»Straight from the hip by Jawahir Mulraj

Urbanising planet Earth

Stuart Broad, in his Ted talk on 4 Environmental heresies says that by mid century 80 % of the world's population will be urbanised. Humanity is moving at a phenomenal rate of 1.3m. people every week from rural to urban centres. Since they can't be rapidly housed, they squat; there are now 1 b. squatter worldwide, a seventh of world population. He says squatters are people trying to improve their life, and are contributing to society and the economy.

In another Ted talk, Alex Steffen says that man's ecological footprint is too large, requiring 5 planets, and so unsustainable. He counts Vancouver as one of the best planned cities in the world. It discourages private transport, and has segregated, and secured in perpetuity, pasture.

Last Chance to grab StockSelect at more than 75% off!

This is it...

Over the last one month or so during which we ran our "Once-in-a-decade" offer for StockSelect, over 5,000 members have made use of the offer and benefitted from the instant savings.

And we hope and wish that all of them benefit greatly from StockSelect too.

But you'll understand that we can't keep giving away StockSelect for just Rs 1,200 for ever. It's practically and financially not possible for us.

So we will end our "Once-in-a-decade" offer for StockSelect PERMANENTLY at midnight today.

Which means you have only a few hours more to sign up before this offer closes...

You already know all the reasons why you should grab this offer. So go ahead and do that now!

This is your LAST CHANCE to grab this offer...

Click here for full details...

This column talked, last week, about the looming crisis in food delivery to cities, because the food chain is highly vulnerable to petroleum, a resource that is becoming scarce (although new technologies, such as fracking, is now finding a solution to scarcity) and expensive. Urban design would thus require encouraging local food supply, by encouraging such segregation of pasture land and of home gardens.

Future cities will also require a lot of thought into several other problems. They would need to be built with a focus on public transportation, with implications for the auto industry. One wonders why nobody is advocating moving sidewalks as an option. Instead of the horrific wastage of fossil fuels thanks to car design (Amory Lovins, the author of 'Natural Capitalism' says that only about 1% of the energy in oil is actually used to move the passenger, the rest goes to move the vehicle, or is lost in converting the energy into mechanical energy. "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."

With such a scale of urbanisation, demand for energy will increase. China, which has been growing rapidly, and, with it, removing hundreds of millions out of poverty, is also guzzling coal resources at a prodigious pace. It probably consumers more coal than the rest of the world combined!

This has its own consequences. The Air Quality Index of Beijing recently hit a beyond hazardous level of 775, on a scale which defines 301-500 as hazardous. .

India is not looking sufficiently ahead, or planning holistically, to realise that it should discourage private transport and rapidly build up public transport systems. It is only very recently that we have started to phase out the subsidy for diesel. In Mumbai we pursue short term solutions such as building new flyovers, which will be terribly disruptive to traffic flows, instead of considering long term solutions. This is because the longer term solutions are more expensive, although they may be cheaper in the long run. If technologically feasible, moving sidewalks (even on a chargeable basis) is an option that should be considered.

The effects on the environment of CO2 emissions from electric plants and automobiles can best be understood, not by words, but by seeing the unforgivable damage to polar ice caps in this video.

Another problem urban planners would need to seriously think about, and plan for, is potable water. An entire bottled water industry has sprung up, which is doing enormous harm. Harm to the wallet; as this article explains, bottled water costs 5 cents/ounce, far higher than petroleum, which is 2 cents/ounce. Harm to the health, as it contains carcinogens such as bisphenol-A (BPA). Harm to the environment because over 80% of the plastic bottles are thrown into garbage, ultimately ending in the sea, where they kill marine life and birds in a gruesome manner. The industry produces 1.5m. tonnes of plastic waste annually, which requires 47 m. gallons of petroleum to produce. In most of the developed it is safe to drink out of a tap. Not in India. Wouldn't it be cheaper, and better, for cities to treat water which goes into taps, and halt the growth of an industry that causes waste and environmental degradation on an unimaginable scale?

There is no doubt about the trend to urbanisation. The response of Governments to rapid urbanisation, and the way they plan for the future, will have an impact on various industries, which would, in turn, impact investors.

The hope is that a lot of people are thinking about solutions and are throwing them up in new ways. We have earlier talked about the technology of horizontal fracking, which has paved the way for America to overtake Saudi Arabia, possibly by 2020, as the world's largest producer of oil (from shale). Australia, too, has announced a huge find of shale oil reserves, perhaps as large as those of Saudi Arabia.

But technology is a two edged sword. Now that human productivity growth appears to have plateaued, attention is moving towards automation, or robotics. Amazon uses Viva robots for warehousing, distribution and online order fulfilment. That would surely improve productivity, but would also increase unemployment.

Planning future cities would thus need a lot of thought and good governance. Those countries/states that provide it, will thrive, those which don't will flounder. Zimbabwe was once the bread basket for most of Africa, until the country was ravished by a bunch of thugs who misruled for years. It is now completely bankrupted and has hyper inflation. The country's cash on hand is $ 217. History shows that whenever countries are ravaged by hyperinflation, it results in conflict.

Thankfully our monetary authority, Reserve Bank of India (RBI), has kept a beagle eye on inflation, and has only now, last week, reduced its interest rate, the repo rate, by 25 basis points, i.e. quarter percent, rewarding the Finance Minister for his efforts to rein in the fiscal deficit. This was expected. He also reduced CRR by a similar amount, releasing money into the banking system.

The problem for the banking industry is there is little investment demand for funds. The demand is for working capital. This is due to a variety of reasons due to which the corporate sector is not undertaking projects. Including policy paralysis, the difficulty of land acquisition, difficulty of getting environmental clearances and the like. The plan of South Korea's Posco for setting up a steel plant in Orissa has been stuck for 7 years.

This is where governance matters. The Government has now formed a high powered committee to look into all matters which stall growth and hopefully investment demand will pick up.

There is now a consensus between the Centre and the States on CST, and this will pave the way for a long awaited introduction of GST (Goods and Services Tax), something that would benefit the economy, and boost the stock market.

Good governance also means that there should be equality before the law. The explosion of scandals involving politicians in 2012 highlighted the inequality before law; political animals were more equal than other animals. They got away scot free. The conviction of ex CM of Haryana, and now the re-opening of investigation into the affairs of the brother of the ex CM of UP, suggest that this may also, perhaps, change. Hopefully for the long run and not for immediate political expediency.

The case against the brother, Anand Kumar, is that friendly companies, such as DLF, Unitech and others, bought shares in some of his companies, at inflated prices. Usually the shares are then sold, a few years later, at a fraction of the cost, back to the promoter. In effect, the loss incurred on such a buy in at inflated prices, and the sale back at discounted prices, is the illegal payment. This modus operandi had been used, and exposed, in the case of a Maharashtra Minister also. So it is well known to tax authorities who can act, if they wish to, against many more similar instances.

Ironically, the IT Department is pulling up Shell India, for underpricing sale of some 870 m. shares, at par, to Shell Gas BV. The ITD feels that, under arms length transfer pricing rules, the sale price should be much higher, and wants to slap Shell India with a tax on the difference.

Last week the BSe-Sensex dropped 322 points, to end at 19,781, and the NSE-Nifty fell 75 to close at 5,998. This, despite the favourable signals from RBI.

The next major event will be the Union Budget, end February.

Perhaps the sensex could fall to around 19,000, or at worst, 18,500, prior to the Budget. Perhaps, then, PC may decide not to be politically correct by presenting a populist budget, but may decide to be prudently conservative by containing the fiscal deficit, and present a sensible one. Perhaps the budget may be the trigger to drive the sensex above the 21,000 resistance level. Perhaps then investors may sing the Thums up ditty 'happy days are here again'.

J Mulraj is a stockmarket columnist and observer of long standing. His weekly column on stockmarkets has run for over 17 years. An MBA from IIM Kolkata, he has been a member of the BSE. He is now India Representative for Institutional Investor. 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 stockmarkets yet being a reader of his columns. His other interests include reading, both fiction and non fiction, bridge, snooker and chess.

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and has not been authenticated by any statutory authority. The authors, Quantum AMC and Quantum Advisors do not claim it to be accurate nor accept any responsibility for the same.
© Equitymaster Agora Research Private Limited