The housing sector collapse triggered the slide in the economy. Will the Government’s revival plan help?
The decision of the Government to pump in Rs 25,000 crore to help revive the stalled real-estate market is interesting in more ways than one. For one, this is a massive sop to the middle classes, millions of whom have found their investments in their dream homes to be money poured down the drain with delivery delays now exceeding seven-eight years. Second, by capping the value amount of the homes that the project would help with, the Government is attempting to curb the intense speculation and massive price-rise that accompanied the real-estate sector in the boom years. In doing so, there must be a hope that this move will bring a degree of rationality to prices and that developers desperate for a bailout would slash their tags. At the same time, the conditions for getting a bailout are very strict and while a massive corpus has been announced, meeting the conditions might be difficult for several developers as the Government has made it clear at the very outset that it won’t fund projects that have a negative net worth. So several stalled projects by prominent developers around the National Capital Region (NCR) will not get a breather unless the conditions are changed.
Then there is another question. With the State Bank of India (SBI) and the Life Insurance Corporation of India (LIC) providing Rs 15,000 crore of the funds towards this revival, one wonders how these two organisations will make any money? There is yet to be any clarity on that issue. It is likely that the developers will have to pay interest on the funds that they acquire through this project, whether it is through the pending payments of existing house owners or through the sale of the unsold dwelling units. And it remains to be seen whether real-estate developers, who have often been adamant on not reducing prices, being forced to do so, either to gain eligibility or just to stay competitive. This might address some of the incomplete projects out there and will help those who have been waiting for delivery of homes for years, but it might not do enough to spur additional demand. For years, real-estate developers had taken buyers for a ride and the particularly egregious ones — both sides of the Wadhawan clan for example — were living life up at the expense of homebuyers. Those days are over and right now it is a buyer’s market. The Government’s intervention will make it even more so.
Courtesy: The Pioneer
Post the Chandrayaan-2 setback, some may question the ` 970-crore investment in space but this will pave the way for India to tap into trillions of dollars worth of lunar minerals
In science, there is no such thing as failure. There are only experiments and efforts.” With these words, Prime Minister Narendra Modi consoled a crestfallen nation after India’s moon lander Vikram was unsuccessful in descending on the lunar surface smoothly. Some may question the `970 crore ($140 million) price tag of the Chandrayaan-2 mission. But this investment will eventually pave the way for India to tap into the trillions of dollars of mineral wealth on the moon and near-earth asteroids.
To many, this may sound like science fiction, but several national space agencies including the US’ National Aeronautics and Space Administration (NASA), the European Space Agency, Chinese Space Agency, Russia’s Roscosmos, the Japanese Japan Aerospace Exploration Agency (JAXA), are already mapping and exploring the lunar surface and nearby asteroids.
Many private players like Moon Express, Astrobotic Technology, Blue Origin, iSpace and so on have serious commercial plans for lunar prospecting as well. The Indian Space Research Organisation (ISRO), too, completed our first mission to the moon, Chandrayaan-1 in 2008, with great results and now Chandrayaan-2 is expected to take it forward with a mission life of up to seven years. The moon isn’t so far out of our reach after all. Actually, it’s only a two-three day journey, which is shorter than the 79-hour journey on the Kanyakumari-Dibrugarh Vivek Express!
The technology to exploit lunar resources, though immature, is around the corner. The first lunar rover was launched in 1970 by the erstwhile Soviet Union, a year after the first human lunar landing by the USA. Safely landing and remotely driving a car-sized eight-wheeled vehicle on the moon’s surface back in 1970 was a gigantic achievement. The technology was re-used in 1986 to clear radioactive debris inside the Chernobyl Nuclear Power Plant in the aftermath of the nuclear disaster there. In 1997, NASA’s Sojourner rover became the first rover on Mars, followed by rovers Spirit in 2004, Opportunity in 2004 and Curiosity in 2012. China landed two of its rovers on the moon, Yutu in 2013 and Yutu-2 in 2018.
India started its moon exploration mission with Chandrayaan-1, announced by Prime Minister Atal Bihari Vajpayee in 2003 and launched in 2008. ISRO’s Moon Impact Probe confirmed the presence of water in the lunar soil, whereas NASA’s Moon Mineralogy Mapper instrument on-board looked for minerals across the moon’s surface. Interestingly, Chandrayaan-1 was also looking for Helium-3. This specific form of Helium, scarce on earth, is abundant on the moon’s surface. But why are ISRO and other space agencies looking for it? The answer is potentially abundant, safe and clean nuclear energy hidden in it. While Helium-3 fusion technology is laboratory-proven, it isn’t yet commercially viable. Helium-3 also finds applications in cryogenics and medical imaging.
Rare Earth Metals (REMs) are indispensable for modern electronics. China has already cornered 90 per cent of the supply and is aggressively capturing more. While only limited sources of REMs have been found on the moon, NASA still considers it important to be able to mine it, given its critical importance. Further, the moon also has concentrated deposits of titanium, a metal critical for advanced weaponry.
However, the big question remains if lunar mining will ever become commercially viable? For that, we need to look at other maturing knowhow that will benefit lunar mining technology. Reusable rockets, as demonstrated by SpaceX and Blue Origin, are set to disrupt the launch industry. Other Government and private agencies are furiously trying to emulate the same to remain competitive. Space transportation costs are expected to go down significantly. With equipment delivered to the moon, advanced construction robots will assemble mining facilities.
Also, 3-D printing technologies will allow forging smaller parts and replacements. Autonomous vehicle technology being pioneered by the likes of Google, Tesla and Uber can be re-purposed for automated prospecting, extraction and movement of lunar mining vehicles. Advances in industrial robotics will lead to automated ore refineries, with lunar mining vehicles dumping raw ore at one end and refined product coming out of the other. Human supervisors would stay in habitats built into the lunar caves, similar to the International Space Station.
It is not just one technology in isolation, nor just one mineral that will seal the deal. When taken together, we can see a reasonably positive picture emerge. The likely trajectory of lunar mining will probably start with surveying and small sample-return missions. These will eventually grow in scope with small factories and minor human settlements, before growing into a large industry.
In 1957, the Soviet Union launched the first satellite in orbit. Just six decades later, global space activities are valued over $350 billion as revealed by a Morgan Stanley report, with projections to reach over a $1 trillion by the 2040s. NASA estimates that the present lunar resources are worth hundreds of billions. But the moon is just a test bed of sorts for asteroid mining and Mars colonisation, where there are even more resources to be harnessed. The website Asterank lists several near-earth asteroids and their potential financial value. Asteroid Ryugu, that is orbiting between the Earth and Mars, has an estimated $80 billion worth of minerals. Japan’s Hayabusa 2 touched down on it earlier this year and is expected to return with a sample next year.
In the ancient Indian epic Mahabharata, after the devastating war between the Pandavas and the Kauravas, the oldest of the 100 Pandava brothers, Yudhisthira laments over his depleted treasury. However, Ved Vyas tells him of the great Mount Meru (the sacred five-peaked mountain of Hindu, Jain, and Buddhist cosmology that is considered to be the centre of all the physical, metaphysical and spiritual universes) in the inhospitable reaches of the northern Himalayas that has an abundance of gold. Yudhishthira launches an expedition to mine the mountain and thus replenishes his kingdom’s coffers.
We are an ancient yet continuing civilisation. For centuries, India was at the forefront of several technologies, especially metallurgy, textile, civil engineering and agro-tech. While large-scale space mining and colonisation are still decades away and are fraught with millions of dangers and hurdles, no civilisation can propagate itself unless the present generation plans and invests for the future.
In 2018, the Modi Government restarted the ambitious Indian Human Spaceflight Programme by announcing budgetary funding for the programme and Gaganyaan, an Indian crewed orbital spacecraft, is intended to be the basis of the project.
The programme will eventually help establish a domestic space tourism sector and perhaps decades later, lead to an Indian moon base. We owe it to our descendants to give them a head start when they take over the reins of India.
(The writer is Telangana BJP spokesperson, economist and Director, Centre for Leadership and Governance, Hyderabad)
Writer: Anugula Rakesh Reddy
Courtesy: The Pioneer
The quashing of Article 370 was only a stunt and gimmick to divert attention of the public from the terrible economic crisis facing India
Much has been said and written about abrogation of Articles 35A and 370 of the Indian Constitution, which gave special status to Kashmir. I had avoided commenting on the topic for quite some time as the atmosphere was so surcharged with jingoism and euphoria about our great ‘victory’ that it was impossible to present a rational opinion without getting a barrage of abuses and invectives in return. However, now the time has come to speak the truth.
In my opinion, this abrogation was only a stunt and gimmick to divert attention of the public from the terrible economic crisis facing India. Let me explain.
The test of every political system and political act is one, and only one: Does it raise the standard of living of the people? Does it give them better lives?
To my mind, abrogation of Articles 35A and 370 will not raise the standard of living of the people of Kashmir and so it is really irrelevant whether they are retained or not.
The truth is that the Indian economy has tanked and is nose-diving rapidly and irreversibly. Details about the dip in the Gross Domestic Product (GDP), steep downward turn in the automobile, Information Technology (IT), real estate and other sectors, lakhs of job losses, and so on have been widely publicised in the media, and so I need not repeat them. All serious economists admit that the crisis is due to lack of demand (since most of our people are poor) and the huge job losses have further accentuated the problem. A worker is not only a producer, he is also a consumer. For instance, a worker in the automobile sector not only produces vehicles; he and his family consume food, clothes, shoes, medicines and so on. When he loses his job his purchasing power is drastically reduced and he is forced to survive on his savings and spend only on bare essentials.
When job losses take place on a large scale, the domestic market consequently shrinks. This makes manufacturers cut down on their production and lay off many workers, which makes the market shrink further, thus intensifying the crisis. It’s a vicious cycle.
Businesses run on bank loans and banks run on loans to businesses. Both will be adversely affected, because businesses will borrow less when their market (i.e. demand for products) has shrunk and banks will lend less for fear that the loan may become a NPA and may never be recovered. A catch 22 situation again.
The huge deficit in the Union Budget has been sought to be covered by taking Rs 1.76 lakh crore from the Reserve Bank of India’s (RBIs) surplus funds. But this can only give temporary relief and reminds one of the situation in France before the French Revolution of 1789. In something similar to what is happening in India, the situation at that time was that the expenditure of the French Government (the monarchy of Louis 16th) far exceeded its revenue and the huge deficit was sought to be covered by taking loans from Dutch bankers. However, a time came when the bankers realised they would never recover their loans, and so stopped giving any further ones, and the consequence is well known.
Our political leaders obviously realised that an economic crisis was looming and to divert attention from it resorted to the desperate gambit of abrogating Articles 35A and 370 (since Ram Mandir, Yoga Day, Swachh Bharat Abhiyan no longer sufficed ), depicting it as a great triumph over the villain, Pakistan.
This has no doubt been lapped up with glee by our gullible public but harsh economic realities cannot be wished away for long. Like Banquo’s ghost in William Shakespeare’s 1606 play Macbeth, they will just keep reappearing.
(The writer is a former judge of the Supreme Court of India.)
Writer: Markandey Katju
Courtesy: The Pioneer
India must understand which e-commerce policies can create uncertainty for firms as addressing them will help it reap benefits innovative technology companies bring
During Amazon’s second quarter earnings announcement recently, its Chief Financial Officer (CFO) Brian Olsavsky commented on India’s e-commerce policy and expressed the hope that the Government would provide a stable and predictable policy for the company to continue with its investments in technology and infrastructure. This demand is a new addition to the e-commerce debate and a novel one given that it is coming from a firm already heavily invested in India.
India must understand which policies in the e-commerce space can create uncertainty for companies, as addressing them will help the country reap the benefits innovative technology companies can bring to the table. Amazon services bring in jobs and investment to local economies globally and in India, along with innovation and knowledge that will help companies grow and improve productivity.
Amazon’s inauguration of its Hyderabad-based office, that is the single-largest till now globally, housing 15,000 employees across 1.8 million square feet of space, is proof that it considers India a viable business environment despite the regulatory hurdles faced in tariffs, taxes, stringent Foreign Direct Investment (FDI) norms and ever-changing data regulations.
Globally, site selection by large multinationals follows an intensive bidding process, with US states offering incentives to woo them. Last year, the firm narrowed down its Amazon HQ2 locations, choosing Northern Virginia over New York. There were a total of 238 bids for the site. Some states, most notably New Jersey and Maryland, offered multi-billion dollar incentive packages — $7 billion and $8.5 billion, respectively — to Amazon, but did not make it to the shortlist. After taking into consideration the existing availability of skilled workers, the infrastructure, cost of doing business and a stable business environment, the tipping factor which influenced the location decision was the pushback in the New York location, in contrast to a warm welcome from the community in Virginia, despite its moderate offer of $750 million in incentives.
Governments bid aggressively and offer incentives to attract successful multinationals as these firms generate economic activity through supporting and linked businesses, upskill workers and increase the uptake of more structured management practices, thus improving the overall productivity of local companies.
Recent research found that such million-dollar plants lead to significant increases in management, productivity and employment by the incumbent firm that boosts the local economy.
There is a stronger effect through companies which are in sectors where there are frequent flows in managerial labour from the plant’s industry, found by comparing incumbent firms in locations, which were the winners of the bidding process with the runners-up who narrowly missed being selected for the site.
Policy uncertainty deters companies from investing and hiring. When organisations are unclear about the future economic environment, they hold back on investing until policies become clear. Productivity growth also falls because this pause in activity freezes reallocation across units. In the medium-term, the increased volatility from the shock induces an overshoot in output, employment and productivity. Thus, uncertainty shocks generate short sharp recessions and recoveries.
All this affects long-term investments that are irreversible in nature and for which horizons for cost recovery can run into years. This would include innovation and research and development investments, ventures into new markets and infrastructure development. When there is a lack of stability and certainty in the future actions of the Government and regulators, enterprises hold back from investing in these dimensions. This, in turn, limits the impact of such firms that can come from long-term investments, including benefits to employment, wages and growth.
The role of economic and policy uncertainty at the macro-economic level has been measured globally and has recently been highlighted in the 2019 Economic Survey. An index is created by quantifying newspaper coverage of policy-related economic uncertainty mentions in the national newspapers, through combinations of keywords related to policy and uncertainty. This measure correlates strongly with stock market volatility measures, such as the India VIX Index. This measure is used globally to study the effects of events such as Brexit, the US-China trade wars and so on.
A less understood concept is that enterprises can also face uncertainty at sectoral, geographical and individual levels. Industry-level uncertainty can be measured through surveying firms sampled across sectors, asking them about expectations of future growth and costs at various horizons. Though this is harder to capture, it is amply clear that Amazon’s statement alludes to policy uncertainty in the e-commerce space.
Here are a few of the policies in the e-commerce space which increase uncertainty for businesses and thus deter investment: The draft National e-Commerce Policy rules earlier this year, preventing companies from influencing prices or selling products in which they hold stakes, disrupted business plans for e-commerce firms. It pushed firms back to the drawing board to ensure they can comply with the current regulations while limiting losses that arose from lack of clear direction from the start. The final e-commerce policy has been held back for another year, putting the investments of businesses in this sector in jeopardy during the interim months.
The recent recommendation by a high-level Government panel to do away with the need for foreign firms to store a copy of all personal non-critical data in India will help companies, though the decision on data localisation remains to be made.
Under data localisation, foreign companies would need to redesign internal algorithms to access data locally, pay up for new servers and face costs to protect data in less-secure environments. There is also uncertainty as to what constitutes non-critical data and how it would interact and overlap with critical data. E-commerce companies still face policy uncertainty while the due process of discussions with various Government bodies and stakeholders regarding data localisation is completed. We soon expect to hear from the Prime Minister’s Office on data localisation. The announcements, though not final, do offer direction and some insights into the Government’s thought process.
A related issue is the disclosure requirement of source code under the draft e-commerce policy. Amazon depends highly on data-driven marketing and heavy use of its item-to-item collaborative filtering algorithm for customer recommendations.
A code submission requirement is a coercive technique aimed at achieving the transfer of technology and local needs. Technology transfers happen in an organic and legitimate manner through managers and employees developing skills and passing them onwards in data communities or by moving across companies. Whether this will come into effect through the final e-commerce policy will remain unresolved till mid-2020.
Multiple guidelines can also cause delays in the resolution of uncertainty. The RBI’s Report of the Working Group on FinTech and Digital Banking includes e-aggregators, Robo advisers and Big Data all under FinTech. E-commerce firms, which are data-intensive and provide multiple services, will be included under this description. The Ministry of Finance FinTech Steering Committee report remains pending that will recommend another set of guidelines on regulation around technology-enabled activities in India.
For India to reap benefits from global multinationals such as Amazon, we need to provide companies exactly what they are asking for — a stable and predictable policy environment that can foster investment and infrastructure development.
Early investments from large innovative companies will give a head start to India, enabling it to pick up technologies from global leaders and push domestic innovation forward faster as well. This is critical for a capital-scarce country like India, which is aspiring to become a $5 trillion economy in the next five years.
(The writer is faculty, ISI Delhi and Fellow at the Esya Centre)
Writer: Megha Patnaik
Courtesy: The Pioneer
Life Insurance Corporation of India (LIC) entered 64th year of its incorporation on Sunday. It has played a significant role in spreading the message of life insurance among the masses and mobilisation of people’s money for their welfare.
In this journey, LIC has crossed many milestones and has set good performance records in various aspects of life insurance business. In its 63 years of existence, it has grown in terms of its customer base, agency network, branch office network, new business premium.
LIC has been embraced technology from the nascent stage. It is continuing its journey by reaping the benefits of technology to become customer-centric, to improve pricing and to create operational efficiencies. It has a strong online presence and has provided digital platform for new business and servicing operations to both internal and external customers.
The focus of the corporation is to enhance the e-presence and e-delivery capabilities and to transform existing enterprise IT systems in sync with the expectation of the users. It is also issuing e-policy along with physical policy document.
LIC has revamped its portal system with latest technological platforms to enhance digital experience and provide online services. Various options are available — product information, downloading plan brochures , premium calculator, apply for policy, LIC office locator, policy self servicing options like Policy Information, online premium payments, advance premium payments, revivals, online loan request, loan repayments, ULIP statement, grievance redressal etc.
It also offers life insurance protection under group policies to people below poverty line at subsidised rates under social security group schemes like Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and Aam Admi Bima Yojana (AABY). These schemes provide life insurance protection to the persons living below poverty line and marginally above poverty line.
LIC won 25 Awards in the year 2018-19 including golden peacock award for National Training and Readers Digest awards.
Writer & Courtesy: The Pioneer
A huge jump in penalties under the amended Motor Vehicles Act may look a bit extreme but needs to be done
We are often told that India’s strength lies in its diversity but if there is one thing that binds the country and its citizens together, it is not cricket. It is the near universal contempt people have for the rule of traffic laws. Other than a couple of islands of relative order such as Chandigarh, traffic rules are meant to be ignored across the country. Not wearing helmets and triple riding aren’t isolated events; they are rampant throughout the length and breadth of the country. We all know how much Indians love to talk or read their text messages. They like it so much that no matter where in the country one would go, he/she will easily find an imbecile or 10 happily chatting on their mobile phones instead of paying attention to driving. Other violations such as jumping a traffic light or driving on the wrong side of the road or even drinking and driving are so far down the list of priorities that they barely feature in the mind of Indian drivers. No wonder India accounts for the highest number of road deaths in the world, according to the International Road Federation (IRF). At present, India accounts for 10 per cent of global road accidents with more than 1.46 lakh fatalities annually, shamefully the highest in the world.
We can wring our hands all we want at this situation and say that something must be done about it but we do not internalise the need for correctives. Which is why the Government came up with the newly-amended Motor Vehicles Act. With fines for traffic violations shooting up, it hoped the fear of high penalties would persuade people to follow the law. However, some States, notably Rajasthan, Madhya Pradesh, Gujarat and West Bengal have cribbed about the new fines and have refused to notify the Act. One reason the States have mentioned, if not officially, is that they feel that higher fines will lead to a massive rise in corruption and collusion with the booking officer. Sadly, with most of India’s police forces corrupt to the core, their fears are justified. However, one can hope that some discipline will spread among the police, particularly in metropolitan areas, what with the Delhi and Mumbai traffic police having already orchestrated successful crackdowns on unlawful driving. And the other major lesson that the traffic police can take away is technology. The use of cameras and automatic numberplate readers has already massively impacted the issuance of traffic fines. With most new cars featuring radio-frequency chips that can also be read, this system will only get better. While it is impossible to hope that without drastic reform, corruption and incompetence can be expunged from the police, one can hope that increased automation and better cameras and linkage of driver to vehicle data will indeed raise road safety standards. Privacy advocates might raise a hue and cry but the possible use of Aadhaar information to bring a sense of order on the roads is not a bad thing. Therefore, States are not in order to refuse notifying the new Motor Vehicles Act. It is petulant Opposition politics combined with States rights issues in some cases and stupid populism in others. The chaos on Indian roads forms an international image of India and it is not a good one. In 2017, there were more than 1,47,913 road accident related deaths, up from 1,46,133 in 2014. Among categories of vehicles, two-wheelers accounted for almost 34 per cent of total road accidents and 29 per cent in terms of fatalities, official data showed. Besides, national highways that comprise two per cent of India’s total road network, accounted for over a third of accident-related deaths in 2017. These higher fines are in the end the less drastic solution. A complete overhaul of the way driving licences are issued may be needed otherwise. So let’s not sympathise with the motorist who had to cough up Rs 23,000 as fine in a single day.
Writer & Courtesy: The Pioneer
The figures from Jammu & Kashmir’s electricity department reveal that the power system is up to the mark. However, on the other hand, the ground reality is way different from what they show, says Basharat Akhtar
A special attention was given to various ambitious plans of the Modi government in this year’s budget, which also included the Saubhagya scheme. The scheme incorporates electricity connection to all households in rural as well as urban areas by the year 2022. The scheme was launched back in 2017 and the initial deadline was December 2018. In February, Jammu & Kashmir bagged the Saubhagya Excellence Award for being the first state to achieve successful implementation of the scheme.
On October 17, 2018, Greater Kashmir, a Kashmir based English daily, published a report quoting Commissioner Secretary Power Development Department (PDD), Hardesh Kumar that 100 per cent electrification had been completed in six districts of Srinagar, Badgam, Pulwama, Jammu, Samba, and Kathua whereas in 16 other districts, the work is in the final phase. At the same time, he also informed that infrastructure had been built to connect 102 border villages of the state to provide electricity connection. By May 31, 6,337 villages of Jammu and Kashmir had received the connection under the Sahaj Bijli Har Ghar Yojana (Saubhagya), which is considered as Prime Minister Narendra Modi’s dream project. Around Rs 133.42 crores have been approved out of which Rs 53.24 crores have already been released. Also, Rs 435.13 crores have been incurred from the additional amount of Rs 875.03 crores. According to Deendayal Upadhyaya Gram Jyoti Yojana, DDUGJY and Saubhagya, 15,10,271 out of a total of 18,72,195 households have been electrified. Electrical connections have been provided to 8,861 additional households since February 1. The figures from Jammu & Kashmir’s electricity department reveal that the power system is up to the mark and the process of electrifying is being implemented at a rapid pace. But on the other hand, if we look at the ground reality, the difference between what is being claimed and the reality is poles apart.
Even after the deadline had passed last year, the aim has not been achieved. However, since the launch of the Subhagya scheme, there has been great improvement in the situation but there are many such areas where electricity wires and pillars are yet to reach. From a geographical perspective, most areas of the valley are located on mountainous regions, which are covered with snow for more than half of the year. In such areas, uninterrupted supply of electricity is the biggest challenge. Several times, the snow storms badly affects the power system. Besides that, the electric system is disrupted in many areas because wooden poles have been used to support the electric cables, which often crumble under heavy thunderstorm and rain. Many a time, there have been incidents when the electricity current that runs through the broken poles has proved fatal for the local residents.
The problems do not end here. To meet high electricity demands, the power supply system is modified, which would then lead to low voltage and in turn creates trouble for the villagers. Ladoran, a village located on the North West Hills, which is 10 km away from Kupwara, the district headquarter, is also a victim of power mismanagement. The village has a population of 3,200 people. But even today, the electricity in the village is negligible. Villagers have to make alternative arrangements even when the bulb is lit due to low voltage. It was a challenging task to transport electric wires and poles to the mountainous village, but they were installed successfully. However, the continued issue with low voltage of electricity in the village has raised questions about the success of the state electricity department. Poor electricity is affecting the health of the villagers as well the students whose studies are constantly being interrupted.
A local student studying in tenth class, Dilshada Bano, says, “Even though there is electricity, we are not able to make a good use of it due to such low voltage. The students of the class are unable to complete their homework on time because of which the teachers scold them. Also, the future of the students preparing for competitive exam looks grim.” This is the major reason why so many students are giving up on their studies gradually. Although the state electricity department has spent millions in delivering electrical equipment to the village, but due to high demand, the low-megawatt transformers installed could not solve the problem. In a situation like this, the availability of electricity is considered as equivalent to none. Due to high costs involved with solar power, the option is not available to the villagers.
In this regard, village Sarpanch, Ghulam Mohiuddin Vani, also considers the electricity complaints of people completely valid. He says that in relation to low voltage, he has raised their concerns to the high officials of the department many times but nothing has happened except for their assurance. Sarpanch says, “The village needs at least 10 MW whereas only 6 MW transformers has been installed by the department due to which excessive load on the transformer increases and results in low voltage problems. The issue can easily be addressed by installing high MW transformers.” Apart from this, the difficulty that the villagers face can be fixed by timely repairs of electrical wires and by replacing the wooden poles with the proper ones. Though the department has nominated this village under the DDUGJY last year, the villagers are yet to receive its benefits. Let’s hope that the flame of education does not burn one day.
Writer : Basharat Akhtar
Courtesy: Viva City
With a few simple tweaks, rural banking can be made both viable and result-oriented. But for this, political will is needed
The Government is planning a mega revamp of the regional rural banks (RRBs) and that includes consolidation for better operational efficiencies. In the budget 2019-20, it allocated Rs 236 crore towards the capitalisation of RRBs. There are 56 operational RRBs and the roadmap is to bring them down to 38 or below. There were 196 RRBs after the concept was originally introduced in 1975, to ensure access of affordable credit to the rural population.
RRBs were set up to eliminate other unorganised financial institutions like money lenders and supplement the efforts of co-operative banks. Although RRBs have performed commendably, in recent years, they have lost sheen on account of their inability to preserve the low-cost model and raise capital. RRBs have not been able to attract bright talent. Poor leadership has retarded their mission and vision. Issues relating to governance, suitability of design of products and staff productivity continue to stifle their growth. At present, the Central Government holds half the stake in RRBs. Sponsor banks own 35 per cent and the rest 15 per cent is with the State Governments.
While the Government’s renewed rural focus is laudable, some important caveats must be in place. It is true that banks can play an important role in the financial transformation of low-income communities, but sustainability should never be overlooked. In their excitement to oblige their constituencies, politicians run financially amok and literally plunder banks for vote-banks. This was precisely the reason why India’s post-nationalisation mass banking programmes degenerated into populist agenda, which financially ruined the banks.
All these highlight how an unenlightened politician can play havoc with the financial systems. The entire execution lacked the soul of a genuine economic revolution because it was not conceived by grassroot agents but was assembled by starry-eyed mandarins, who had picked up bits and pieces about financial inclusion from pompous new-fangled and half-baked ideas generated at seminars and conferences. Cheap loans, followed with periodical waivers and write-offs, have been the hobby horse of eye-on-the-ball experts and lazy policy-makers.
The original banking concept, based on security-oriented lending, was broadened after the nationalisation of banks to a social banking concept based on purpose-oriented credit for development. This called for a shift from urban to rural-oriented lending. Social banking was conceptualised as “better the village, better the nation.” However, opening new branches in rural areas without proper expansion, planning and supervision of end use of credit, or creation of basic infrastructure facilities meant that branches remained mere flag-posts. It was a make-believe revolution that was to lead to a serious financial crisis in the years to come.
The Integrated Rural Development Programme (IRDP) is a grim reminder of how mechanically trying to meet targets can undermine the integrity of a social revolution to such an extent that a counter-revolution can be set into motion. Arguably, India’s worst-ever development scheme, the Integrated Rural Development Programme (IRDP), was intended to provide income-generating assets to the rural poor through the provision of cheap bank credit. Little support was provided for skill-formation, access to inputs, markets and necessary infrastructure.
In the case of cattle loans, for example, a majority of cattle owners reported that either they had sold off the animals bought with the loan or that those animals were dead. Cattle loans were financed without adequate attention to other details involved in cattle care: Fodder availability, veterinary infrastructure and marketing linkages for milk among others.
People erroneously came to believe that the State had all the answers to their problems. Governments, international financial institutions and non-governmental organisations (NGOs) threw vast amounts of money at credit-based solutions to rural poverty, particularly in the wake of the World Bank’s 1990 initiative to put poverty reduction at the head of its development priorities. Yet, those responsible for such transfers, had — and in many cases continue to have — only the haziest grasp of the unique demands and difficulties of rural banking.
Working for the poor does not mean indiscriminately thrusting money down their throats. Unfortunately, IRDP did precisely that. The programme did not attempt to ascertain whether the loan provided would lead to the creation of a viable long-term asset. Nor did it attempt to create the necessary forward and backward linkages to supply raw material or establish marketing linkages for the produce. Little information was collected on the intended beneficiary. The IRDP was principally an instrument for powerful local bosses to opportunistically distribute political largesse. The abiding legacy of the programme for India’s poor has been that millions have become bank defaulters through no fault of their own.
Today, the people so marked find it impossible to re-join the formal credit stream. The entire notion of economic revitalisation became a kind of code: It’s a formulation that isn’t taken literally and one that worked wonderfully well to bring all the anti-poverty players together at a time when the world’s energies were focussed on ending poverty. Juicy numbers are music to the ears of bosses. Numbers have been a great obsession with Indian planners in particular. Number of men and women sterilised, contraceptives circulated, wells dug, toilets constructed, villages screened for polio, TB or malaria, children enrolled in schools and saplings planted… there is no accountability for fudged figures. In fact, majority of the rewards are given to officers most adept at massaging figures. The game of numbers, without a concurrent focus on social performance and evaluation of quality of assets created, has been the bane of most credit programmes for poverty reduction and self-employment.
There are two basic pre-requisites of poverty eradication programmes. First, reorientation of agricultural relations so that the ownership of land is shared by a larger section of the people. Second, programmes for alleviating poverty cannot succeed in an economy plagued by corruption, inflation and inefficient bureaucracy.
A poverty eradication programme must mop up the surplus with the elite classes. These two pre-requisites call for strong political will to implement the much-needed structural reforms. Besides, the Government must aim at a strategy for the development of the social sector — the key component should be population control, universal primary education, family welfare and job creation, especially in rural areas. These and other aspects of poverty alleviation have not received any importance so far in our planning policy making.
During the massive banking expansion phase in the 1980s, opening a bank branch was made to look as casual as punching a flag post. It was impossible to locate a proper structure to house the bank. The existence of a toilet or a medical centre, a police post or a primary school in a village, as a precondition for a bank branch, was simply overlooked. In several cases where the expiry of Reserve Bank of India (RBI) licence for the opening of the bank branch approached without proper premises being identified, banks were housed in a temple or a local community centre, marked by a small banner and a photograph screened as evidence of the launch of the bank’s operations.
Rural branch expansion during that period may have accounted for substantial poverty reduction, largely through an increase in non-agricultural activities, which experienced higher returns than agriculture, and especially through an increase in unregistered or informal manufacturing activities. But there was a significant downside; commercial banks incurred large losses on account of subsidised interest rates and high loan losses — indicating potential longer-term damage to the credit culture.
Rural finance programmes should have substantial inputs from rural sociology as part of the training kit for rural managers. Rural Banking requires greater insight into rural sociology than banking practices as far as finance is concerned. A basic knowledge is adequate to handle these simple credit proposals. It is only in case of high-tech agriculture that technical skills and expertise are required. With a few simple tweaks, social banking can be made both viable and result-oriented. We should not commit the mistake of throwing the baby out with the bathwater.
(The writer is member, NITI Aayog’s National Committee on Financial Literacy and Inclusion for Women)
Writer: Moin Qazi
Courtesy: The Pioneer
With a vast range of options for funding available today, the selection of a suitable source is quite tricky for founders. With a detailed, compelling pitch, they can ride the tide
In India, start-ups are growing at an astounding rate with a record fund raising of $3.9 billion for the first six months of 2019. Last year, they clocked more than 100 per cent growth with funding doubling from $2 billion to $4.2 billion, from 2017 to 2018, according to NASSCOM. The country is on its way to becoming a startup hub with more than 1,200 new businesses coming into existence in 2018, including eight unicorns, thus taking the total number to 7,200 start-ups last year. When compared to the first six months, investments this year across 292 deals saw a 44.4 per cent jump from the $2.7 billion received by domestic start-ups in the first half of 2018, according to Venture Intelligence.
Private funding through private markets like equity, venture capital and angel investing, is the reason for this phenomenal growth of start-ups in India. In the past, private firms often went public when their need for capital exceeded what investors could provide. However, in the last decade, firms have found a good alternative in private markets. This because of two reasons. First, drawn by the potential of high returns, more investors have entered the space, thus creating an influx of available capital. This has in turn altered the trajectory of private companies because they are no longer forced to raise capital on public markets. Second, as more investors pour money into private markets, it has now become easier for new private companies to get funding needed for growth. As a result, there has been a sharp influx in the number of Venture capital (VC)-backed startups and PE-backed companies in recent years. In other words, as more money flows into this space and as more firms stay within, private markets will continue to grow in value and opportunity.
Even though the private funding market is booming, it is not easy for start-ups to raise funds. They require several things — capital, strategic assistance and introduction to potential customers, partners and employees among other things. Entrepreneurs will be better prepared to obtain funding if among other things, they understand the basic difference between distinctive type of private funding available. VC is the finance that investors provide to start-up companies and small businesses. These are believed to have long-term growth potential and can be provided at different stages of the companies evolution. VC generally comes from well-off investors, investment banks and any other financial institutions. However, it does not always take a monetary form; it can also be provided in the form of technical or managerial expertise. It is basically a subset of Private Equity (PE), which focusses on emerging firms seeking substantial funds for the first time. PE tends to fund larger and more established firms that seek an equity infusion or a chance for company founders to transfer some of their ownership stakes. Apart from the stage of investment, PE firms make investments in a few companies only and provide funds to matured firms that have a good record while VC firms make their investments in a large number of small companies, who may not necessarily have the desired track record.
Third, PE investment can be made in any industry as opposed to VC in which investment is made in high growth potential industries like energy conservation, biomedical, quality upgradation, information technology and so on. Fourth, the risk profile in VC is comparatively higher than PE. Lastly, the use of funds is different in both cases. In PE, funds are utilised in financial or operational restructuring of the vendee company. On the other hand, VC funds are utilised in streamlining business operations by way of developing and launching new products or services.
While the roots of PE can be traced back to the 19th century, the birth place of VC was in the US. It developed as an industry only after the Second World War. Georges Doriot, Harvard Business School professor, is generally considered to be the “Father of VC”, who raised $3.5 million fund to invest in firms that commercialised technologies developed during WWII. ARDC’s first investment was in a company that had ambitions to use X-ray technology for cancer treatment. The $200,000 that Doriot invested turned into $1.8 million when the firm went public in 1955. In a VC deal, large ownership chunks of a firm are created and sold to a few investors through independent partnerships that are established by VC firms. Sometimes these partnerships consist of a pool of several similar enterprises.
Another important way of raising funds, particularly for small business and companies in emerging industries, is through angel investors, which is typically a diverse group of individuals, who have amassed their wealth through a variety of sources. However, they tend to be entrepreneurs themselves or executives recently retired from the business empires built by them. Self-made investors providing VC typically share several key characteristics. The majority look to invest in companies that are well-managed, have a fully-developed business plan and are poised for substantial growth. These investors are also likely to offer to fund ventures that are involved in the same or similar industries or business sectors with which they are familiar. If they haven’t actually worked in that field, they might have had academic training in it. Another common occurrence among angel investors is co-investing where one angel investor funds a venture alongside a trusted friend or associate, often another angel investor.
Although angel investors and venture capitalists have a number of similarities like catering to innovative start-up businesses, there are also a number of differences between them. First, an angel investor works alone. Venture capitalists are part of a company. Angels are rich, often influential individuals, who choose to invest in high-potential companies in exchange for an equity stake. Given that they are investing their own money and there is always an inherent risk, it’s highly unlikely that an angel will invest in a business owner who isn’t willing to give away a part of their company. Venture capital firms, on the other hand, comprise a group of professional investors. Their capital comes from individuals, corporations, pension funds and foundations. These investors are known as limited partners. General partners, on the other hand, are those, who work closely with founders or entrepreneurs; they are responsible for managing the fund and ensuring that the company is developing in a healthy way.
Second, they invest different amounts. While angel investing is relatively limited in its financial capacity, this mode of investing can’t always finance the full capital requirements of a business. Venture capitalists, on the other hand, can raise large amounts of fund.
Third, they have different responsibilities and motivations. Angel investors are primarily there to offer financial support. While they might provide advice if asked for or introduce to important contacts, they are not obliged to do so. Their level of involvement depends on the wishes of the company and the angel’s own inclinations. A venture capitalist looks for a strong product or service that holds strong competitive advantage, a talented management team and a wide potential market. Once venture capitalists are convinced and have invested, it is then their role to help build successful companies, which is where they add real value. Among other areas, a venture capitalist will help establish a strategy and recruit senior management. He/she will be on hand to advise and act as a sounding board for CEOs. This is all with the aim of helping a company make more money and become more successful.
Fourth, angel investors only park funds in early-stage companies. They specialise in early-stage businesses, funding the late-stage technical development and early market entry. The funds an angel investor provides can make all the difference when it comes to getting a company up and running. Venture capitalists, on the other hand, invest in early-stage companies and more developed firms, depending on the focus of the venture capital firm. If a start-up shows compelling promise and a lot of growth potential, a venture capitalist will be keen to invest.
A venture capitalist will also be eager to invest in a business with a proven track record that can demonstrate it has what it takes to succeed. The venture capitalist then offers funding to allow for rapid development and growth. Lastly, they differ in due diligence. Venture capitalists focus more on due diligence. These are some of the differences between PE, venture capital and angel investors and the decision of which to approach is personal. To improve the odds of securing investment and appealing to an investor, a start-up company should take the time and consideration to create a detailed, compelling pitch. With sufficient luck, it can end up with the financial and entrepreneurial support to skyrocket its business.
(The writer is Assistant Professor at Amity University)
Writer: Hima kota
Courtesy: Pioneer
The auto industry is against the move to electrify transport. Is this its last gasp or does it have a point?
The automotive industry is being described by some, who feel the future is electric, as status-quoist. After all India’s two-wheeler manufacturers have openly attacked proposals by the NITI Aayog to make all sub-150cc motorcycles and scooters electric. So it is being ridiculed as ancient, not open to new ideas and scared of becoming extinct. But there are some severe issues with electrification in India that urgently need to be addressed and the industry, while dragging its feet on the issue, does have some points. The government and policy-makers would be silly to ignore them. While India has enough electricity, the electrical grid is nowhere near capable enough of handling the tremendous load that even disaggregated home-charging will place on the system. Of course, that will be built up over the next decades, but the other problem, that of cost, is not going to go away in a hurry.
Electric motorcycles and scooters are expensive, particularly if they have a functional range of over 100 km. The average commuter motorcycle costs around Rs 50,000 today, but an e-motorcycle with 100 km range will cost Rs 1 lakh at the bare minimum, possibly more. The batteries also will have a lifespan of around 1,500 cycles, which would be decent for a mobile phone, but you wouldn’t change your 100 cc motor after five years, would you? Nobody will buy electric vehicles for altruistic reasons, no matter how much greenmail the government and environmentalists indulge in, unless the motorist sees actual benefit of the product. In a two-wheeler, running on electricity is less than half as expensive as running on petrol. Even in extreme scenarios, that means a saving of Rs 500 a month. If fuel prices increase faster than electricity prices, buying an electric two-wheeler does not make sense and the government’s FAME-II subsidy scheme is but a drop in the ocean. The fact is the four-stroke 100cc petrol motorcycle brought mobility to millions of Indians, giving even the impoverished a mode of transport that empowered them economically. The economic impact of the motorcycle thanks to the mobility it produced was crucial to India in the late 1980s through the 1990s, much like a mobile phone in the mid-2000s and cheap over-the-air data today. Going electric is a noble goal but if we set targets in a very short-term, it will leave millions of Indians behind. It is elitist and if we are to work towards “sabka saath, sabka vikas”, we will need to work towards solutions that make environmental friendliness affordable.
Writer & Courtesy: The Pioneer
The auto industry is against the move to electrify transport. Is this its last gasp or does it have a point?
The automotive industry is being described by some, who feel the future is electric, as status-quoist. After all India’s two-wheeler manufacturers have openly attacked proposals by the NITI Aayog to make all sub-150cc motorcycles and scooters electric. So it is being ridiculed as ancient, not open to new ideas and scared of becoming extinct. But there are some severe issues with electrification in India that urgently need to be addressed and the industry, while dragging its feet on the issue, does have some points. The government and policy-makers would be silly to ignore them. While India has enough electricity, the electrical grid is nowhere near capable enough of handling the tremendous load that even disaggregated home-charging will place on the system. Of course, that will be built up over the next decades, but the other problem, that of cost, is not going to go away in a hurry.
Electric motorcycles and scooters are expensive, particularly if they have a functional range of over 100 km. The average commuter motorcycle costs around Rs 50,000 today, but an e-motorcycle with 100 km range will cost Rs 1 lakh at the bare minimum, possibly more. The batteries also will have a lifespan of around 1,500 cycles, which would be decent for a mobile phone, but you wouldn’t change your 100 cc motor after five years, would you? Nobody will buy electric vehicles for altruistic reasons, no matter how much greenmail the government and environmentalists indulge in, unless the motorist sees actual benefit of the product. In a two-wheeler, running on electricity is less than half as expensive as running on petrol. Even in extreme scenarios, that means a saving of Rs 500 a month. If fuel prices increase faster than electricity prices, buying an electric two-wheeler does not make sense and the government’s FAME-II subsidy scheme is but a drop in the ocean. The fact is the four-stroke 100cc petrol motorcycle brought mobility to millions of Indians, giving even the impoverished a mode of transport that empowered them economically. The economic impact of the motorcycle thanks to the mobility it produced was crucial to India in the late 1980s through the 1990s, much like the mobile phone in the mid-2000s and cheap over-the-air data today. Going electric is a noble goal but if we set targets in a very short-term, it will leave millions of Indians behind. It is elitist and if we are to work towards “sabka saath, sabka vikas”, we will need to work towards solutions that make environmental friendliness affordable.
Writer & Courtesy: The Pioneer
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