Factoid -2

Haryana Vs Israel 

While travelling thru Haryana 2 weeks ago, it struck me that the general breast-beating by commentariat about the poor economic achievement of India may be out of sync.

Haryana GSDP Nominal : 2017-18 : ₹6,26,054 Cr ~ PPP $ 325.64 Billion ( PPP factor 3.641)

It places Haryana just AHEAD of Israel (GDP – PPP $317.1 Billion)  at 53^rd place in the world. 

(Source : CIA Factbook )  

And there are at least 10 states of India ahead of Haryana.

The problem starts with Population : Haryana 28.1 M while Israel has a third at only 8M.

Multi-Level Parking Structures

As A Social Structure - Concept Note

Choking of roads in most cities is reaching levels that hurt. Creating adequate Car Parking facilities are seen as an important part of the measures to de-congest the roads and aid in even pollution reduction. Paucity of urban lands requires that we build multi-level parking systems. Following the Supreme Court’ recent observations Delhi and Haryana have announced three and two such projects.

There is compelling evidence, however that most multi-level parking systems built so far are grossly under- utilized for various reasons. I suspect that parking facilities are largely developed as a reluctant adjunct to a commercial property.

Land is expensive (~₹1 Cr /acre): and most of these facilities achieve parking efficiency varying between 33 to 37 Sq M per car. Can we aim for Parking Efficiency of 20-25 SqM per Car? Even, 18?

I suggest that to be commercially effective such parking systems have to be ‘socially effective’ meaning, useful.  It must become part of the daily life-rhythms of the people/communities that are expected to use these: And must be managed as such.  

Kindly imagine a Steel Structure, which typically cost way less than concrete, and allows for easy and quick expansion:

1.      The Parking system sits on piles foundation at least 3.5 to 4m above the ground (~15 feet). Piles are stabilized by cross-beams ~1 -1.5M below ground.

2.      The parking area module above the pile is 10m -12M wide tunnel (imagine Howrah Bridge), where cars are parked in a 45⁰ to the centre line on either side. 2m head room should work.

3.      Imagine a module of say 10 cars – 5 on either side. Depending on the site dimensions arrange modules, in-line, sides and above to get the desired number of parking slots (say 25% above break- even slots). Add these modules as the demand grows   

4.      The Cars are lifted up to the parking floor by elevators only (cut out ramps, and tortuous maneuvering) (Carousels?) Cars go in one way- and reverse and exit from the opposite end. A parking structure, 3 module in-line x 4 Wide x 6 storey will park -720 cars. (60mx50m =3000 Sq M Add ~50% auxiliary uses 4500 SqM ~ ½ ha ~ 1.25 acre plot )  

5.      Such structure will have 4 car elevators –in and 4 car elevators out, aligned to the center line of the parking bay. Personal elevators must also be suitably placed.

6.      Design the pile foundation for say, 20 storey structure to add parking modules as the demand grows. (No additional land required)

7.      The ground below has service roads and all of the rest has lawns. (Rain water percolates; no expensive drainages; no flooding).

8.      The 15’ ground clearance allows service vehicles and trucks.

Operations & Commercial Issues:

9.      A user drives up to the available/indicated elevator/bay, takes a ticket, elevator opens, drive-in, press a button to go the indicated level. Door opens, drive out to the designated parking slot. Park, lock the car, go to the nearest personal elevator and go down. (Safety of contents of Car)

10.  Parking lot may hire only 3 or 4 lift mechanics cum helpers/shift. A few guards on gates, and a few grounds men to maintain the area. A profit Centre manager for Parking related activities.

11.  Stand-by power sources may be needed (in case of unreliable electrical power)

12.  Since we have many lengths and sizes of cars, we can change the width of parking bays (3 sizes), enabling low charge for small cars and more for SUVs. Improves fairness of pricing of fees. (Encourages small car ownerships?) Color code as per size. 

Social Uses:   

13.  In our cities rehri-wala, pavement sellers, tailors, shoe repairs etc, also occupy roads/pavements. We create a row of kiosks - 6'x9' that are rented out on first-cum-first chose basis @ ₹100/day-of-use.

14.   After every 3 floors one can provide –enclosed and air-conditioned space (4.5m high) for shops – super stores, mom and pop stores, dhabas, eateries etc. All to be rented out - @ 3x the implied rent for kiosks on the ground below.

15.  The persons parking their cars at the end of the day can shop for needs and go home. Even come for a meal or movie. The parking spaces now are no-longer dingy places.

16.  Allow traditional haats on specific days –Wednesday bazar Or the Sunday Books bazar, handi-carfts mela etc. Every hawker /seller must bring a tarpaulin say 6’x9’ (kiosk size) and pay ₹100/day-of-use. (Must clean after the haat closing time)

17.  Separate staff to manage these activites and a Profit Center Manager for Social Uses.

Role of Govt/Municipal Agencies  

18.  An area within 500 metre radius of the parking lot be designated /allocated to the Lot. (500m walk will take ~6mins)

19.  All roads within the designated area be marked –(No parking beyond this line) Or (Park at Lot) Direction to parking lot marked on roads. Only loading un-loading allowed, in road recesses. 

20.  No hawking allowed in the designated 500 m radius. Pavements restored to pedestrians/ joggers. (even beggars will congregate around parking lots!)

Cleared roads make for faster movement –less fuel consumption and less pollution.  You then have a low cost, replicable, conformable, social structures fit-for-use.

Factoid -1

Population 

Our PM has foregrounded the issue of Population Control in his independence day address, after 42 years. 
The World Population in the year 1869, the year Mahatma Gandhi was born, is estimated at only 1,319 Millions. 
The Indian Population in the year 2019, the current year is estaimated at tad higher at 1,350 Millions. 
Go figure ! 

Random Thought -2

Change is the only constant. But......

More things change, more they stay the same.

What is unchanging? 

The basics of living; living joyfully.

Change how you did things yesterday to get joyful results tomorrow. 

Random Thoughts -1

Our MPs and MLAs by definition are elected by us and empowered to rule us. However, most of these personages are chosen (winnability), projected, supported and FUNDED by Political Party. 

The Political parties are controlled by its leadership, coterie, dynasty or kitchen cabinet: call it what you will. The party leadership expects these worthies to ensure that its will prevails, by use of Strength of Numbers.

The Party Leadership uses “whip” to keep the flock together, much like the sheep: leave their brains and sensibilities at the door before entering the august houses.

Only your throat is needed inside 

GDP Growth Rate – The Great Indian Debate

GDP Growth Rate – The Great Indian Debate 

Much like the Panchtantra parable of “Elephant and the blind men” this debate is dominated by ‘smell & feel” of the Indian Economy.    

Arvind Subramanian, the former Chief Economic Advisor had stated in 2015, that the new GDP series with the base year 2011-12 did not ‘smell and feel” right. So did many other learned men and women.  Most other “data’ about the level and economic activity and outcomes were out of whack, they “felt”. 

Arvind retired to the academia in Sept 2018, and had time to work on this ‘irritant’ He worked with the ‘volume” of production of 17 products and services in India; conflated them to arrive a ‘trend line’. He diligently confirmed his hypotheses using data from 70 other countries. He was then happy to reconfirm that Indian New GDP Series did not “Smell & Feel” right.

Nothing, that is new here.   

His paper published by Harvard University, actually stated that “India’s actual GDP growth rates may have been about 4.5% only with a 95% confidence interval of 3.5 - 5.5%, during the years 2011-2017 (the New back-series)”.

But he made an explosive (incendiary) statement that the GDP likely ambled along at an elephant like @4.5% and not sprinted at tigerish @7.5% as claimed by GoI. Arvind’s is a credible voice, being the erstwhile CEA, and divergence from official positions is large enough for the GoI ‘warriors’ to come out guns blazing.

4.5% was picked up by the TV studios and many swords were unsheathed.

The Chronology of the GDP Controversy

Nov 15- March 2016:  GDP Growth data was released after changing the Base Year to 2011-12 (earlier 2004-05) and with improvements in methodology. The back series issued to ensure fair comparison showed that GDP growth in the UPA years better than NDA years.  

P. Chidambaram gloated that “the 10 years of the UPA government recorded the highest decadal growth since Independence” and “… It should put an end, once and for all time, to the misconceived charge that the UPA government had mismanaged the economy.”

Now that commentary does not gel with the “Congress Mukt” narrative being built so strenuously by NDA.

April 2017 – Sudipto Mundle Committee was set up to improve the “Real Sector Statistics and databases”. The Report was published by MoSPI in August 2018. Back series from 1994-95 was now reported using another set of databases (with 2011-12 the current base year). 

This report reconfirmed that the average growth under the two UPA terms turning out higher than that under NDA-1. The government, promptly to disowned the data by stating that the Mundle methodology was ‘experimental’ and not yet ‘finalised’. And the Report vanished from the MoSPI site.

July 2018 : MoSPI announced change of Base Year yet again to 2017-18. 

Jan 2019:  MoSPI raised the GDP estimate for Fiscal 2017 – to 8.2% without giving out or presenting any credible methodology. As usual it was assumed that the Informal Manufacturing Sector,(which was severely battered by DeMo tsunami),  grew at the same rate as the formal sectors !

There was peace at last, as NDA and Modinomics has won! Just before the general elections. 

But now Arvind Subramanian has gone and stirred the hornets’ nest again.

The Politics of GDP         

While Consumers and Producers make most of the decisions that mold the economy, the Government activities have a powerful effect on Economy –“the playing field”- mainly thru Fiscal and monetary policies.

Politics is inherent to policy-making. It is natural that every dispensation will “tom-tom” the superiority of its policies: much like “my daddy is greatest”. And the politicians do spin data in a positive light or manipulate it such that everything appears rosy.

A few Remarks

GDP Measures, devised by Nobel Laureate Simon Kutznets as a measure of “economic progress” is past its “sell by” date, as the structure of economies the world over has changed beyond recognition since 1940’s.

 Arun Shourie made a very telling distinction between India and Bharat, when he said that the DeMo and its attendant “formalization” delights Bombay and Delhi but the lights have dimmed in Ludhiana, Moradabad and Tirupur.  

Increasingly our Governance systems and structures, Centre and States have strayed from their primary tasks: 1). Security of Life and Property, 2). Capacity building for Education and Health, 3). Physical infrastructure and lastly, 4) Creating a “level playing field” for all economic and social (actors) entities.

Is the GoI in danger of becoming a “ruler” that runs a ‘protection racket” as Yuval Noah Harari characterized “most rulers in history”?    

Smart Cities - Fundamental Parameters

The report by Nidhi Sharma (ET, 21st Mar 2019) on indifferent results of 3-year old smart -city (NDMC) initiatives caused concern. Our planners seem to be missing something very basic, that a smart city components can only rest on "Smart Physicals"

We need to do a 360 º review of vastly changed external realities to those that informed the current assumptions and parameters that guide our Urban/Human Habitat planning norms. Exploding population caged in finite land masses is now causing "frictions" that are becoming "unbearable", in most cases. 

It is no-brainer that we need to grow "vertically" -shrinking the cities horizontally.

Designate and notify areas with MIN (NOT Max, as we do now) FAR/BCR areas, facilitating 50 Story + multi-use Complexes, that house many activities reducing the need and frequency of stepping out.

*(No Govt building be less than 50 floors – Govts, both state and centre get rental income)

*(No housing permit to increase floors on houses - encourage plot pooling -to build 50 story mixed use complexes)   

*( Rules like 50% plot coverage need to be modified so that even basements do not cover more than 60% of plot Area, against almost 100% now).   

Secondly, we need to smartly manage our refuse, waste and garbage: start with Corporates (SPV) responsible for designated areas, for planned Automotive, electronic waste and garbage (recycle, use and dispose). 

 Thirdly, to regulate movements create -large low cost steel structures for parking (herring-bone)(Mixed use), with kiosks for hawkers and rehri -walas,  (rented @Rs100/day) restaurants eateries and (dhabas etc also) on different floors -roof top gyms and pubs, creches and kids play areas).

Clears up and de-clog road surfaces for faster commutes.    

Fourth, as we vacate lands, create parks and ground water re-charging systems revive water channels (to reduce flooding) 

In thirty years (It is definitely a generational shift), we will have better human habitats, with better air and water quality. 

Unshackle the Farmers - Agricultural Reforms

It is said that our Policy framework has been based on the premise that the Agriculture /farmers need to be “subsidized₁” while the Industry must be “incentivized₂”.  

In reality, however the “Farmers have been subsidizing the rest of us, indeed the economy” wrote M S Swaminathan in his report on Indian Agriculture in 2006, 12 years ago.  The farmers are “Producers” who have almost nil control over the pricing of his/her produce.  

It must be said that the extant Agro-Policy stance has resulted in many Agro-revolutions; namely, Green Revolution- Cereals and pulses, White Revolution-Milk, Golden Revolution-fruits and vegetables and Blue Revolution-Fisheries etc. We have managed to improve the nutrition level of citizens (per capita basis) by many multiples, even as the population has grown four folds.

We have over the last 70 years travelled a long way from being a “PL 480 dependent” economy; our Agro-exports are now ~$40Billions, same as our centuries old, haloed Textile Industry.

The shrinking land holding sizes and poor investment in rural areas has increased the farmer /rural folk distress. Almost 70% of the households are landless or cultivate marginal holdings. We resort to frequent “farm loan waivers” and subsidies that are not liked by many influential sections of our society.  

The unshackling of the “animal spirits” of our Farmers and Agriculture has been held up by the fear of food inflation that forms a good part of household expenses, particularly of the vocal and well organized urban poor.  The per capita NVA for 2011-12 at current basic prices (base year 2011-12) is ₹ 1,01,313 for the urban areas and ₹ 40,772 for the rural areas," as per Finance Minister Arun Jaitley. The differential is 2.5 times in favor of Urban areas now (It must be noted that averages hide many issues).

The average surplus in rural India is ₹ 1413/month with ₹ 95/month being the lowest in Andhra. (NAFIS 2016-17 –Aug 2018). And indebtedness is ₹1.03 Lakh per rural household. 82.5% of Income is accounted for by Expenditure. The resulting savings rate of 17.5% is obviously inadequate to cover for “business risks” of Agriculture and allied rural activities, leading to chronic indebtedness and frequent need for “farm loan waivers.   

Our Agro-economic policies need an urgent re-set/re- orientation. Agriculture is also a “business” and this vital economic activity must be adequately supported, “incentivized” to feed our burgeoning numbers.  

The Price: Terms of Trade

Price is the central mechanism by which the value transfer takes place between parties and is central to improving the terms of trade and thereby social justice.

The GoI in June 2017, announced the Minimum Support Prices (MSP) based on recommendations by National Commission on Farmers (NCF) headed by M S Swaminathan; a Cost Plus formula. The Committee recommended the MSP be A2 (direct –out-of-pocket) +FL (family’s labor) + C2 (Indirect costs) marked up by 50%. However the GoI very quietly omitted the C2 and arrived at an MSP marginally higher than the existing ones, not disturbing the Terms of Trade (ToT) between Rural and urban economies.

Re-Set the Pricing Mechanisms   

The cost plus pricing (MSP) assumes that “all wheat” is same and therefore is inefficient mode of value realization. No “businessman” worth his salt uses Cost Plus to price his products, if he can.

The Amul model of transferring value to its constituent dairy farmers is a golden example to follow that was even recognized by our PM while inaugurating one of its value-adding plants in Anand, Gujrat. The member dairy farmers receive 70%+ of the street price of Milk thru price, bonuses and dividends. And the dairy farmers of India have returned the favors by making India the largest Milk –Producer in the World, for last 20 years.

Incidentally, this Amul Model has been followed by Kenyan Tea Industry to become the largest exporter of Tea in the World, in a span of 25 years.

Surely, the core principle of remunerating the farmers in relation to Street Price is transferrable to ALL agro-crops.

The Core Objective: Let’s set up Agro-pricing mechanism that ensures farmers/ producers get at least 50% of the “Street Price” in the nearest A or B class town. 

Differentiation:  The current price setting mechanism does not adequately account for the quality, grade or market conditions. Every district from Kanyakumari to Kashmir must be producing different commodities, as per its agro-climate and different grades /types /genus, and at different times of the year; The Street Price would vary /fluctuate accordingly, in the neighborhood areas.

Determining Street Prices:  Therefore, the District Administrator (renamed DM or DC, to change the colonial –era mind-set of the “collector”) heading a district level Agro-Experts and stakeholders’ committee (with linkages to and taking inputs from CACP and Min of Agriculture, GoI & Farmers’ Producer Organizations, and Supermarkets, NGOs etc.) in their monthly meeting deliberate on the upcoming crops, grades and volumes in the benchmarked A & B towns.

 The committee then fixes the buying rate from Farmers for the next month that is at least 50%-70% of “Street Price” (SP).  The CACP and the GoI declare the seasonal (A2+FL+C2) costs. Let’s add only 25% (not 50%) to arrive at the Cost+ price (called CP).  

The District Committee sets the Buying Rate (Dist BR) for the month at greater of the two, for different crops/produce and its grades, coming to Mandis that month. 

The farmer’s recovery %age may be increased thru buying price, bonuses and dividends etc. over time.

There must be a district level data publishing system and an index can be developed to be the basis of a competition between districts. 

Payments to Farmers:  

Inordinate delays in payments for the produce sold are major factor in Farmer distress, as it forces him to borrow for consumption which is very difficult to service – Farmer distress.  

Let’s trade the 25% mark-up foregone as per MS Swaminathan formula for this very important issue i.e. Payments: On-the-Spot payment.  

All incoming produce must be bought at the “Dist BR” by ALL agents, Govt or Private, on arrival. The Buyer will issue a Warehouse receipt that the farmer takes to the Bank at the Mandi. Farmer gets the Credit (or cash) and the Buyers Working Capital Limits/accounts are debited.  

Having realized a good price and received cash, he is not compelled to borrow for consumption. It may be noted that the cash- cycle of farmers is more than 3 months, from buying inputs to receiving cash for output.  (This needs to be mitigated in the Next Steps – FPOs and Advances from buying agencies against contract to supply produce)  

Buying Agencies:

Banks will have an active role in this process. Banks will lend to all buying agents including Govt agencies. The Collaterals will be stronger:  The crops purchased (warehouse receipts) and assets of the agents and guarantees from Govt agencies will be held by banks. All Mandis (APMC) have many godowns and storage facilities

Banks will send a daily statement of purchases to the DA office / Agri-committee, validating the purchase price being at or above “Dist.BP” and associated control data.  

Selling / Offloading:

The stock-holding agencies and the marketing chain have 100% (SP less BR) mark-up to manage their costs and profits. The Mandis may conduct weekly auctions to which the local dealers and exporters can buy their needs. Such buyers, who are market savvy, can also be financed by banks. 

Now that the financing costs are to the Arhtiya /Agencies account the ‘Velocity of Supply chain” will increase, prices will tend to rise. The countervailing pressure by competing sellers will ensure some stability. And, above all, wastage in Godowns will not be in the interest of market agents. (Govt agencies may be given a corpus +Bank limits within which they must operate profitably. And send monthly reports to DA –Committee and controlling agencies.)

Investments in Rural Industries:

The market pressures for usage of / conversion of all residues/by-products will rise to contain overall costs of these market entities.  Policies to incentivize such usage /production will set in motion a virtuous cycle for ago-processing industries and rural employment.

This will transmit strong signal back to buying agencies and to farmers on the quantity and quality to be produced next season.

Now, Markets control the Export /import of agri-commodities with the Govt agencies playing an oversight role and intervene in emergencies- much like Market Regulators of any Industry. 

_______________________________________________

Notes:

¹ “Subsidy” along with “reservation” – the urban middle classes feel that “we” are giving away as “dole” to lower classes what is not their due.

² Incentive is given to someone (obviously of upper castes), who deserves it, and will return the favor in spades, with a positive outcome.

Proper Functioning of Board of Director

I spoke a tad harshly on the recommendations on the Conduct of Board of Directors and its members, particularly the independent directors (Ref: Uday Kotak lead panel –June –Oct 17).  The Panel had, in my view lost sight of fundamentals, or had poorly defined ToR.

I decided to write this note more to clarify my own thoughts. The important, nay vital dots are:

The Promoter Group Power

*A business enterprise is a risky venture; famously, seven out of ten fail.

*Having gained traction and customer acceptance, the promoter borrows from friends and relatives (sympathetic individuals/ entities- comes with a packet of obligation) and having gained or created enough heft / documentary trail goes to the Banks (a cheaper source of funding –only obligation is to service the debt).  

*(Many entrepreneurs willfully remain in the MSME category: our regulatory loads can suffocate entrepreneurial energies).  

*Once the entrepreneurs access the Share Market for Funds, does the need to have a proactive Board of Directors arise.  

***Promoter has “skin in the game” The Banks lend looking at the promoter’s track record. Markets provide equity funds again looking at the promoter group, hardly the Board.

The Role of Board of Directors'

The BoD’s key purpose is to ensure the company's prosperity by collectively directing the company's affairs, whilst meeting the appropriate interests of its shareholders and stakeholders.

Asymmetry of Powers of Members of BoD

The truth is that the Promoters will act as if their personal interests are superior to the interest of other shareholders and even the company. 

And they have the POWER to set the agenda and do so.

The independent directors on the other hand (who are appointed and paid by the Promoter group:  will demur but cannot take a completely adversarial position) have only moral power, lacking any teeth.

This asymmetry of powers if addressed will ensure better governance of the corporate world. 

 Directing the Power of Promoter Group- Measures and Rules

A set of measures that incentivize or moderate the use of Promoter power to the detriment of the Company and other shareholders will be more effective.

A few suggestions: 

1    1. The Board and Operating Management must be separate, i.e. All Board members including the chairman must not be part of Operations Team which reports to the Board.  

a.  The Promoter (group) will be the MD/CEO (as the funds have been provided based on his track record/reputation)

b.      Directors who have DIN should be appointed from the list (approved by Govt/Industry bodies/institutions).

c.       Directors chosen must not have any relationship –personal or business with Promotors (group).  

d.      No director can have more than 4 (four) Board appointments.

e.      Directors remunerations / sitting fees be defined ( as per turnover /No. of subsidiaries/complexity of the Company), and paid out of a fund allocated by Banks (out of the debt)      

      2.  The Promoter (group) must maintain an unencumbered shareholding of min of 30% (say) in the company which must have min of 25% public holding (SEBI mandated).

a.       The Promoter (Group) receives a dividend that is 1.3 times that is approved by the shareholders.

b.      The Promoter (Group) also receives ESOPs.  

      3. The use of Equity or Debt funds that are accessed by the Company as per the Board approval, are misused /diverted

a.       In the event that the funds are diverted for personal gains the other shareholders must be compensated for the costa and opportunity loss by Promoter (Group), say by transferring their shares to others (?) or cash.

          4.  Board mandates Operating Parameters, 1. CA/CL must be 1.3 times and 2. DSCR must be 1.35

a.       If these are maintained the Promoters get a reward in relation to lower interest cost offered ( wrt PLR then and now) by Banks ( for prudent operations)

b.      In the event that these ratios are breached BoD may levy a penalty and/or appoint replacements.

5     5. The Boards of PSUs /Banks must also be subject to above rules (created in the name of and for the benefit of Citizens).    

Now you have a BoD that is truly independent and Promoter (Group) that is focused on the welfare of the Company /other stakeholders. .

A Company Law Board appointed panel monitors the performance of the BoD. 

Post DeMo Narrative -4

The article titled "Who will pay for the sops" by Prof Arun Kumar of Institute of Social Sciences Delhi, (IE, 13th Feb 2019) shines light on the state of economy that helps connect many dots on the events of last few years. 

Almost nil data on the Unorganised Sectors of our economy explains the current buoyant-economy narrative of NaMo lead GoI. 

Prof computes from many private surveys that this part of the economy possible grew at 1%. There was no alarm as most of taxes are paid by organised sector. 

The NaMo game plan in DeMo adventure was then intuitively sensed; it is now clarified. He played the Janta by posing as Corruption Fighter, creating the spin of a very decisive and strong leader. 

Stuffing Banks with Cash for onward lending to Organised Sector and hoping that its growth (duly measurable) will raise his/BJP's electoral fortunes. And on top of that it immobilized the Opposition parties just before the crucial UP and Punjab Assembly Elections. 

The minor blip in growth figures was a small price to pay. Hats -Off to NaMo, again. 

But the severity of political backlash from down under was not computed. NaMo got scared /greedy and started playing with GoI institutions to massage the data. 

We are in for some interesting times 

(Please see my blog postings of Nov-Dec 2016)