Oil’s bear grip on India is ending

Like any oil importing nation, India’s economy too is at the mercy of crude oil price. As the dependence on oil increased, the impact of price swings too increased. But there are significant structural changes which are happening, though at a slower pace, are determined to free India’s economy from oil’s hostage.

1. Increase in Ethanol mixing: From the current 2% mixing of Ethanol with Petrol, there are lots of policy measures taken to increase it to beyond 10%. It works well for the sugar cane farmers too. Their crops can get better prices as sugar factories divert the cane juice to production of Ethanol. It may take two years or so for new distilleries to begin production but there are definite actions being taken to make it happen. With Sugarcane crop glut and high import prices of crude, Central Govt. has hit two targets with a single arrow. The money saved (from importing crude) flows into investments into Ethanol facilities (creating jobs) while also boosting farmer income.

2. Higher domestic oil production: Vedanta’s Anil Aggarwal says he can produce crude oil in India at $7 a barrel. Wow, that is 1/10th of the price we pay when we import it. His company Cairn Oil has won bids for the oil fields along Rajasthan border. Though we need to see how much of oil is available there, it looks promising for now and can surely take domestic production up from current numbers. Any increase here is savings in the import bill.

3. Railway Electrification: Indian Railways is the biggest guzzler of diesel in entire India. As their lines get electrified (they got huge sanctions in the last budget), demand shifts from imported crude to domestically produced coal.

4. Electric Cars: Though the electric car market is not deep, there is huge interest being shown by automaker as well as policy makers to increase their numbers. As these cars hit roads but don’t pay visits to petrol pumps but charging stations, oil consumption comes down by that proportion. With each passing year, the ratio keeps changing and probably 10 years down the line, things would have changed drastically.

Apart from this, recent price surge in crude oil and its retracement backward shows that similar changes are happening in the international market too. Any price surge may become temporary phenomenon as other channels begin to open and alternatives begin to play a catch up.

The risk to assumptions made could be in the timelines, it may take longer than expected but oil’s golden era seems to be getting over.

Floods are no more rare events

Kashmir, Kedarnath, Kaziranga, Chennai, Kerala, Kodagu…. these are the places which witnessed how much damage can floods cause in the recent past. In each place, reports said it had not happened like that in the past few decades. Yeah, not in the same place but in half a decade it happened in many places all over India. South East monsoons which first hit Kerala’s coastal line, begin there journey from there and the clouds take the routes where the pressure drop is high and pour the rains there. if no where else, as a last stop, they reach the Himalaya’s and empty out themselves fully.

What seemed to be a rare event, is no more a rare one if you observe the regularity of it happening in one or the places of India. Of course, global warming is for real. It is making the seasonal patterns abrupt and taking the sea water levels high too. As a result, we are experiencing extremes of weather – too hot and sunny during summer and water pouring from the heaven during the winter.

If we look at how we respond, we are not doing any great job with weather forecasts. And when things break loose, our citizens just cry for help. Why did they built their houses on the riverbeds and encroached lakes in the first place? What happened to the rain drains? Where did they disappear? Why did we build such low bridges across the river streams? What kind of town planning did our Corporations made? It is a collective failure in anticipating risks and managing them.

If no one takes responsibility and pass through this again as a one-off situation, nature will continue to give us lessons every year. It is time to take long term corrective actions and learn the ways of the nature. History shows those who did not adopt to nature’s ways like those of Mayan civilization (and our own Harappa too) did not survive the master strokes of the nature. Hundreds of years of civilization disappeared in a matter of few days when they were faced with floods, earthquakes and other natural calamities. We Indians are surviving for 5,000 years but it does not mean we will survive in future too. Last week’s chaos and deaths in Kerala showed how ill prepared we are for the nature’s ways.

Mother nature is kind and nurturing. But she will wash away all those getting on her way too.

Business Vs Environment (Protests at Sterlite Tuticorin)

There were protests at Sterlite copper factory in Tuticorin, which took a violent turn and caused few deaths in the past month. State Govt. ordered closure of the factory. It drew my attention and I started looking into the details. Protesters claim health hazards rising in the surrounding communities where the factory operates in. The copper factory blames that on other power plants operating in the town and says its own factory is safe for community.

Most (if not all) mining and ore extraction companies cause environmental damage at varying levels, many a times they are irreversible. Few companies do take ownership and employ sustainable measures to keep the harm to a minimum and they also take initiative to develop the communities living nearby as a token of offsetting the loss caused to them. Keeping that in mind, a copper smelting factory at Tuticorin had zero discharge (no waste bi-products), so factory’s claims of being safe cannot be ignored. But the society’s suffering is real, so instead of targeting only this factory, a wider survey needs to be undertaken and all those causing environmental damage should be made to take necessary corrective actions.

That was one side of the story. Another side, this was one of the India’s biggest copper producing units. With its closure, India must import copper now, so the costs are going up substantially and all the value-chain using copper as input are suffering business losses and many jobs are at a risk. If 2,000 jobs are about to be lost in the copper smelting unit, at least 10x more jobs will disappear in the subsequent chain industries, if the the situation continues.

As a trade-off, I feel both the copper factory and protesters need to take a back-step from their stance and come to terms. Protesters should not only target this company but make all the polluting companies responsible and at the same, the industry needs to adhere to safety norms and spend more than they are doing now on developing the communities living nearby. Govt. need to strike a balance between jobs and the environment, rather than taking a side. That is easier said than done. If the protests were politically motivated targeting only the Sterlite, then it is a sorry state for the environment. Once those political leaders get their pay-off, copper factory will come back to life but the environmental damage caused by other factories will continue to remain an issue and an opportunity to fix it is lost.

Stock Pick (Fundamental): Nava Bharat Ventures

Trade wars will make India stronger

India’s GDP growth is driven by consumption and not by international trade. In fact, India has a trade deficit, it imports more than exports. When there are trade wars, it greatly affects those countries like China, Germany and Japan whose economies are export driven.

For India, if our exports are affected it would affect Pharma and IT but take a close look. Most of pharma exports are low priced generic drug. There are not may places you can make it cheaper than in India. Similarly, IT service exports are driven by the talent availability along with low cost. Again, you can’t easily get those millions of English speaking IT engineers at the cost which India operates anywhere else. Given these competitive advantages, though these two sectors will see a setback they don’t vanish. Other exports such as Textiles, Jewellery, Agri commodities have loyal consumer base for Indian exports. They too will see headwinds but their survival may not be under threat.

When it comes to imports, though oil & gold have the lion share but there are lots of other stuff like industrial equipment, automobile spares, etc. which in the times of trade wars becomes expensive and create a fertile ground to make them in India. That, over a period, will drive investments, creates new jobs and saves import bill. Remember that auto industry was non-existent in the 1950’s in India and now our car makers produce indigenous designs made for Indian consumers. Similarly, our defense spending, which is mostly spent on imports now, can slowly transform into the one which drives domestic industry growth. Since trade wars make imports expensive, it makes commercial sense to produce them out of India, wherever possible.

I hope and wish that India makes use of the opportunities provided by the trade war and come out stronger.