Software codes are threatening India's infrastructure plans - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

Software codes are threatening India's infrastructure plans 

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In this issue:
» India attracts more FII investment than rest of Asia combined
» China may compel the world to give up oil
» Azim Premji's take on the commonwealth games investment
» RBI set to free up interest on savings account in banks
» ...and more!!

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We live in a world of increasing complexity. It is virtually impossible for any human mind to master all forms of knowledge. Thus, specialisation has become more important than ever. Take engineering for example. It is not uncommon for an engineering college to have 15-20 different kind of branches. We have civil engineers, mechanical engineers, chemical engineers, electrical engineers... the list goes on. And each of these different engineering fields is crucial to nation building. An excessive demand for one at the expense of others can lead to lopsided development. It can also have significant long term repercussions. Look no further than India to understand a real life example.

A lot of people say that money is the key reason for India's infrastructure woes. But this logic goes out of the window when one learns that a whopping US$ 500 bn has been earmarked for India's infrastructure in the current five year plan. What more, the number will swell to US$ 1 trillion in the next plan. What then is the key problem? A leading daily has put the blame on engineers. Civil engineers to be precise. And this assessment seems to be spot on. The best and brightest in India do not want to don the construction hat. Instead, they want to sit in swanky air conditioned offices and write software codes. And why not? This way they earn more than three times what they will make as a civil engineer.

Sadly, this trend is showing no signs of reversing. Today, India graduates close to 2 lakh IT and computer science graduates. In stark contrast, only 22,500 civil engineers came out of India's colleges a couple of years back. World Bank estimates that this just 1/3rd of the total requirement. Clearly, India's infrastructure woes seem to be becoming more and more like the proverbial kitchen. You try to kill one cockroach there; another one emerges in no time.

01:10  Chart of the day
We just saw how the most talented in India want to become software developers. Little wonder then, as today's chart of the day shows, five of the six biggest private sector employers in India are IT companies. Even more surprising is the number two spot, occupied by none other than IBM, an American IT behemoth. At a time when the backlash for outsourced jobs is increasing in the US, we have a US headquartered IT company that is growing from strength to strength in India. Infact, in a couple of years, IBM India's headcount may well exceed the US employee strength. Just goes to show how deeply entrenched is the phenomenon of globalisation currently and how difficult it would be to reverse the same.

Source: The Times of India

The world is still assessing the impact of the emergence of China. How will the rising superpower affect the world economy in the 21st century? How similar or different will its impact be as compared to that of the US in the 20th century? If the pattern turns out to be similar, the consequences can be grave. You see, the per capita consumption of various commodities of the average American is among the highest in the world. The average Chinese consumes much less.

With increasing per capital income, oil consumption also shoots up. Of course, China is much more populous country than the US. For example, if the Chinese per capita consumption came anywhere close to the Americans, the world's oil supply would fall short. By a large margin. Today, China consumes 10% of the world's oil supply. If it reached the US' level of 22%, oil output would need to go up by 13% each year for 10 years. That's a tall order considering how difficult it is to find new sources of oil. The result, oil prices would go through the roof. The world desperately needs newer and more viable sources of energy.

About 10 years back, any kind of discussion on world matters, business or otherwise, rarely had a mention of India. Things are quite different now. Now, you will rarely find an article in the world media discussing global economic factors without a mention of India. In a world parched for growth, 'India' has become almost synonymous with 'growth'. And these mentions of India have surely not gone unnoticed. A recent Business Standard report shows how. In the past month, the net FII inflows into India have been significantly higher than the whole of Asia put together.

India registered net inflows of US$ 2.07 bn in the last one month. This is much higher than the net inflow of US$ 1.35 bn into the rest of Asia put together. As pleasant as it sounds though, this is not all that great news for a net buyer of equities. That's because one of the implications of this attraction towards India has been a major run up in the stocks of many companies. And you cannot expect the same returns from an asset bought at say 5 times earnings compared to an asset bought at 15 times earnings.

The Commonwealth games have been in focus for quite some time. And for all the wrong reasons. Everyone has something to say about it. Usually it is regarding the levels of corruption and how these acts would shame our country. However, Wipro Chairman, Mr. Azim Premji has examined an aspect of the games that has so far been ignored. The amount spent on the games including that spent on improving Delhi's infrastructure has been a whopping Rs. 28,000 crores. Mr. Premji has questioned whether in a country like India, where funds are in shortage for feeding the poor or for building basic infrastructure, is such kind of a splurge justified?

When compared to other states, Delhi is definitely one of the richest in terms of per capita income as well as in terms of infrastructure. Therefore, were such amounts mandatory to "beautify" the city when almost 410 m people in the country are deemed poor? Some may argue that the construction for the Games gave an employment opportunity to some of these poor. But the wages paid to these workers were abysmally low. Maybe it is time that the country's officials got their priorities right and started allocating more funds towards improving education, improving health standards and the living standards of the people in the country.

This can be called the biggest anomaly in Indian financial system. And for as long as eight years this has helped the public sector banks in India prosper. The interest rate on savings account deposits has remained at 3.5% for nearly a decade. The PSU banks have held the lion's share (nearly 70%) of savings accounts in India all this while. While the banks have earned interest rates atleast 4% to 5% more than the savings account rates, the low costs have boosted their profitability. On the other hand, for depositors, this has meant destruction of wealth. This is because for most of this time, inflation has hovered much in excess of 3.5%. In fact, in recent times it has come close to 10% mark.

But for around 41% of India's population, who have a savings bank account, things are set to change for the better. The RBI has proposed deregulating savings account interest rates and making the same market determined. This will indeed be very beneficial to the rural populace who have few options. Our only hope is that the Indian central bank retains its independence over the long term and never brings interest rates close to zero as in the US.

Meanwhile, Indian markets shrugged off yesterday's strong decline and were trading marginally in the positive at the time of writing. The BSE-Sensex was up around 30 points. Banking heavyweights were seen driving most of the gains. Other Asian stocks also closed in the red today whereas Europe too has opened on a positive note.

04:51  Today's investing mantra
"To value a business, analyze where it will be 10 years down the road. Is there someone to run the business, and is it reasonably priced? The only two classes you need as an investor are "how to value a business" and "how to think about the stock markets." - Warren Buffett
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12 Responses to "Software codes are threatening India's infrastructure plans"

jose francis

Sep 1, 2010

Dear Fellow citizens: Premji is quite right? What benefit did Asian Games
in the early eighties do for the rural folf around N Delhi? Nil! But Contractors made money,u see. An ex-CPM leader was thrown out for making
the following statement:" My government is run by contractors for the
the sake of contractors." He was ninetywhen he did this. He was a bachelor.
He was a man of integrity who organised the tea-pickers in Assam. Can U
name him? ( See, good men are forgotten.)

U see all government Gala projects are made for contractiors. This is
true for both Left, Right and Saffron parties



Aug 27, 2010

You are right Civil engineers are writing code instead of building roads, bridges or simply saying infrastructure. Why?

What do they get when they build? No money, they can't take decisions, complete coruption everywhere and the no sense of satisfaction. When they try to raise voice at this they become Satyendra Kumar Dubeys.

When they write code they get paid well and read 5MinWrapUp.



Sunil Roberts

Aug 27, 2010

One of the national English news channels and one of the English dailies in Bangalore have reported the spending on the Common Wealth Games as Rs. 35,000/- crores. Truly a humungous waste in a country like ours where so many millions do not have access even to basic amenities like food, water, clothing, shelter and healthcare. There's so much still to be done on the education and employment front. As if the huge amount spent was not enough, so many shocking revelations on corruption have come to light. Though there is reason to be proud on the world class facilities being provided, at what cost !!


Shyam Bedekar

Aug 27, 2010

It is a human nature not to count and hence renember
the No of steps one climbs to reach UPSTARES(GOAL),why
blame the leaders(so-called).Have we not ellected them,
why cry fowl now then.


Zephyrine Goveas

Aug 26, 2010

Who do we have not civil engineers? The reason is because in this country good salaries are paid only to these IT People! The construction industry is so unregulated, the quality is so poor and that is the reason the construction people pay less and they get medicority to do the jobs.


Zephyrine Goveas

Aug 26, 2010

Now, Mr. Premji has come out with his views on Commonwealth Games. I wish these people were active when India bid for the games and worked against bidding. I remember similar kind of views were expressed after the Asian Games. They said at that time, "what are the stadia for if there are no active players and sportspersons to utilise them, or if sports facilities at school level are not provided". History repeats itself. To put it simply, if the money spent on these Games was used, say, to provide table tennis, badminton, volleyball, swimming pools, athletic tracks, hockey, football, etc etc at school level and not just facilities but with funds to maintain them, coaching etc etc, the country would boast of lot of champions instead of one Saina, Sania or Bindra. But who cares?



Aug 26, 2010

I would rather tell its a very general issue with us. Most of the times its parents who decide what their kid has to be Dr/Engg etc ... generally either Dr or Engg , like as thought there are no other professions. Every parent wanst their child to become a software engg due to peer pressure or social pressure. Even in schools we hardly educate kids about the various career options and various fields & how to take them up & what benefits them & so on , this will enable kids to pick their own choice



Aug 26, 2010

It is absolutely right for somebody to choose what they want in life. What is preventing from these infrastructure companies from providing better amenities to engineers...


M John

Aug 26, 2010

Hey! Cite your sources please!
A High-Tech Titan Plagued by Potholes - New York Times, Business 25 Aug 2010


Sanjeeva Singh

Aug 26, 2010

I disagree with this view.A large no of Talented Civil Engineers are stuck with govt Organisations with suffocating environment mostly headed by IAS who donot miss any opportunity to demorlise them. Even while working in private organisations a civil Engineer has to face Ruffians in the grab of contractors(politicians)with no protection from Govt.This is hardly the situation to encourage young Engineers

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