india – Page 4 – Pertinent Observations

Visas to India

Between January 2012 and October 2013, India issued over 34000 employment visas. Where did these 34000 foreign workers come from?

Notice that the number of people with employment visas from Japan and Germany outstrip all other countries, by a long way! The United States is not even in the top 12! The other notable exception? Bangladesh!

What about tourists? Where do India’s tourists come from? Between January 2012 and October 2013, India issued about 4.5 million tourist visas. And where did these tourists come from? This graph here shows the percentages:

And which country contributes the maximum number of tourists to India? Bangladesh! 800,000 or almost 18% of India’s tourists in these 22 months came from Bangladesh! And they didn’t come here for medical treatment – that has been taken care of in another category of visas!

Go figure.

Eroding Trust in the Indian National Government

The latest issue of The Economist carries an article which talks about the “eroding trust in national governments”. This article is based on a poll conducted by Gallup in 2007 and again in 2012 with one simple question “do you trust your national government?”. World over, the proportion of people answering “yes” to this question has dipped significantly between the two years.

Now, this graph has been sorted by the orange dots (2012 data) so India is lost somewhere in the middle. What if, however, this graph were sorted by the 2007 numbers (white dots)? Notice that the white dot for India is very close to the 90% mark – the highest ever achieved among all countries surveyed in this poll!

This just goes to show the kind of confidence the Indian National Government (UPA-1) enjoyed back in 2007, perhaps a result of the populist schemes it had launched such as the NREGA. This was before any of the scams hit, and this goodwill might have resulted in the government getting voted back into power in 2009. The interesting thing, though, is that the number for India is still higher than that of a large number of OECD countries.

PS: I would have drawn this graph differently. Rather than using a scatter-plot like this, I would have rather used a slope-graph, which would have shown the relative standings in both years and also the way the ratings have moved.

Growth in India’s foreign trade

I was looking at data from the 2012-13 Economic Survey, and was looking at India’s imports and exports over the year. Just the sheer pattern of increase in trade was stunning, so I thought I should graph it and share it here.

Offered without further comment:

Trying to understand the Telangana situation

Let me state at the outset that this is a dispassionate outsider’s perspective. It’s also rather abstract – I don’t really care about the emotional factor behind the split or the non-split, or how Andhra Pradesh came into being. All that, in my opinion, is secondary.

So the basic issue is this. There is the state of Andhra Pradesh. One part of the state (a minority) thinks it will be better off being a separate state. So for years now they have been clamouring for a separate state. The rest of the state doesn’t want to let them go. And so we have a deadlock.

Let us go back to 2000, when three new states were created in India, breaking up Uttar Pradesh, Madhya Pradesh and Bihar. Those three states also had long-standing demands for separation. All those states had seen “movements” to that effect. The emotional factor was high. The key point, however, is that in each of those states, the rest of the state willingly let go of the breakaway part. Each of the three assemblies passed resolutions recommending the breakaway states. So finally when those states were created the process was rather peaceful and amicable.

That is not happening in Andhra. The Rest-of-Andhra is unwilling to let go of Telangana. Politicians across parties think a breakaway Telangana is a bad idea. The Andhra Pradesh assembly is unlikely to pass a resolution recommending the split any time in the near future. Right now the central government is trying to bulldoze the split and we are seeing the chaos that we are. The question is how we can do this better.

What helped the formation of Uttarakhand, Jharkhand and Chhattisgarh is that their geography is very different from that of their parent states. More importantly, these three states have the kind of geography that makes it hard to govern them. Hilly or forested tracts, with slow transportation and underdeveloped roads meant that administering these areas was costly. Essentially if you did a cost-benefit analysis it made sense to let go of these states – it made the job of the original state government administratively easier.

The problem with the Andhra split is that the capital city Hyderabad lies in smack in the middle of the region that wants to breakaway. People from Rest-of-Andhra have invested heavily in the city, and fear for their investments in case it becomes part of a separate state. It doesn’t help matters that people from Telangana and from the Rest-of-Andhra don’t particularly trust each other. The former claim that the latter have been persecuting them, and the latter fear the same in case the former get their own state. Events over the last few months have only made this trust deficit significantly worse.

What needs to happen is that Telangana needs to assure the Rest-of-Andhra that the people in the latter won’t lose out due to the state split. One way to do this is to sweeten the deal in terms of Hyderabad. One option that had come up would have made Hyderabad a union territory, thus putting it outside the control of Telangana. Another would be for Rest-of-Andhra to be assured of an annual payment based on the state taxes raised from Hyderabad city. This, however, is unlikely to work given the lack of mutual trust.

There is a third option – which is what is being played out now. Telangana acts as a tough guy, and a bully. One who will bully its way into getting its own state. The way this is probably going to work is that by continuously rioting in Hyderabad, it will force businesses to leave the city. As things get worse, the economic value of the city of Hyderabad fall so much that Rest-of-Andhra see no value in holding on to it and vote for the resolution to split the state. Of course, this is not good for anyone since this involves value destruction, but this seems the way things are headed right now.

What might also work (destructive, but not as much as the above) is for Rest-of-Andhra to get a strong message that the state is going to be split sometime in the near future and they have no say in it (this is probably the Central Government’s message currently). Currently, people from Rest-of-Andhra are hopeful that the split won’t happen and are thus holding on to their investments in Hyderabad. As there is more conviction that the state is going to split, they will start slowly withdrawing their investments, so that at some point in the near future, there will be enough politicians from Rest-of-Andhra that will vote in favour of the split in the state.

Note that not all legislators from Rest-of-Andhra need to support the state split. Telangana contains 119 out of the 294 seats in the Andhra Assembly. Assuming that there is bipartisan support for the split among Telangana MLAs, they need the support of only 29 more legislators to have their way. Of course there is the Anti-Defection Law and all that, but this is some food for thought.

Lastly, I don’t think the current process of the Union Government bulldozing the state split is going to work out in the long term. You don’t want to have neighbouring states that mistrust each other. Yes, Andhra Pradesh is a vast state and might be tough to administer. But no decision on its split should be taken without the resolution by its own assembly.

Managing households and economies

Two years ago next next week, I was laid off from a large investment bank. Thanks to my then boss, I had a heads-up – it was only a question of when. I had started making contingency plans – which is the business I run right now. In fact, I had been planning to do this before I got to know that I wouldn’t last much longer at that firm, but that is an incidental point.

The point is that on one particular day two years back I realized that there was going to be a drastic reduction in my (and thus my family’s) cash inflows. And so we begun to make contingency plans. Now, remember that I already knew what I wanted to do next, but I knew that it would take time before it would begin to produce positive cash flows (in fact it would take a year). So the challenge was on how we were going to finance our living in the interim.

What puts me on a weaker footing in such discussions is that I’m not organized. If you ask me how much I spend in a month, I can’t tell you without checking my bank account statement. I believe I don’t spend too much but don’t calculate too much at the time of spending either. Yes, I’m a data scientist but I don’t quantify my life.

Coming back, we made an estimate of how much we spend and realized that there would a deficit that we would have to finance. I had ruled out taking up another job, as I had believed that the time was right for me to do my business. One option was dipping into savings – I had a fair bit tucked away in fixed deposits, and could break one of them. However, the wife wasn’t sure if we should dip into savings for day-to-day expenses. “Let us see how we can cut our expenses”, she said.

And so we sat and tried to analyze how we could reduce our spend without significantly affecting our quality of life. “Use the car only when absolutely necessary” she said, and I agreed it was a good idea. Then she suggested that we shouldn’t eat out (we were already paying a cook a fair sum every month), which I again agreed with. So we proceeded, line item by line item, trying to weed out unnecessary expenses.

Soon, we were out of low hanging fruit (eating out, car, etc.) and things started getting absurd. “Why should we spend Rs. 1000 per month on electricity? We should cut it down by 10%”. “We don’t need two business newspapers. Let’s stop getting Business Standard”. “We should cut our respective phone bills by 10%”. “Do we still need a land line?” While all these are excellent ways to cut expenses, the problem is that it did little to solve the problems. The deficits that we would have to finance every month was of a different order of magnitude, and while measures such as this helped chip away at the deficit, they had little impact on the overall deficit itself.

I’m telling you this long story now because it reminds me of how the Central Government is trying to save the rupee from falling further. For a long time, there were steady foreign exchange inflows into India, thanks to foreigners wanting to invest in our country. This flow of dollars made us complacent, and we weren’t particularly worried by our high import bill. We continued importing heavily, and with the fund flows subsidizing the dollar imports remained cheap, too. We didn’t bother to take steps to boost our exports, though.

So now, the fund flows have stopped coming. And the government needs to do something to make sure our deficit doesn’t grow. And so they have started chipping away at corners. They have increased taxes on gold imports. They want to restrict timings when petrol can be sold. They want to further tax import of apples (the fruit, not the computer). Yes, each of them will make a small dent in our burgeoning current account deficit. However, it will remain just that – a small dent. The deficit is of orders of magnitude more than these dents.

Just like we would not be able to manage the household budget by simply cutting down on small corners (newspapers, electricity, etc.) the country cannot manage to finance the deficit with small measures such as these. What we need is structural change (at least in my personal situation I knew I was starting a business so the structural change was coming; there is no such thing on the horizon at the government level). Currently it is not clear how that is going to happen. Analysts are predicting further fall in the rupee. Given how the government has gone about trying to defend the rupee, that wouldn’t surprise me one bit.

My household budgeting problem was partly solved by the generous severance pay that my employer gave me along with the pink slip. It kept us going for quite a while, then I cashed out some small savings and then my business started producing cash flows. Unfortunately for the country, investors are not in the habit of giving “severance payouts” when they remove their investments from a country.

The Crow’s Designs

As I had mentioned in my blog post yesterday, I just finished reading Sanjeev Sanyal’s Land of seven rivers yesterday afternoon. And later in the evening I started reading Nassim Nicholas Taleb’s Anti-fragile. And before you wonder, let me tell you that yesterday was a working day for me. Just that I had a long process running which gave me the flexibility to catch up on my reading.

So one topic that was mentioned both towards the end of Sanyal’s book and in the prologue of Taleb’s book was the issue of urban planning. And interestingly, the two agreed. In the prologue of Anti-fragile, Taleb has listed out a series of “fragile”, “robust” and “anti-fragile” systems. He has classified it by subject, and in each subject he gives us examples of the three systems. Being halfway through the first chapter, I understand that he is going to elaborate on each member of the list later on in his book, but I’m yet to reach the chapter (I’m still in chapter one, I told you) where he talks about urban planning. Yet, what he has written in that table in the preface on this chapter caught my eye. More so, given that it agreed with what Sanyal had written in his book. In the row on “urbanism”, Taleb has simply written “Le Corbusier” in the Fragile column and “Jane Jacobs” in the Anti-fragile column (the preface of the book is available on Taleb’s website. The relevant section of the table is on page 27).

In the last chapter of Land of seven rivers Sanyal talks about post-independence events that has affected the geography of India. One topic that he delves into is urban planning, where he contrasts the sterility of Le Corbusier’s Chandigarh with the dynamism of unplanned Gurgaon. He mentions that despite careful planning, little economic value has been created in the city of Chandigarh itself, and one reason why it is supposedly clean is because there exist no space for the poor within the city! The city’s rigid master plan is actually a hindrance to economic activity as it allows for little space for entrepreneurial activity to take place. So whatever growth and innovation Chandigarh has seen, says Sanyal, has actually happened in its suburb of Mohali, which is in the state of Punjab.

Urban planning is a topic that I’ve been thinking about quite a bit in recent times, as I’m trying to figure out where to buy a house and “settle down”. Having examined several of Bangalore’s neighbourhoods, I’ve found a strong contrast between planned and unplanned neighbourhoods. The former (eg. Jayanagar) usually have wide roads, pavements, access to markets at frequent intervals (one thing where planning has failed, and for the good I think, is zoning. I wouldn’t want to walk to the main market for every one of my needs) and auto rickshaws. More importantly, they have people walking around on the streets all the time, which makes the neighbourhood safe. Unplanned neighbourhoods (eg. Sarjapur Road) usually have large condominiums, few shopping options and no auto rickshaws. You have either highways or small village roads and not too many people walk around. This makes the streets unsafe and makes you reliant on private transport, which in my opinion is not a good thing. Nevertheless, one must admit that given the massive influx into Bangalore in the last 10-12 years (on account of the IT boom), it is the unplanned neighbourhoods that have taken the lion’s share of housing the incoming population.

So the question is how much planning a city needs. Too much planning (as in Chandigarh and Delhi) can make the cities static, and not provide enough for potential immigration – which is necessary for increased economic activity. On the other hand, unplanned areas are inherently unsafe and don’t provide for a great urban quality of life (as far as I’m concerned one of the primary indicators of urbanism is public transport). Is there a middle ground of “light touch regulation” which derives the best of both worlds? How should urban planners approach this issue? How can we make our cities both dynamic and safe? As of now, I don’t have the answers.

PS: The title of this post is in reference to the name “Le Corbusier” which is French for “The Crow”.

What should we do about the falling rupee?

So the more perceptive of you would have realized that the rupee is falling. And fast. At the beginning of the year, fifty four rupees bought a dollar. Now you need over sixty rupees. That’s a fall of over ten percent in half a year.

People argue based on differences in interest rates and interest levels between India and the United States, and India’s current account deficit, that the rupee deserves to depreciate. Some argue that the rupee should actually trade even lower. That is correct. What makes the fall of the rupee worrying, however, is that it has happened so quickly. No theories on trade imbalance or rates imbalance or inflation can account for the fall of ten per cent in half a year.

The issue, of course as everyone knows, is to do with capital flows. While India has run a persistent current account deficit, the continuous inflow of foreign investment into the Indian markets (either direct or indirect) had ensured that the rupee was relatively stable over the years. With India maintaining a high growth rate in the GDP over the noughties, the inflow was persistent. Things aren’t so good now, however.

India’s GDP is slated to increase at a paltry 5% this financial year. The growth story is seemingly over. And that is not all. Things aren’t looking great in other parts of the world also. Due to this concept of margin financing, sometimes when some of your holdings lose value, you are forced to liquidate other holdings in order to comply with “margin requirements” (we will not go into the technical details here). So with markets around the world not doing great, and India’s growth not as spectacular as it used to be, and with the country’s muddled policies (check out how difficult the government has actually made it to invest in India – irrespective of your nationality), investors started exiting. With some investors exiting, asset values dropped and the rupee dropped. Consequently other investors exited. And so forth. It did not help that there was nothing inherent in India’s government policies to hold them here.

So that’s the story so far. Question is what we should do going forward. As I mentioned earlier, there are two levers that can help shore up the rupee – the capital account and the current account. Within the current account there are two components – imports and exports. What normally happens when a currency depreciates is that exports become more competitive and go up further. Imports become costlier and thus reduce. On the current account front, thus, we have what is called as “negative feedback”.

Notice that in the past whenever an economy staged a recovery, it was generally preceded by a devaluation of the local currency. So since our currency is already devalued the stage is set for recovery, right? Unfortunately it’s not so simple. While it is true that our exports are now likely to be more competitive, fact is that Indian industry is not well placed to capitalize on that. Investment bottlenecks, labour laws and bureaucracy means our entrepreneurs haven’t been able to move fast enough to take advantage of the falling rupee and up exports. This can be borne in the fact that the Reserve Bank of India, which normally shies away from controlling exchange rates (as long as they are not too volatile), has issued several public statements on this matter in the recent past, and taken steps to prevent further fall in the currency levels. That the Central Bank has had to step in to protect the currency shows that we are in extraordinary times. The natural corrector to a falling exchange rate (increase in exports) is absent.

Matters are not helped, of course, by the fact that one of our largest imports is an asset – gold. Thing with asset prices is that unlike prices of “normal goods”, the demand for assets increases with price. When asset prices increase, people see “momentum” in the asset and want to get on to the bandwagon. So there goes part of another natural corrector to a falling exchange rate (less competitive imports).

So coming back to where we started off with – what should the Government do? While this is going to be a time-consuming process, what the government needs to do is to ensure that exporters can exploit the falling rupee. Reforms in this direction are not easy of course – since they require significant efforts in removing bureaucracy and making it easier to do business – which means we need significant administrative reform. There is also the small matter of possibly having to reform labour laws (while on the matter of labour laws, check out this paper by Takshashila Scholar Hemal Shah, who presents some easily implementable reforms in the labour law). While these are difficult things to implement, the fact that there is a crisis gives the government an alibi to push ahead with the reforms. PV Narasimha Rao had done that once in 1991. The problem now is that the government may not have political will given that elections are less than a year away. In this context, it would be advantageous to have early elections, for a new government with a fresh mandate might be more prone to taking tough short-term measures.

Currently, the government is trying its best to shore up on the other levers. Gold import is being curbed – except that it will be hard to implement since they will simply get diverted to the black market. The Finance Minister is traveling the world putting up a roadshow to get investments to India. That, however, is akin to putting lipstick on a pig since there is little in India’s fundamentals and current economic scenario to attract foreign investors. Even if some of these measures succeed, they will only lead to temporary respite to the currency. Fact is that for sustainable improvement in currency, tough reforms are mandatory.

Kabaddi, Jesus Navas, Digvijaya Singh and Modi Bhakts

Writing during the last FIFA World Cup in 2010, I mentioned a concept that I named after the Spanish (and now Manchester City) winger Jesus Navas. It was the strategy of one guy breaking off separately from the rest of his teammates, and ploughing a lonely furrow in a direction different to what his teammates were working on. So when the rest of the Spanish team played tiki taka and relied on a slow build up based on intricate passing through the middle, Jesus would come on and run away on his own down the right flank. It was a useful distraction for the Spanish team to have, for now the opposition could not mass its defences in the centre.

In the same post, I had mentioned that it is similar with Kabaddi. When a team is “defending” all but one person in the team form a chain and try to encircle the attacker. The other guy works alone, and his job is to lure the attacker deep into the territory so that the chain can close in around the attacker. This way, the lone ranger and the team work together, towards a common objective, just like Jesus and the rest of the Spanish team.

Having observed Indian politics for a while now, I realize that the Indian National Congress has successfully adopted this strategy, while the BJP has failed to keep up. Now, the reason you want to use a lone ranger in politics is slightly different, but on the same lines. Sometimes, there can be disagreements within a party on certain issues. For political reasons, the party can officially adopt only one of the two possible paths. Yet, they know that by sticking to this official path, they might lose out on some support. How then can parties tackle this issue of giving out the “dissenting judgment” while still appearing united?

This is where people like Digvijaya Singh come in. Digvijaya is a known loose cannon, and has mastered the art of taking a line different from the mainstream Congress line. In case he turns out to be right, later on the party can claim that he was right all along – and quietly bury the official party line. In other cases, the party can publicly castigate him, and distance itself from his claims. In a way that I can’t fully understand, the Congress has mastered the art of managing the loose cannon, such that they “recognize” his statements when he is right and unceremoniously ditch him otherwise.

The opposition Bharatiya Janata Party (BJP), however, hasn’t got its act together. The biggest problem with the BJP is that there is no one loose cannon with whom an agreement can be struck on the lines of what the Congress possibly has with Digvijaya. At different points in time different party leaders espouse views that are out of line with the party’s official line, and this being hard to control, the party gives off an image as being disunited. The matter is made worse by the thousands of online fans of Gujarat Chief Minister Narendra Modi, who like to voice their personal opinion which may not tally with the party line, but whom the party cannot publicly dissociate from.

It is in this particular issue that the BJP significantly lags the Congress when it comes to media management. As a BJP supporter mentioned on twitter yesterday, Digvijaya can say whatever and the Congress can get away with it, but whatever a Modi Bhakt says gets attributed to the BJP. It is this differential handling of fringe elements that leads to significantly worse press for the BJP than for the Congress. The answer lies in appointing an official lunatic whose job it is to make outrageous statements and be prepared to get censured by the party frequently.

Too many fringe elements, all of them shooting off in different directions, weakens the core, and weakens the focus of the attack. One can be managed, and is useful. More is the problem.

Rail track utilization, per Railway Minister

Now I guess you know how I work. I come across a data set and then torture it to extract as much information as I can before I let go of it. So continuing with the railway data put out by the EPW, in this post we will look at the track utilization. The metric is simple – how many passenger trains go over a piece of railway track each day?

We have numbers for the total route length and the total number of passenger train kilometers. Dividing the latter by the former gives us the number of trains that pass over the average piece of track in a year. Divide that by365 and you get the number of trains that go over the track per day. In 1992, this number was 16. An average piece of track was run over by 16 trains each day. By 2009, this number had gone to 25!

Data source: Economic and Political Weekly May 18, 2013 vol xlviII no 20

Note that these are average numbers. They hide the fact that there might be tracks on which no trains run, and other tracks on which maybe 100 trains run each day (even higher if you think of something like the Mumbai local train tracks). Yet, they give us a good indication of how the railways have utilized the infrastructure that is most scarce (tracks are the hardest thing to add, given the complexities involved in laying additional track – taking into account land acquisition, etc.).

Notice that though this is a largely linear growth, there have been times when growth has been faster than in other times. Next, let us look at how much utilization has been added each year. And let us look at it in terms of who the railway minister was in that financial year!

Notice that the outlier years are the first two years of Nitish Kumar’s occupation of the Ministry. During his unbroken 5 year tenure, Lalu Prasad Yadav also consistently added significantly in terms of track utilization. Unfortunately the data for passenger train kilometers ends with 2009, so here we are not able to see how Mamata Banerjee performed in her second stint in the ministry.

Strain on Indian Railways

In my last post I looked at some railways data that was put out by the Economic and Political Weekly to show that the total addition in route length over the last 20 years is not much to talk about. The same data set also gives data on “passenger kilometers” and “passenger train kilometers” for each year. The latter gives the total distance all passenger trains in India have run, while the former gives the total distance traveled by (ticketed) train passengers in India each year.

Now, the ratio of these two numbers gives us the number of passengers per train. It is interesting to note how this has moved in the last 20 years.

In 1990 the average train used to carry about 800 passengers. That number has almost doubled to 1400 in 2009 (data on passenger train kilometers not available after that).

While some people might see this as a measure of higher efficiency by the railways, I see it more as an inability by the railway infrastructure to keep up with passenger demand. With little track length having been added, there is no surprise in that.