Sunday, 20 November 2016

Demonetisation - Everything good, but what can be better?

Did the demonatisation gamble work? As what Arun Jaitley put, When currency replacement takes place, initial inconvenience takes place, but there is not a single major incident in the country, there are no riots in India which in itself is a proof of success of the execution. Did it achieve it's goals? May be. There are a thousand good things which can be said because of this - normalcy in Kashmir, lesser incidence of robberies, cash surplus with banks and projected lower interested rates. There were some pain areas like the stock market, market areas and real estate, but we will have to wait and watch to understand what's happening in those areas.
India is too huge a country to handle. Probably, never before in world history, people more than 100 million queued for anything which is not an election. This is a sort of scenario, which no amount of planning would have made it watertight in execution. The only thing is a decent execution plan and a steeper learning curve. But, is the curve steep enough? It's but a matter of conjecture. A few points below, would have made the life easier for the government and the people and have made the transition smoother. How many of them are practical and how many or not, how many I missed, it's for the more competent to decide.
1. The difference between 100 and 2000 is very huge. Making a transaction of say, 800 rupees is a very tough task for both the seller and the buyer. 500 should have been introduced before 2000 rupee note. Or is it that 500 is stopped to avoid any leakage of information?
2. The government should have thought about cross bank deposits. Had this been effected somehow, the lines would have been cut down drastically.
3. Instead of taking a paper form and updating the currency note numbers on that, every bank/post office should have been provided a portal to enter the details regarding the transactions. This will help reduce conversion multiple times and FICNs.
4. The government itself should have created an app showing the real time cash status of every ATM. This shouldn't have been a crowdsourced, private initiative.
5. Instant account openings and deposit should have been thought about. After all, what is needed is an Aadhar linked fingerprint scanner.
6. Cooperative Bank issue was unwarranted. When all the banks were closed on 8th, a sweep should have been initiated all over the country to collect all 500 and 1000 rupee notes stashed with the banks, counted and shredded at a consolidation point, may be in every district. When you force everyone to start with a clean slate, past dated transactions wouldn't have happened and we would have seen much more points for exchange.
7. Instead of forcing the hoarders to destroy their currency, a provision for anonymous donation to a select welfare funds like PM Relief Fund should have been provided. That will force governments to jack up the reserves without they being used anywhere.
8. Recaliberating the machines should have been done at a faster pace. Or rather, a plan for construction of new machines should have been initiated as a part of the same program since most of the ATM machines we have today needs to be replaced in the near future.
9. Is it worth investing effort to take down those who still hold paper currency in old notes? After all, it is going to be a scrap of paper if not deposited.

Wednesday, 16 November 2016

South India vs BIMARU vs Rest of India

I was reading this article and was intrigued at how the region level units performed on a few development parameters. Well, as far as I see, there is no comparison whatsoever between South India and BIMARU whatsoever on development metrics. The data is for all to see. GSDP as % of India for UP + Bihar is around 10-15%(similar to tax revenue) and needs to be corrected in the table. I guess this data needs to be extended to BIMARU without UP and Bihar to check how the balance states are performing.

Some serious questions arise out of this -
1. BIMARU states, even though they have double the population as that of South, they contribute the same to India as that of South India. Then, why does the Southern states get a paltry 5% from centre while these states get 12.5%? Note that other states combined get 6.5%. Note that North East makes sense because of the security situation there.
2. Now, compare the same with Tax Revenue as a % of total revenue collected by states. South is way ahead of BIMARU and even worse, having a population same as that of UP+Bihar, contributes three times the money.
3. Even, the Human Development Indicators take a beating for these states vis-a-vis South India.

There is no issue in these states getting this much money. But, the real question is, is the money being used productively or is it going down the drain. This story is happening for more than a quarter century and it's high time we review minutely, why BIMARU states are still guzzling that much without even attempting to compete with South India. Also, something needs to be done seriously for North East as well.

Monday, 14 November 2016

Real Estate Quandary - To Buy or not to Buy?

As an analogy to the current crisis in Indian Real Estate due to the Modi Effect, I asked someone if people migrate from Colgate to Pepsodent, what will Colgate do? This is in response to the assertion that property prices are going to increase after January because people will tend to move towards standard builders thereby creating a demand.
The real impact of Modi Effect is that any sector dealing with paper money crashed big time. Take, for example, cement. It’s not that JK Cement or Ultratech are dealing with black money. It’s their dealer base which is doing this, to some extent. Every company took a beating based on the number of dealerships which collapsed. The crash of cement share prices reflect this concern - less paper money and consequently, less sales. A big player who lost considerable market share, what will he do? This is one aspect of the issue.
Another is the much bigger one - the property deals itself. A builder thinks of constructing an apartment block and zeroes in on a property. He says, I will give 50 lakhs for the bit, but the deal should be written only for 30 lakhs. What does he save there? Let’s say that stamp duty of a property is 8%. If it is 50 lakhs, the cost of the property becomes 54 lakhs. If it is 30 lakhs, he will pay 2.4 lakhs as stamp duty - he saves 1.6 lakhs. May be, he will share a part of this savings to the seller and the end customer. This is more prominent in second hand deals. With the general sentiment of paper money prominence in real estate, everything related to real estate from raw material to finished product crashed big time.
With what Modi did, the builder will have the 2.6 lakhs as unaccountable income for which he will either pay a fine or will destroy it. If I buy a flat from such a builder and if the tax authorities catch him, what’s the guarantee that my investement will still survive? I would rather not buy from him and either cancel the deal or go for a better one. Now, who is this builder? Surely not the top notch one who does shady deals. This means that any small builder is going to see a market crash and a big builder will see a higher demand. Now, what will the small builder do? It’s here that the analogy of Pepsodent and Colgate come.
In both the case of cement and flat, they will reduce the rates to recover their market share. First case, with reduced raw material cost, cost of construction is going to go down and with that cost of an apartment. And with crashing sales, a builder will reduce the property prices. If we assume the gap between a top notch one and an average one is 10 lakhs before and 20 lakhs after the migration, he will increase it to 25 lakhs. He loses 5 lakhs but seeing the gap widening, people flock to the smaller ones. With a diminishing market, the big builder will be forced to reduce the gap to 10 lakhs again.
Synopsis? Cost of raw material will go down reducing cost of construction and cost of property will first go up by Jan and then go down, may be by March. So, what shall we do? Wait and watch, or take a risk?
Another related and much better one -

Sunday, 13 November 2016

Invoiceless Sales - Why do we Indians encourage this?

Just today, I was talking to a friend of mine over demonetisation. He told that those running tea stalls outside his office are not happy at the demonetisation. I asked him, what does that tea seller get. The answer I got will make anyone blink. It’s 20000 per day. Taking 20 working days per month, we are staring at 4 lakhs per month and 48 lakhs per annum - all untaxed. And when his income suddenly falls from 48 lakhs to 32 lakhs, obviously, he will be angry. This is the real situation in India. A microminority of 1.25 crore pay the income taxes and rest all enjoy, either because they are exempted or they are unorganized. What Modi did was to prise open the private coffers of those who are not paying their taxes. A similar thing applies for tax on expenses - VAT and all.
This makes one think, why are Indians not intent on paying their dues correctly, even those paying taxes honestly. Someone will produce fake medical bills, someone else fake house rent receipts and another, always buys from a shop which doesn’t give him an invoice. By not taking an invoice, he and the shopkeeper are forming a nexus to share the tax money which the government gets. Now, what’s the genesis? Well, one theory is below.
Plucking the data directly from an India Today article,
In 1970-71, the personal income tax had 11 tax brackets with the tax rates progressively rising from 10 per cent to 85 per cent. When the surcharge of 10 per cent was taken into account, the maximum marginal rate for individuals was a mind boggling 93.50 per cent  In 1973-74 the highest tax rate applicable to an individual could have gone up to an astronomical level of 97.50 per cent! The Direct Taxes Enquiry Committee, 1971 attributed the large scale tax evasion to the exorbitant tax rates and recommended reduction in the marginal tax rate to 70 per cent. This change was implemented in 1974-75, when the marginal rate was brought down to 77 per cent, including 10 per cent surcharge. In 1976-77, the marginal rate was further reduced to 66 per cent. A major simplification and rationalization initiative came in 1985-86, when the number of tax brackets were reduced from eight to four and the highest marginal rate was brought down to 50 per cent.
Due to the warped socialist policy of our governments which killed investment and gave us nothing but something called Hindu Rate of Growth, a person is supposed to pay taxes as high as 97.5% at times over the income he earns. What incentive will he have to work? Besides creating a Lunch First Business Policy(lunch first, customer next, accountability last), this forces a person to be innovative enough to save a few extra bucks. What does he do? Produce fake bills on the income front. Anyways, the shopkeeper at the corner of the street doesn’t pay taxes. Why can’t I use him to save a few more rupees? Both of them decide not to declare the whole 100% of sales as sales. Government loses sales tax and the tax amount is distributed between the seller and the buyer. In such a case, does desperation to save more takes a priority or does being morally upright takes a higher priority? As and when time progressed, with the collusion of the authorities who again wanted some extra rupees, this would have been institutionalized. The outcome? A microminority takes the tax burden while the masses enjoy. Will this change even after the tax rates became rationalised?
Modi tried to correct this imbalance to an extent - all paper money stashing will have to start from scratch again. But, will this force people to move towards electronic payments, the only answer is wait and watch.

Thursday, 10 November 2016

Monday Morning Quarterback - Lessons from Stock Market

First came the shock of Modi. Next came the shock of Trump. Consequence - BSE Sensex crashed by 1689 points. A part of this was expected because the world was expecting Hillary. My guess was always Trump and I know for sure that the Sensex is going to take a beating because of both Modi and Trump. But this much? I was ready for a crash going by the lessons learnt during Brexit but this time, there was much to learn. The final outcome was, Sensex crashed by 1689 points but recovered 1300, meaning, for one who invested at -1650, it’s a tremendous shoot up of 1300 points on a single day. It’s a no brainer generally and even here, had you selected your sector correctly, you will mint money.
Though Trump Effect was more pronounced, it’s Modi Effect which was more long lasting. Trump effect was, the complete world share markets crashed but recovered to some extent after accepting the reality that Trump won. Modi effect is different. Wherever there is black money, there is going to be a permanent bruise. I thought the impact to share market will be only to shell companies which are used as fronts to manage black money. I pumped in money(well, whatever I got)
Only today, when Mahindra and Mahindra didn’t pick up as I expected, I was able to realize what went wrong and what was the mistake I did - I haven’t considered the sectors where there is black money.
The main areas where Indians pump in black money are
1. Real Estate - The index crashed by -16.5%
2. Gold - TBZ fell by almost 15%
3. Automobile - M&M and Eicher Motors are yet to recover yesterday’s losses.
4. Bollywood
It’s not that these entities hoard black money, but the thing is that people use unaccounted cash to buy products from these sectors. There can be some other sectors which may have been impacted. Sifting these from Trump phobia would give anyone excellent returns.
Now, today. People started surrendering their currency to banks. It’s mostly government banks and less of private ones because private ones deal with privileged customers who generally operate in cash as an exception, not a norm. Since a projected amount of 15 lakh crore is expected to be injected into the bank systems, their share prices are going to shoot up - more money in bank, less NPA%, more liquid money to circulate and give loans etc. This is exactly what happened - Bankex rose by 3.63% while PSU bankex shot up by almost 9%.
The bottom line is that, either be proactive or be a monday morning quarterback. If you are proactive, use the early bird opportunity well. If you are a quarterback, wait for the next time, which may never come.

Saturday, 5 November 2016

The Tatkal Tamasha - Can this be any Better?

There are three things on my mind now, one, vulture politics, second, the Tatkal Tamasha and the third, Home Loan Chaos. What shall I write over? Well, let me start with the Tatkal Tamasha and get over to another things later.
The concept of Tatkal is simple. It’s a last minute availability quota for trains. It gives a chance to people who don’t plan well ahead but will be forced to make a journey on the fly. Conceptually, it’s excellent. But, with the level of train seat availability in India, on critical days(Friday/Sunday) on over night journey routes with potentially heavy traffic, the trains are never sufficient. This leads to tremendous pressure on the Tatkal network and no one, literally no one gets a confirmed seat. Have a look at the number of Tatkal seats available between Hyderabad and Chennai

12760   CHARMINAR EXP   24   32   302
12604   CHENNAI EXP   24   32   286
17652   KCG MS EXP   10   32   175
58   96   763

Are we seriously saying 100 3rd AC and 750 Sleeper Tickets are more than enough for a high traffic route like Hyderabad to Chennai? I tried to book a ticket in one of the trains today. below is the status
10:00 Available 28
10:01 Payment confirmation sent from bank to IRCTC
10:02 Request still processing - payment failed
10:03 Attempted to book the ticket again - W/L 25
10:05 Ticket Confirmed - W/L 22

There are three issues here.
1. Seats are not sufficient
2. Handover from banks to IRCTC is not smooth
3. Even if transaction failed, the ticket got booked. This means, to cancel the waitlisted ticket, I had to  shell out a margin of 65 rupees plus 10 rupees for transaction fee for the bank.

Now, the questions are these -
1. On what basis are new trains decided? Going by the fact that none of the major routes with heavy weekend traffic have sufficient trains, what can be done to add extra trains to handle the load?
2. I don’t know if any gateway can be built capable of handling Indian volumes. Rather than this, instead of getting a confirmation from the bank, it would be much easier if the ticket is locked once a request is sent to the bank, not based on the confirmation. By increasing a confirmation window to, say, three hours, everyone will be able to manage the load by releasing data in a staggered manner. After all, if there is no cash, the ticket will be cancelled and a waitlisted will get the ticket
3. Waitlisting in theory, is a failure from the government in providing services. If a ticket is waitlisted, there shouldn’t be any basis for deduction of the ticket amount from the customer - neither from the bank or from the railways. For a ticket which I don’t want, I lost 75 rupees today, and that too, for two transactions. 75 per transaction for a wait listed ticket may not be that big for me, but think how much money railways earns because of this dummy transaction. After all, if it’s a Tatkal ticket and if it is cancelled, you will get a refund minus service charge.

Indian Railways is one of the biggest entities in the world with respect to work force, revenue, number of transactions and it’s IT backbone. There is too much to wish for, but there are still avenues for improvement.

Saturday, 29 October 2016

Ae Dil Hai Mushkil - What are we missing?

This is what transpired. A movie, Ae Dil Hai Mushkil by Karan Johar was about to be released. Due to the Uri attacks, MNS publicly declared that they are going to block the movie because the producer cast Pakistani actors in that. The Pakistani actor in question, Fawad Khan has already scooted away home with the money he got. The real problem is not that. He was ready to condemn Paris terror attacks but there was a deafening silence over Uri. After safely ensconed in home, he gave a half hearted statement.
After all, belly is more important than anything else for a human being. For Farad Khan, if he openly opposes Uri, he is going to see hell in Pakistan. For Karan Johar, a few lives lost elsewhere are nothing when compared to the crores which will go down the drain. There was an arbitration between Raj Thackerey and Karan Johar done by the Chief Minister, Devendra Fadnavis with the outcome that Karan Johar will pay 5 crores to army relief fund and will put a commemorative display highliting the Uri issue. All were up with cudgels, including the army against MNS for extracting a ransom, in effect, blood money for releasing a movie. My take is that, MNS tried to find a way out of the logjam. Recognizing the loss the producer is going to take and to mollify the angry ranks and common public, they have asked some money to be transferred to the army exchequer, not to his personal or party account.
The drama continues. As usual, people take sides, some supporting the view that in a war like situation, national interests come first and some, asking not to link art and terror. Anurag Kashyap, then jumps into the bandwagon demanding the Prime Minister to apologize for visiting Pakistan. And today, Farhan Akthar states he is not going to give 5 crores to the welfare fund because the army declared it doesn’t accept coerced money.
This raises many questions.
1. Let’s start with the cast, including Fawad Khan. Fawad Khan came to India on a work visa. Even if there are troubles, is it correct to give a retrospective punishment for whatever was done in the past? Block any future visas or participate in a boycott for anything which is going to come, but for whatever that is completed?
2. Take Karan Johar. In such a situation, is a contempt towards anyone and anything except the money he poured in, is it necessary? Why didn’t it strike his mind to donate voluntarily and offer a public apolgy for casting Pakistani actors? Why should someone remind him of his duty towards the nation? Rather than taking the way he took, asking a tax rebate in lieu of reshooting all the scenes casting Pakistanis would have made him a darling in the eyes of these nationalists. The same is more applicable towards Farhan Akthar who held his money even closer to his heart. Contrast this with how people donated their jewellery for 1965. These things, patriotism, social responsibility and the likes need not be taught by anyone. They should come from within.
3. Anurag Kashyap’s immature comment of demanding apology from the Prime Minister highlights another big issue. There is too much exposure to armchair pundits who have zero knowledge over a topic. A big zero in foreign affairs and realpolitik, the fault lies with the media for giving his comments exposure. Let all people blabber whatever they want. Doesn’t it become the responsibility of the media to sift the garbage from what is actually needed for public consumption?
The point here is simple. It’s high time we recognize what we are, what we are capable of and decide what are our priorities - is it fighting for the country’s interests or is it pulling BJP down without realizing that BJP is the sole representative of India today? Too much attention is given to non-issues and it’s high time the press and the country decides the correct priorities. India’s equals in the world are China and Russia, not Pakistan or Somalia. Remember what Hitler did to Emil Hacha. That is Pakistan’s status today before India and that’s what India needs to project. The news should talk about comparisions with USA or China or Russia, not Pakistan or ISIS or Somalia.