God is on a sabbatical

3 MAY 2014

The world's economic and financial systems were built on certain principles and assumptions. Among the important pillars were individual freedom and liberties, backed by the assumption of an endless supply of natural resources. People had the choice of where to reside, and if the choice was surburbia, or rural areas, they had the means, through private transportation, of living that lifestyle. The seeming abundance of fossil fuels to drive their automobiles, and of natural resources (iron ore, copper, coal etc.) to build them, led to an urban design that is now posing problems, after the discovery that natural resources are in limited supply since God has taken a sabbatical after creating them.

The economic and financial system encouraged consumption. So long as there were enough jobs, and there was an increase in productivity, things were hunky dory. If, at times, the economy slumped, as economies normally do, the Governments stepped in with more money to replace the falling consumption. The modern term for it is quantitative easing (QE).

Global investors were thus encouraged with two bits of news last week. First, the US Federal Reserve continued the phasing out of its QE by reducing bond buying by another $ 10 b. per month to $ 45b. This meant that the US Fed felt the economy was healing itself, and did not need a high dosage of monetary steroids.

The second bit of news that was welcomed was that the US had added 288,000 non farm jobs in April, far more than anticipated.

This is, indeed, welcome news. However, scratch under the surface, and one sees that the situation is very grim.

The fact is that in 20% of American families, no one has a job!. Now this is really scary. These families are all dependent on welfare. Today there are 60 m. more Americans taking money, through welfare, out of the system, than are those employed and thus putting money into the system. Its only a matter of time before there will be no money to pay the welfare cheques. Welfare spending and entitlement programmes make up 69% of the Federal Budget. A third of Americans are living hand to mouth.

The QE has not worked as a medicine to create jobs. As per Zerohedge, "There are 1.3 million fewer jobs in the U.S. economy than when the last recession began in December 2007". Adjusted for inflation, those Americans having full time jobs are earning less than they did 40 years ago! 56% of Americans have sub prime credit today.

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So what happens when States go broke. (Cities like Detroit have already put up their hands and declared bankruptcy, and many more are to follow). The Governments, both Federal and State, start to look for resources. They have gone after tax havens like Switzerland, and have pressured them into revealing details of Americans who have evaded taxes. They are going after Corporations that have foreign subsidiaries, and are parking profits in the subsidiaries, and not bringing them back into the US, to reduce tax liabilities.

A bizarre situation arising out of the quest for resources is the uprising at the Bundy Ranch. This is a standoff between a farmer, Cliven Bundy, who refuses to pay a bill for grazing rights for his cattle which The Bureau of Land Management has raised. The situation appeared to turn out of hand, as several farmers and militant groups came out in support of Bundy, including some Congressmen, but has now been diffused. This is an example of an incident that can be a trigger for social unrest, caused out of the broken financial system.

In order to solve the problems, such as falling fossil fuel resources, scientists are coming out with technological solutions, to reduce our dependence on fossil fuels. Such as this electric scooter or this two wheeled electric vehicle which is more sensible than a car. These columns have talked about how inefficiently the automobile has been designed and how this leads to a wastage of energy contained in the fossil fuels. This is because, in proportion of their relative weights, more energy goes into moving the vehicle than the person. Hence the lower the respective weights of auto:person the better sense it makes from an energy efficiency viewpoint.

One hopes that domestic two wheeler companies like Bajaj Auto or Hero MotoCorp could come up with such ideas, and domestic car companies like Maruti, could think of such designs. We are already seeing signs of trouble in these industries. On the one hand, automobile demand has fallen, and on the other, labour unrest is rising. The slump has resulted in a loss of 150,000-200,000 jobs already. Unless the industry comes out with products that make more sense and are desired, it will continue facing such problems.

Technology is also providing ideas and solutions for the renewable energy sector. Big data and artificial intelligence are combining to make wind power and solar power less costly and more acceptable. India has plenty of both, and should obtain, or develop, these technologies (given its ability as a global IT player, there is no reason why it cannot), rather than chasing the chimera of nuclear power. Nuclear energy is both unaffordably costly and highly dangerous to society, yet is being heralded as one of UPA's greatest achievements. It is, as events in Fukushima reveal, far too dangerous for mankind to even contemplate an expansion of.

Renewable energy is to be pursued because of the genuine concerns of global warming. The US Supreme Court has recently passed a judgement that would lead to a shutting down of 60 GW of coal fired plants by 2020. To put this in perspective, India's total power generating capacity, as of March 2014, is 243 GW.

Here are ten new technologies that are being developed globally. One wonders why we do not see such new ideas emanate from India. The idea of drones used to map agricultural land, and suggests cropping patterns, is an intriguing one and can surely be adopted by India, despite its method of farming being labour intensive, and farms being fragmented.

Technology is also reducing the need for business men to travel in order to do business. Better quality and cost effective technologies now make it possible to have high quality teleconferencing to do business deals. In India we have got into a tizzy over spectrum allocation, and the rollout of the latest, 4G technology, one that would make the above (and lots more) possible, is slow because of it.

The saying that politicians will always arrive at the right conclusion, after having exhausted all other options, applies beautifully to the Telecom sector in India. Even as everyone admits that spectrum is a scarce resource, it has taken years to persuade the Department of Telecom and TRAI, the regulator, that spectrum sharing ought to be encouraged, not discouraged, as they were thus doing.

This list gives the top 10 technology firms which are growing fast but sadly not one of them is from India. Why is that so? Because we have not created an ecosystem that encourages new ideas.

What we concentrate, instead, are non issues. Such as whether the selfie clicked by Modi violated a code of conduct (is it anyone's case that this would prompt voters to vote for, or against him?) or if permission from the Election Commissioner is needed by the Government to appoint a new chief of Army. Are we supposed to request other countries not to attack us because general elections are going on? In Ayodhya, not a single election manifesto mentions the dying river which is its lifeblood and no one talks about why it has been so polluted and what can be done to penalise the polluters.

In order to look for energy resources, the Government had opened up the energy sector to foreign competition, inviting bids in several rounds under the NELP. However, we, as a nation, have a remarkable ability to screw things up, through excessive regulation, through bureaucratic hurdles, even lax oversight, and a confusing plethora of entities from whom permission has to be sought. Consequently, four foreign firms, including large ones like BP and ENI of France, have given up the idea and have surrendered blocks which they had bid for and won, and which represent 7 times the acreage held by Reliance.

One hopes the next Government will have a sharper focus on what India needs to do and whether we will wish to invite foreign investment and technology or whether we feel we have the ability to do everything ourselves.

The next Government will have a lot on its hands. It faces the proverbial resource crunch and will have to find external sources of funds for things like infrastructure and energy. It would need to recapitalise its plethora of public sector banks, and will have to cough up Rs 3.5-4 lac crores, according to Uday Kotak. If it fails to cough up this amount, the growth of PSU banks will be less than those of better capitalised private, or foreign banks. If the Indian economy is to grow at over 8% these banks will have to be funded.

Last week the BSE-Sensex lost 284 points to close at 22,403, and the NSE-Nifty dropped 87 to end at 6,694, on profit booking prior to the D Day of May 16, when results will be declared.

For the markets, the poll results would, of course, be the catalyst for the next move. If the NDA manages to obtain a clear majority, and does not have to go to one of the charming ladies with a proposal of alliance, the market would cheer. Should the NDA fall short of a majority, enough to warrant the need for a reverse swayamvar, the market would fall.

A majority vote would help revive investor confidence. The new Government would have to take quick steps to sustain it, by announcing pragmatic policies. Its immediate problem would be to avert the increasing risk of drought, should the monsoons fail. It would have to find ways to fund infrastructure, its PSU banks, and for a proper education policy (the current one is suicidal) and an infrastructure to re-skill employees, as jobs are changing all the time in a fast moving world. Perhaps it may opt for a voluntary disclosure scheme. It has put a lot of pressure on tax havens which are more amenable to co operating. The stick of action combined with the carrot of a VD scheme, would help fund the infra and other needs. Admittedly, this poses a moral hazard of penalising honest tax payers, but that's the call the Government would need to take, as there are no easy answers.

India is now the third largest global economy on a PPP or purchasing power parity basis and, if it gets honest and competent governance, can easily zoom ahead.

Will it get such a Government on May 16? And if so, will the Government then deliver? It needs to. God, after all, is on a sabbatical.

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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5 Responses to "God is on a sabbatical"

PHM Salih

May 11, 2014

It's said (to quote Shri Shri Ravishankar) that after he received the enlightenment, the Buddha went silent. When requested that he should speak to enlighten others as well he replied that '...those who knew, knew without his speaking to them and those who did not will not know even if he speaks to them'.
What's wrong with this country and the world at large is pretty obvious and the solutions also are elementary. But what prevents intelligent people (that includes our politicians and bureaucrats as well) to do what they should be doing as per their dharma is the narrow selfish interests. We in India lost this one idea long ago.
Optimism is good. But too much to expect from a majority government (even granting that its PM will not turn out to be antisecular as some fear)is going to be in vain, given his idea of development as symbolized by the skewed Gujarat model.
Best of luck to us all. Regards.


Pradeep Kumar Nair P

May 4, 2014

Hi Jawahar,

Only a small comment on our abilities as "global IT player". I am sure you are aware that our prowress is "code jocking", not creating solutions that solve problems / needs for markets / clients (notwithstanding which part of the world).

Therein lies a story of missed opportunities for the last 25-30 years, specifically for the last 15 years.

So we building something that will solve such basic problems (even thought brilliant people are trying brilliant things) seems remote (fundamental skills and mindsets are still not changing), anyways youngsters seem interested in building IP to sell-off , can't blame them, previous generation taught them that's all that matters, did anything sustainable ever come from "selling-off"!

Oops! Guess i have to change my first line to a "long comment" instead of a short comment.. Cheers!


Purnima Toolsidass

May 4, 2014

I love the way J.Mulraj brings matters into perspective! His is the one sane voice, grounded in reality, without bias and with global vision.
The new Government no doubt has many grave challenges, but it would do well to start by trimming down on the unnussessary perks and expenses of Ministers, MPs and bureaucrats!


pankaj jain

May 4, 2014

Dear J Mulrajji,since so many months this is your first article in which the word 'NSEL SCAM' is absent.I think either you or your family member are become successful now to get the recovery of your money involved in that scam.Any way God bless you.


anupam garg

May 3, 2014

Is it just me or did the writer copy the title of the article from 'the daily reckoning' or did he repeat one of his earlier written titles

in any case,the content is once again brilliant

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