Economic growth and personal growth - Straight from the Hip by J Mulraj
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Investing in India - Straight from the Hip by J Mulraj
Economic growth and personal growth A  A  A

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10 AUGUST 2013


There is a TedX talk that is a story of simplicity, but one which readers would do well watching on youtube. The speaker, Jon Jendai, went on a voyage of self discovery and found that, when he went back to his village, after trying to make a life in Bangkok, he found that life was really quite simple. He worked two months in a year to grow enough rice to feed a family of six, and sell the rest. He tended a vegetable patch for 15 minutes a day, and a fish farm. The rest of the time were his to enjoy and learn.

A pertinent point in his talk was that the four basic needs of humans ought to be cheap and available, viz food, clothing, medicine and shelter. But our economic development model is the reverse. Take shelter. Jon built for himself six houses, each in two months, spending two hours a day in the process. His far cleverer city friend has taken a 30 year mortgage to build his house. So Jon says he has 29 years and 10 months of free time!

Instead of making shelter inexpensive and available, all efforts in our country are towards making shelter expensive and scarce, thanks to an urban bias. Supply is artificially restricted by laws such as rent control, floor space index and coastal zonal regulation. This results in unaffordably high prices for shelter, to the benefit of land sharks and their secret political backers. The building boom also results in environmental scandals such as the sand mafia that has shortened the promising career of an upright bureaucrat in UP. Which, in turn, has led to Mulayam threatening to oppose the Food Security Bill as a gesture of irritation.

As we encourage the growth of cities, and thence of a rural to urban migration to service these cities, we distance people from food supplies. This makes city dwellers very vulnerable. For, as this must see BBC Documentary called "Farm for the future" points out, modern farming is very dependent on falling supplies of fossil fuel.

The new cities being planned in India, and elsewhere in the world, ought to have local food supplies, which would make them less vulnerable to bringing in food supplies from distant farmlands. Farmlands that are highly dependent for the manufacture, storage and transportation of food, on declining supply of fossil fuels.

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Granted, it is not possible for most to live the bucolic and idyllic lifestyle that Jon has managed, yet the talk does give us pause to think.

Of the four factors of production, men, materials, machines and money, it is the last which has grown the most. Look at this chart, from the website http://www.globaleconomicanalysis.blogspot.in/

After 1971 the supply of paper money has shot up out of control. The two largest fund management houses, Blackrock and State Street, have more assets under management than India's GDP. This gives the financial sector unbelievable clout which was effectively used to bail out banks in the 2008 meltdown; those which had caused the meltdown in the first place.

Just how much of a clout they wield is highlighted in this brilliant article by Michael Lewis (author of books such as Liar's Poker, The New New Thing and others) on the power of Goldman Sachs. GS hounded a brilliant Russian programmer who quit to join a hedge fund, and was accused of stealing Goldman's programme. This amount of unchecked power is frightening.

India has also done a poor job of regulating an exchange called the National Spot Exchange Limited, which is now in a payments crisis. NSEL had slipped in between regulatory cracks. Belatedly the FMC has been given wide powers to step in and to see that investor interests are protected. Why such powers were not given before the Exchange was allowed to start is a question that has not yet been asked.

This Government has also managed to destroy India's institutional framework and the few upright bureaucrats (Durga Shakti Nagpal being the latest). This bodes ill for the country.

Consider the sorry plight of the power sector. The weak link, as per this article in the Hindu Business Line are the discoms (or distribution companies, not to be mistaken with sitcoms, the TV soaps). The discoms are unable or unwilling to raise tariffs and almost all are in a financial mess. They can't sign agreements with power generators to buy power to distribute. Hence, power capacities of 30,000 MW built since 2009 are facing serious viability issues.

Or consider the situation with iron ore. Export of iron ore has sharply fallen after a recent ban, consequent to the discovery of illegal mining that harmed the environment. Exports fell from $ 4.6b. to 1.6 b between 2011-12 and 2012-13, a drop of $ 3 b. A small part of the US$ 191 bn. trade deficit which is causing the current account deficit to hit 5% of GDP and the rupee to fall, but nonetheless a contributor. Apparently the Ministry of Commerce wants exports to resume, saying there is a stockpile of 100m. tonnes, for which there is no demand, but the Ministry of Steel doesn't, with an eye on future demand after steel capacities come up. Surely a speedier view can be taken!

Of course the 100m. tonne stockpile, if unsold, will translate into NPAs and affect the banking sector and the banks, with locked up funds, will be unable to lend to others.

The sand-off, sorry stand-off, over Durga Shakti Nagpal has led to the National Green Tribunal deciding to stop all river bed sand mining. Again, the consequences to the rest of the economy are not contemplated. This would result in a slow down in construction, which, again would lead to NPA problems for banks. For example, Orbit Corporation has been unable to meet the repayment schedule of LIC Housing Finance because two of its large projects are stuck for want of permission.

Our perverse system makes such permission possible with the application of a little grease. Strangely, the grease soils the hands of only the giver, and not of the taker, who are Government servants! Two executives of Micromax were arrested and jailed for bribing an officer to get permission but one has not heard of the officers being similarly treated. Why so?

At least for the RBI, one of the few credible and independent institutions left, the Government has decided well in appointing Dr Raghuram Rajan as the next Governor, starting September.

One has seen the relentless growth of money supply and, with it, of the power of large financial institutions. Another problem that will is becoming critical is the disappearance of jobs, often to technological advancement. As per this blog the jobs of 5.7 million truck drivers in the US are in danger because new technologies allow trucks to drive themselves!

Talking of jobs, the rise of Government jobs in the US far outstrips the growth of jobs in manufacturing (which has fallen), construction, hospitality or retail. It is unbelievable that in USA, since 1939, the growth in working age population jobs is 150 % but it is 440% in Government jobs!

So it seems that if one wants to be a city dweller one must get a job in the financial sector, and b e good at it. If not, a Government job. Or else go bucolic and be happy, like Jon!

The BSE-Sensex fell 411 points last week to end at 18,789 and the NSE-Nifty dropped 27 to end at 5,565.

It is unlikely that any reform measures will take place shortly. The BJP is set to oppose a hike in FDI limit in insurance and Mulayam is set to oppose the Food Security Bill.

This is a good time to be a medical student, because with general elections approaching, a lot of political skeletons will start dropping out of cupboards. Causing nervousness each time. With all efforts being concentrated to douse these fires, there would be little time or energy left to govern or think of progressive policies. So, though there could be a short rally on technical grounds, there is not much of a case for a sustained rally.

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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3 Responses to "Economic growth and personal growth"
CHETRAM
Aug 11, 2013
ACCOUNTABILITY - ACCOUNTABILITY - ACCOUNTABILITY.
UNTIL UNLESS THE BABUS ARE NOT MADE ACCONTABLE FOR THEIR WRONG DEEDS. ( AN ENGINEER PASSING THE SHODY ROAD WORK OF A CONTRACTOR / AN URBAN OFFICER GRANTING PERMIT TO AN ILLEGAL BUILDING.
HOW AND WHY AN ELECTRIC / WATER CONNECTION IS GIVEN TO ILLEGAL ENCROCHERS.
WHO IS RESPOINSIBLE?
OUR SYSTEM. WHICH DOES NOT MAKE THE PERSON ACCOUNTABLE FOR DOING WRONG.
JAI HIND.
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LOVEPAREEK
Aug 10, 2013
AS ALWAYS, AN EXCELLENT PIECE, ESPECIALLY THE OPENING PARTS FULL OF COMMONSENSE. THANKS FOR THE SHARE. BUT WUD LIKE TO POINT .... U AS WELL AS MANY ARE GOING GAGA OVER APPOINTMENT OF RAGHURAM RAJAN... MARK MY WORDS MR. MULRAJ AS LATER IT CAN B SAID TO BE A PROPHESY.....RAJAN IS NOTHING BUT ANOTHER STOOGE OF CONGRESS/ UPA, THE SAME AS IS CBI...RGDS. Like 
kuppuswamy
Aug 10, 2013
we are nowhere to go. we are becoming pessimestic day after day after reading/viewing from the media about the various events unfolding every day. In the circumstances no one can live like Jon and adopt his lifestyle.
good thought provoking article

swamypk
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