Why does India with high growth not look like the fancy, rosy picture of a prosperous civilisation, but rather like the ugly picture of poorly designed houses, equally messy roads and chaotic hospitals?

As Covid19 ravaged India during the second wave, messages asking for oxygen cylinders, hospitals beds / ICUs and life-saving medicines started pouring on social media. Almost every one of these messages was tagged to either PM or CM of that state. Rarely anyone tagged the request to a local councillor / DM or district health officer.

When it comes to governance, Indians seem to be quite innocent. They think of central govt for 90% of the time and probably devote 9.9% of their time to State Govt, while hardly spend 0.01% of their energy on local governance. 

And then they wonder as to why roads in their area are broken, and then they click pics of broken roads and tag PMO.

But what if they start thinking about local governance? 

There are some really smart people who think that if we start focussing on municipality / ward / panchayat elections, issues related to roads, traffic, hospitals, etc., can be solved. So, every time the ward / municipal elections happen, a lot of hue and cry appear on social media urging people to participate in their local elections. 

What if they are equally innocent and naive in believing in the power of municipalities?

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It is easy to get in a Chakravhyu than to get out. Hence before getting into a war formation, one need to know as when to get out

or in other worlds – do not start a war when you don’t know how to finish it.

War declared at 500

War extended at 15000

at what not, one will withdraw from war?

30,000

50,000

100

it will continue

When a nation has “no skin in the game” policy makers whose reward, long term career and personal life are not aligned with India, these mercenary policy makers will run at drop of a hat. 

No nation has attained prosperity and long term leadership by having mercenaries at top leadership positions.

First wave of policy decisions globally were driven by “flatten the curve” crowd and “extreme infection/death model” makers. However as the time passed, neither the curve flattened nor extreme infection deaths happened on predicted timelines (NewYork Officials had estimated that 140,000 hospital beds might be needed to treat coronavirus patients by 11th April 2020 but in reality only 18500 were in use as on 11th April 2020 (almost 86% lower) as per news in NewYork Times).

But has these deterred the new age evangelists ie the internet age gurus (VCs / entrepreneurs), journalist modellers and statistical porn champs! well they conveniently moved to next war cry.

So now we are not looking to flatten the curve, we are going to “Crush the curve”. Crush the damn thing with 100% tests/hospitals/lockdowns and what not. And Like any other bad idea, it is spreading like wildfire and floating like straw on the water so can be seen everywhere. Tweets, retweets, sharing of the models and yes, advise for government is spreading faster than the virus itself. 

Flatten the curve! Crush the curve! The preachers and their converts are now constantly shouting to do mass testing with rigorous follow up and then rinse, repeat. Great advice but then the real challenge with any mass testing is not the “test” but “accuracy of the test”. False negative or false positive can happen due to a variety of reasons from it being early-stage (too early), quality of reagent or faulty procedure. Important thing to remember is that even at 1% fault rate, there will be 10,000 false negative out in open if 1 million tests are done. if we consider mass testing of say 1 billion people, there are 100 million people who are not identified and still out in the system. All this mind-boggling data of today’s infections had started with just 1/2 cases in Feb-March, so what will 10 million infected people will do after crushing the curve! So you get the drift. 

Hence it is very clear that crushing the curve or flattening the curve is not possible. We have to live with this and lockdown is not a solution at all.

While everybody is talking about job losses in the private sector and misery for the migrants, very less discussion has happened about the finance of the Indian Government. Indian govt earns close to 1 lakh Cr even every month from GST and some 50,000 Cr from the sale of Oil and quite a large amount from the sale of liquor ( in a lot of states liquor contribute to almost 20% of its revenue). A one month of lockdown will mean almost 90% drop in govt’s revenue and will not only wreak havoc with the finance of state but also weaken the capability and capacity of the state to fight this menace. 

Hence the only solution is to build capacity in the health care system. As they say that it is too bad to waste any crisis, India must use this crisis to build its medical capacity like crazy and fix our crumbling health infrastructure. India generally hovers at 0.58 beds per 1000 and now it must strive to build at least 4 beds per 1000 in next 6 months ( Japan has 13 beds per 1000 while the median is around 3.5 per 1000). And if one does the maths, it is not that crazy impossible. This can be achieved with the right policy framework and fiscal push. Govt should treat building hospitals as infrastructure with 30-year loan term and generous coupon rates at par with housing. To further push, Govt should put a $10 billion such which  should support projects where an equal amount is put-up by funds/entrepreneurs and have 4x leverage. A $10 billion Govt fund with an equal contribution by private funds and 4 times leverage can easily build $100 bn war chest to build health infrastructure in the country. This will not only build the health infrastructure in the economy, it will act as a huge stimulus to the economy and might have a three time multiplier effect. 

However, as we build this medical facility and kickstart the engine, the other action plan is to seize this opportunity as the world goes through a major reset. A lot of companies are looking to move away from China. Japan has already initiated a megafund to help companies to move their manufacturing away from China. While there is a lot of chatter among the faithful and advisors on the internet about capturing this moment and kickstart “make in India moment”, India is definitely going to miss the bus if top policymakers keep on listening to industry lobby groups or empowered group of experts. 

This may come as a shock but the real challenge to building business in India is not taxation but compliance and very high-interest rate. Thankfully RBI is working on interest rates and is focussed to reduce interest rates on all saving schemes but its high time to push banks in passing the interest rates to small businesses and reduce the fat spread enjoyed by banks either by allowing banking sector to open up or pulling up banks for not transferring the gains down the value chain. Without some serious push, interest rates will not come down. 

Apart from high lending cost, the biggest spanner in running a company in India is compliance cost and endless compliances imposed by its jumbo size ministries and departments. One needs some 26 compliances to build a building.  NBFC need  fire department license to disburse auto loans. There are endless certificates, compliances, PF, ESI and yes now a form to declare your CoviD19 preparedness. India as a country is wet dream of arm chair experts and paper pushers. Doers are punished while people giving sermons from high pedestal are encouraged and rewarded. Given the zero accountability of officers/departments, compliances in India are less about safeguarding public/environment or saving taxes but are more an avenue of harassment, corruption and red-tapism.

So while everybody talk of China model and how lack of democracy has propelled it to growth, everybody conveniently suppress the fact of high accountability the officers face there. China had executed its top drug regulator for approving untested drugs by taking bribe. Regulation without accountability is a nightmare and India has become unending nightmare for businesses and startups alike. 

This is a golden opportunity for Govt to cut regulation and kick start the next wave of reform which has been pending since 1991. Govt should scrap things like ESI and transfer everyone to health insurance and move PF to NPS kind of program. Ideally it must deliver to every citizen what it does for central govt employees or PSUs. Thumb rule should be as what is available for central govt employees in health care and education, should be available to every citizen of the country.

Thumb rule should be as what is available for central govt employees in health care and education, should be available to every citizen of the country.

Whenever there is a crisis of cash flows, the first casualty is statutory dues. This creates a unique paradox for the businesses as they are left with the choice of either closing down or becoming a criminal. As the majority of businesses (barring a few bad apples) are perpetual optimist, they end up being a victim of it. In search of hope that things will be fine one day, they tend to defer statutory payments, only to suffer when things don’t improve.

Hence rather than getting into giving tax incentives/cash backs and free land, Govt must open up manufacturing/businesses with minimal compliances. If cutting red tape for all, is a herculean task, then probably compliances should be reduced by at least 80% for any company with top-line below 50 Cr. This is probably ideal time for Pm Modi to go over drive on deregulation and cut the flap accumulated in last 70 years of over regulation. This will unleash the wave of investment as well as reduce the burden on the government in terms of reduced fiscal incentives and lower compliance cost.

Every crisis has resulted in some nation getting prominence and probably COVID 19 will give same opportunity to India but then rarely governments have achieved anything !

The end

Imagine for a moment that you just got lucky. You have won some contest to own/manage a house. This house is not yours forever but you get to enjoy it with all perks as long as you remain its owner. However, ownership comes with a term limit of 5 years and need to be renewed every five years, if people in the house are happy with your conduct. So overall great. However, like with all good things, there is as usual a catch.

The original owners who drafted the will, were not so fond or certain of future owners.  Hence they have kept a proviso that the house cab only be managed by caretakers. This provision is also needed for the fact that people who wish to become house owners, have no prior experience in managing a house but still a great desire to own house due to the perks.
The caretakers are selected through an elaborate exam which tests their linguistic skills and memory but not any other skill related to the management of the house.  Hence while on paper it looks like that your job is to manage the house, in reality, your job is to manage caretakers. As you can neither hire caretakers, nor fire caretakers, you should rather amuse caretakers so that things run as smooth as they can.  Caretakers being caretakers and that too being favourite of the original master, have their own style, privileges and fancies. So you have to be careful so as not to trip on their egos or manners as they have a power full association. 

As far as caretakers are concerned, they keep on getting multiple masters for a variable duration, hence they have learned to live with such nuisance or rather mastered the art of managing these short term owner. Caretakers don’t have any ownership or any long term right and also no punishment, hence their focus like any other rational human being, is to maximise gain for themselves as they are more of backroom boys. 

Caretakers also have some sort of contempt for the house owners and other occupants as they miss good old days of originals masters and rue the scenario of hoi polloi mastering over them. Further the owners can be real nuisance as they have no understanding of the house or how this can be managed but have lot of advice.

While caretakers are pretty good, they keep on getting transferred now and then, for example, somebody who was earlier in-charge of dusting is now head cook, while head cook has been given the task of a plumber and so on so forth. Further, there is no accountability for caretakers as to punish a caretaker, you need the help of other caretakers, and to make the matter more complicated, one can not hire outsiders as caretakers. So you have to manage with whatever is available. On the other hand, for any mess, house occupants always blame the house owner, hence the house-owner tries to make things rosy by keeping caretaker in good humour. 

This house with its unique design of perpetual instability has ended up in creating a scenario where caretakers focus on maximising their gain from the system, while house owner, wants to manage the house with the sole intention of extending the ownership right beyond 5 years while extracting maximum benefits for self. All this ensures that nobody is really willing to invest time and energy for long term repairs, planning after 10 /20/30 years as the burden will be on new master and new caretakers. Everyone is looking forward to the next day and the whole focus of house owner and caretaker is to keep house occupants happy with good whitewashing, weekly parties and good food.

Any action which is long term and does not show any visible effect immediately is brushed aways by owner and caretaker with  equal zeal as there are always more pressing daily challenges. 

If this perpetual game of musical chair where caretaker and house owner keep on changing with no alignment, has hammered your mind, wait to know two other important occupants of this house.

The house also has one old grandfather. He is not related to either house owner or care taker but is there for a long time. The grandfather is very stickler about his routine and holidays. Come what may, the holiday must happen and routine can not be disturbed. Meanwhile, as house-owner and caretakers don’t get along very well, they keep on going to grandfather to sort out all the issues and many time use grandfather name to cover their tracks. Further given advance age and being little senile, grandfather is not in touch with ground realities of the house but has the habit of interfering in all affairs of the house and give a sermon to all occupants about a perfect life and good habits all occupants of the house must follow to make this house a perfect house. Grandfather is also very fond of Latin and English and generally issues his orders in 100-300 page long orders quoting all phillosphers. The beauty of these orders is that everyone thinks it is in their favour and generally takes month to decipher the message. 

The last but rather most important occupant of the house is children. Every key person of the house ie house owner, caretaker and grandfather are always very concerned about the children. Children being children create racket all the time. They also keep on going to grandfather to keep them safe as well as put caretaker and house owner in their place. Needless to say, grandfather is very fond of children as long as they don’t disturb his afternoon siesta. There is another important thing that children have a way with house owner as an extension of the lease/term is totally dependant on children. Hence every house owner tries to please children with a lot of gifts and entertainment and never ask children to study or do physical exercise lest children get angry with them, hence house owners keep on pampering them. Caretakers have no such challenges, so while caretakers talk of serving children with an aim to please and focus on their long term benefits, they despise children and consider them as a nuisance. And when Grandfather is not looking, caretakers don’t mind boxing ears of children and giving some punishment. Children being children have figured out the scenario and while they keep chasing house owners for more gifts, they keep a safe distance from caretakers. 

And life continues. 

While there is much noise and lot of mathematical modelling on spread and damage by Covid19, there is hardly any crystal gazing when it comes to general economy.

The way things are, I think both side will turn up wrong big time.

In India, damage by Covid19 will be contained and won’t spread much as one can see that Indian numbers are trending 100x lower than USA despite having almost same initial points.

However damage to economy will be 10x more deeper and shall be there for at least 18 months. I expect NIFTY to touch 5k when next wave of data start coming in terms of corporate losses and climbing fiscal deficit. Remember almost 90% of government revenue disappeared during lockdown

4th April 2020

What if Naseem Taleb and all experts of gloom & doom turn out to Malthus of our time?

While Taleb is a super genius guy, but he is extremely wired towards black swans or extreme events. The important thing to remember about models is that in the ned they are mere mathematical models only.

On Maths, remember what Einstein said
“As far as the laws of mathematics refer to reality, they are not certain; and as far as they are certain, they do not refer to reality.”

Hence while it is good to have black swan people by your side but not as the main advisor as when it comes to the fund performance, it is not Naseem Taleb who has given consistent high returns since 1988 but Jim Simmons!

So beware of all maths, fat tails and models as they do not account for the human spirit, evolving immunity/resilience and innovation.

In the end, Malthus despite all models turned out to be super wrong.

Again remember, 90% of infected people do not need any treatment and get fine without any medical intervention and actual numbers are far below than projected models.

Income inequality is caused by low food prices and high real estate costs. Paradoxically, this anomaly of keeping food inflation low is supported by economists and enforced by state. 

It is an age of whataboutery!

Almost every week, some trend start on Internet about violence on muslims. Then there are equal story about violence netted out on Hindus. Curiously very few netizens (twitter handles) are outraged on both and one can see the separation or whataboutery.

There are endless stories of justice rather lack of it for hapless victims. Stories continues, narratives keep on changing. 

However the key thing which both side ie “this is not my india” vs “see how others are killing us”, forget that It is the Indian state which is oblivious to the ordinary.

Indian state is perfect secular state. It treats all equal – be it Hindu Muslim or Christian. It remains oblivious to them. It collects taxes / bribe equally and remain deaf to them equally.

Or in better words, Indian state collects tax but doesn’t dispense justice 

Indian state has been designed to serve, protect and feed the chosen ones. Forget Phelu Khan, do you remember closure of any case one year, two years, five years or even twenty years. 

Indian state remains in British mould where it just focus to serve the masters – earlier gora sahibs, now bhurra sahibs who sit in gymkhana club and worry about India over soft laughters and single malts while debating next UN/World bank posting (probably this answers as why India not so rich country, is so prompt in paying its UN dues while US/UK who have money don’t even care about UN dues)

Remember Nirbhaya, Remember Sonipat violence – you might even ask what about Sonipat and that is the exact point. (for the uninitiated, Sonipat violence (agitation for reservation in Govt Jobs) led to some 30 deaths and loss of 20,000 Cr ($4bn) worth of property.)

Whole India seems to be living in a 24×7 reality show where every second a new more sensational event happen numbing us even more and game of whataboutery continues.

There are millions of case pending and getting added, but SC bench find time to hear petition like if Red dresses shall be allowed in India. https://newsd.in/ridiculous-pil-sc-dismisses-plea-seeking-ban-on-red-dresses-in-india/

So for a moment, get way from this whataboutery and ask yourself a serious question ? Are you really comfortable with state of security – do you think Indian state delivers quality of life – Safety, Justice, accountability or these days – clean air?

Indian archaic system of governance has failed and collapsing. 

When somebody says – let the land of law takes its own course, its invoke yawn from both sides ie criminal as well as victim as nobody remembers as when was the last time justice was delivered. 

Indian justice system has achieved a unique feat in the world where innocents are afraid of it while criminals remain brazen and laugh at it.

Denial of justice to Phelu Khan, Ankit Saxena  et all is not any conspiracy. 

It’s equal treatment to all natives without gymkhana connections. 

So stop this whtaboutery and start asking hard questions before each one of us end up being the main character in 24×7 reality sensational show!

The end

Indian Economic Crisis 2019

1. With GDP hitting 5%, there is mushrooming of experts with views as why economy has slowed down. Interestingly majority of them agree on one point thats is demonetisation and GST are the root cause of this crisis.
2. Nothing can be father from truth and here here is counter point. If it was not for demonetisation, economic crisis would have hit us 2 years back. Demonetisation created a push of almost $11 bn to rural households (through money laundering) and kept rural consumption high – ex Escorts posted 5x profit growth / Britannia saw 23% revenue growth in Gujarat 

1. It snot that GST / Demo didn’t do damage. The did huge damage due to botched execution of the whole exercise by officials. Unfortunately no action was taken to control/ manage it.
2. Govt despite talk of minimum govt and control of bureaucracy, ended up being fully housetrained by it. back to economy – so what has killed the economy 
3. Well if we go back to 2008, during world economy crisis, India survived world economic crisis not because of some genius. It was sheer dumb luck of 7th Pay commission arrears which created a windfall for Govt employees and in turn triggered house and auto sales. The real act by Govt to handle crisis was rescheduling of NPAs and imagining them to be normal loans. This continued greening of the book has to end some day and it was ending in 2017 but saved by demonetisation. 
4. Like any other economy, Indian economy has been killed by Housing. Today unbuilt houses inventory is anywhere between $30 billion to $50 billion based on various sources.
5. $30 bn to $50 bn capital locked! Interestingly this reported figure is only from formal side what about numbers on informal side.
6. A household with a loan of 60 lakh for a house which is never going to happen, is not looking to buy a new car or another house or doing another capex. It is trying to recoup the loss and this is being done by rescheduling or moderating the consumption. This missing $30 bn odd money has triggered all the downstream lack of consumption.
7. On other spectrum of this real estate melt down means that so many vendors / suppliers from cement to steel to small item manufacturers are without any hope of recovering this sunk money. 
8. Thus $30 bn / $50 bn shock in liquidity given the velocity of money can easily translate into $ 60 bn to $150 bn shock money ( depending on as how you wish to look at it) 
9. Interestingly Real estate was killed by two great men – 

      a) Dr Manmohan singh when he kept it artificially inflated by evergreening the books rather than using that opportunity to fix the sector. Dr Singh is probably the only economist in the world who tried to run a country with high inflation rate (10%+), High NPA and high interest rate and yet considered a great economist.

   b). Dr RaghuRam Rajan who stopped capital flow by stopping lending/ reducing bank exposure to solve NPA   without fixing the real problems of real estate. In a way, Dr Raghuram Rajan is that doctor who will solve   issue of blocked arteries by reducing blood supply.

12. Unfortunately Govt is doing everything other than solving this lock up of $30 bn usd in real estate. Indian Govt will have to come with something like STUTI ( Steel sector bail out in 2001) or US Govt bail out of financial sector in 2008 (TARP) to reignite the flow of capital and create sense of money in general public.

13. But these are short term band-aids. To fix economy in long run, Indian Govt will have to do out of box thinking like China did in 1990s.

14. But even before that, Indian Govt will have to come out of this black money syndrome and stop measuring India’s data with OECD countries. If you wish to have OECD countries Tax to GDP ratio, first get that OECD level per capita income and then that quality of life and then come to Tax GDP ratio. Today Indian tax/GDP ratio is at par with China, Indonesia, Thailand etc ( all these are doing far better than us).

15. The signs that we are sinking slowly economically, have been around for some time ie trade defict with China. $60 bn of trade deficit but more importantly the trade mix. Complex engg items vs raw iron ore or agriculture or marine!

16. Problems are real and deep. band-aid solutions which this country has been trying for last 15 odd years wont work.

17. The only way India can become $5 trillion economy in next 6 years is by doing real reforms on ease of doing business, enabling small businesses, and build a culture which is favourable towards rick takers / entrepreneurs.

18. That means interest rates which are at par with China, legal system which resolves issues in 3 months rather than 30 years, cutting excessive regulation and red tapism. 

19. It is high time that this crisis is used as an opportunity to fix long term issues impacting indian economy.Time has come to escape from UPA led economy model and start thinking in NDA mould.

20. The definition of insanity is doing the same thing over and over again and expecting a different result. 

The End