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 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 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.

Monday, March 9, 2015

Understanding the debate about Land Acquisition Bill

The PM Modi has promised houses for all by 2022. Is there no government in the past that has not promised building homes for homeless? Every state and central governments be it headed by Congress or BJP or otherwise has promised this and the promise is far from reality. Every one knows it.

To build these houses one requires land. To build highways, expressways, bullet trains we need land. To kick start manufacturing we need land. The Land act that was being followed by the Govt until UPA's Land Acquisition Act of 2013 came in was the British version of 1894 Land Act. Even though this act was devilish in nature it is the one that has led to urbanization we have seen in 60 years. Had it been not for this act we would not have seen modern airports in Delhi, Mumbai, Bangalore and we would not have seen the beautiful Golden Quadrilateral national highway system. No one can argue that the benefits of these highways, ports and airports has reached different sects of life - laborers, real estate developers, construction companies, power companies, water companies, skilled labors involved and many more in the evolution and maintenance of such projects. Imagine if these projects had not taken place we would still be the land of the villages with only villages everywhere. There would not have been good roads and so the transportation boom would have never taken place. This sort of boom also enabled people to travel across country making life and communication easier. The farmers who are at the center of the storm called Land Acquistion Bill Amdendment of 2014 have also benefited. There are of course several projects where farmers did not benefit because land was taken forcibly both by private companies and the government gave inadequate or no compensation to all or most of them. This resulted in large violent protests in different parts of the country. Between 2004-2010 there were several cases of farmers losing their lands and not getting anything at all.

The UPA government in 2013 passed an act that all together changed the terms of compensation for the affected and restricted the usage of lands for several purposes. I had debated the pros and cons of this bill in the article listed here. The Act was Congress's only chance to capture power in 2014 and they went to market it to farmers telling them no land of theirs can be taken by anyone including the Government leave alone private companies.  The clause added was that 80% of land owners must agree to give up their land; then there would be a SOCIAL IMPACT STUDY and then the land would be given to the buyer. The compensation fixed was 4 times the market value in rural and 2 times in urban areas. While the act itself was good in intent it was flawed. In the name of social impact assessment no project was allowed to start from 2013 till now. The bill is right in terms of compensation because that was what farmers wanted and the act does satisfy it.

Social Impact Assessment merely means government will study who would be impacted by the land if acquired and then compensate everyone accordingly. This is ridiculous since there is no impartial way of doing this and this simply delays the process to years. Several buyers who wanted to acquire the land lost interest and walked away. The real way farmers are going to get value of their own lands is when a) either technology is improved on their agricultural lands b) The land value increases which means they get a very high compensation in return for giving up their land so they can lead a different life.  a) doesn't happen and b) will not happen unless there is a demand for that land and a transparent way of getting the land for the buyer.  The existing act makes the whole process 4-5 years which makes any project unviable (Source)

Well known economist Amartya Sen once said right after passing the act - "Even though the land may be very fertile, industrial production could generate many times more than the value of the product produced by agriculture. The locations of great industry, be it Manchester or Lancashire, these were all on heavily fertile land. Industry has always competed against agriculture because the shared land was convenient for industry for trade and transportation," (source)

It is true that India cannot be an agrarian economy because it can never lift people out of poverty. The poverty that was more than 50% in 1947 drastically reduced to 30% because of economic reforms. If we continued to be agrarian we would have not come even this far. All educated Indians never even think of agriculture. Very few do. Rest all move to industries. Can one explain why this happens? Industries pay higher and returns is more predictable and secure. In the case of agriculture if land is not  maintained or there are crop failures they are doomed. The sons and daughters of most farmers don't want their kids on the land but do something else. Take any fresh graduate. They will prefer hi tech companies, multi national companies, manufacturing companies, construction companies because these are the jobs that can give monetary satisfaction. 

Several state governments have written detailed letters to the PM asking him to help in starting several projects that have been stalled because of this act. Congress states themselves have written such letters (another source). Several politicians love the fact that the land acquisition has become tougher because several rural politicians are land lords with vested interests. The middlemen involved in Social impact study will make the study harder to pass.

The total list of stalled projects is over 100 and they are worth 10 lakh crore. With these many stalled projects no state government has been able to start any industry. All the highway projects that were announced in 2014 and 2015 haven't even taken off. There are several companies who want to start their own manufacturing units so they can create jobs but the existing law makes it impossible to get the land. Just today the economictimes published that projects worth Rs.90,000 crore related to power projects haven't been started because of unavailability of land. It is this scary situation that the Government is seeking to change.

So, what does NDA amendment (source of the exact clauses) to the act do?

1) It has retained all clauses of the bill except that the process of acquisition has been made fast if it involves acquiring land for purposes of housing, rural electrification, defence, highways and industrial corridors. Which means there is no way the process can take 5 years, but instead the compensation will be made quick and fast. 

2) Private educational institutes and private hospitals can be built by acquiring land but not private hotels.

3) The existing law states that if a project is not done within 5 years the unused land has to be given back to the owner. This existing clause has been now made been more specific - "a period specified for setting up of any project or for five years, whichever is later."

4) Instead of applying different formula the existing law has one while evaluating compensation, but now 13 acts are included in the amendment which implies the compensation rates will vary and will be higher if the land is acquired for the larger causes such as electrification, highways and defense related purposes. The farmers tend to benefit from this.

5) It also does away with Social Impact study if the projects are small and involves rural electrification, highways, defense, housing for the poor. This is required because if government has to build houses it needs land. The other day Delhi CM Kejriwal met Mr. Modi and asked his help in fulfilling the dream of housing for all since land ownership is under Center in Delhi. Apparently, the PM informed him that the numbers are not in his favor to modify the existing land act and that makes it impossible for giving any land to Kejriwal for fulfilling the dream (Source of these details). All political parties including the BJP are hypocratic on many aspects. I wondered if Kejriwal can be different, but he too has proved he is the same. It is nothing but hypocrisy on the part of Kejriwal that he decided to join Anna Hazare's protest against this bill. He should have supported the PM instead. Anna Hazare is blinded by the fact that farmers will prosper only if they remain farmers and India will grow only if it continues to be a hopeless agrarian economy. How long can you stop preventing farmer suicides if you don't give them a happy path to their lives? Industrialization is not the answer to farmer suicides but will surely help them if they are quickly compensated with a huge amount instead of giving them loan waivers or keeping them in debt cycles one after another. 

My Problems with the NDA Amendment:

The act has two problems according to me. First, it dilutes the act to the extent that even farm lands where agricultural output is very high can be taken for this purpose. If the existing land produces more output it should be allowed to do so. After all it is these tracts of fertile land that has made us self sufficient in our food production. This is a clause that must be amended. Second, it is very well known that in the name of Special Economic Zone (SEZ) huge tracts of land were misused and the unused land is left as is. This should not happen and the fact that on the pretext of industrial corridors land can be acquired must be amended.

Mr. Modi has a big problem on this legislation. He has no numbers in the Rajya Sabha and he is in no mood to bend. The entire opposition and the allies want his blood and they feel this can bring his downfall for sure as the farmers vote banks is the way of winning any elections. This fight for his blood has only made matters worse for him.

When China reached this cross road two decades ago it decided to make farmers part of any factory that would come up on their land. Labor and training was given so that they can benefit in the long run. Similar provisions must be made.

In my view the PM is committing two major blunders:

1) Allowing this act to be the center piece of the Parliament session when he can get several acts passed and then tackle this act later. He can use his majority in Lok Sabha to pass more legislations that every party and the people have dreamt of since 1984. Examples include acts to modernize education, health, police stations and other legal and social sector reforms. These acts are far more powerful and significant.

2) Not been communicating to the people like the way he communicates every day. He should get down to radio, TV, newspapers, media highlighting the good intent of this act. This has clearly not happened and the opposition has increased their voice of dissent and suppressed all the good intentions.

Mr. Modi is very right that he needs to tackle this problem. It is the foundation on which the economy can grow. With good changes or amendments that the government has done the opposition will simply will not co-operate. The PM now has a very tough walk to do. If he succeeds the economy will turn around like nothing, but if he fails it will be his downfall. The downfall is mainly because the themes -" Make in India", "Bullet trains","Smart cities","24 hour electricity promise" - all will fail as it requires land. He would have wasted a landslide opportunity and will never get elected back.

What do you think the PM must do? Should be bend and make amendments or give up the fight for now and concentrate on a lot more pressing issues?

Sunday, February 1, 2015

The Govt's plan for Jan Dhan Yojana

On Jan 21st the national and private banks released data to the Government as to how many accounts have been opened under the Pradhan Mantri Jan Dhan Yojana. The figures stood at 115 million. The numbers immediately were recorded in the Guinness World Record (Gusiness site confirming the same). This was because in a short term of 7 months banks were pushed on an aggressive drive to involve people into the banking system. The target was 75 million to be achieved before Jan 26, 2015. The reality far exceeded the expectations.

The Modi government pushed guaranteed wages for every bank correspondent who reaches out to rural and far flung areas to open bank accounts, something the UPA Government did not guarantee. Even though this system started under UPA, the banking targets were never made aggressive nor attractive for banks. The focus of the UPA initiative was covering villages, but PM Modi wanted covering households so money could be transferred to from the perspective of "households". In addition to ensure people find this scheme attractive announced a) Upon satisfactory running of the account for 6 months will get Rs.5000 overdraft facility b) RuPay Debit Card that can be used anywhere across the country c) Rs. 1 lakh accident insurance cover.  Personally, Modi wrote an email to all bank officers across the country (source of the email). Some statements in that email are below:

We need to enroll over 7 crore households and open their accounts. This is a national priority and we must rise to meet this challenge. There is an urgency to this exercise as all other development activities are hindered by this single disability. I am sure we will overcome this situation collectively. 

put your shoulder to the wheel and try your level best to ensure that no one is left without a bank account. This itself will be a source of immense satisfaction for you and your teams. I will myself recognize the achievements of the best performing branches.

If one carefully analyzes how this scheme was launched, pushed and target achieved it is very clear that Modi believes in achieving things with a "corporate style" of win-win. For close to 40 years despite bank nationalization bank penetration has been so low especially in rural areas. Now, things are so drastically different.

Let's look at some basic numbers based on Census of India 2011 (Source).Using some numbers of the Census and Jan Dhan Yojana I made this table below.

When you add existing 243 million to 116 million it covers more than 90% of India as far as number of households under the banking ambit.

Based on the numbers above it is very clear no where in the world with a population as huge as India's banking has penetrated so quickly. Of these 116 million, 83 million have zero balance. This is mainly because the Jan Dhan Yojana allows you to maintain it and still get an accidental coverage insurance.  Now, imagine if the government begins to transfer money to these accounts via banks using Electronic Credit? It will probably be the most transparent way of ensuring money reaches instantly and effectively. With a near complete wipe out of middlemen and citizens facing hassles to get their own money, it will be a tremendous change of benefit flow in the country. The main concern is duplication of accounts and benefits. The government will soon announce AADHAR to be linked to these bank accounts to avail benefits. Once that is done the number of duplicate accounts for the benefits will reduce. Let's assume for a moment that of these 116 million even if 20 million accounts are duplicates the number still is huge and can help plug leakages of nearly Rs.50,000 crore every year [SOURCE] which is a huge amount. Imagine if such a huge sum of money is flowed through proper channels?

The government has already started LPG Subsidy transfers. The amount being transferred is about 650 Crore rupees every year right now. The customer pays market price and the difference between subsidized and market price goes to the consumer's account holder directly. The LPG distribution agencies have already made it mandatory for one household to link their unique LPG account number to a bank account in turn linked with AADHAR or a bank account not linked to AADHAR. As recently as Jan 31st 97.5 million customers (64% of population using LPG) are already connected to the system under PAHAL (Pratyaksha Hastaantarit Laabh) . Regarding complaints as per numbers available Livemint reports 1.09 lakh (0.1% of transactions) and 85% has been resolved (source).

The government now would target 27 schemes including Pension, Rural Employment Wages, Scholarship and many more through these Bank Accounts.

The government has already issued memos and circulars for 14 Departments to be digitally ready to disburse money of various schemes such as Crop insurance, fishermen's welfare scheme, artists' pension, social security fund for the unorganized sector, grants for women's self-help groups, health insurance for sterilization programmes, scholarships and assistance for the disabled, cash transfer for girl children, cash awards for sportspersons

The next things to be in the pipeline are kerosene, food and fertilizer subsidy. When all of these subsidies flow it is believed it will become the world's largest electronic and direct benefit transfer in the world. These subsidies run into millions of dollars. 

Recently, Tehelka did report that several bank representatives were not helpful enough and friendly enough in this initiative. However, no scheme of this magnitude can ever be defect free.  These defects or loopholes must not stop the initiative from being used to the very purpose it was initiated.

Over 20 Indian and foreign companies have already agreed to support the mechanism of any payment gateway or help in scaling the transactions associated with such a huge scale of bank accounts. 

In its truest sense banking would really be part of everyone's lives when there are more ATM's to draw money, more bank branches where one can visit and do transactions not possible to do in an ATM. 

Does anyone have ideas how this scheme could be made even better?