Will the next Government have a long term vision? - Straight from the Hip by J Mulraj
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Investing in India - Straight from the Hip by J Mulraj
Will the next Government have a long term vision? A  A  A

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5 APRIL 2014

Like all other nations of the world, India, too, has to prepare for a shortage of natural resources, such as fossil fuels, minerals, food, even water, etc., that is surely coming. The world's population is set to grow from 6 billion to 9billion . And, as two nations, first China and then India, each with well over 1 billion people, start to raise the standards of living of their people, the pressure on resources is huge, and the ability of Mother Earth to deliver them, muted.

For countries whose leaders concentrate on meeting the challenges of this coming resource crunch, this resource crunch presents opportunities, using new technologies, for economic and job growth. India's leaders have been, hitherto, concentrating more on meeting the challenges of their personal retirement, uncaring about the future of the country they have been elected to govern. Given its population of 1.2billion, largely young and in need of jobs, the imperatives for the new Government to look at the future of the country are great. India is at a cross road and the electorate has not only to throw up a more responsible Government but the incoming Government has also to command itself with greater vision.

Examples?

Till 2005 the price of crude oil was rising, as a more affluent Chinese middle class bought more cars which needed more petrol. The technology of horizontal fracturing of shale rock, called fracking, changed a scenario of shortages and rising prices to one of a newly discovered, abundant domestic source of energy for the US. This technology took about 5 years to develop and the US now has the capability to become a net exporter instead of a net importer of gas.

Fracking requires the digging of several wells, 1500, to hit peak production. New technologies will, over the next decade, allow more precise drilling of the wells, to improve productivity by 40%. A problem associated with fracking is that of contamination of water required in the process of fracking. Technologists are working on replacements for water, such as gas.

Have our leaders tried to find shale oil/gas resources and tap the technology to exploit it in India? Not really, they haven't. China is seeking to do so, but is worried about the impact on its water resources, for which the technology solution of gas may assist it. India is concentrating on deep sea oil/gas, and is constantly battling over the price of such gas with the operators who invest to extract it. The doubling of the price to US$ 8.4/unit has caused much angst and even the Election Commissioner has stepped in to stall its introduction. But deep sea extraction is an expensive business. The daily cost of hiring a rig equipped to drill in the deep ocean is US$ 240,000 and not many companies have cash flow from other activities to be able to sustain it. There is no guarantee oil/gas will be found. ONGC has, considering this cost, asked for a price of US$ 13/unit.

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Or take the case of solar energy, a renewable source of energy, which saw similar strides with the use of new technologies. Solar prices have fallen from $ 8/watt peak to $ 2.5/watt peak, rapidly.

India, too, has set up the JNNSM (Jawaharlal Nehru National Solar Mission) but only in 2010, which is strange for a country with ever growing energy needs and blessed with sunshine about 9 months of the year. The new Government must promote this at a faster pace. Instead, what we see is the Prime Minister signing an agreement with Japan to provide technology for nuclear power! Japan is the country which had, in 2011, undergone a nuclear disaster at the TEPCO plant in Fukushima, which is an ongoing problem not only for Japan but for the world. It is several times as dangerous as Chernobyl. The cost associated with setting up a nuclear plant is unaffordably high, making the power generated by it far more expensive than any other source; to this is added the cost of safely storing the spent fuel for 40 years after the plant life is over. The risk to human life is one that no responsible Government would take. Yet the Government of Manmohan Singh is willing to take it!

The quest for energy includes seeking ways to reduce the need for it. The automobile industry is one of the largest consumers of fossil fuels, but our leaders have, strangely, failed to introduce norms for fuel efficiency, as other countries have done. India zigged when it should have zagged! It subsidised consumption of fossil fuels, including petrol, diesel, kerosene and CNG, thereby encouraging its greater use instead of curtailing it.

India encouraged the growth of private transport, instead of expanding public transport. The car is a hugely inefficient vehicle and guzzles energy. But new technologies are available, though not pursued, yet, in India, to make more efficient use of this personal transport vehicle.

Driverless cars are one of them. Controlled by sensors, these cars can move closer together than human driven cars can, thus also increasing the efficiency of road space. Also, being safer, they can be constructed out of lighter material than steel, which is used for passenger safety but whose weight consumes 80% of the energy contained in the oil. When this happens, demand for steel would fall and for the inputs that go into making it.

Companies like Uber, Zipcar and others have made it possible, and easier, to utilise idle car time, behaving like a public transport system available on call. The electric car, popularised by Tesla, is fast becoming a viable option. New battery technologies being developed will lower their cost.

New technologies such as nano, robotics and genomics are also being used to allay the resource crunch. Are our leaders looking at these?

Sadly, their vision has been myopic, restricted largely to protecting their vote banks. The policies emanating from this myopic view hurt industry and the economy.

A few examples.

Politicians in UP, the largest sugar producer, increased the state advised price (SAP) for sugar cane supplied by farmers to the sugar mills, to a level where the millers stated they would rather not crush it than run into assured losses. The higher SAP was to protect a farmer vote bank. As with every mess politicians make, they huddle to find a solution. What was it? They "asked" public sector banks to provide Rs 6,600 crores of interest free loans to sugar mills, of which Rs 1,200 crores has been disbursed. This means one of two things. Either the interest free loans will end up as bad loans, (which means that the banks, and its shareholders pay for the appeasement of the farmer vote bank) or prices of sugar would be raised, after the elections, so that the mills make up for the higher cane price and be able to repay the loan (which means that consumers pay for the vote bank). This is what our political leaders, with short term vision, do to the economy, instead of preparing it for the future.

The same thing, on a larger scale, is in the food subsidy. It is the Government that provides it, but the middlemen that benefit from it, far more than the poor. The subsidy is to be provided to the Food Corporation of India (FCI), wholly owned by Government. But because our Finance Minister wanted to impress rating agencies, he did not fully provide it, and pushed it on as a millstone to the next Government. The result is that FCI has arrears of subsidy of Rs 50,000 crores, which will force it to borrow more. With the same result. The banks will see higher NPAs. The banks will have less money to lend to industry and to the genuine small farmers.

The destruction of successful sectors such as civil aviation or telecom was due to the myopic policy of looking after vested interest of some political parties. The unearned income then needs to be parked somewhere.

The case of Sahara India is intriguing, as beautifully brought out by R Jagannathan in this piece. The fact that there are no queues of angry claimants for over Rs 20,000 crores indicates that the money did not belong, as claimed to 3 crore small investors. This raises two issues. Why are organisations like these allowed to grow to a size where they pose systemic risk? Why are these organisations unregulated, as NSEL was? How can any Government allow an exchange to be established, (with the word 'National' in it, suggesting Government patronage and favour), in which the investing public are allowed to invest, and then not regulate it? Have they inquired who permitted it to run as an unregulated entity? It is only now, after 11 months, that the MPID court has appointed a regulator to oversee the liquidation of seized assets. This is how myopic policies, intended to serve self before nation, pervert a system. The poll results reveal the extent of public distaste for it.

The RBI last week granted licenses to start a commercial bank to two entities, IDFC and Bandhan Financial Services. Others are in queue for new banks. The new Government should also consider diluting its stakes in most of the PSU banks. This would not pose a risk to the financial system, if it retains control over a handful of the larger ones. On the other hand, by freeing management to make commercial, rather than directed, decisions, it would improve the viability of the financial sector and lower cost for borrowers.

The stock market was flat last week. The BSE-Sensex gained 19 points to end at 22,359, whilst the NSE-Nifty dropped 1 to close at 6,694.

Elections are to commence in the coming week. It is the largest polling exercise in the world and a tribute to the Election Commission's ability to conduct it.

One hopes, and expects, that the electorate will throw up a Government that has a long term vision and can look at, and encourage, the finding of solutions using technology and preparing for the future. Not one that lives in the past.

J Mulraj is a stock market columnist and observer of long standing. His weekly column on stock markets has run for over 27 years. An MBA from IIM Calcutta, he has been a member of the BSE. He is Conference Head - India, for Euromoney. A keen observer of events and trends, he writes in a lucid yet readable style and takes up issues on behalf of the individual investor. Nothing pleases him more than a reader who confesses having no interest in stock markets yet being a reader of his columns. His other interests include reading, both fiction and non-fiction, bridge, snooker and chess.

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4 Responses to "Will the next Government have a long term vision?"
Gandhi Pankaj
Apr 8, 2014
Absolutely correct. NO authorities care to inform or indicate the evils are developing.Such as the case of SABARMATI JAIL tunnel matter.Few of the people knows but they dont dare to open up the fact.
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rj
Apr 6, 2014
Hope that RBI will not grant a bank license to Vikram Pandit if he applies. Also it was quite amazing that Raghuram Rajan commented that the rupee should stay above or around the 50 level in relation to the US dollar to help exports !
Exports are 5% of India's economy, I believe. So who are we protecting? How about the rupee going down to 30 to the dollar so that the huge oil imports cost us less?

Is he for the good of the nation or for the exporters?
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Sultan Fazelbhoy
Apr 5, 2014
Dear Mulraj: once more u have hit the nail on the head, and very hard too. Well done, only wish u had said all this a couple of months ago so that some intelligent commentators would take up the issues more forcibly. // now it appeara that NaMo will be the PM and governance will improve. His campaign is brilliant and we seem to have been "rescued" from well meaning Rahul Gandhi.// He has also happily refused the RSS "demand" to put the Ram Mandir as a priority. Too much religion is a curse in our country because it shifts responsibility to take care of all ills to the Almighty; MERIT, INDIVIDUAL ENTERPRISE, INNOVATION, VISION , APPRECIATION OF THE WONDERFUL DIVERSITY OF OUR CULTURE ARE ALL LEFT BEHIND// Pakistan is a very sad example of wasted opportunity because of too much religion. NaMo has an opportunity given to few -- to lead DIVERSE India, so full of talent, to blossom into a beautiful garden of achievments, tolerance, faith in oneself, living by noble standards preached by ALL relgions in our colorful sky with JUSTICE & EQUALITY, regardless of caste, creed, sex, colour, and language ...
DO WRITE MORE ON BENEFITS OF DIVERSITY, LESS OF RELIGION.
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Hari K Singh
Apr 5, 2014
Dear sir,
I am in full agreement is that we have government without any vision , they are busy in pity politics and trying to manage government to remain in the power

We need very strong and visionary government
I have been a regular reader of your article and thank you very much for bringing out issues of national importance
Regards
Hari k Singh
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