Saturday, September 23, 2017

Electric Cars are good for Indian Economy

There are discussions making rounds how good or bad are Electric Cars for Indian economy. I believe electric cars are going to be a game changer and will be good for Indian economy for the following reasons.

Reducing addiction to oil:
We are a trade deficit country. Oil the biggest bill in our import list. We maintain oil reserves to the tune of 15 to 45 days of the demand to ensure that country does not come to a halt if the oil supply is cut during a war or a geopolitical conflict. Think of a scenario where we reduce the oil import significantly as we commute through battery driven cars. Our import bills will be down. We will become a trade surplus country. Rupee will rise to below 50 Rupees levels against USD. And we do not have to maintain massive oil reserves for national security and we can ignore geopolitics.
CAD, USD/INR (Source:
New investments & more jobs in power sector: As these electric cars need to be electrically charged, that will take the demand up for electric power supply. And it would mean new investments flowing into the entire power sector - coal fired power plants, hydro, wind and solar. This infra upgrade will create a huge number of long lasting jobs.

Consumer perspective: These electric cars are run by energy stored in batteries and do not need an engine (petrol or diesel). When engine is absent, you don’t need oil filter, air filter, fuel filter which are consumables and replaced during service now. You do not have to get your Engine oil or coolant oil changed as well. And there is no exhaust system and no emissions. Noise and vibration is reduced significantly and so is wear and tear. All these things mean your maintenance and repair bills come down sharply. So is the running cost per km too. That would pay for replacement of batteries every 4-5 years.

Good for environment: If we can charge the cars through renewable energy, we will be doing a great service to environment and to the future mankind. Reduced emissions lead to better air quality and limit damage to our lungs. Is not it good?

Negative on existing industry but why can’t they transform? The traditional automobile industry will see negative impact but why can’t they transform with the changing needs? And there will be ample time for it. Even if we assume few of them will have to close down, the net impact to economy would be still positive.

I am looking forward for these cars to become mainstream. And I need to research battery companies to make them part of my equity portfolio.

Thursday, September 21, 2017

Feedback & Rating system for Schools and Doctors: Anyone thinking of it?

e-Commerce changed the way we buy things. We search and compare the price in the major portals and make sure we are paying the right price or getting the right discount. Competition and rivalry among retailers made things transparent for consumers. Benefits does not stop there as we tend to take a look at ratings provided by the previous buyers. Was it delivered in good condition? Did the product perform to the expectations? How quickly it was delivered? Many parameters and the whole country’s consumers are giving that feedback. Yeah, those feedbacks are better than just checking with our neighbors or inquiring a cousin before we make a buy decision. That really gives the prospective buyers a good sense of what product to buy, which seller to choose from.

Similarly, you book your travel on Redbus. Again here the travelers would have left the feedback on whether the bus came on time, was it clean and how was the overall experience and so on. Is not it helpful? For sure it helps us to avoid those operators with bad service. And you don’t have to give them a chance as the numerous passengers would have already made their opinions public and yours experience too is more likely to remain the same.

For the services consumed, feedback and consumer rating is a great way of alerting the prospective consumers and making the system to become more transparent and avoiding the possibilities of taking the consumers for a ride. But there are two sectors – education and healthcare, in which we consumers spend considerable portions of our incomes but rely on very limited ways of knowing what other consumers experiences were so we go ahead and take a chance. We don’t know what kind of experience we would go through when we put our kid to a school and visit a hospital in the wee hours. That gives the players in that sector an opportunity to mishandle many things. If there was a feedback and rating system available in the public domain for them too, would those schools and hospitals dare to mess with customers?

First of all to make such a system available for the public, all of them have to come on the same platform. Who would bring them together? And who will take the responsibility of keeping the feedback data not being massaged to favor a few? Is anyone thinking on those lines? If not soon, gradually consumers would get organized and it would become inevitable for those bad players and curb corrupt business practices followed by few of them.

Similarly, how about having a formal feedback and rating system for those whom we elected and those Govt. officials? When their job is to serve the society, why the society has to wait until the problems go out of hand? Facebook and Twitter are already acting as a feedback mechanism of public opinion to some extent but hope that trend leads to better solutions.

Wednesday, September 13, 2017

The world's happiest man

The label got my attention and I wanted to hear what he has to say and the experience was great. He is indeed a happy man and he surely teaches you how to be happy too. Happiness is a choice and if you have decided to be unhappy, it is a different case. Otherwise listen to him and increase your happiness.

Decoding the strength of Indian Rupee

USD/INR (Source:
If you take a look at the Rupee performance against USD on a 10 year chart, you will notice that the last year’s performance was really a strong one. It stopped devaluating and even went against it to regain some of the value it had lost. How do we explain this? We just need two charts to decode it.

Shrinking Trade Deficit & offsetting it: How do we get the Dollars or other foreign currencies (inflow)? Through exports, remittances, FDI, Loans based in foreign currency etc. And how do we lose dollars? Through Imports mostly and other factors are not that significant. If we take a look at Trade balance (Export – Import), India has a deficit but that has come down significantly, thanks to what happened to Oil and Gold prices. Now it is in the range of $5B -$10B a month. Our FDI, remittances are to the tune of $5B+, so many months we should be able to offset the trade deficit with our forex inflow. In net, the pressure on Rupee is off.
India's Trade Deficit (Source:

Forex reserves with RBI: When RBI buys dollars from open market, it impacts the exchange rate. It weakens the Rupee. RBI keeps dollar reserves to safeguard India against external shocks and to prevent damage to Rupee when there are sudden outflows. In that case RBI would sell their reserves to avoid volatility. But how much reserves do you really need? It was $300B three years ago but now it is close to $400B. It is enough to take care of 40 months of trade deficit. If you think of equity/debt market exits from FII, they too are fought nicely with ever increasing of SIP of Mutual Funds and EPF pumping money into stock market. So in summary, threats to foreign investments are taken care to a larger extent and it means RBI need not keep on buying dollars. On another note, how RBI buys the dollars? It has to print new money to buy it. But there is so much liquidity now, it limits the need for our central bank to do that.

India's Forex Reserves (Source:

The takeaway is, dollar outflows are shrinking while inflows remain strong and the need for RBI to increase reserves is reducing, it all points to one thing – stable Rupee. So don’t bet against it.

Saturday, September 9, 2017

Where the jobs have gone?

Every month approximately 10 lakh youth come to the job market in our country and majority of them are not absorbed. Yes, on a yearly scale it is ~1% of population trying to find a job and that is way more than those retiring from the jobs. So the unemployment levels are increasing to highest levels we have ever seen. What happened to those job creation engines of India? And how this can be solved?

First of all let us see which sectors need the workforce most and what is ailing them.

Construction: This sector was a major job provider. Since skill levels do not matter much here, this sector was feeding all those with low skilled labor with low wages. Owing to unrealistic land price rise in the last decade, it was slowing down and demonetization brought it to a grinding halt. Much of the job creation got evaporated into thin air. Check with those masons, low-wage daily labors, electricians, plumbers, construction material providers and transporters, you will learn how they have lost their hopes.

Manufacturing: See Auto industry performance. Whole of last year, they saw with disbelief how their sales declined. With all discounts, unbelievable offers and intense marketing promotions, they were not able to clear their inventory and meet their targets. General Motors recently decided to wind up their India operations. In such a scenario, how will they increase capacity and what will happen to OEM (Original Equipment Makers) companies in the entire of supply-chain? When there is no capacity being added, why do you need more people? Case is the same with Steel, Cement manufacturing sectors too.

Services: BFSI (Banking, Financial services and Insurance) is the sector which gained the maximum benefits of opening up of Indian economy after 1991 reforms and created more jobs. Total services sector sped faster than Agriculture and Manufacturing (typical growth engines before 1991) and provided jobs in big numbers. It employs 40% of work force in India but now it is seeing a saturation. IT (Information Technology) which was a negligible job provider 25 years ago, grew at a faster pace during the last two decades but now has lost steam. Forget new job creation, those in the sector are striving harder than ever to survive.

Infrastructure: During last decade, Infra looked like a sunrise industry for all of those in this sector, but the sunshine did not last long for them as many of the infra projects did not make the intended money and in fact lots of big infra companies are on the edge of bankruptcy. They took their lenders (mostly PSU banks) down with them too. Take a look at the recent list of companies prepared by RBI and most of the infra companies find a mention for being a risk to economy.

Ok, India’s job creation engine is not firing on all cylinders. What can be done to improve the situation? I am no expert but being a participant in the Indian economy, I need to have an opinion and express it to shape the collective decisions we make as a society.

Govt.’s commitment to their motto: Why do ministers and Govt. officials want cars made by multi-nationals? Why cannot they drive cars made in India fully? Such actions would show their commitment to tags such as “Make in India”. And it will increase the demand for local manufacturing and its entire supply chain. You know one job created in manufacturing creates two in services sector. Investing in public transport to make it more efficient and serve more people would mean less fuel burnt overall, good to climate and lighter on import bills. The jobs created in these sectors along with productivity benefit with infrastructure upgrade would pay-off for the investments made.

Open up Corporate Bond Market: As of now, most of the load is on Banks to fund the growth story of India. But they are in bad shape. With increasing distressed assets, they are not in a condition to lend big sums to corporate. Take a look at international markets, it is the bond market which funds the corporate most and not the banking sector alone. Interest rates (or the coupon rate) is based on the risks of the borrower unlike how Banks fix a common rate to their borrowers. That would let the markets find a balance and help those with clean records to raise money from capital markets at a lower rate, build new factories and provide employment. Is not it a better way to avoid those bad performers from burning the debt they got from banks? For this to happen, RBI needs to get out of its conservative stance. But their eyes are fixed on the inflation, always. Following their intentions, it seems to be on their horizon but not as a priority yet.

Increasing public spend: Our current finance minister has done an applauding job in reducing the fiscal deficit and as a benefit we are seeing lower interest rates (as Govt. is borrowing less), a very low inflation and Rupee is stronger against USD. That is all good but whenever the economy slows down, public spending has to go up to kick-start those dead cylinders to make them firing again. I personally believe benefits of inflation do not surpass the disadvantages of lower number of jobs being created. If we maintain the status quo, rich will become richer and the poor will become jobless. That can have bad effects on the entire society. When the match is Economy against Sociology in a country with a billion plus population what will you do? Compromising on inflation (stoked by higher borrowing) for creating more jobs would not be a wrong thing to do. Why not fill in all those open positions in the Govt. owned companies at a faster pace by speeding up hiring process?

Promoting Entrepreneurship: We need more job creators and a support system to encourage them. Giving subsidies to them would bring more benefits to economy than giving fuel, fertilizer subsidies en masse. But the reality is, our country does not fare good in ease of doing business. If we want to increase the job creation pipeline, we need to make it easy for entrepreneurs.

In summary, we have answers to the problem on hand. Our youth need to find jobs. How else do we take India to next level?