My reflections at Prabuddha Bharat's STEP 2016

On 24-25 September 2016, Prabuddha Bharat Belagavi had organised a "State of the Nation Conclave 2016" the Conclave was supported by the Visvesvaraya Technological University and Rani Channamma University. The conclave was addressed by renowned speakers and I was also asked to present my reflections on the State of the economy. Below is the text of my reflections at the conclave.

"It is always a feeling of deja vu when you get invited to your home town and are given a chance to address a gathering of delegates in a prestigious conference. I must make it a point to thank Shri L K Havanur, The president of Prabuddha Bharat, Prof Sandeep Nair for thinking about me to be a person of some value to speak to the august audience.

I would  like to place before you my thoughts on three things about the state of the economy.

1. Economic themes post 2014: there is a paradigm shift in the economic themes post 2014 and the new government has been talking about two very important themes;

 

    a. Ease of doing business: we have been doing business, the wrong way for the past 70 years and have been able to bend rules backwards to accomodate our whims and fancies. The times have changed and also the new regulations on GST will change the way we conduct business in the country. whenever you go to the market to buy anything, the regular question asked is whether you want a bill for the transaction, if you want it then you wil have to pay VAT or sales Tax and the price of the product will go up by that extent. This choice is invariably offered by businessmen of all hues and sizes. With the implementation of GST, the question would become redundant as the seller would have already paid his part of the GST and would be eager to recover that amount from the buyer. Hence learning the clean way of doing business becomes more important. this to my mind is the real contribution in ease of doing business. business becomes easy when every body follows the same rules.

 

   b. Make in India: there is a lot to be done in promoting 'Make in India', a lot is being done though, labour laws are being tweaked slowly and surreptiously to make it easy for hiring and firing. But the challenges of Make in India are numerous. One of the biggest challenges is the Prohibitive Land proces and highly complex ownership structure of land holdings. this is one obstacle whcih is going to be diffifcult to remove and make "Make in India" easier.

2. Challenges faced by the government in monitoring the economy:

    a. Collecting economic data is a nightmare for our statiticians. Our IIP data is published three months late, Our inflation data is not relied upon by our own industry people. collecting, collating and computing GDP has become a bone of contention between private data aggregators and the government statitistians. Collecting authentic data in a timely manner is a big challenge for a country whose unorganised economy is larger than the organised economy.

   b. Building and maintaining an organised market for various commodities, products and financial services is another major challenge. creating an ecosystem of organised markets and then collecting and disseminating data are two sides of the same coin.

3. What has changed int he last two and a half years?

       

       a. A very personal example is that I have been asked to be on stage and present my reflections on the state of the economy. The organisers wanted me to talk about my thoughts without asking me about my lineage. This is the biggest change here. Earlier dispensation wanted only those with the right lineage to address gatherings. Being capitalist is no more considered regressive. Still some pockets of the civil (should we call them that) society think that being communist is being progressive. So first victory over the class war has been won by debunking the thought about left leanings being progressive.

     b. We have a government at the centre which has engaged a number of common citizens in a constant dialogue on governance with the help of loca circles and the mygov initiative on the digital platform. I appeal to all of you to please participate on this platform positively and constructively.

    c, Finally you have elected this government in the hope that the government cleans up the house. when you engage somebody to clean your house, remember that the cleaner is bound to reach undr your seat too to get the job done. therefore don't complain that the janitor has reached under your chair too. get up and declare your dirty assets to the government before the cleaner approaches you. these are the last few days available for declaring your black money, make the most of it and declare before the due date.

I would like to end my submission with the following lines

Mera desh badal raha hain, aage badh raha hain.

Thank you"

Is FDI in Retail the "fix-all" for the Indain economy

The cabinet approved 51% FDI in multi-brand retail in the last week. The rumour mongers and spin doctors of the government have started talking as if they have taken a giant step in the direction of development of Indian Economy.

Lets take a look at what are the fall outs of 51% FDI in multi brand retail. If the larger retailers really warm up to this idea and invest in or country, who will bring in the remaining 49% is the moot question? will it be through equity dilution to the Indian Public? or will the corporate chieftains, known for their hoarding propensity grab up the remaining 49% stake? if the public is allowed/invited to participate through the equity route, it will be a welcome step in making public participation more inclusive, else it will be another of those schemes meant for the rich to be richer and poor to be poorer (this is assuming that the larger retailers will adhere to good corporate responsibility and keep their shareholders interests in mind whence they manage their businesses).

Another major lobby which will benefit from this immensely will be the real estate lobby. People holding (hoarding) large patches of prime real estate will be able to strike highly profitable deals at unrealistic prices and will be able to make more money. The high rents paid for these commercial properties will end up burning a hole in the pockets of the final consumer. No only this, but another interesting thing is panning out in the Indian markets due to these unrealistic property prices and rental rates. Visit any city, you will find hordes of empty commercial spaces in the upper floors of posh building without any tenants. The owners think that they will be able to attract the same rent as building space with frontage and have kept them empty. The rentals of commercial spaces work out to a little over 4% per annum on the investments made. investors in real estate/ commercial properties are still doing it because they think that the loss in rentals will be made up by the capital appreciation. (doesn't this smack of the stock market mentality? unattractive dividends being made up for by the capital appreciation of stocks!)

The question is, is this approach to real estate pricing  correct in the first place? Is real estate the same as stocks? stocks are liquid: real estate takes a long time to liquidate, stocks can be easily transferred: real estate takes an eternity, litigation in stocks is very minuscule: real estate is highly litigative in nature. So many differences can be drawn to elucidate that real estate and stocks are different classes of assets and they have to be valued and treated differently.

The trading community, which relies on the difference between the farmers/producers price and the retail price will be the worst hit in this milieu. The commission agent will lose his relevance once large retails come over. Remember Reliance had started a vendor portal to procure all their SKU's directly from the producers. Disintermediation is a good thing for markets. But, intermediation employs a majority of people in India (with a long history of trading, and a country of traders) the question arises that whether it is prudent to kill the business that Indians are so good at?

I have posed these questions to elicit comments and make this a lively discussion/debate. Please feel free to vent your views on the subject.

Now, for the outlook on the markets: The cheer in the stock market will be short lived as with other bailout measures. the NIFTY is in a secular bearish trend and it will take a big effort to turn the tide.

ANNA forces a compromise

The entire episode of Anna and his struggle to bring about the issue of corruption center stage has brought about some key take-aways.

1. The youth and the middle class population of India have become politically aware and they should shed their cynicism and VOTE in the next election.

2. We should not be carried away by tokenism of the politicians: like spending a night at a villager's house (after installing generator, western toilet and filling his house with mineral water)

3. We should stop electing people who are known land grabbers and are in cahoots with builders, contractors and other people who deal with businessmen who sell their wares mostly without receipts and thus steal on sales tax, income tax and other taxes.

most black money results from evasion of taxes. if taxes are paid truthfully and correctly then the question of generating black money does not arise at all.

4. We should stop talking about CASTE in this country.

WE ARE ALL INDIANS FIRST AND INDIANS LAST. ELECT A GENUINE REPRESENTATIVE NOT FROM YOUR CASTE AND THEN SEE THE DIFFERENCE.

ELECT A REPRESENTATIVE WHO SPEND LEAST MONEY ON CAMPAIGNING.

STOP ELECTING PEOPLE BECAUSE THEY BELONG TO A FAMILY

ELECT PEOPLE FOR THEIR WORTH NOT BECAUSE THEY BELONG TO A FAMILY

That's all for today

I know this post is going to elicit a lot of comments. all comments are welcome.