Technology, the double-edged sword - Straight from the Hip by J Mulraj
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Investing in India - Straight from the Hip by J Mulraj
Technology, the double-edged sword A  A  A

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17 AUGUST 2012

Scientists very often clean up the messes made by politicians, providing technological solutions to self created problems.

The world is fast approaching, or, according to some, has already hit, peak oil production. For decades, America and Europe encouraged the growth of their auto industry, which provided lots of jobs both in manufacture and in subsequent servicing, by underpricing gasoline products. They were able to do so thanks to their spheres of influence in the Middle East, a cosy arrangement that lasted until OPEC got together and gave the Western world its first oil shock .

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India is treading the same, foolish, path, of encouraging the growth of the private transport sector, unmindful of the crisis of disappearing fossil fuel resources. India really ought to urgently build efficient and affordable public transportation systems, but does not. Instead it has, only recently, reduced import duties on luxury cars from Europe. The Government also does not have the courage to stand up to the auto lobby and mandate tough fuel efficiency standards with increasing benchmarks every year. Tough fuel efficiency norms were mandated by USA after the first OPEC oil shock over three decades ago, but India does not bother to learn from the lessons this provides.

Consider just how crazy the self created problem is. It starts with the design of the automobile which, as the book "Natural Capitalism" says, is stupidly inefficient. It says, "The contemporary automobile, after a century of engineering, is embarrassingly inefficient: Of the energy in the fuel it consumes, at least 80 percent is lost, mainly in the engine's heat and exhaust, so that at most only 20 percent is actually used to turn the wheels. Of the resulting force, 95 percent moves the car, while only 5 percent moves the driver, in proportion to their respective weights. Five percent of 20 per-cent is one percent not a gratifying result from American cars that burn their own weight in gasoline every year."

So, because of the design of the automobile, and the material used in its construction (steel, which is heavy) as also due to the fact that most cars are driven by single occupants, but are bought, aspiring to size, just 1 % of the energy in oil is used to move the passenger! What a waste.

So scientists are called in to find new, unconventional, sources of energy.

One of these is shale oil, which is extracted by a newly developed process called fracking, short for hydraulic fracturing. As a result of shale gas obtained through fracking, America is getting cheap gas, which, in turn, has geopolitical ramifications, as it is less dependent on Middle Eastern oil and so less dependent on supporting their oligarchies. The rise in jasmine revolutions in Egypt, Libya, and now Syria, is more a consequence of the reduced dependence on their oil than on a rediscovered passion for promoting the rise of democracies.

One of the advantages of cheap gas, thanks to the technology of fracking, is that it reduces the dependence on nuclear energy, which is becoming unviable. Strangely, India is, yet, looking at more nuclear reactors, and not promoting the garnering of shale gas extraction technology. Some companies, such as Reliance Industries Limited (RIL), Oil and Natural Gas Corporation Ltd. (ONGC) and OIL India are garnering such knowledge.

But, like any technology, fracking has its own pitfalls. The process consumes too much water which can curtail higher shale gas production.

The debate of pros and cons of shale gas runs across countries. South Africa, which has large potential reserves of shale gas, is debating whether or not to allow its exploitation in the Karoo region because of the excessive use of water and because of environmental concerns (the region houses the black rhinoceros).

Scientists are working on how to reduce water consumption in the fracking process by using ozone.

Another technology of providing unconventional energy is that of the electric car. In my earlier column I had written about how an Israeli startup, Better Place, is promoting this. The main obstacle for consumers to buy electric vehicles was in the inordinate amount of time it took to recharge an electric battery, as opposed to the few minutes it took to refuel a car with petrol/diesel. The promoters of Better Place solved this by a simple strategy of 'renting' batteries to car owners, who buy the electric car without the battery, which is rented. The owner then drives to a filling station, where his 'rented' battery is replaced by another, fully charged one, in a matter of minutes.

Why does India not explore such an option?

Another non conventional source of energy was ethanol, and the US mandated blending of ethanol, derived from corn, with fuel. But this year's drought situation has sharply reduced the corn crop, and there is a raging debate over ethanol versus the world about whether corn diverted from the food chain into production of ethanol should not be so diverted. The last time this happened, it caused severe famine and deaths in African countries.

Politicians in Russia have killed one of the world's largest lakes, the Aral Sea, once the 4th largest lakes in the world. They did this by building two dams, in order to help cotton farming, unmindful of the environmental crime they were committing. One has no idea how scientists will be able to find a solution to a vanishing lake, and fast depleting sources of water. The Antartica polar cap is melting faster than earlier imagined, as are the Himalayas. These are all potential crises waiting to erupt.

In the capital markets arena, computational technology provided a solution to rising transaction costs. Electronic matching of transactions increased speed and reduced costs, providing the benefits of technology. However, the flip side was revealed a fortnight ago. The same electronic matching system failed at Knight Capital, an NYSE market maker, when a glitch in new software resulted in a loss of $ 440 m. in under an hour, thus wiping out the success of the firm built up over a decade.

Now look at the mess politicians in China are creating, by diverting funds deposited into pension accounts, to other uses, such as building up infrastructure. An article 'Fulfilling Promises' in the Aug 11 issue of the Economist states that of the amount of 2.5 trillion yuan deposited by Chinese people into their pension fund accounts, these accounts actually held on 270 b. yuan of assets. The rest has been diverted to other uses. Now, Chinese society is aging very fast; as compared to over 4 active workers for each retired one now, there will be, by 2050, less than 2 active workers for each retired one. The retirees will claim benefits from the moneys they have deposited, but which have been diverted to other uses. A huge social problem is brewing, which no amount of technology can solve.

Similar problems are being created in India by political leaders. The exodus of North Eastern States' citizens, following attacks on them, is a potential minefield, as it contains the danger of social unrest leading to demands for separation, if not urgently tackled.

Last week the BSE-Sensex rose 133 points to close at 17,691 and the NSE-Nifty gained 45 to end at 5,366. The rally was fuelled by foreign investors who, on Aug 14, were net buyers of some $2 b. of Indian equity. MSCI has increased India's weightage in its index, which will further fuel demand.

foreign Institutional Investors (FIIs) are sitting on a mountain of money with few good opportunities to deploy it. US Treasury bills yield less than 3%. US GDP growth is tepid, and European is limp, providing little excitement for equity investment. China has its own set of problems, including the diversion of pension money stated above, and an anticipated bursting of the real estate bubble. India is still an interesting story, despite the efforts by our political leaders to kill it. The economy grows despite, not because of, the leadership provided. It would fly if leadership was true leadership and clean.

Will they wake up and smell the coffee?

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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9 Responses to "Technology, the double-edged sword"
shaheen mohmad ashraf
Aug 22, 2012
mulraj ji kyo dooms day picture paaish kar raha ho, scients round the world working to make fuel efficent cars ,politicians r doing best they can , Like 
Anupam Garg
Aug 20, 2012
Mr. Jawahar's repetitive focus on usage of alternative energy is...well, repetitive

At the same time, cynical comment of kartikay is appalling. where is the infrastructure for entrepreneurship?

e.g: in Hyderabad, the government is coming up with concept of bicycle stations...m sure bicycle manufacturers will move to make use of the opportunity but let the station start first
Like 
ARUN SINGH
Aug 19, 2012
FUEL EFFICIENCY:IT IS A VERY GOOD PROVOKING EFFORT IS DESERVES APPRECIATION.ISSUE OF FUELEFFICIENT CAR MAKING AND ISSUE OF THEIR OPTIMUM USE(CAPACITY WISE) ARE VITAL ISSUES TO BE ADDRESSED BY US,THROUGH ENGINEERS & POLICY MAKERS AND ALSO BY CIVIC SENSE OF THE USER SOCIETY.
ANOTHER ISSUE OF PENSIONCORPUS DIVERSION BY THEIR FUND MANAGERS ON THE INSTIGATION/AND OR INSPTRUCTION OF THE GOVERNMENT OF CHINA,IS AGAIN AN ALARMING ISSUE AND IN INDIA WE MUST NOT MAKE SUCH MISTAKE THOUGH THE POLICYMAKERS HAVE RECENTLY SUGGESTED SOME CHANGES IN INVESTMENT MODE OF PENSION FUNDS, BY ENHANCING THEIR STAKE IN CORPORATE DEBTS & EQUITY/MUTUAL FUNDS FROM 40% 50 45% & 15% TO 25% RESPECTIVELY
Like 
manjunath p
Aug 18, 2012
True about the energy consumption by this world. efficient public transport system can address the problems of this highly populated country. Individual transport is a bane to this country. It took our country to first position in road accidents. We are aping the west blindly. Lot of young children are losing lives by way of accidents on two wheelers leavin g the parents in depression.If we are lucky our country may be led by Mody or Nitish Kumar.
these two are the only ones in near vicinity . Cannot predict if Anna hazare and Kejriwal can do some good to country.they should ignite the minds of poverty ridden villages of our country.Educate them to the mind boggling figures of corruption and the money stashed away in swiss banks etc.
Like 
sunilkumar tejwani
Aug 18, 2012
Criminal nexus between political class and automobile manufacturers has hindered mass rapid public transport. Instead of discouraging, politicians in league with auto manufacturers are busy promoting their wares for getting huge donations to fight elections and compelling banks to extend cheap auto loans. The solution lies in hiking excise duties to the highest and registration charges trebled to discourage private ownership of vehicles. But before that the government must clean up the mess, by developing efficient public transport. The government can take a leaf out of Singapore for that matter. Like 
Amit Sengupta
Aug 18, 2012
Yes, automobiles are the worst in energy efficiency amongst the items of daily use. And at its core, the design hasn't changed since its intro some 125+ years back. Its one of the most outdated design, still in use just because no other alternative finds any meaningful support from any political set up at any part of the world.
So much for techonology and the politicians won't listen. All that they care for is the vote bank or such other means that helps them maintain their weight in the political scene. I think its not India alone. The whole world is suffering since there ain't many efficient and wellmeaning politicians.
Like 
surajit som
Aug 18, 2012
two important issues have been raised: technology and pension. they are different in nature.

technology is as good as the people who use them. it is in the hands of politicians ,their chosen chamchas(bureaucrats) and lobbyists who control the destiny of their people. and they are squeezing out the aam aadmi.in capitalist USA ,Banks and financials Markets are running the country(and much of the world!!). indeed the next possible President-Mitt Romney-is a financial man(who does not dare publish his Income Tax returns). now communist China is stealing people's pension. Mao must be turning in his grave. at any rate ,tomorrow's pensioners would put many beggars to shame. all over the world.just look at Greece right now. in india ,most elders dont know what is pension. it is cruel to say but at least they dont have any illusion !! i am 51 and a govt servant. but i doubt whether i would get it till me death !!!at any rate i dont count on it !!!and even if i get it, would anything be left for the country's development ? mind you ,right now many state government employees -like in west bengal-ARE NOT GETTING THEIR PENSION even after ten years!!!their cases are kept pending because govt has no money !!! this is the greatest scam right now-not 2G or Coal !!
Like (1)
Kartikay
Aug 18, 2012
Excellent Article! But why depend everything on the Government. I've thought about these issues myself and I blame the Middle class and not the Government for this Mess. Entrepreneurship only can solve many of the problems mentioned in your Article and not only the Government policies. It would be wise for the Middle Class population across the world to rise up to challenge faced by us. Its time to take initiative, actively, to engage ourself to the betterment of this 'Society'. Thanks. Like (1)
Sharad Shinde
Aug 18, 2012
An excellent review of the auto world. In Mumbai I see excessive use of swanky cars carrying just one or two members, only if the public transport in the form of thousands of minibuses and vans were available, the traffic problem will be under control, apart from huge savings of fossil fuels .

Like (1)
  
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