We are ignoring the signals , and this could be dangerous

On October 11, 2012, i wrote the blog ‘From Emerging to a Submerging Economy’ https://commonmansblog.com/2012/10/11/india-from-emerging-to-a-submerging-economy/

I read the story in the Economic Times today, titled ‘Feast of Burden’ ( Page 10, ET dated August 3-9, 2014). It is almost two years since i wrote my blog and this story on corporate debt. Things are still the same , rather have gone worse . For example ,

The cumulative debt of;

Tata Group is about Rs. 2.00 lac Crore
Reliance ADA Group is about Rs. 83,000 Crore
Jaypee Group is about Rs.66,000 Crore
Bharti Group is about Rs.60,541 Crore
GMR Group is about Rs.37,788 Crore
Lanco Group is about 34, 876 Crore
HCC is about Rs. 11,150 Crore

I am not mentioning the rest of the groups like ESSAR etc…. Small and mid-size companies would further make the situation scary .

It is time that the Government asked all these companies to come out with a clear statement of how they are going to service these debts, to ensure that these companies do not end up creating a ‘cloud burst’ for the Indian middle class and disturb the economic prospects of this developing country

Rajendra Pratap Gupta

Is Indian Government lying to the world about its fiscal condition ?

Last week , i was in Delhi and met up with two friends who gave me shocking news .

One friend works as a vendor to Ministry of Defence ( MOD ). He informed that the MOD is not in a position to pay for the orders already placed as there is no money available .Always, MOD was flush with funds , and this is happening for the first time in history

Also, a senior official of the Ministry of Health informed that , they are planning with money ! This means that there is no money with the ministry but meetings with regards to planning are going on

Corroborating these two meetings with RBI’s news ( dated 5th Nov , 2011) that , RBI cannot pay interest on CRR. I am afraid if India has already fallen off the fiscal cliff !

News web link is http://articles.economictimes.indiatimes.com/2012-11-05/news/34925243_1_reserve-ratio-percentage-of-deposits-banks-finance-ministry

By the way, Indian Government is borrowing at the rate of 1.5 lac rupees per second to run the Government this year . Nothing more to write . I believe that the Government owes an explanation

Has the country’s central bank ( Reserve Bank of India – RBI ) collapsed ?

On 22nd March 2012, i had written that we have ‘Oversold the India story’ ( https://commonmansblog.com/2012/03/ ) , and what i had predicted for the economy in the April , May and June quarter, happened !

Again , on 11th October 2012, i wrote on my blog ‘How India was fast turning from a ‘Emerging economy’ to a ‘Submerging Economy’ ( web link : https://commonmansblog.com/2012/10/11/india-from-emerging-to-a-submerging-economy/ ) . Now , read the fact about our Central Bank . As i said earlier , i am not worried on the 2014 for elections , but for the economic scene that will unfold in 2013 for the average Indian middle class , we are building a disaster & fooling ourselves ! It is a call to action !

On November 5th ,2012 , The Economic Times carried the report that , the country’s central bank , Reserve Bank of India ( RBI ) would run into losses if asked to pay interest on mandatory percentage of deposits banks have to park with the centre bank , called the Cash Reserve Ratio ( CRR). The RBI has stopped paying interest on such mandatory reserves since 2007. Finance ministry had suggested the bank to pay 7 % interest on these deposits .

Does it mean that the country’s central bank has collapsed ? If yes , why have we not discussed this in parliament, and are looking at FDI and other ways like stake sales in PSU’s and auctions of the sovereign assets to hide this news and infuse money in the system .

Prime Minister and Finance Minister owe and explanation to this nation on this issue .

News is appended below and the web link is http://articles.economictimes.indiatimes.com/2012-11-05/news/34925243_1_reserve-ratio-percentage-of-deposits-banks-finance-ministry

NEW DELHI: The finance ministry has decided to review the expenditure and reserves position of the Reserve Bank of India (RBI) after the central bank indicated that it is not in position to pay interest on the reserves banks maintain with it.

A government official downplayed it as a routine review of the reporting structure and disclosure requirements of the RBI, but it comes at a time when there is already obvious tension between the finance ministry and the central bank over the conduct of monetary policy.

“It is the government which tables the annual report of RBI in Parliament, so there is nothing wrong if it (government) wants to know how RBI prepares its balance sheet. We are not questioning them or raising objections,” a ministry official said.

However, another finance ministry official admitted that the review started after the RBI had indicated that it would run into losses if asked to pay interest on mandatory percentage of deposits banks have to park with the central bank, called the cash reserve ratio (CRR). The RBI had stopped paying interest on such mandatory reserves since 2007.

The finance ministry had suggested that the RBI should pay 7% interest on these deposits, pitching it as a measure that will help lower rates even if the central bank does not ease monetary policy. It had argued that all major central banks either do not mandate a reserve ratio or pay an interest on the mandatory reserves they ask banks to set aside.

“RBI had made certain arguments. Now, we want to understand their expenditure sub heads, format of disclosures so that we both are on the same page,” the official said.

The government is studying RBI’s expenditure, revenue, contingency reserves and investments, he added. On Tuesday, the RBI dashed hopes of a rate cut, but lowered the cash reserve ratio (CRR) by 25 basis points to 4.25%.

Please check more eye-opening statistics on Indian Economy on my blog .

From January , 2013, i will be working full-time to figure out the economic model for India , that will take the country out of the current crisis

Rajendra Pratap Gupta

Healthcare I Retail I Rural Economy I Public Policy

www.Commonmansblog.com

FDI in retail – This is a harsh reality – Is FDI really a boon for India at this time ?

Government’s arguments for FDI in retail are a proof of the fact, that this government does not understand India, and looks at Indians from USA’s businessmen’s perspective. Congress government has become the biggest lobbyist for pursuing the business interest of nuclear & retail corporations from USA & Europe at the cost of India’s middle class

Today’s Economic Times (26th November 2011) headline ‘ Govt Sells Multi-Brand FDI with best bargains’ gives a list of reasons why the government is supporting, (rather pushing FDI ) in retail. Let me put the Common Man’s view and take on each of these arguments

1. It will create 10 million jobs in the next 3 years

A) According to the CII report in 2007, ‘India will need 10 to 12 million skilled workers every year for the next five years to meet the growing demand from the support services and there is a need for strong intervention to ensure the availability of the workforce’. So is the government trying to say that it is only the retail chains that will create 10 million jobs in the next three years?

B) Let us examine how many jobs Wal-Mart created in America & how many jobs did Wal-Mart create in India for the past 3 years of operations both as a wholesaler and as a retailer ? How many jobs our Indian retailers like Future group, Aditya Birla retail and Reliance retail created in the past 3 years? We will clearly see that they did not even create a million jobs!

C) Also, government does not talk how many Kirana stores will shut down in the next 5 years and how many homes will be denied of a source of income ?

D) Wal-Mart or for that matter any retailer works on the least number of workers per square feet (lean management structures ) ,and so it will kill the 50 Kirana stores thereby get at least 250 people out of jobs and then create 50 jobs per super market. Is this factored in the statement? I am willing to prove this in the current retail scenario leave alone the scenario when the foreign retailers come in?

2. Several billion dollars of investment in retail

A) If retail is a great business, the government banks should give loans from domestic financial institutions and let the homegrown retailers grow and build scale and size and let the profits remain in India. Why should we give 51 % of the ownership to foreign players, as these people will sell to Indians and take the profits out of our country. USA / Europe will solve their income and earnings problems and India will get into problems of high inflation and more volatile stock market. Also, Indian retailer being less than 50 % of their share in the retail will become servants to these MNC chains under the current 51 % FDI norms.

B) Why did the government not start with 26 % FDI in multi brand retail for the first five years? Why suddenly start with 51 %. Please justify?

C) Often it has been quoted that the foreign retailers will bring technical know how to Indian retail market and boost the economies of scale and productivity? Which technical know how is the government talking, it needs to explain? I have been a COO / Board member of a major fortune 20 company’s retail operations in India, and I can tell you that these foreign retailers only bring money and no other expertise! They work on high profits, highly automated environment and lean man power structures. So government’s reason of the technical know how is fallacious and is showing that we Indians do not understand retail. Let us look inward and see our home-grown retailers like Future group and Aditya Birla retail .They are certainly growing . Government must bring out a detailed white paper on the so-called ‘Technical Know how’ these foreign retailers bring to Indian retail market?

D) With these billions of dollars coming in India, India’s real estate will become expensive thereby, contributing to keep the inflations levels high for the medium class not just for real estate but for all the sectors

E) Also, these billions of dollars are not charities to India or Indians . These are investments by retailers which follow a ROI ( return on investment concept ) for every dollar spent. So for sure , they people will invest in retail one dollar and take out 10 dollars from India over the next couple of years . Retail is mostly done on inventory management which is on credit from vendors . These retailers follow a credit cycle which ranges from 15 days to over month . So with a double-digit profit margin , these retailers will only be investing one time into infrastructure and then make money without investing at all ,as all the inventory is on a credit cycle . ‘Sell and pay’ is the mantra for these FMCG retailers ! Even the space which is rented by these retailers is leased to product companies for hefty display charges. These retailers charge a heavy fee for listing products in its store before selling .Our policy makers , wake up and understand the real dangerous game of FDI in retail and don’t get carried away by the billions of dollars of investment . It is not true . One time investment by these retailers will be a life long profit for their parent company’s home country

3) Farmers will get more than 12-15 % of the consumer price they get for fruits and vegetables

A) In reality, farmers will never get a higher price but will be exploited by these MNC Chains .In fact, these MNC retailers will push in for stringent quality checks and other prohibitively expensive conditions for these farmers thereby, forcing the poor Indian farmer out of his livelihood. Most of the retailers will take to contract farming, and thus the farmers will be reduced to being laborers in the hands of these MNC chains.

B) The History of these MNC chains has shown the these chains are out to squeeze blood out of their vendors and farmers will certainly be vendors for these MNC chains and nothing else . Wal-Mart and other retailers are facing dozens of cases of exploitation and gender bias in developed country where the legal system is strong . Imagine what will happen in our country ?

4) Consumers will get producers at Cheaper Prices, as competition will bring down the prices

A) Even without competition the prices will come down by a few paisas or may be a few rupees, but, all these chains will increase the MRP (Maximum retail prices) of the products, and so the consumer will end up paying more than what s/he pays today. Take an example of the MNC pharma companies. Since there is a ceiling of price increase by 10 %, so every year the pharma companies increase the prices by 9-9.5 % and thereby, circumventing the price increase regulations.

B) It is clear that the consumer is not a winner, no one pay’s from its pocket OR profits to the consumer. If there is a price increase on the input costs, the same is passed on to the as an increased MRP or the quantity is reduced for the same price. So the consumer’s pocket is always ripped apart by these retailers

5) 30 % mandatory sourcing from small-scale sector will help small industry

A) This has not been a convincing argument, so we are trying to tell that a small company out of Varanasi will compete with HUL and win? Come on Dr.Manmohan Singh, are you trying to fool Indians? I understand that you studied at Oxford, doesn’t mean that rest of the Indians are going to get carried away with these statements

B) Also, these MNC chains will put conditions that are either too stringent to be complied to or prohibitively expensive to be implemented by these SME’s, and so finally, these chains will find a reason to evade buying from these SME’s. Also, that the SME’s are not just limited to India, but across the world, so probably, Chinese SME’s would benefit more than Indian SME’s

C) These retailers charge a heavy fee for listing products in its store before selling. How will SME’s afford that ? The fee currently for Indian retailers varies from few thousand to over a lac for products for companies . SME’s will never be able to benefit from these chains even if they are able sell to them, as they will pay for listing and then cry for the payment – which will depend on the vendor payment cycle varying for weeks to months and small vendors (SME’s ) cannot survive this big box retail game

6) 70 % of retail is in food items and these are mostly sourced locally

A) If 70 % of the retail is in food items and this is sourced locally, why allow 51 % of the profits to go out of India? So FDI should not have crossed more than 30 %!

B) Local Indian retailers (existing Kirana stores ) must be trained to deal in these food items and deliver better value for the country and its economy.

C) This argument of the government goes against its own policy. So whereas, 70 % of the products would be food items, 51 % profits from these categories would go out of our country, thereby, clearing pushing the inflation higher perpetually for the next couple of decades. As there will be less money in our country chasing more goods ( as money would have found its way to parent MNC) – Simple economics Mr. Kaushik Basu!

7) Ikea already sourcing 30 % of inputs from India

A) So if Ikea is already sourcing 30 % inputs from India, let other chains also do the same before starting their shop in India.

B) If these MNC chains buy from India and sell in India and take 51% of the profits abroad, what is India’s gain? The government must come out clean on this?

8) Approval only after investors meet all conditions, including 50 % investment in back end

A) This statement of investment in backend is a foolish statement. Already 100 % FDI is allowed in wholesale, why justify it for retail and link it up? Let these retailers first invest in back-end for the first five years and next five years invest in front end

B) Government has FCI (Food corporation of India) godowns and what is the government doing for enhancing the efficiency of this biggest warehousing corporation – Can this FCI not become the Cash and Carry for small retailers ? A drastic improvement in supply chain of FCI godowns can bring down the wastage of food grains by hundreds of tons if not thousands of tons. Please pursue the project of Mr.Atal Behari Vajpayee of Golden Quadrilateral and link up all the FCI godowns, and start a national Agriculture produce transport corporation to start weekly transport during the harvesting season from the farms to FCI and nearest towns. The farmers co-operative and IFFCO should manage this. With this, farmers will not only get good prices but the wastage will be reduced substantially. Why are you looking at FDI to solve this simple problem of inflation . This can not only solve the inflation problem but also improve productivity at all levels , create more jobs ( may be , millions of low & middle-income but high productivity jobs ) and reduce inflation .

C) Learn from ‘operation flood’ by AMUL and how it solved the shortage of milk problem of our country and created a world-class brand. See what M.S.Swaminathan did with ‘Green Revolution’ to increase the production of grains in our country. Please do not justify that foreign retailers will help you bring down inflation. Remember that ‘Inflation is reversible but FDI is not’ and do not sell our country to foreigners for a short-term gain of a few billion dollars to our economy. This is anyway not the dollars to our economy, but the investment of dollars to take back dollars. I am sure that all these MNC chains a ROI (return of investment) method of calculating the investment returns. So I wish to ask our government that what does the ‘retail FDI dollar’ bring to India, which Indian government cannot do with its own money?

9) Government will have the first right over procurement of farm produce

A) This statement has no value. Government has shown no concern for farmers except considering them as voters and leaving them at the mercy of rain gods.

Questions that the government must answer

What has the government spent to train local Kirana stores in the past five years? When yesterday only the government asked for Rs.56000 crore of the tax payers money despite a huge budget deficit, why did it not ask for even a Rs. 1000 crore for retailers training and up gradation?
Why did the government not start with FDI in retail at 26 %? Why suddenly at 51 %? Has the government become a lobbyist for MNC chains?
Has the government done its own independent studies for the impact of retail chains on Kirana stores?
The biggest plank of allowing the FDI is that inflation will come down. So despite allowing FDI, if the inflation does not come down, will the government revoke FDI in retail? Does that rider appear in the CP (Condition Precedents) for allowing FDI in retail?
Government needs to prove that FDI in retail can create million jobs every year. How and why, and which retailer will do that. All this must be put in the business case for allowing FDI? Why is government becoming the spokesperson for these MNC retail chains? What is the deal?
Where and how much wills the retailers invest in back-end? This has not been specified?
Why has the government not capped the retail margins of foreign retailers in India?
See point 5 B, why have women self-help groups / handicrafts been excluded from being the beneficiaries of the retail entry
Why are retailers not mandated to invest in retail training ?
More questions to follow

Rajendra Pratap Gupta

Healthcare I Retail I Public Policy

Email: office@rajendragupta.in , office.rajendra@gmail.com

Wrong Economic priorities ,lop sided growth & flawed statistics

This is the follow up blog on my views dated 15th June 2010 & 27th June 2010 on the topic of “High GDP but low GDP per capita”.

Focussing on statistics , in April-May 2010, IIP witnessed a decent growth of 14 % but this did not cover some vital sectors . Only one sector , machinery and equipment , alone contributed 37 % to this high growth. Transport equipment , metal products and mining contributed another 32 % to IIP growth. This implies that around 70 % growth of IIP was a result of high growth in just 4 out of a total of 19 sectors . Also , that these growth rates have an important factor ‘Low base effect’ . Like manufacturing sector achieved one of the highest growth rates of 19.4 % in April 2010 over a low base of 0.4 % in 2009. Similarly, Capital goods sector’s high growth of 72.8% in April 2010 was over a negative base of 6 % in 2009.

Time to balance out. Else , we will blame Greece, Italy , Europe , China , poor rainfall etc. Etc. for all our ills, forgetting that we never looked at “REAL India” for growth

Get the priorities right and actions STRAIGHT

BJP must be focussed more on right issues than routine struggles !!

Rajendra Pratap Gupta

Email : office@rajendragupta.in

Indian Government is clueless about the Economic Crisis – Rajendra Pratap Gupta

India is clueless about how to resolve the current economic crisis?
For over a year, the world has been sliding into the grip of recession. First it was America, then Europe and now Japan. It was naive of our Harvard and Oxford educated FM & PM to keep denying that India would not be affected from the crisis. They kept shouting that India was fundamentally strong and that the crisis would not impact the Indian economy. Even after issuing a ‘Token Bailout’ package the Congress government believed India was better compared to the rest of the crisis affected economies. But of late, congress has accepted the fact that 2009 would be worse.
The height of irresponsibility and lack of knowledge is evident from the fact that Indian Government also did what America was doing i.e. issue a bailout package. India should have acted differently. But why apply brains? Just copy what USA is doing – copying others is the biggest folly of our selfish and mindless politicians !! Way back in August 2008, i wrote for Financial Express supplement – SME World about the impending crisis. This article got published in November 08 issue of the magazine (download the original article from http://www.rajendra.collectivex.com ). But the contents were very much available on my blogs much earlier. I had clearly mentioned that the crisis in India started much earlier and the government was a silent spectator. It did nothing to correct it. Now it is acting posthumously. The moment banks started hiring recovery agents , the crisis has started. After all , banks don’t hire recovery agent for small NPA’s.
I see quite a few reasons for this illogical and irresponsible bailout step. Why should bailout be avoided and what did the current government to the economy. Listing a few view points
• Indian government and our foreign educated PM & FM are totally clueless about the crisis , so leave alone management of the crisis
• They quickly hired foreign experts in their advisory council. Irony is that these foreign experts have rarely stayed in India and know little about the realities on the ground. Adding to this , they had the so called Knowledge commission , P.M’s advisory council, Economic advisory council and many such sinecure posts to keep the sycophants and power hungry corrupt people on benches on our tax payers money
• Political compulsions & uncertainty keep the government & the public guessing for the future moves and the markets will never gather momentum
• Real issues have not been addressed so far, and i don’t see any signs of revival in the economy with such an irrelevant approach to this crisis which will worsen with time passing
Now let’s examine what the government is doing:
• Pumping more liquidity in the banking system
• Decreasing interest rates
• Announcing sops for exporters
• Announcing increase in NREGA scheme
• Making tall statements of strong fundamentals etc…..
Now let’s see what each of the above mentioned steps would lead to:
• Putting more liquidity in the system. But Indian financial system was never cash strapped, Banks were growing very well. We have enough of money available! Now, the bank and financial institutions are becoming risk averse. Who trusts these crooked politicians? If the banks dole out loans and they turn out to be NPA’s. Manmohan and PC Would be gone by then , and the poor branch manager or the M.D. of the bank will become the scapegoat. So in as much as these measures are announced with much fanfare, the implementation is poor. No one is trusting each other. It is a ‘crisis of lack of trust and transparency in our System’. PM can increase liquidity by repo rate cut, but he cannot force the local branch manager of State Bank of India to start lending tomorrow from 9.30 AM till 5.30 P.M. Imagine, even if this was a reality. Would you and i take this loan? For what & Why? We are concerned about the uncertainty of income and job. Liquidity in the system is not the remedy, right? So clearly, government is not taking the right step as it does not know or acknowledge the problem in reality. Today, even corporates like TATA are finding it difficult to raise money. Let’s see why? TATA’s went overboard, and brought big businesses abroad for billions of dollars, and mostly, in all cash deals!! Wrong strategy? When they brought these companies, the stock markets were racing around 20000. Their stocks were really valuable. Had they done a cash and stock deal for all its acquisitions, they would have been better off even when the markets tanked. Now for the price they brought Land Rover and Jaguar, they could have bargained to buy the entire company!!! Any ways, the companies that owned these brands are fast becoming history or getting bailouts and kind of getting nationalised or filing for bankruptcy. Same is the case with Arcelor Mittal. What a deal it was. Now the question is, was it structured in the right manner?? Wait for another quarter, Iconic Ambani’s are likely to tell a similar story. Indian systemic corruption has created mammoth business houses, and the future of this natural imbalance is a foregone conclusion. It was just a coincidence that Satyam got caught. No big corporate can exist without political patronage, and this political patronage comes at a price in cash and with moral flexibility . Satyam is just the tip of the Iceberg. Each and every corporate has shady spots somewhere or the other. Difference is that they have not been caught like Satyam.
• Lowering interest rates: Still the loan port folio of financial institutions is not increasing. Reason , people believe that companies due to drop in sales going forward, and increasing inventory pile up, will dole out better discounts and so are deferring the buying decisions, till the prices drop further. The recession has taught people that, cash in hand is better than ‘Notional money’ in real estate etc…. People are pretty sure that times ahead will not be easy. Assume for a while that, even if the corporates go for taking a loan and increasing the production. Who will bring the buyers? People are in no mood for discretionary spending. All in all, lowering interest rates is also not working in isolation. The problem is totally different and not getting addressed here at all. In today’s tour economy is akin to cycling, either we are peddling or we will fall!
• Announcing Sops for exporters: Suppose, i am an exporter and i am exporting to USA, Europe and Russia. My order books have dried up as the economy is headed for trouble in these countries. Will Sops help me bring orders? Is this not an eye wash for the public? Sops will only work when orders start pouring in. This is again a misfired weapon.
• Announcing increase of funds for NREGA (National rural employment guarantee Scheme) Schemes: This scheme was already in place. We have never been able to quantify the positive impact of this scheme on poverty alleviation. Albeit , our politicians have become richer ! We all know the fake musters made and the amount eaten by the babu’s and ministers. What poor need is not money, but training to earn money consistently. It is like if you feed fish to poor; you can feed him fish a few times, better teaching him how to fish and he can earn for himself every day. How long will NREGA spend our hard earned money on feeding people? This is a misguided and misplaced scheme. What we need is a NYVTS – National Youth Vocational Training Scheme & NRSS – National Re-Skilling scheme – to re-skill and retrain people in better earning vocations and not NREGA. We must create – SEZ’s – Skilled Entrepreneur Zone in every tehsil / district to empower the rural –real India. Still 68 % of the population lives outside urban India. Mind you, urban poor are worse off than rural poor. What schemes are meant for them?

Solution to the Crisis:
Essence of this is that printing & pushing ‘Notional money’ in the system is not the solution. It is an illusionary step. Creation of money by the hands of people is the right solution. How will that happen? I believe that government (Even the US Govt.) should not have resorted to bailouts. If Lehrman Brothers collapsed, it collapsed. So what? Let all the financial institutions and auto majors be left to meet within themselves and come out with a solution. They could have formed a practical consortium to deal with the problem, shared resources and planned a better crisis management. Now each of these corporates will get a bailout package, they will go out on the rampage with cut throat Competition and crisis will aggravate, a few of the bailed out companies will eventually cease to exit. We are just giving a palliative care through bailouts. Competition and collaboration are two ways to save the economy. We need collaboration now. Today the government is patronizing inefficiency and paying the price for poor regulation as bailouts and it will cost it dearly.
Even after the bailout, i fail to understand, how 16 or 25 billion dollars will save General Motors? About a year back , GM had about 30 billion dollar as cash and it was burning billions of dollars every month and finally they fell on the knees.People are not going to buy a Chevy due to the fact that the GM motors has a government bailout plan and package! History was a witness to Enron collapse, World Comm collapse, and IT Sector bust after the boom. Well that’s in a business cycle. All that goes up comes down. If the government wanted to do well. It could definitely take some practical steps like.
• Put a moratorium on corporate , housing and other loan EMI’s for the next 3 years or part payment instead of full EMI’s for the next 2-3 years a nominal interest be added, so that even banks do not suffer loss. But public should be relieved of the burden of payments substantially and immediately
• Automobile industry should be happy as the crude oil is cheaper. What the government could do is to step in and make the cab drivers replace taxi’s older than 10 years by a bank loan for 10 years duration at reduced interest rates like 7.5 % for any duration i.e. fixed rate of interest for the entire term of the loan . The duties and other taxes should be cut by 50 % for all the taxi’s that are older than 10 years, by 75 % for vehicles that are more than 5 years to less than 10 year old. Would this not boost both the auto industry and the banks? Also, this would increase collection of the government as road tax. Which could be reduced by a good 50 % for all purchases made in the next three years? It would boost a whole lot of industries associated with Auto , fuel, Iron and steel , rubber , etc …….Make the small car ‘Nano’ and the ‘electric car & scooters’ totally duty free . Any ways, the government collections are down. At least, here it will not lose anything, but only gain as whatever taxes it can collect directly. But indirect collection of taxes will get a boost as a host of activities will increase with this push. It will lead to substantial increase in employment
• Business and Real estate : Service tax on rental be abolished , Increase the tax slab for interest payments to Rs.2 lacs, issue home loans at fixed rate of interest from 7 % till 8.5 % for any amount of time . Appoint immediately a Housing regulator to check inflated real estate cost and check the cartelization to keep the prices low. One thing that government can do is that, all buildings under construction and not sold, in those buildings, 70% of the units can be sold and remaining 30 % have to be rented only. Government must construct flats & shops for poor and low income groups for rental occupancy only. This will not only boost the demand but also keep the real estate prices low. The stamp duty and other government charges should be reduced by about 50 %. Any ways, government is not making any money due to poor or nil demand in real estate sector. 50 % taxes would be good enough at this point in time. Even the biggest real estate company by market cap, DLF has reduced the prices of their projects due to poor sales and their prices have dropped by a good 32 % in one of the Bangalore projects. Most of the real estate co’s are abandoning the projects.
• Alternative Energy: Wind power and solar power is to be immediately pursued in every house hold, town & district. This can be financed by banks and will lead to a cleaner and greener countryside and improve the economy and generation of power for households and communities
• SME: this sector is contributing to just 39 % of the manufacturing output. In developed economies, this sector contributes about 90 % of the manufacturing output. Government needs to push this sector into growth mode by setting up nodal growth centres for SME’s manned by professionals from the corporate world. Setting up incubation centres in major national & regional institutes for providing technical support and professional guidance. For detail steps , read the article that i have recently written for The Financial Times supplement – SME World
• Transport & Logistics: Approx 90 % of all the commercial vehicles sold in India is via loans. According to Deepak Sachdeva , President of the Delhi Goods Transport association , between April and December alone, close to 158000 commercial vehicles were repossessed or either surrendered due to loan defaults. This impacts the employment of drivers, helpers and host of other people who run the road side businesses dependent on the truck movements. We need to incentivise these set of people and relieve them from the loan burden with moratorium on EMI payments. Reduce tax on road permits , remove penalty for late payments of EMI for up to 2 years . Octoroi tax must be abolished immediately.
• Agriculture: The government needs to push this sector with more reforms and technical innovations considering that more than 80 % of the farms are of small size holdings less than five acres. We need to bring a sigh of relief to these farmers by host of measures
These are just a few of the steps that government can start with. Rest later

Rajendra Pratap Gupta
President
Country First
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FDI in Retail

Dated : February 16th, 2009

Dr.Murli Manohar Joshi
Chairman
Parliamentary Committee on Commerce
New Delhi

Ref : Foreign Direct Investment in Retail Sector

Dear Dr.Joshi,

I wish to draw your attention to the following for a postive consideration and further recommendations.

There has been a lot of debate about the opening of the retail sector for foreign direct investment

My view is , that the retail sector in India is a major employer and is the key to India’s youth employment and empowerment . It today comprises of about 12 million establishments . Adding to this, there are atleast 2 helpers at a retail outlet. Further , indirect employment is provided to at least 6 people

With such a massive employment potential . We must consider the following before we talk of FDI in retail sector

1. Why should foreign brands take away India’s earnings ? Land is ours, employees are ours, spending is ours , raw material is ours. Then why do we allow foreign co’s take away our earnings by just putting their brand names ?

2. It is a known fact that, most of the reputed brands all across the wordl manufacture their products in India sub continent and sell across the World . The products are of highest international quality and well accepted . Why do we not sell locally and serve the local economy as well

3. It is well known that this big foreign MNC’s change the rules of the game by increasing rentals , salaries and lowering prices or even increasing them . Thereby , making it difficult for the localites to operate . We cannot regulate all this , but for sure , we can check the entry of these MNC gaints

4. What the retailers in India need is a different version of FDI – Finance from Domestic Institutions . If we get finance from domestic finance intitutions , we will be more competitive and we can grow profitably and grow even internationally . Indian products are already sold in differne parts of the world

5. I also suggest you to consider and recomend that retail be given an ‘industry status’ and there should be a separate ministry for retail and vocational training . That also takes care of re-skilling of the talent . We have a sever skill gap that needs to be immediately addressed

Hope that your good selves will consider my suggestions and incorporate with your recommendations

Looking forward to hear from you

Thanks again with high regards

Rajendra Pratap Gupta
President
Mobile : +91 9323109456
+91 9867300045
Email: president@countryfirst.org / mail@rajendragupta.org

Economic forecast for 2009

If the Indian economy grew at 8 -9 % in 2007-8. I must believe that, about half of this came due to intrinsic or local market factors that is about 4 to 4.5 % . So we will continue with that growth with some downward slide in 2009, and also that the remaining half was due to foreign or extrinsic factors. Which i believe, will reduce by a good 50 % . So intrinsic or internal growth will contribute between 3.5 to 4.5 % and remaining 2- 2.5 % will come from the extrinsic factors . So in all , i guess the next year we will witness growth somewhere around 6.0 to 7.0 %. If the World economies shrink badly , which is expected. This might impact this growth a little more and bring it down under 6.0 %

Rajendra Pratap Gupta
President
Countryfirst
Cell : + 91- 9323109456
+ 91- 9867300045
(USA) +1515-450-6165
Skype: rajendra.india
E-Mail: mail@rajendragupta.org / rajendragupta@aol.in
http://www.countryfirst.org

Way forward for India- Declare Pakistan a rogue state

For the last few decades, India has been losing lives, money and economic opportunities due to the terrorist activity emanating from the land of Pakistan. Since , terrorism is not limited by geographies , it is high time, that India initiates a “Global partnership to fight terrorism” . Forms an international coalition of military forces that fights terrorism across borders . Let all countries sign the partnership, contribute to this military force , and let these forces enter any member country, and take all steps to ensure that none of the countries allow its land to be used for terrorist activities. This is the only way to fight terrorism. Am sure that Pakistan will always avoid to join this . This could be done under the auspices of UNO. The burden on individual nations would not be much , but the outcomes would be phenomenal.

Else, there is a more harsh way to deal with it- which we should avoid. Attack Pakistan and countries that indulge in terrorism. If i were the PM , probably , i would have given a 24 hour ultimatum to Pakistan to handover the most wanted terrorists. In case, it failed to do that , i would have bombed Pakistan and taken the India’s political map back to pre 1947 days. Why let our billion population live under constant fear of dying any moment with bullets , when we have already given what Jinnah wanted and shared our culture , people and natural wealth more than 60 years ago. We lost millions then , and we continue to lose now . We have already divided the nation in 1947 based on religion. Why not decide either ways now. If India wants to be secular , it has to be safe or else , let it be a Hindu nation . if that let’s poor Indians to live in peace – We have tried all peace processes , our options are running out ! Why lose lives after lives every day because we have chosen to be a secular nation. Are we paying the price of being a secular nation !! Our politicians should not forget that we are not dying with terrorism but living with terrorism , and that’s more dangerous . We are dying every moment , psychologically. Why ? What is our fault.

In any case, after terrorist attacks in Mumbai, we must snap all ties with Pakistan and declare it a ‘Rogue and Terrorist state’. If we want to have a milder approach . Let it be declared a ‘Terror watch list nation’ and take this issue internationally.

Peace is the first pre-condition to progress and development . How long we will continue to live under the fear of dying with bullets ? Any nation that has the potential to develop and grow exponentially is a victim of terrorism today. I am not too sure who is behind the ‘Terrorism’. But the first suggestion is the most practical .

I want all Indians to not waste any more time . But get organised locally and form chapters to take the nations issues in our hands. It is high time we do it. If we fail to act in the next general elections , we will lose another five years and push India behind by another 30-50 years . Do we have that luxury ? We have a billion + population and majority of them are frustrated with the current system. Let’s change it . It is only in our hands. We have a big responsibility and people have expectations from educated people like us who can use the internet , write and read and connect. Let’s not betray them. More than 99 % of India wants us to bring about the change , do we ditch them ???

You all must be expecting that these politicians will act. No , they will not . Till date, the person who was sentenced to death for attacks on parliament is not hanged. We have politicians who make tall media statements and fail to act where they need to. They want their stupid and ugly face and words to come every now and then on the media …………We cannot be silent spectators anymore . Act now.

Each one of us has the potential to change this moment and this nation. We need to take the first step. The first step is to act immediately and connect with all our friends and start a wave, a moment to redefine the role of each one in building a nation. India has always shown the world the way to learn and lead . We can do it now and you will have to start.

Note this ,

One mind can awaken another, the second can awaken their next-door brother, three awake can awaken the town, by turning the place upside down, and many awake can make such a fuss, that they finally awaken the rest of us. – Helen Kromer

Best ,

Indian Economy headed for a severe historic recession

Indian Economy – Getting into worst ever recession ??

It is high time , we acted fast by reducing fuel prices, drastically reducing loan rates and take all possible measures to ease out of a severe recession. Every where, there is a job loss, loss of contract, shrinking consumer spends , production cuts, halting growth plans, adding to this , the recent terror strikes have crippled our already bad travel and aviation sector. We need to convince the consumer that all these steps would be long term. Trust me, we are headed towards a severe recession that will blow out the India story. We don’t need a nuclear deal or a moon mission as a priority today, what We need is ,to keep our feet on our ground. India needs to be pragmatic. This road to recession can be a good turning point for the Indian Economy if used as an opportunity

Why is Indian economy in recession? Indian economy was known as the most intriguing economy for the last three years. There was a lot of hype and hoopla created around the same, everyone wanted to ride the booming India. Some called it the ‘rise of the east’ or ‘a billion under-served customers’. It was the country no one wanted to miss. What happened? What went wrong and why at all?

Firstly, a few things led to a sudden hype. Rise of Infosys and Wipro’s, TATA Tetley acquisition, Arcelor Mittal takeover, Indra Nooyi taking over PepsiCo as CEO, Arun Sarin took over Vodafone etc… This was backed by a lot of media coverage.

Secondly, the triumvirate of Manmohan Singh , P. Chidambaram & Montek Singh talking of a double digit growth excited a lot enthusiasm of politically connected ( and not so politically connected ) business groups to enter into ‘businesses of future’ like infrastructure , power, retail etc… This was based on ‘Big Talk’ of the triumvirate. We all know how many people pumped in money at unrealistic valuations and market was heated up beyond logic, banks were also enjoying the party, share market was expanding like a balloon, manpower was charging anything and still jumping for tempting offers, retail was spotting everywhere. Result: competition became suicidal. Money got pumped into real estate and supply increased and the prices soared. Brands started fighting for space and not profits. Finally, reality was surfacing; growth was not double digits; which the triumvirate shouted for three years. We saw profits were not as projected, corporates were missing numbers, shutting the outlets and man power layoffs. Just forcing Jet airways to take back air hostesses will not cover the reality…………how unfortunate!!!

Thirdly, the ‘Big consulting majors’ were talking in 2007 -8 about the multi-billion dollar markets suddenly growing three fold or four fold by 2012-15. How stupid of CEO’s who believed these news releases of these so called ‘big consulting majors’ and spent millions to buy their reports & finally presented their boards with these rosy projections and raised funds. Now they are shying about the current share prices and valuations (let’s not even talk about growth achievements versus plan or the crazy profits numbers!!!)

All the three factors basically did no good but just created a ‘sexy story’ about a nation like India, where more than 70 % people don’t have access to basic healthcare, only 3 % dabble in stock markets, only 10 towns can boast of a retail revolution, has 36 billionaires and more than 800 million living on about a dollar a day.

Let’s evaluate a little more ……..When people talked of India in 2007 they talked about big IT giants , call centre’s high paying jobs to teen agers, overseas acquisitions of TATA’s & Mittal’s, Mumbai becoming like Shanghai, Big malls coming , dollars flowing as FDI, Big brands coming to India , MNC’s coming to India, ballooning stock markets, BPO’s multi million outsourcing contracts & the great retail revolution. Now with US / Europe in recession and may be, with Barack taking over as the next US President. India will have to take a big hit. We just saw the first wave of negative effects of the US Financial market collapse. India’s stock market crashed almost to a third of its high. With India’s IT / BPO shying and taking to lay off’s, we know the real estate sector would be hit as the entire 2 BHK ( Two bed room , hall & Kitchen ) flat story was built on these young ‘Ripe aged’ employees buying flats at the age of 25-30. Splurging on mobiles and white goods by credit cards …………all this is over (believe me!!)

The hype was more of a story of 36 billionaires , Infosys, TATA, Arcelor, stock market manipulations , FDI and not the story of economic development & and the 800 million population. What we see happening was a foregone conclusion. It was not a ‘bubbling economy’ but an ‘economic bubble’. And it got burst

When the banks started hiring recovery agents, it was the start of the default / delinquency crises (credit card delinquency has gone up to as high as 14 %). Loan defaults would follow shortly and this will be a big blow to the banking / loan system. When the government has to get in to pump in money or the so called confidence, It’s a sure shot sign of crisis or recession or both.

I wish that congress leaders should have thought well before announcing a Rs.60000 crore write off for farmers. This has put a pressure on banks and it will manifest in banking / loan crises. Now imagine, I am a farmer with an Rs.10000 loan for my sister’s marriage or due to a crop failure (trust me, farmers crisis has come due to rise in social costs as much as crop failure). If my loan was waived off what it did to me? Firstly, it gave me nothing to raise a healthy crop and earn for the season so my problem would be standing as such on my head. Has it given me seeds or irrigation which i needed? I could have earned and paid for the loans in the next few years (a moratorium on payments & Interest was more than enough). Moreover, it has set a precedent for me not to pay my loans and hope for future waivers. When politics drives finance, chaos is the only outcome.

Take a cue from USA . They have pumped 700 billion dollars ( India cannot think of even a tenth of this amount in the case of a crises !!! ). This pumping of funds actually helped the banking system in the US and not the economy as people have been made to believe in !

We can knock off any crises if India develops an indigenous model for growth in which technology only becomes the enabler and not the key driver or determinant. What i am pointing is that, we need not depend on FDI totally. When FDI came in, we were roaming the whole world and shouting about it. Now that these economies are under crises, they will take care of their home first, and may even exit from our country as we have seen in the case of FII’s exiting the stock market and leading to a sudden crash. We must have started our economy with 75 % dependence on domestic and 25 % on foreign fund generation besides a host of infrastructure & ground level measures. We need a ‘self reliant India growth model’ and not a USA – Europe dependent-driven growth model. Hope the policy makers will learn from the crises & take steps to correct it.

Now a day’s the most talked about line from the ruling politicians is, that India is fundamentally strong economy. Which ‘Fundamentals’ are they referring to ? Our consumer sentiment is low, stock markets have crashed, industrial production is low , inflation is high, uncertainty is looming over every corporate , retrenchment is happening , rupee is weak against the dollar, farmers that constitute 65-70 % of the population are committing suicides , IT & BPO industry is hit hard due to US –Europe recession, terrorism and lawlessness is rampant. I am still trying to get which fundaments appear to be strong !!! Is it the large suffering population that is being referred to ?

Coming to the most happening sector – The great Indian retail story : I see some retailers having burnt their fingers in metros , now are planning of moving to class II & III towns for the next cycle of growth. Let me express boldly, that this will be a big loss making proposition. In towns like Mumbai and Gurgaon, retailers are having a tough time, how come they will survive in smaller towns with more ‘service class’ & ‘Small time traders’ people. At least , bigger towns have industries and other corporates to support higher spending opportunities. Some learned Advisors have informed these retailers that 70 % of India lives in rural areas so rural India is a bigger market than urban India (calculating that rural India with USD 530 income per capita is three times the population of urban India with the per capita income of USD 1200). What an ‘unintelligent logic’. The 530 USD that the rural India earns is not even enough to spend on basics, unlike urbanites who have the basics already and can afford to spend on the new class of products which supports the modern retail formats. It is analogous to three boys of seven years marrying a girl of eighteen years (3 boys x 7 years = 21 Years, marriageable age!!!). Intelligent logic isn’t!!! That’s what our great retailers are trying to do . Only smart ones are Pantaloon and Wal-mart. Rest all are smart looking idiots !!!

Retailers must realise that they are making investments for 2012-15 market projections. The figures of these projections are not even validated. But the cash burnout is happening now. Imagine this , rentals going up by 5 % every year , salaries by 20-30 % , cash burnout for new openings , increasing offering –SKU’s, reducing margins to attract customers or wash off old inventory. However can a retailer survive ? Adding to this , move to class II towns!!!

Just to make a note that if in towns like Panvel in Navi Mumbai, the two supermarkets owned by Foodland have closed within a year due to opening of ‘MORE’ supermarkets, D’mart & Reliance Fresh stores, how can small kirana stores survive? If i don’t go wrong, even ‘More’ & Reliance will have to shut down in the times to come in the area or make perpetual losses . So the retail story in its current form is not a lasting one. But the lessons are to be learnt . One thing that has happened in India which is totally wrong is that, we have tried to CCP (cut, copy and paste) foreign retailers. But we have missed to note the most important point , that foreign retailers were pretty slow in the first ten years in their country. Even Mukesh Ambani made a strategic mistake; he announced 5 billion dollar investment in retail only to face the back lash from local traders. No one expected seasoned businesses houses to make such tall claims ….This gives us a clear feeling that Indians are unaware and unprepared for the hype that has been created by the media and neither are they guided by the realities . I would call Wal-Mart the smartest retailer in India. They have just done a retail tie up in India without using its brand name . So that the Indian partner has the expense & experience and Wal-mart has the learning’s. Moreover, their growth plans are practical. Just 15 stores now compared to 600 + stores of Reliance and Birla’s. What if the Ambani’s & Birla’s want to change the strategy or make changes backwards because of their learning’s?? It is easier to correct and make changes in 15 stores of Wal-Mart then 600+ stores of Reliance or Birla’s.

We must note:

85 % of the rural India does not have the power to consume very much at the prices that currently prevail in the market.
30 % of urban India constitutes 75 % of the GDP.
70 % of the rural India constitutes 23 % of GDP
According to the Central Statistical organization, in 2001, 48 % of the rural GDP was agricultural.

In 2001, the NDP contributors were: agriculture 46 % , industry 21 % and services 33 %.

If India needs to grow sustainably, we need to make a prudent choice between education, vocational training and SSI. Needless to mention that, India’s growth will be driven by creating more jobs in lowest rungs of the society. They will build the real consumption led growth for a ‘Shining India’. The earlier, the better.

India today is in a recession and we must accept the fact. By closing our eyes the problems will still remain. We must build growth models not based on dollars , stock markets , urban India but go in for holistic models of growth that suit the local conditions and requirements , are broad based for all sections of society and industry , and just don’t reflect isolated figures .

US economy, Recession , terrorism, Economic fundamentals, Barack Obama, Recession in Indian economy, Terrorism , Curruption.