Start ups that can fuel more jobs are kept out of MUDRA. This is where a similar scheme must exist to propel economic growth,

2) Direct Benefit Transfer of LPG (PAHAL) - This scheme is quite popular where the beneficiaries pay market price for LPG cylinder and get the difference of market and subsidized price in bank accounts.  This is one of the most transparent ways in which LPG has reached the intended beneficiary. Recently, "1906" helpline number was launched (24*7) for customers be able to lodge complaints, talk to all 3 major oil marketing companies that distribute LPG.  http://www.mylpg.in/ is a dedicated website only for this scheme and one can see how the scheme has benefited 14.79 crore beneficies.

3) Pradhan Mantri Jeevan Jyoti Beema Yojana - under which you get Rs 2 lakh accidental life insurance cover for Rs.330 per year which is so cheap. Never before in India has insurance penetration been so high. 2.8 crore members are beneficiaries of this Yojana. 

4) Atal Pension Yojana - under which after retirement age a person is entitled to get a guaranteed amount ranging anywhere between Rs.1000-Rs 5000 per month. Although the amount is too small, it can only act as some sort of additional income to the beneficiary. For more, read here at http://www.jansuraksha.gov.in/. This amount is hardly enough to sustain a life, but it is better than getting nothing from the government.

5) Sukanya Samriddhi Yojana: The father/mother of a girl child can open a bank account in India under this and deposit amount (amount restrictions apply) where 9.25% annual interest rate is added every year. This is a phenomenal scheme available  to all Indian citizens by which they can save money for the girl child. Close to a million accounts have been opened so far.

6) Self- attestation scheme for all government services - The existing non-sense notarized attestation mechanism was the order of the day and citizens were harassed in this regard. The government passed an order that self attestation is sufficient on all the copies of the documents while applying for a service. The applicant must provide the originals only at the time of delivery of service. Even though Center has passed this order, all states have to ratify the decision. As of now most states have accepted this. 

7) Abolition of interviews for Class III and IV Central and state government jobs. These jobs are those of peons, clerks, junior engineers and many more in central and state government offices. Most of the vacancies were being filled by bribing selected officials. Now, interview has been banned and some form of aptitude test has been replaced in most positions. This is a huge step since it can curb corruption. The meritorious were kept out of the system (source). Only time will tell if this has turned out to be efficient. The intricate details of this new test is not yet known. 

8) Huge job opportunities for people of Bihar because of 2 locomotive plants - US company GE and French company Alstom together won the bid for building train locomotives in Madhepura in Bihar. This is 100% FDI in Railways and they will manufacture 1,000 locomotives of 4,500 hp and 6,000 hp, to be supplied annually over 10 years and 800 locomotives of 12,000 hp to be supplied over 10 years (source) respectively. This is the largest investment of this kind in Railways. This is a win-win situation for Indian Railways and people as Railways will get some best practices in the design of locomotives while people will get employment.

9) Several initiatives in Indian Railways - I had written a separate blog regarding this that can be read here 

10) Indian Railways has partnered with several food chains like Haldrirams, MTR, Food panda and now wants to promote Self Help Groups whose ownership is held by women(here). These SHG's give employment so many women whose lives depend upon their culinary skills. By giving them a market Indian Railways has created a win-win situation for both customers and SHG's.

11) EPF Withdrawl made easier - Until now if one had to switch jobs or move to different places an EPF account had to be every where and this created confusion for lakhs of employees. In addition to this the employee had to get employer's signature to do the same. The government passed an order that the EPF account once opened will be with the employee forever irrespective of job or place switch and that the employee doesn't require the consent of the employer (source). 

12) All NCERT + CBSE Text books from Class 1 to 12 have now been made online and available via Mobile app (source) for free. The app is called E-Pathshala.

Our PM is not someone who will give into vote banks. He has a vision and strategy that none of the contemporary politicians have. He is working round the clock with no break. However, any strategy that doesn't take into account the pulse of the people can boomerang in the long term. He needs to be cognizant of this. Art of adaptation is an art in itself. Our PM will have to adapt himself and change his strategy in 2016 to make sure the performance accelerates.

Thursday, November 19, 2015

Bihar Results - pre-cursor to BJP's Lok Sabha defeat in 2019?

When the Bihar results were to be announced on Nov 8th I was very positive that a) Nitish would get maximum seats b)Lalu Yadav would get close to 30 out of 100 seats and c) Congress may bag 10 seats leading to the formation of JD(U) government. However, the result was a clean sweep for JD(U) and a humiliating defeat for the Modi led BJP. The internet and social media is flooded with their own endless loop of analysis and counter analysis as to what went wrong and what caused BJP this embarrassing defeat. 

One fact that is beyond debate is that the BJP did not project a good state leader and was campaigning the same way like the Congress does. This is the second time that BJP did not project any face and chose to contest in the name of the PM. It was pretty much looking like Congress campaigning in the name of the Gandhi family. BJP is not Congress and should not have treaded that path. The purpose of writing this article is not to elaborate on the election defeat, but to visualize its national implications.

The larger impact of the election is that anti-BJP forces have strengthened themselves. The biggest irony of national politics in India is that BJP has more enemies than friends, whereas Congress has more friends than enemies. When BJP ascends, all forces move towards Congress and when Congress descends, all forces attempt to form the Third front which collapses even before it is made. At this point in time, Nitish is that trump card that the third front could use in 2019 Lok Sabha election. It is very much possible that Congress may support Nitish with the sole aim to defeat BJP. Bihar election results has only emboldened the determination of all regional parties opposed to BJP to come together and stand with or without Congress. These regional parties control a huge chunk of numbers in Rajya Sabha making it harder for the government to get bills passed.

Let's understand that these very parties existed in 2014 too. However, it was one leader, one determined person who led to an unbelievable and unimaginable electoral victory and that was our PM. Our PM is still 9th most powerful person in the world, the only Executive head (India) who is controlling the government with strength never before seen (after 1980) and has an unmatched vision and strategy to implement sea changing governing policies. Yet the pace of governance is slow and is not matching up to the expectations. The PM cannot allow the opposition to dominate in 2019. The only way he can do this is completely change the narrative through some ground breaking results to see. 

At this point it is very clear that the Parliament will not be allowed to function and the PM will be stopped on all of his bills. The crucial GST bill, Land Acquisition Bill, Labor Reforms is surely out of reach till the next Lok Sabha election. While the PM has to initiate a dialogue with the opposition he also has to venture outside Parliament to do several wonders. Examples - building houses for all, decreasing the infant mortality rate, ensuring electrification of all villages, inter linking of rivers, bringing back black money, modernizing railway stations, generating a second green revolution, ensuring Jan Dhan Bank Accounts to get all subsidies eliminating middle men. These should be the focus of the PM. 

Not focusing on social issues has always costed BJP very dearly in Lok Sabha elections. It is very easy for the opposition to raise these issues and create a negative atmosphere and shift the voters away from voting again for the PM.  It does appear that this is becoming the narrative on which all regional parties (opposed to the BJP) will campaign in 2019. Nitish could be that clean face that will be projected as the possible PM candidate and several swaths of Eastern India will vote for him. An aspect that cannot be ignored is that despite the pitch for governance and progress, people may not align with the PM and this is where his communication skills may defeat him even though he will use it to the fullest extent. 

Rahul Gandhi still is no match for the PM. The only person who can even credibly challenge the PM is Nitish Kumar. Personally, I don't consider Nitish any match to the PM at the national level. The PM must seize this defeat and convert every attempt by the opposition to derail him into an opportunity to bounce back. If this doesn't happen 2019 will be a reflection of Bihar 2015.

2019 must also not be 2004 where a government that changed the face of India into a hub of growth suddenly disappeared because voters were disenchanted and voted them out. The PM cannot solely campaign on the basis of economic growth and job creation. Rural India won't understand this and large sections of urban India won't appreciate this and vote. No Indian PM has ever been rel-elected only on the basis of economic growth results.

The uniqueness of our PM is that he was able to usher in agricultural growth through scientific technologies while balancing the industrial growth in his state as a CM. This unique trait needs to be demonstrated at the national level. Three years is still a long time in Indian politics. The journey though appears to be dark inside Parliament and bright outside.

Sunday, October 4, 2015

The Prime Minister's Homework

When PM Modi concluded the US visit recently it was aptly clear that the businesses and companies in Silicon Valley wanted the government to accelerate ease of doing business if they wish to penetrate their businesses in India. It was not as if the PM did not know about this, but still wanted to go ahead and invite them to invest and get committed support for Digital India. He wanted to showcase the fact that there are several start ups that have done wonders like Ola, Flipkart, Zomato and also get a hands on look at the start up culture in Silicon Valley. He also wanted to show case several changes in the ease of business rules in the first year of office.

The initiative and the reach out to Silicon Valley is really good and commendable. However, there are 2 important parameters on which he can unilaterally ensure India's economic rise. The reasons to choose these 2 parameters are 1) They are the most critical parameters 2) The government is seriously doing work but not that at the pace the world expects 3) These are extremely tough to be meet in a 5 year term.

Electricity Generation:

Unless electricity is generated it cannot be distributed and power cuts be stopped. Last year when the Coal Bill was passed it allowed coal production to happen in the most transparent manner in decades. However, the production is not enough to keep up with the demand. 60% of our electricity needs come from Coal and if this is disrupted it disrupts the electricity generation. Water accounted for 17% of electricity in 2013 and now it is reduced to 15%. The reason for this is the number of projects announced have not event taken off. The dams and reservoir projects are very tough to become reality. The push in the direction of increasing solar energy contribution is picking up pace. As of now renewable energy is accounting to 14% (up from 12% in 2013) (Source).  The cost of solar panels have drasticlly come down and India is flooded with Chinese goods. The cost of solar energy has reached the lowest ever known price in India. It is between Rs.4-Rs.5 per kWh (Coal is Rs.3.50 kWh). This has pushed several projects to be kicked off since the resources and time required to set up is very minimal compared to hydro projects.

However, if the solar energy is not ramped up the goal of achieving 100GW by 2022 will only appear to be a distant dream. This simply implies that every year starting 2015 - 14.28 GW must be produced each year. As of Oct 1st 2015 India has achieved 4.2 GW and that is 10GW short. Next year we hope this substantially increases. However, this pace can only be accelerated if the government comes up with rooftop solar policy so that each house contributes to electricity generation through solar energy.

Rajasthan has now solar parks covering 25,000 acres (Source). Modi has the record of building the largest solar park in Asia as the Chief Minister of Gujarat. We hope that we also build largest cluster of solar parks in Asia. As of date both Gujarat and Rajasthan are accounting more than 60% of electricity due to solar energy.

(Solar parks in Rajasthan and Gujarat)

As of now 18,000 villages are to be electrified yet, cities and villages and cities (including the national capital) that do have electricity have inconsistent power supply and face huge power cuts. So, the challenge before the PM is that while the generation of electricity is picking up pace how do you solve the issue of transmission losses? How will you also solve the state electricity boards' mounting losses which amount to Rs.2,00,000 crore? Various states have various policies and some are more rampant in giving power subsidies than others. These ad hoc policies have led to losses in almost every state barring Gujarat.

Will the PM through the recently launched Deen Dayal Upadhyay Gram Jyoti Yojana be able to achieve what he did in Gujarat? These are questions whose answers are the most essential part of any success today. Our future hinges on these solutions. If anyone can do it it is him and there are several people who voted him solely because of this character he has exhibited.

This is an area that doesn't require legislations or the support of other parties. This is purely achieved through execution. In the 2015 Independence Day Speech he stated he gave officials 1000 days to ensure electricity reaches the missing 18,000 villages. However, the goal to be measured is not just that but also the extent to which our capacity addition has taken place (to meet the demand). 

Every firm that wants to do business in India requires electricity and it is not smooth sailing unless this goal is met.

Ease of Business Ranking:

The World Bank uses 10 parameters to decide which country is easiest to do business in. These parameters and the ranking of India is below (Source).

The good points where India is in top 20 is "protection of minority investor" and "getting credit for a project". Apart from this it scores very bad in all other 8 parameters taking it to the position of 142 out of 189 countries.

Each parameter can be explained in depth and be analyzed directly from World Bank Analysis document (Source). In short it takes anywhere from 26 to 28 days to start a business with number of procedures to get it started being very high. The time to get land and required permits is so high that people don't tend to use straight and honest procedures, but use shortcuts to do the same. In addition to this on an average 33 tax payments, 243 hours of tax filing is spent by firms. These cumbersome, complicated procedures have irked the foreign businesses. It is common sense as to why the various companies in Silicon Valley like to invest but want the PM to ease the rules.

From the track record of one year in office it is appearing that the government has initiated several measures in ease of business. They removed Minimum Alternate Tax that was imposed on firms that were investing in India having no base in India. The fact that the new Companies Act allowed a company to borrow money from its directors is helping companies to pump in money. However, it is no where close to what is expected from the PM (based on his experience in Gujarat). Hence, it is very challenging for the government to achieve the task of being in the top 50 of ease of doing business.

Here are some interesting changes in the past 1 year (as published in Times of India - Source)

Now, it is paramount that the PM does a serious turnaround in these 2 parameters. He is the only hope and the man with a proven track record of these two. I hope that 3 years down the lane there is obiturary to these complex processes. 

Monday, August 10, 2015

Modi govt in a tactical retreat or policy defeat mode on Land Bill?

The early part of the 2nd year in Modi government has gotten enough attention to the controversy on Sushma Swaraj and the Vyapam scam in Madhya Pradesh. The scam in Madhya Pradesh is undoubtedly one of those that needs a thorough investigation and thanks to an active media (TV, facebook, twitter, internet) that CBI is now investigating the matter.  The PM is not connected to the scam. At the same time the one that involves Sushma Swaraj is that of impropriety. The government should investigate and let Swaraj come clean.

The real casualty of this matter is the Parliament session and the important bills that need to get passed in order to uplift the infrastructure scenario in the country. The Land Acquisition bill which the government thought of getting it passed has not happened. It tried all its means in a constitutional manner but it simply doesn't seem to work out. A joint parliament session is ruled out because the bill has to be defeated in one of the houses. The Congress party clearly has not allowed the bill to even be tabled in the Parliament for it to be defeated. The regional parties and some of BJP's own allies don't want the bill to be passed. It is so clear that many reformist bills will get struck in Rajya Sabha simply because the ruling party doesn't have the numbers and the support of Rajya Sabha is important for several of these bills.   

No matter how one dissects the land bill that the government wants to pursue the existing land bill (passed by the UPA govt in 2013) has thrown a spanner in the wheels of infrastructure. Companies want to invest in roads and railways but cannot acquire land easily. The Prime Minister wants to create an atmosphere of jobs and a boom in manufacturing must happen. To have this happen the companies need infrastructure. Further, the surge in labor market and engineers can be created only when road construction picks up pace. Land is required for all of these. Despite its best intentions the government truly doesn't have numbers in the current scenario of the Parliament.

The scenario is grim because a trap has been laid for the government by the weakened opposition that is weakening a strong Prime Minister like Modi.  The PM has been caught in a deadlock where he cannot easily escape. It is such an irony that with just 44 members or less than 1/10th of Parliament strength the Congress party has been able to stall the Parliament and the country. It is also an irony that even with a majority in the Lok Sabha the ruling government is finding it tough to get several legislations passed.

It is aptly clear that Congress wants to take revenge for what BJP did when it was in Opposition. The game may be fair but not the timing. 

The government last week suddenly made a U turn on the land bill and is now withdrawing its original version and is indeed bringing back an amended version that is similar to the act passed in 2013. By making a U-turn on the land bill it clearly has upset its own plans and the industry at large.

The question therefore is this - Has the PM accepted defeat or is this a tactical retreat? My own analysis and instinct says that the PM has decided to retreat at the moment. The wind is not is in his favor and he has decided to choose the battleground for another time.  The PM has to blame himself for this. He did not use his art of communication to reach out to the farmers and explain what he intends to do with the modified land bill and how it will help them. With no official communication the opposition led by the Congress has created a fear in the minds of farmers that the land acquisition bill is a death knell to farmers. With his own fault at play the PM knows the time is not ripe to correct it. Hence, he is single mindedly focused on getting Goods and Services Tax Bill (GST) passed where several regional parties have agreed to it. There is another calculation to the retreat. The government needs numbers in Rajya Sabha and only winning Bihar and Uttar Pradesh (UP) elections will solve the matter. By allowing the bill to be withdrawn the government wants to weaken the Congress party's slogan that Modi's government is "suit boot ki sarkar".

Next year when the elections in Rajya Sabha are held BJP will gain strength and with its new strength it may be able to overcome Congress. Does this mean that the government will not do anything until then? Does that mean the government will not use its majority in Lok Sabha to pass other bills where the Rajya Sabha's approval is not required?

These questions only the PM can answer. It definitely appears that the PM is not in a mood to allow the quick pace of industrialization which the industry wants and at the same time he doesn't want to lose an opportunity where his socialist policies can touch the hearts of the poor and the underprivileged. It appears that he has some calculation in mind which may backfire given the current scenario.

Recently, Rahul Bajaj said this statement - "This is not Narendra Modi's government" (source). It is true in many senses. The government should have gone at an aggressive pace to create an ambience and tax environment where businesses can flourish.

In politics it is always said that nothing is constant. At this time the image the government wants to create is that of a defeat but in reality it is a tactical retreat on the matter of Land Acquisition bill.

Wednesday, July 1, 2015

The slow, but surely changing face of Indian Railways

Indian Railways has come a long way and still has a long way to go. There has been a number of empty slogans and huge budget outlays since a decade to ensure cleanliness is maintained on the stations  and services are improved. However, most of them haven't taken off.  The number of aggressive measures by the Govt since last year offers some real hope.

One of my friends commented when Modi talked about "Golden Quadrilateral of bullet trains connecting India" that a bullet train won't solve a problem unless Railways improves its quality of service both inside and outside the trains. It is very true that we can't simply have bullet trains when Railways fail to provide some basic services or upgrade its quality drastically. At the same time bullet trains must be executed.

There is a perceptible change in which Railways has improved with respect to providing services in the last 1 year. There are several ones and I thought I should highlight some of them as they play an important role in understanding how they are changing for the better, This is a sincere start of providing tangible services to passengers for the first time since decades.

The expectation is so high from the current government that people are looking to see radical changes. For me the day the first bullet train starts in India is a whole new revolution in itself. No matter how many people have varied opinions the presence of bullet train will create gigantic changes in the economy.

1) Aggressive pace of introduction of bio toilets in Indian Railways:
In 2011 only 57 bio toilets were introduced and then it was 169, and 1337 in 2013-14. However, in 2015 the number has drastically jumped to 17,000. Another 17,000 will be installed this year. All newly built coaches do have this and DRDO's patent design is being used in the Railways. This is a very important initiative that is gaining momentum, According to several reports(source) the fitting of bio toilets has been saving Rs.350 crore annually on manually removing the waste and costs Rs. 3 lakh for fitting in a coach. This often is not even cleaned manually in a proper manner. The absence of bio toilets will surely make our tracks worse and stink beyond explanation.

These bio toilets convert the waste into gas form when cleaning. However, people can be insane and can throw bottles, cigarette butts in these and there should be proper awareness spread about it. The list of trains fitted with these ones are listed in the source here

2) Cleaning up New Delhi Railway Station with frequent cleaning by private players
Now even though it is still a long dream to see our train stations cleaned and maintained well, a start has begun in New Delhi Railway Station.

This link in Times of India contains pictures and more stats on how the station is being cleaned


Not sure how long this will be kept clean.

3) E catering of food on 76 trains in phase - 1:
Passengers can order food at www.ecatering.irctc.co.in or call the toll-free number 1800-1034-139 or 0120-4383892-99 to avail the facility. IRCTC has tied up with Pizza chain such as Dominos and MTR for providing different types of food to be delivered to the passenger fresh. Once the booking is made a one-time password is sent to the registered mobile number (required at the time of delivery). The food is delivered only between 6 am - 10 pm and payment can be made online or by card.  The website will list all the trains stations where food will be delivered and the types of food. 

In the event train reaches late or cancelled there is a small fees and the difference will be refunded. (Source)

4) Increasing the refund for Tatkal tickets and changing the window of the booking
The refund for Tatkal tickets has been increased to a maximum of 50%. Also, the window of booking for AC Classes is 10-11 am and non-AC is 11 am onwards. This dedicated booking slot is to ensure there is no overcrowding or surge in online booking.

5) To prevent agents making bulk reservations of tickets and then selling at a higher price - This was a bad practice and a loophole quite easily exploited by station agents and affected customers who could not get tickets from IRCTC website between 8 am -12 noon. If any such tickets are booked somehow and passengers have it then the agent and the passenger - both will be penalized.
Here's an interesting news item that explains how the agents are making black money affecting actual passengers whose tickets never get confirmed.

6) To use preloaded Ru-Pay Debit Card to make purchase on the website.

7) Book 120 days in advance as against the existing 60 days.

8) Cash on Delivery for tickets for those customers who are apprehensive of using their credit/debit cards online

9) SMS intimation on cancelled or delayed train status. Refer http://www.indianrail.gov.in/railway_SMS.html for more information such as PNR alerts, Train status, Availability, schedule etc

10) Operation 5 minutes - where a ticketless passenger can get a ticket within 5 minutes of boarding the train. There is no need for printing the ticket and the confirmation will be stored on the user's smartphone and cannot be cancelled once booked. This is in its pilot stages and will be available soon for all smartphone users

11) Enhancing IRTC website to handle more ticket bookings daily:
Currently, The website can handle only 1.2 lakh tickets/day. Now, it is increased to 4 lakh tickets/day. This is a phenomenal increase and has been achieved because of installation of new software and increasing the capacity of existing servers.

The problem is the speed of the trains we have is too slow. We are still in 18th century world where the speed of the train is still less than 80 km/hr for 99% of the trains. This speed is so slow and pathetic that we are easily centuries behind. The right step is to introduce more semi-high speed and high speed trains. One good initiative so far being taken is Delhi-Agra train. This can run at 160 km/hr and can reach Agra well within 1 hour 10 mins. However, there are 8 other paths where trains have been selected to run at that speed but there is no momentum in that direction.

Overall the direction is encouraging even if far from inspiring.