Railways and profitability

Nine Ideas that will make Freight profitable

K Yatish Rajawat

Last Modified : 5 July 2014 18:07 IST

[googlemaps https://platform.twitter.com/widgets/tweet_button.1404409145.html#_=1404573415585&count=horizontal&id=twitter-widget-0&lang=en&original_referer=http%3A%2F%2Fwww.rajyasabhatv.com%2Fnine-ideas-will-make-freight-profitable.html&size=m&text=Nine%20Ideas%20that%20will%20make%20Freight%20profitable&url=http%3A%2F%2Fwww.rajyasabhatv.com%2Fnine-ideas-will-make-freight-profitable.html” width=”300″ height=”150″ frameborder=”0″ scrolling=”no” data-twttr-rendered=”true”>

 

Preparation for Railway budget are in full swing and the officials are now closeted inside the Rail Mantralay. The most crucial thing for the Railway Minister is to bring back profitability and sustainability into the budget. Every year Railways has been borrowing money from the government to bridge its deficit, this can only stop if Railways improves its services on the freight front.

The real potential of the largest rail network in the world remain unrealized as freight is treated as a step sister by successive Ministers. Too much focus is there on the passenger fares while the real story lies in how Indian Railways can boost the economy of the country.

Freight services generate profits, which are diverted to subsidize passenger fares, leading to an overall loss in operations. Freight accounts for more than 70 per cent of revenues but does not get the attention it deserves. Development of freight services has been ignored over the years, and Railways has been losing market share to road transportation. Even though, road transportation is an in-efficient way of transporting bulk cargo and polluting. Higher dependence on road transportation also links logistics to the oil bill and raises the cost of doing business. Trucks add to pollution and general congestion in cities and highways. The trucking manufacturers lobby is a strong one, insisting on higher investment in highways. Investment in Highways needs to be balanced with investment in building the Railways freight infrastructure.

There are several reforms that need to be done to make freight services more efficient.

1. Railways charges freight on the basis of the shortest route to the destination not on miles or kilometers traveled. But congestion on major routes means that the shortest route is rarely taken, a fact pointed out by several CAG reports. Freight services and booking needs to be rationalized and every booking needs to be profitable. The profits on freight is divided a zonal and divisional level through apportioning of route traveled in the zone. This prevents a clear picture of profit on each booking nor does it give any incentive for zones to send the traffic through the shortest route. Freight traffic is the first one to be diverted in case of congestion.

2. One of the largest item, for freight is Iron ore and there are concessional scams galore, it has been a major area for losses for the Railways. South Eastern Railways has admitted to freight evasion of Rs 1875.63 crore in 15 cases, the real evasion maybe larger. This can be controlled by payment of full freight first and concession to be repaid or be adjusted against future freight payment. This can ensure cash flow and check evasions.

3. There is poor capacity of both rolling stocks and locomotives for freight. Unlike passenger services where shortfalls are vocally demanded by parliamentarians, the need for increasing capacity is rarely raised as an issue. Procurement of locomotives is slow due to dependence on domestic manufacturing. Railways need to look at lease and maintenance models to augment capacity similar to private airlines that survive on leasing aircrafts.

4. Even for rolling stock or wagons supplies have been poor both from public and private enterprises. Here also new lease model that reduces the initial capital expenditure and spreads the payment over a period of time, this is important Railways has a cash crunch. Supplies from China need to be considered with Chinese banks funding the lease, a model perfected by several companies in oil exploration, and even telecom.

5. Freight traffic was 975 million metric tonnes (MMT) in 2012 and is expected to grow to 1405 MMT by 2017, a CAGR of 7.6 % during 12-17 according to Aranca Research. But expansion is not keeping pace with this demand as Railways does not have any surplus. Huge project like the Dedicated Freight Corridor (DFC) are stuck with land acquisitions and financing issues. Smaller projects some 800 odd ones are not getting the attention because of the obsession with DFC. DFC is a $16.7 bn project that was expected to be completed by 2017. But as per its balance sheet for 2012-13 the cumulative project execution of just Rs 2334.43 crore (approx.$400million) has been done. Spending time and efforts on DFC comes from a mindset of all or nothing. This has to change, incremental capacity is as important and smaller projects between ports and clusters need to be developed on a priority basis. One of the biggest bottleneck to power sector is delivery of coal and rail linkages from mines to power plant an area that has been neglected by Railways.

6. Railways has tried and tested PPP models the success rate has been poor. Privatization cannot fill the gap in freight capacity. For instance the Automobile Freight Transport scheme was announced a few years back and got a lukewarm response with only Maruti-Suzuki showing interest. But no progress has taken place on it since then due too may constraints, the policy needs to be revised.

7. Capacity expansion projects have to be taken up on war footing and should. PMO should directly monitor the progress and completion of these projects so that the Railway minister can ensure their completion. A status report in the budget on these projects will be a welcome beginning.

8. Commodity wise loading models needs to be adopted at major city based freight terminals so perishables can also consider railways as an alternative, The Prime Minister talked about it during his speeches and this is a low hanging measure that can be adopted immediately.

9. Freight Operation Information System (FOIS) is a huge help for bulk cargo transporters but limited to providing information. Can it be made as easy to navigate and book a rake on FOIS as it is to book a ticket for travel, that should be the goal.

(K Yatish Rajawat is a senior journalist. He is the founding Editor in Chief of Business Bhaskar (Hindi) and former Managing Editor of Dainik Bhaskar group. In a span of close to two decades he has worked with Economic Times, Businessworld and The Hindu Business Line newspapers.)

New markets for farmers, can reduce prices

Spare APMC Act, here’s how the Centre can quickly lower food prices

By K Yatish Rajawat  

The APMC Act doesn’t allow farmers to sell directly to consumers. Reuters image

• 0

The Finance Minister Arun Jaitley has called a meeting of the state chief ministers to work out means and mechanisms to control  prices in essential commodities. Traders have been creating  scare that prices of onion and potatoes will go up.

The meeting itself is a good pro-active step as a drought like situation is emerging in the country and more than perishables, hoarding of even grains is expected, driving prices up.  One of the proposals to be discussed at the meeting is to scrap the APMC Act. While the APMC Act is a problem, scrapping it does not solve the problem of price rise. The agenda  of the meeting also includes creating a ‘national market’  though what it means is unclear, as most perishables are consumed in a radius of 200 km to 500 km. Though onions can travel longer distances as they are not perishables. Inter-state movement will also be discussed. But the meeting tomorrow will only be fruitful if there are concrete proposals with the central government.

There are systemic issues at play here, prominent among them is the transparency of the commodity market.  The APMC Act does not help as it builds a supply chain that is further obfuscates the supply, demand and stock situation. Neither the government nor the farmer has any visibility of the price formation.  There is only one section in the APMC Act that is responsible for creating this distortion. This section has found a place even in the amended APMC Act, passed by several states. This section limits the sale by a farmer directly to consumers to 40 kgs in some states.

As a result the only location that a farmer can sell is the local mandi, where the prices are set by arthiyas who have been in the business for years. These traders/ arthiyas are also the traditional support base for BJP, especially in small towns and cities. They are a crucial cog in the BJP support base. Therefore, expecting a diktat like the one given by Ram Vilas Paswan, Union Minister of Consumer Affairs, Food & Public Distribution, that serious action will be taken against hoarders will not be pursued in BJP ruled states.

The state government will not or cannot move aggressively against hoarders and scrapping APMC is not the solution. Besides, the centre cannot scrap or amend the APMC as it is a state subject and needs legislative approval. This is not an immediate solution. The solution lies in an interesting Act passed by the  UPA- 2 government, which is The Street Vendors (Protection of livelihood and regulation of street vending) Act, 2014. This was one of the last Acts notified by the previous government in March 2014. Unfortunately, Congress never used this accomplishment during its campaigning, though it affects a wide range of population.

What the Street Vendors Act does is that it recognizes the street vendor as a businessman, and the same recognition needs to be given to farmers.  Once a farmer is recognized as a legitimate vendor and given the same right he will be allowed to bring his produce directly into the city, and sell it to consumer and the draconian part of the APMC Act will not apply. This will remove the middle layer and give the transparency to the producer about the prices. The farmer will also be able to judge and plant crops based on actual consumer prices. Hoarding will reduce as farmers will be selling directly.

New ways also need to be adopted by the state and city administration to help control prices. For instance, small cities can choose to allocate large parking lots in markets to farmer markets, on the days that the market is shut. In larger cities malls with multi-level parking can be asked to convert their parking into farmers market. Farmers’ market is an accepted model the world over, in which cities and government across the world give consumers access to farmers. Even large cities like New York and others have well established farmers’ market.

Technology can also play a role. A successful model in Hoshangbad district of Madhya Pradesh, gives farmers alerts about prices, stocks and supply expected on a daily basis. The model works on sending this information via a sms alert. It has worked well in preventing overflow of supply and helped farmers discover better prices. If the farmer knows that supply is low on a particular day in the mandi it will ensure better pricing for the farmer and harvesting on demand.

K Yatish Rajawat is the founder Editor in Chief of Business Bhaskar India’s first hindi language business newspaper, and the former Managing Editor of Dainik Bhaskar group, he tweets @yatishrajawat

 

 

 by K Yatish Rajawat 

 

 

http://firstbiz.firstpost.com/economy/spare-apmc-act-heres-how-the-centre-can-quickly-lower-food-prices-89638.html

 

 

How Railways can help cut inflation

How railways can provide relief to the aam aadmi suffering from chronic price rise

By K Yatish Rajawat  

Representational image. Reuters

 

Railway Minister DV Sadananda Gowda has set the ball rolling with the hike in passenger and freight rates. As expected the passenger rates hike has attracted backlash across the public sphere. It is natural for the common man to react to the fare hike particularly daily commuters in metro cities, where the fare hike has been particularly steep. Though, there is also talk of the fare hike being pulled back, especially for the daily commuters. This might be a welcome step but the Railways as the lifeline of the nation can actually help reduce the inflation affecting the common man.

One of the biggest challenge in controlling food inflation that affects essentials like fruits, vegetables, eggs and other meat products is the logistics cost. First, the absence of a cold chain from rural areas to the city means that the wastages are high due to spoilage of product. Therefore the cost of the product sold includes the cost of the product that is wastage. Wastage can vary from 25% to 45 % depending upon the perishability of the commodity.

Second, long distance transportation of these products is unviable because barriers for road transportations, like tolls, checks for tax payment. Waiting at tollgates accounts for almost 50 per cent of stoppage delays on an average trip and toll fees and sales tax contribute to 15 per cent of trip expenses. Each year, fuel worth between Rs 100 and 150 billion (USD $1.48 to $2.77 billion) is wasted on highways and check posts, according to estimates by Transport Corporation of India.

Third, because of the dependence on road transportation the fuel bill directly impacts inflation or price rise of essentials. Indian trucks are overloaded in one direction and return with an empty haul. And almost 65 per cent of the diesel consumer in the country is used in transportation activities, this constitutes 6.6 % of the GDP. And under recoveries are the highest for diesel inspite of price hikes every month.

The Railways have already laid down a well air-conditioned passenger network via the metros trains in big cities. Several more cities are planning metros. The idea is to use this very network for carrying essential commodities in the night, when passengers do not use the network. Cities already insist that the freight carrying trucks can only enter city limits at night, so the ecosystem is already used to working at night. They need to be provided an alternative by the Railways on the existing network of metros and EMUs. The EMU network already connects the main cities to nearby cities which are the hub or the centers for production of the essentials.

The EMU network has to have cold chain rolling stock for vendors and producers of essential commodities to bring them into the cities. This has to be supplemented by the freight metro network for reaching into the different distribution points within the city. The stations and the nearby areas can also be developed as farmers markets for these essentials giving the farmer or producer a direct connect with the consumer. This will be the biggest help that the Rail Minister can provide to the Aam Admi suffering from chronic price rise of essentials.

Yatish Rajawat is the founder Editor in Chief of Business Bhaskar India’s first hindi language business newspaper, and the former Managing Editor of Dainik Bhaskar group, he tweets @yatishrajawat.

http://firstbiz.firstpost.com/economy/railways-can-provide-relief-aam-admi-suffering-chronic-price-rise-89001.html

Ideas to transform Freight service of Indian Railways

ECONOMIC ENGINE
Six ideas that can help Indian Railways transform its mainstay freight business

By K. Yatish Rajawat June 23, 2014
K. Yatish Rajawat is the founding editor in chief of Business Bhaskar, India’s first Hindi business newspaper.

Railways need new ideas. R

The hike in railways fares and freight rates has sparked outrage. Political parties (mainly the Congress, but also BJP allies such as the Shiv Sena) are citing it as an example of an anti-people measure. The Modi government would be well served by seizing the narrative and making strong decisions needed to revive the railways. Smart policies now could help make Indian Railways the lifeline of the country, a true economic engine.
+
Freight services are profitable and account for more than two-thirds of revenues; it is the arm of Railways that allows it to so heavily subsidize passenger fares. And yet development of freight services has been ignored over the years, as rail loses market share to roads. To make the critical segment more efficient, some reforms to consider:
+
Charge the road more traveled

Railways charges freight on the basis of the shortest route to the destination, not on the number of miles or kilometers traveled. Yet congestion on major routes means that the shortest route is rarely taken. This needs to change, and every cargo booking needs to be made profitable.
+
Iron out exemptions

Iron ore bookings and the concessional scams around it has been a major area for losses for the Railways. South Eastern Railways has admitted to freight evasion of Rs1875.63 crore ($312 million) in 15 cases, the real evasion maybe larger. This can be controlled by payment of full freight first and concession to be repaid or be adjusted against future freight payment. This will ensure cash flow and check evasions.
+
Improve freight infrastructure

There is poor capacity of both rolling stock and locomotives for freight. While local leaders and Parliamentarians routinely raise issues facing passengers, freight movers don’t form a constituency and their grievances are not heard. Procurement of locomotives is poor because of dependence on internal manufacturing. Railways need to look at lease and maintenance models to augment capacity. Look at private airlines—they all operate with leased aircraft. Domestic production of wagons have also been inadequate. Options in leasing and financing, as well as imports from China need to be explored. The existing information infrastructure—the Freight Operation Information System (FOIS)—is beneficial to bulk cargo transporters, but is insufficient. It should be expanded to allow bookings on the same platform. Booking a rake should be as simple as buying a passenger ticket.
+
Small projects are key

Freight traffic was 975 million metric tonnes (MMT) in 2012 and is expected to grow to 1405 MMT by 2017, at an annualized growth rate of 7.6% during 2012-17, according to Aranca Research. Expansion of infrastructure is not keeping pace with this growth. One gigantic project, the $16.6 billion Dedicated Freight Corridor (DFC), is stuck with land acquisitions and financing issues. Smaller projects—some 800 odd ones—are not getting enough attention because of the obsession with DFC. While DFC was originally slated for completion by 2017, its balancesheet says project execution worth just $400 million has taken place so far. This mindset of all or nothing has to change, incremental capacity is as important and smaller projects between ports and industrial clusters need to be developed as well.
+
Partnership models have lost steam

Railways has tried the public-private partnership model. The success rate has been poor. Privatization cannot fill the gap in freight capacity. For instance, the Automobile Freight Transport scheme was announced a few years back and got a lukewarm response with only Maruti-Suzuki showing interest. Even then no progress has taken place on it since then. The policy needs to be revised. All capacity expansion projects should be monitored by the PMO and a status report should be included in the rail budget.
+
Make railways viable for perishables

Commodity-wise loading models needs to be adopted at major freight terminals so perishables can also consider railways as an alternative. In fact, with a little bit of imagination, this can be connected to the metro networks currently operating in some cities and are coming up in several more. The rolling stock on the metro tracks is designed for passengers, but can be repurposed into late-night freight metro carrying essentials into city centres. It will help cut the logistics cost for vegetable and fruit vendors. Currently they rely on the road and it is expensive. Besides, most cities restrict the entry of trucks till late night, increasing the waiting period and energy consumption in refrigerated trucks. Railways can complement this with a last-mile cold chain system for vegetables and fruits. Availability of fresh vegetables, eggs and other essentials at metro railway station will be a major convenience for returning home from work.
1
Follow Yatish on Twitter at @yatishrajawat. We welcome your comments at ideas@qz.com.

http://qz.com/224805/six-ideas-that-can-help-indian-railways-transform-its-mainstay-freight-business/

FDI in defence only if it is followed by local jobs

RIGHT POLICY
There’s only one relevant question to ask foreign investors eyeing India’s arms sector

By K. Yatish Rajawat June 19, 2014
K. Yatish Rajawat is the founding editor-in-chief of Business Bhaskar, India’s first Hindi business newspaper.
Investment or foreign direct investment is seen as a panacea for everything—a piece of conventional wisdom you see espoused every day by some expert or other. After the new Indian government was sworn in, the clamour for FDI in defence has reached a peak. The noise is so loud that the defence minister is reported to be seriously contemplating it.
+
Almost every problem in defence—including slowdown in defence procurement and defence preparedness—is expected to get resolved by allowing 100% foreign ownership in the sector. This is the moment to pause. What is at stake here?
+
Permitting FDI in defence has huge ramifications for geo-political relationships, the economy and jobs. India is the largest importer of defence equipment in the world, accounting for 14% of international arms imports. Some 75% of India’s arms come from Russia, a legacy of the Cold War. The US accounts for just 7%. If New Delhi were to allow FDI in the sector, US and European companies would benefit.
+
From India’s point of view, the question to consider it is how many jobs FDI in defence could generate. Creation of jobs is vital for India. According to data from the National Sample Survey Organization, employment-generation rate during 2010-12 was a low 2.2%. This has led to a 16.3% unemployment rate among youth who are graduates.
+
So far, foreign companies are allowed only a 26% stake in defence companies. Indian companies want this limit to continue. This level gives Indian businesses a profitable exit option. In the past, Indian lobbying body FICCI has opposed proposals to raise the limit of foreign companies in the defence sector to 51%.
+
Lobbyists for FDI argue that multinational corporations will bring technology and inputs only if they have majority of full control over their investment. They claim that this investment will create two million jobs—but it isn’t clear how this will happen. Technology transfers do not necessary result in jobs or local production.
+
In the past, foreign companies have been reluctant to transfer core technology. Even for mass consumer items like mobile phones and computers, core technology is never transferred. Instead, components are imported and assembled to meet local production requirements. Nokia’s plant in Sriperambudur, Tamil Nadu, for instance, added local software and regional keyboards and assembled the core unit (before it was orphaned following a tax claim). But all components are manufactured abroad. Only the charger, which uses the lowest level of technology, is manufactured by its vendor Foxxconn in India. The lack of technology transfer is evident from the low wages: workers in this factor earned Rs6,000 per month on average.
+
There is even a fallacy that allowing MNCs into India with 100% stakes will ensure that their technology will percolate into the country and result in domestic production. This argument is made by geo-political experts with little understanding of how business works. A fully foreign-owned Indian company will act as little more than a tax optimizing agent to benefit from the country’s free trade agreements with various low-tax nations. When multi-national companies set up Indian arms, they end up importing from countries like Singapore or Dubai (FTZ) to India. Fully owned Indian companies are preferred as all the benefit of transfer pricing can be captured and taxes avoided. When Indian government pressurises them to begin manufacturing, they set up assembly units. Almost every device or mobile maker uses either a fully owned subsidiary or one of the large distributors to import into the country. None of this results in creation of jobs of any value in India.
+
FICCI and other domestic lobbying bodies have been insisting on minimum capitalization of $100 million as a requirement for allowing FDI. Again the capitalization of the company does not necessarily solve the issue. A high level of capitalization does not mean that it will result into investments or jobs.
+
Instead, the policy should specify how many jobs the company should create for every million dollars of its contract with the government. It should state how these jobs will scale up in value and expertise over the period of the deal. Companies giving the most appealing option should be given the contract, all other conditions remaining the same. The debate needs to shift away from companies to people, and the people want jobs.
+
Follow Yatish on Twitter at @yatishrajawat. We welcome your comments at ideas@qz.com.

http://qz.com/220260/theres-only-one-relevant-question-to-ask-foreign-investors-eyeing-indias-arms-sector/

A new political elite

How Modi’s victory has created a new political elite in India
May 18, 2014 11:52 IST
#BJP #Election results 2014 #India #Indian small towns #Lok Sabha elections 2014 #LS polls #Narendra Modi
by K Yatish Rajawat
The aspirations of small town India has spoken loudly in Modi’s mandate. It is not an easy mandate it comes with sky high expectations. PM designate Narendra Damodardas Modi has to meet them, and this will lead to the biggest shake up in Delhi’s power elites. The edifice of the ecosystem is already shivering, anticipating the change and there are several reasons for it.
One, Modi’s win is the rise of a first generation politician representing the new aspirational class. He understands the impatience of the aspirational class well. It will also mean that there will be little room for bureaucrats and officials who try to explain the country to the new set of rulers. There will be little space for planners/explainers but a huge need for implementers. That is why there is so much talk about dismantling the Planning Commission. It also means that Babus used to planning on files will lose out to a younger aspiring lot that has more recent implementation experience in states.
Narendra Modi. Agencies.Narendra Modi. Agencies.
Second, though Modi is not a Delhi based politician he has worked in Delhi as BJP’s spokesperson and understands the Delhi media’s pressure points well. This will again shake up the cozy combine of bureaucrats and their cliques of journalists. The natural hierarchy of bureaucrats who have worked in Delhi for the majority of their life and have developed cliques with business and journalists will give way to a new order. Babus owing their existence because of their proximity to business or journalists will not find it easy in the new regime.
Third, is the rise of a more holistic view of India rather than a Delhi based myopic view. Modi’s connect with India is higher due to his travels as a Pracharak. An RSS Pracharak becomes ultra-practical. He does not have any resources to support him and is totally dependent on well- wishers of the RSS in the society. At the same time he needs the society to follow the higher ideals that he is preaching. This is what gives the PM designate that zeal. The Pracharak appeals to the patriotic fervor first, culture second and religion follows much later.
Living on the largesse also changes his view towards poor, he does not see them as dole takers or seekers. Modi has a far more granular view of what it takes to bring people out of poverty. UPA needed a motley band of jhola carrying elitists to understand the poor and make policies for them. This unholy alliance between party and the elites made and explained policies to politicians. Bureaucrats and their families with their own NGOs/think tanks formed the triumvirate of this alliance and controlled government dole. RSS and its affliated organization will assert itself much more strongly in this space now. This will affect a legion of second grade bureaucrats surviving on the bloat and dole.Fourth, Modi as a Gujarati does have a natural tendency to favor business.
He does not look at business as just a tax provider and knows that business will do anything for a higher profit. He knows that government needs to harness the animal spirits of business to create job growth. He will support business but he will look beyond tax generation to job creation. He has a better understanding of which industry is a better job generator. This will change the approach that the industry chambers have towards the government. The standard Industry associations line that good business is good for economic growth will change.
The lobbying for policy change will change as both babus and chambers realize that business owners have a better access to the new regime. Their role as facilitators will shift towards balancing public expectations with business expectations. Industry chambers will have to adjust to shift in power within the babudom. A new breed of industrialists from states will acquire center stage in Delhi and even within Industry chambers as the new regimes favorites acquire control.
Fifth, Modi understands the trapping of political power and understands the need of people to be closer to power better than most leaders. While the Congress President did not have to struggle for getting power from an early age, Manmohan Singh rose to power as a technocrat. Modi has got to power by being a pure populist leader, this means he can motivate people by making them believe in a higher cause. It is the role of a populist leaders to weave dreams, though their success depends upon implementing them.
The organization skills of the party and RSS combined with Modi’s skills in tapping into the aspirations and anger created the momentum. He appeals to the self- respect of people by assuring them that it is possible to aspire for better. Due to this he has decimated regional parties and leaders like Mayawati, Sharad Yadav, Ajit Singh and several others who were surviving on caste based votes and failed to read the aspirations. This has a ripple effect on bureaucrats who survived in Delhi, due to their proximity to regional politicians due to caste and cadre. The fall of these regional parties means that these babus are now desperately searching new mentors fearing postings to the states. And thanks to MMS technocrats are now looked down upon and will not find space in the new regime.
Sixth, this is about corruption. Here we need to distinguish corruption on the basis of the level it occurs. Highest level is about crony capitalists bending the ears of politicians and bureaucrats to get favorable policy change. Another level is the one that a common man faces this involves speed money whenever they touch the government for work. The latter is more important to vast majority as it touches their pocket, and this is the message that AAP has to take home. An ordinary citizen in a small town cannot really fathom the thousands of crores that exchanges hand at the highest level. He does not choose his politician on the basis of corruption at the highest level his criteria are different.
For the aspirational class the moral compass corrects slowly, sometimes over a generation. The question of right or wrong for someone who has never experienced surplus income or even steady income is very different from those who see income as a right. How the new regime recognizes this aspect of the aspirational class, controls it and governs it will determine the future.
The author tweets at @yatishrajawat

a link to the article :http://www.firstpost.com/politics/how-modis-victory-has-created-a-new-political-elite-1530809.html

Why is the govt so keen on a flop telecom auction ?

There seems to be a surprising haste in calling the spectrum just auctioned in India as a flop. Even the government which auctioned it seems to be keen on calling it a flop.

It has even convinced media and others to see its action as a flop. Why is it so:

1. It takes the steam out of the CAG charges that the government lost Rs 1.76 lakh crores. CAG had used the 3G spectrum prices to predict he loss to the govt.

2 It will allow the govt the leverage and reprice the spectrum or even move away from an auction system for allocation.

3. It also blow hole in the arguments given by Supreme court that the auction is the best way to price natural resources.

Now the facts

1. The incumbents or the existing spectrum holders did not bid as they already have too much spectrum,Moreover the pricing in this round of auction would determine the pricing when they go for an extension of their existing 20 year license, coming up for renewal next year.

2. Some circles like Delhi and Mumbai did not receive any new bidders as these circles already have so many players. The competition in these markets is so high, plus the incumbent seem to have enough spectrum for growth or expansion. Therefore neither new nor existing players bid for spectrum in these markets. It should not be seen as a failure of the auction process or the pricing.
While these high revenue circles are important the high number of players mean that the overall margins are low. And the penetration is almost hundred per cent. These circles are also not attractive to new comers due to the high cost of customer acquisition.

3. The banks are not keen to finance new telecom players hence there were no new bidders in the auction. Only those players who have their licenses cancelled came back to bid for the spectrum, these player have already committed investment and have to get the spectrum.

Difficult to trust

Politicians with trust
A politicians stock in trade is trust, but trust between politicians and people is at its lowest level. Inspite of the general loss of trust it is difficult to find a politician who does not own or runs a trust in India.
It may sound like an ironical, but there are very sound reasons for politicians to own trusts. The beauty of a trust is that it can hide both income and expenses. Cabinet Minister Salman Khurshid can rage about the lack of any wrong doing in the functioning of Zakir Hussain Trust. India Today group along with other media can argue against it. These charges and counter charges about whether a signature was forged or not, a camp was held in the year 2009 or 2010 will only add to the confusion. And as the debate shifts to micro elements general public will lose interest. And it will die a quiet death buried as much bigger scams are revealed.
The questions that will remain unanswered will be :
Why does Salman Khurshid or for that matter politicians in general own so many trusts and NGOs ?
More importantly is there nothing wrong that a trust owned by a cabinet minister gets funds from the government on a regular basis? Is there a conflict of interest here?
A cabinet minister is very capable of influencing a bureaucrat to disburse funds to an NGO on a regular basis almost for six years. The amounts may not be large ut the regularity means that there is almost assured income enough to attract attention. Nobody is surprised that in a country with 3.3 million NGOs, only an NGO owned by a Minister and his wife gets funding on regular basis.
India has the largest number of NGO’s in the world, almost one NGO for every 400 people. Accountability and audit of these NGOs is poorest in the world, there is no transparency. The last few years have also been very tough for these organizations. Due to the economic slowdown in Europe and US, foreign donations have almost dried up. Last one year Indian government has also become very tough about foreign aid. Therefore, the only source and the largest source of funding is now the Indian Government. And the competition for the government funds is fierce. It is no secret in Delhi’s corridors of power that only those NGO’s get funding which are owned or affiliated to a politician or a powerful bureaucrat.
Cronyisms is so well accepted in Delhi, even among media that it’s not even considered wrong if a minister nudges a secretary to give funding to his own or his wife’s NGO. After all, the funding or grant is for a social good. This behavior is condoned as the funds will be used for social good. Whether they will be or not is a separate matter. Nobody asks and nobody tells. A bureaucrat will certainly never audit or stop the funding of an organization connected to a politician in power for fear of reprisals.
There are no rules, guidelines for a politician holding public office and his family members getting grants and funds from the government for their various NGOs. Though most politician including the legal luminaire Salman Khurshid will point out that he does not own the trust, it is registered in his Mother’s name and his wife runs it. Therefore there is nothing wrong if a fellow minister or the Ministry of Social Justice has given it grants for so many years.
A trust, NGO or a not for profit company is one of the most convenient legal entity for a politician. It can accept funds or donations from practically anybody, bury any kind of expenses and avoid taxes. Yes, do all this in the name of doing social good.
It is easier to spread the funds through multiple NGOs rather than a body corporate due to disclosure regulations. An NGO need not disclose its accounts publicly, while a company has to disclose related party transactions in its balance sheet on an annual basis ( which Robert Vadra has found to his detriment).
The reason these not for profit entities are preferred because they also help maintain the façade of a social activists for the politician. While helping in managing expenses that a politicians has to bear. A typical politician’s household supports several families. There is the entourage and regular stream of favor seeking vote giving constituents. All these people need to be fed, given accommodation and jobs. How is that possible for a full time politician? Moreover as most politicians claim that they do not have too much income, a trust works well to take care of their expenses.
It becomes a convenient vehicle for burying all these costs in a single entity. Even the salaries of the entourage or supporters can be buried in it. The next step is to get funds from the government under a social scheme to meet these costs. An NGO also makes it easier for corporates or business houses to give money. Companies can make a tax free donation to these trusts in cash or kind. They can give funds from their corporate social responsibility budget to avoid any adverse comments from the auditors. This has been done over and over again. Even in the coal scam we saw corporates giving funds to NGOs owned by politicians in Chattisgarh.
The culture of accepting small corruption is endemic. Each politician owns multiple trusts or NGOs. So that grants can be spread across multiple organizations and thus not attract attention. It is easier to own capital assets like land and building under trusts. There are politicians in Maharashtra who have perfected the process of getting land from the government in the name of their trusts. The land is procured in the name of a trust formed for the purpose of running a school and college. Government land is allocated and then it goes on to do commercial activities by renting or leasing the properties on the land.
It is very difficult to trust a politician when he says that his trust is clean.
—ends

Big retailers accelerate the imports of Chinese goods

Most of the debate in FDI in retail is limited on how it will affect the small retailers. As small retailers are rarely represented or allowed to express their views in these debate most articles in mass media say there is no impact on small retailer. But this focus on kiranas or small retailers also prevents the real issue of how foreign retail will change or alter Indian manufacturing from coming to the fore.

How global supply chains can lead to loss of jobs in the long run is not even being discussed ?

It is important to understand that the entry of foreign retail means the entry of global supply chain in India. Inspite of the misinformation being spread by  Ashok Mallick here.

Global retailers will not help farmers or manufacturers to adapt to global supply chains. Labeled by trade unions and left organizations as the “Chains of Greed” these supply chains work to source the cheapest . They won’t help an Indian apple producer in Himachal Pradesh to adapt to the requirements of European consumer or the regulations for exporting there. Indian agri exports do not succeed as farmers use too many pesticides and banned fertilizers. Moreover over a period of time the ground water has so much  banned chemicals that it is difficult for Indian agriculture produce to get approval from US or European food authorities. So its a myth that Indian agri produce will get a global market and foreign retail will help or can help.

Similarly Indian manufacturers whether they are cutlery makers or hand tools manufacturers will not be able to compete against Chinese manufacturers on pricing. And this is what global FDI chain will bring into India. Yes there will be some manufacturers who will adapt and become better at pricing.  The small manufacturers  who do not have the capacities or the resources to cut prices will slowly go out of business. The impact on manufacturers is already taking place in small towns across.

Small retailers have already started sourcing their requirements from cash and carry store whether it is Walmart, Metro or any one of the Indian retail firms. This means that the small retailers are not buying from local manufacturers anymore. Cash and carry stores have taken the role of wholesalers as they are able to provide really low prices due to their volumes. These low prices are achieved by pitting and pushing suppliers globally. Only Chinese suppliers are able to survive and service these retailers. The reality emerging is that Cash and Carry stores have become the largest wholesalers for Chinese products into India.

The flow of cheap Chinese imports and the resulting death of manufacturing will be given a further boost by opening up of the foreign investment in retail. The loss of jobs in retail will be combined with the loss of manufacturing job and will change the contours of Indian economy. According to the Economy Policy Institute just one global retailer Walmart caused the loss of 133,000 manufacturing jobs in US by sourcing goods from China. This job loss was not noticed as the US economy was growing. This job loss is for the period of 2001 to 2006 and has obviously increased as exports from China to US have increased.

UNI Global an organisation representing trade unions shows its impact across several countries. http://www.uniglobalunion.org/Apps/UNIPub.nsf/vwLkpById/870AFFCDCFFA1EE7C12579C00054892D/$FILE/FDI_REPORT.PDF

Large retailers like Walmart also reduces the overall employment per se even within the retail sector for every two employees that Walmart hires three jobs are lost in retail industry. According to a study done by a German think tank  http://www.ilsr.org/wp-content/uploads/2011/12/neumark-study.pdf .

It has been consistently proven in several countries including Mexico that the obsession with lower prices leads  big retailers like Walmart to first force local suppliers to reduce their margins. And then force them to either shift their manufacturing to China or shut down. This study by Colorado University shows how manufacturing in Mexico was severely impacted by Walmart http://spot.colorado.edu/~kellerw/IJKT_012609.pdf.

Therefore what we should worry about is that in the long run as large foreign retail takes over, Indian economy and the job engine will change forever. Are we ready for this future: When uneducated youth who were employed in the manufacturing or kirana stores will no longer have jobs ?

—ends

Who will benefit from FDI in retail–alternative view

The market is rejoicing over Indian government’s decision to open up FDI in retail. It’s cited as a sign of the beginning of reforms era. Most pink newspapers look positively at this move. Though there are some alternative views too http://www.firstpost.com/business/the-murky-truth-behind-upas-big-bang-friday-reforms-456864.html/2

FDI in retail will have several consequences in the long run. One of the side affects of the FDI in retail is the power it will give state level bureaucrats and politicians power over MNC retail companies. The retail firms will now have to shift their lobbying efforts from central government to state governments.

The establishment of a retail outlet comes under the Shops and Establishment Act which is under the purview of the state government. The UPA government has rightfully not tampered with this and left the option of allowing foreign MNCs to state governments. Therefore the opening of the FDI in retail is partial and limited to states like Punjab, Haryana, Maharashtra, Rajasthan etc, where Congress is in power.

This partial opening up also affects existing organized retailers who were hoping to receive FDI stimulus. Existing retail companies may have to restructure their business. the restructure will imply they will have to divide retail outlets in FDI compliant states in one company and the non compliant in another. And they can  sell equity only in the former as foreign retail majors cannot invest in retail outlets in states which have not approved FDI.

While for unlisted retail firms this segregation would be easier, companies like Shopper’s Stop or Pantaloon will find it difficult and time-consuming to do this. Hence the unlisted multi brand retail firms like Spencers may attract FDI while listed will have to wait. Indian promoters like the Biyani group struggling with  high debt cannot raise quick money through stake sale.

As mentioned earlier the states which are opposing FDI in retail now become the focus for the lobbying efforts. Take for instance BJP ruled states of MP and Chattisgarh, where the CMs have opposed the FDI as a larger percentage of their support base of shopkeepers or shop owners. But it is not just the traders or shop keepers who will be adversely affected the biggest impact will be on manufacturers who are not price competitive with Chinese companies.

Manufacturers who are not price competitive will go out of business very fast as MNC retail will plug-in Chinese supply chain into their Indian retail outlets. Foreign retail firms have enormous buying clout in China because of their global volumes, they will leverage this to attract value buyers. And this has happened in several countries including neighboring Thailand where domestic industry has been severely affected by the entry of Foreign retail.

Garments, non branded packaged goods are some of the industries which will be the first one which will see the price pressure. Once MNCs start getting goods from China, Indian retailers will have no choice, but to do the same to match prices. And this will accelerate the shift of manufacturing from India to China.

White label or store labels  shall be procured from Chinese manufacturers, and this will in turn have an impact of domestic brands as they will come under price pressure. HLL, P&G and Godrej Consumer will be some of the companies who will face pressure on their margins as global supply chains start pumping into India. Global retail Giants like Walmart have 80 per cent of their suppliers are based in China.

——-

Unfortunately Firstpost still does not get it http://www.firstpost.com/business/kirana-vs-wal-mart-busting-the-big-myths-of-big-retail-459490.html#disqus_thread

The Kiranas will not shut down because a Walmart will come out in the corner. Kiranas business will be affected as a Walmart will be able to offer everything cheaper included branded products from large wholesalers.

The evidence is already there in the form of buying shift taking place in the large cash and carry stores of Walmart in Punjab, MP and even in the outskirts of Delhi. Retailers are going and stocking up from these cash and carry stores as the prices they can get here they can’t get from the traditional wholesalers. Therefore, Walmart has already started controlling the supply chain where it is present.

And don’t forget Bharti Retail has created a smaller format to fit into a city and small markets too with the Easyday brand. This brand can easily be acquired by Walmart whenever it wants.

———