Assume that you were born in a rural town and you want to migrate to a city to make a living. But the government restricts the rural-urban migration. Assume that you want to invest your money in safer options, but all you will get is 1.5-1.75% in returns for a 30 year long-term bond. Assume that the Government owns all the lands and is willing to lend it to you at a nominal rate. What would you do? A logical person would come to this simple conclusion - I will try to invest in myself and grow wherever I am. This is what happened in China, even as it grows at a rapid 10% a year over a decade.
Two pronged Advantage
The Chinese started operating and growing through a concept called 'TVE' - Township and Village Enterprises. The government lent the land and encouraged the people to produce goods and sell. As the cost of capital was very low, (Please note that i am talking about History. Two days ago, the Central Bank hiked its lending rate by 27 basis points to 5.85% inorder to garner a soft landing in a few over-heated sectors. However, the one-year deposit rates still remains the same at about 2.5%) companies managed to manufacture the products at a substantially lower cost. In addition, till July 2005, the Government kept the currency, Yuan, under tight control (RMB8.3-US$1) for almost a decade. (However, Yuan has appreciated 3.3% till date ever since it got pegged to the basket of currencies of last year). This created adequate trade surpluses for the country and enabled it to sustain its comeptitives on the export front.
The Government's stand
The Government realized that, for growth, it would require lot of investments. Hence, it opened its economcy in 1979, a decade earlier to Manmohan Singh's new industrial policy. This enabled it to attract sizeable FDI and FII investments (at present its forex reserves are about six times more than that of what India holds). Concurrently, the Government is doing a multitude of things. This include breathing life into its moribund stock market (some financial casinos really manage to pass on as bourses there), nursing sick banks (NPA levels in Chinese banks are worser than India's) by allowing foreign institutions to take stake in them, and enhance the quality of life in the fields (China accounts for 20% of increased global agricultural output over 25 years). The recent one was to address the energy crisis. China is planning to accumulate and keep a six month oil reserve, over a period of next ten years, to keep its power hungry industries going unabated. China currently uses 6.6 million barrels of oil a day (U.S. guzzles closer to 20 million barrel a day). Besides, they can't ask a third of a humanity to go back to the bicycles because there is an oil crisis.
I am sure you must be having several questions in your mind. For instance, how successful is China in running its show? Can India emulate what it did? Where is India scoring ahead? For answers, just keep watching this space.
Madhan Gopalan
The author is the Head of Investment Research and Advisory Services of Ness Innovative Business Services (Ness IBS). The views expressed are his own and not that of Ness IBS.
Sunday, April 30, 2006
Thursday, April 27, 2006
Will the message be delivered?
This is what most people be wondering as the government amends the post office bill. The First time that this bill is being amended after almost 100 years, is churning up a lot of unease and questions among consumers and courier industry alike. Indian courier industry with about 2300 players has had a free run so far, severe competition has made sure that the industry is self regulated and the prices remain affordable. By contrast, the Department of Post (DOP) has been a monopoly for many years and operates with an obligation to provide postal service to every Indian citizen. Will the proposed amendment curb a growing industry? Who will gain and who will lose with this amendment is the answer everyone is seeking.
There are a few things that have been the point of contention
1. The amendment regarding carrying articles less than 300gm
The Indian courier industry employs about 10 lakh people on full time equivalent jobs providing time bound services for industries and public. Lot of these organisations operate on a metropolitan/ state level offering point to point delivery of parcels and letters, while others operate at regional, national or International level. The USP of the industry has been to provide time bound, reliable delivery of parcels and letters at a marginally higher rate to customers who can afford it. There are many industries including banks, law firms etc, which depend on such services for delivering letters, negotiable instruments on a daily basis. It has been a very successful proposition and even the DOP realised that and came up with Speed post and Express delivery services. However DOP even with such massive operations could not compete with the local courier company that guaranteed next day delivery to most locations in the metros. This is the basic premise of the argument against the amendment. Unable to compete against the efficient courier operators, DoP now wants to monopolise carrying any "postal-article" the less than 300gm. So does this mean that DOP will guarantee services at the same speed that courier agencies deliver these articles? By monopolising this category, it is denying the industry and public a specific category of service that they have been using so far.
2. The setting up of a body that acts as a regulator of the Industry
Courier services in India started as early as 1977, but they haven't made an impact until recently. The industry is still young and has been operating on a environment where competition has served as a self regulator. The recent amendment proposes to set up a authority to be called the Mail Regulatory and Development Authority that will henceforth act as a regulator of the industry. The courier Industry argues that a regulator would be harmful, whereas the government has promised in their amendment that a regulator in the lines of TRAI which provides more independence to operators would be beneficial to the industry and will help resolve any issues that might arise between consumers and service operators. The answer to whether a regulator would be beneficial can only be a speculation. However a lot of ambiguity exists in the way the functions of the authority has been defined. For eg, some of the functions of this authority would be,
--measures to promote competition and efficiency in carrying on any service relating to carriage and delivery of postal articles and letters. But How? hasn't been defined.
-- standards and quality of service to be provided by the registered service providers and department of Posts; How would the compliance be monitored? is not clear
-- fix terms and conditions of inter-connectivity between the registered service 945 of 1860. providers and the department of Posts;
-- regulate arrangements amongst registered service providers of sharing with the Department of Posts their revenue derived from providing mail related services.
clarity in the functions of the regulator would make sure that a regulator functions more appropriately and ensure consumer interests. On overall, my take is that a
regulator would be beneficial to the industry and the consumers.
3. The fees for renewal and registration of agencies.
The amendment has also includes a one time registration and an annual renewal fee for operators. In addition the amendment also proposes that providers of courier service deposit ten percent of their annual revenues to the government for meeting Universal service obligation ( only for operators with revenues greater than 25 lakhs). There is no justification on the part of government for levying this fee for USO purpose. Given the scales of operation, this fee might eat into the profits of a lot of the operators and could very well lead to unethical practices for accounting. The DOP has to look for alternate sources of revenue rather than levying a renewal fee for operators and sharing the profits. For e.g., most of the courier operators center their operations around large and mid size cities. This leaves out a majority of the rural territory uncompeted. This is where the DOP should leverage their presence by engaging in sub contracting service agreements with the larger service providers. This is a very big market (and opportunity) where cost barriers and scale of economy would make sure that DOP could enjoy near monopoly without any regulation.
In the US, USPS (United states Postal service) operates on a similar model, competing with the local and international courier companies like FedEx, UPS, DHL etc. USPS has much bigger presence in US than any of these companies and compensate for some of the lost revenues in the cities by leveraging their presence in the rural. This is how it works, say if FedEx books a parcel to be delivered from City A to Village B. FedEx has no presence at Village B, but USPS has, So FedEx books the package with USPS for delivery and USPS delivers the package and shares a major portion of the revenue.
Amending a 100 year old bill is definitely going to bring up a lot of controversies, so it is also important that the bill is in line with the needs of the modern day industry and public. Certain changes are welcome, with proper implementation of the bill, the government can definitely deliver consumers a better message at the end of the day.
There are a few things that have been the point of contention
1. The amendment regarding carrying articles less than 300gm
The Indian courier industry employs about 10 lakh people on full time equivalent jobs providing time bound services for industries and public. Lot of these organisations operate on a metropolitan/ state level offering point to point delivery of parcels and letters, while others operate at regional, national or International level. The USP of the industry has been to provide time bound, reliable delivery of parcels and letters at a marginally higher rate to customers who can afford it. There are many industries including banks, law firms etc, which depend on such services for delivering letters, negotiable instruments on a daily basis. It has been a very successful proposition and even the DOP realised that and came up with Speed post and Express delivery services. However DOP even with such massive operations could not compete with the local courier company that guaranteed next day delivery to most locations in the metros. This is the basic premise of the argument against the amendment. Unable to compete against the efficient courier operators, DoP now wants to monopolise carrying any "postal-article" the less than 300gm. So does this mean that DOP will guarantee services at the same speed that courier agencies deliver these articles? By monopolising this category, it is denying the industry and public a specific category of service that they have been using so far.
2. The setting up of a body that acts as a regulator of the Industry
Courier services in India started as early as 1977, but they haven't made an impact until recently. The industry is still young and has been operating on a environment where competition has served as a self regulator. The recent amendment proposes to set up a authority to be called the Mail Regulatory and Development Authority that will henceforth act as a regulator of the industry. The courier Industry argues that a regulator would be harmful, whereas the government has promised in their amendment that a regulator in the lines of TRAI which provides more independence to operators would be beneficial to the industry and will help resolve any issues that might arise between consumers and service operators. The answer to whether a regulator would be beneficial can only be a speculation. However a lot of ambiguity exists in the way the functions of the authority has been defined. For eg, some of the functions of this authority would be,
--measures to promote competition and efficiency in carrying on any service relating to carriage and delivery of postal articles and letters. But How? hasn't been defined.
-- standards and quality of service to be provided by the registered service providers and department of Posts; How would the compliance be monitored? is not clear
-- fix terms and conditions of inter-connectivity between the registered service 945 of 1860. providers and the department of Posts;
-- regulate arrangements amongst registered service providers of sharing with the Department of Posts their revenue derived from providing mail related services.
clarity in the functions of the regulator would make sure that a regulator functions more appropriately and ensure consumer interests. On overall, my take is that a
regulator would be beneficial to the industry and the consumers.
3. The fees for renewal and registration of agencies.
The amendment has also includes a one time registration and an annual renewal fee for operators. In addition the amendment also proposes that providers of courier service deposit ten percent of their annual revenues to the government for meeting Universal service obligation ( only for operators with revenues greater than 25 lakhs). There is no justification on the part of government for levying this fee for USO purpose. Given the scales of operation, this fee might eat into the profits of a lot of the operators and could very well lead to unethical practices for accounting. The DOP has to look for alternate sources of revenue rather than levying a renewal fee for operators and sharing the profits. For e.g., most of the courier operators center their operations around large and mid size cities. This leaves out a majority of the rural territory uncompeted. This is where the DOP should leverage their presence by engaging in sub contracting service agreements with the larger service providers. This is a very big market (and opportunity) where cost barriers and scale of economy would make sure that DOP could enjoy near monopoly without any regulation.
In the US, USPS (United states Postal service) operates on a similar model, competing with the local and international courier companies like FedEx, UPS, DHL etc. USPS has much bigger presence in US than any of these companies and compensate for some of the lost revenues in the cities by leveraging their presence in the rural. This is how it works, say if FedEx books a parcel to be delivered from City A to Village B. FedEx has no presence at Village B, but USPS has, So FedEx books the package with USPS for delivery and USPS delivers the package and shares a major portion of the revenue.
Amending a 100 year old bill is definitely going to bring up a lot of controversies, so it is also important that the bill is in line with the needs of the modern day industry and public. Certain changes are welcome, with proper implementation of the bill, the government can definitely deliver consumers a better message at the end of the day.
Saturday, April 22, 2006
Share of throat
Summer has come and all the beverage giants involved in crunching the thirst is back in roll again. So who is going to take what share of your thirsty throat? As the awareness among people regarding the bad effects of soft drinks is on the rise, Pepsi and Coke has already planned out their different strategies. With their bottled water brands Kinley and Aquafina being a success story, what more are they doing? Pepsi is trying to catch in on its Tropicana brand of fruit juices while coke is eying on its Mango drink Maaza. Maaza has already been introduced in two more variants pineapple and orange. Even though these giants aimed at improving their core brands of Pepsi and Coke by introducing the Rs.5 per bottle, it seems not to be working great for these players. The pesticide story still seems to be stirring.
I personally feel this is a healthy sign for the consumer. If I can just tell you my share of throat in my house, I am amazed at the number of brands that is ready to occupy the pie chart and my throat being my graph sheet. Nescafe in the morning, sometimes Tajmahal Tea , Amul flavoured milk, Tropicana orange juice, Bottled water ( a local brand ) , Lipton lemon tea, sometimes knorr soup……….. So the share of throat seems to be big and growing. I used to consume seabuck thorn juice marketed by a popular brand- seabuck thorn is a berry found in Kashmir and other hilly regions with plenty of vitamins and other goodies But cant find these goodies anymore in the racks of the departmental stores. This is just an example. This situation should change and consumers should start indulging in these health drinks and promote them. Our good old butter milk or a lassi is anyday better than westernized pepsies and cokes that chokes. Amul has come up with its milk drinks and I find it pretty impressive.So do let me know your views on your share of throat. Those who are in high spirit shall have more choices and thanks to Mr fisher the king.
Thursday, April 20, 2006
Gaming
Singapore – So if you had somebody visiting you from this part of the world 20 years back, they would for sure have a Nintendo video game in their baggage. My father had got me a Nintendo and I still have that in my house with the edges bandaged and carefully kept inside the cupboard of my mom. 5 years back, you could get the very popular Brick video game for Rs.200.The industry is rocking today.
Video games technically noted as “interactive entertainment” is “the” thing today. The sales last year was close to about $7 billion which is so close to the $9 billion film industry of the US. The entire culture and the entertainment industry of the world are reaching new heights. According to an article that I read, there is one gaming machine for every two houses, and 23% of the households own 3 gaming machines in the USA.
Even the movie makers create interactive games simultaneously these days. Movies as well as the games are being launched together. "Spider-Man" and "Star Wars" is a good example.
Gaming Stations, PC, Console, Pocket PC, Mobile Phone, ………………the market potential is tremendous.
Apart from the video games that are played with other gadgets like a mobile or a PC, the giant thing that is growing is the Consoles. Big players and big products and brands are battling now. Sony's Playstation , Nintendo's Game Cube and Microsoft's Xbox are huge hits in the market.
A typical game takes roughly about 24 months to go live and developing these games is already a big industry of its own. The Indian gaming market is roughly sized about $60-$70 million. In terms of companies involved in developing these, Indiagames, Dhruva Interactive, Paradox and Mobile2Win are names that are getting big in this industry.
As far as the Indian market is concerned mobile gaming is the fastest growing segment as of today. As the cellular subscription is on a heavy high, the gaming market is set to outgrow in its womb – the mobile industry. There are more than 1.25 million GPRS consumers. The number of paid downloads for GSM handsets is around 600,000 a month. Apart from the paid downloads there are also free downloads that are available. The revenue is expected to touch $400 million in another couple of years. Entertainment industry , the next big thing. So go home and play. If not go home and create one.
Video games technically noted as “interactive entertainment” is “the” thing today. The sales last year was close to about $7 billion which is so close to the $9 billion film industry of the US. The entire culture and the entertainment industry of the world are reaching new heights. According to an article that I read, there is one gaming machine for every two houses, and 23% of the households own 3 gaming machines in the USA.
Even the movie makers create interactive games simultaneously these days. Movies as well as the games are being launched together. "Spider-Man" and "Star Wars" is a good example.
Gaming Stations, PC, Console, Pocket PC, Mobile Phone, ………………the market potential is tremendous.
Apart from the video games that are played with other gadgets like a mobile or a PC, the giant thing that is growing is the Consoles. Big players and big products and brands are battling now. Sony's Playstation , Nintendo's Game Cube and Microsoft's Xbox are huge hits in the market.
A typical game takes roughly about 24 months to go live and developing these games is already a big industry of its own. The Indian gaming market is roughly sized about $60-$70 million. In terms of companies involved in developing these, Indiagames, Dhruva Interactive, Paradox and Mobile2Win are names that are getting big in this industry.
As far as the Indian market is concerned mobile gaming is the fastest growing segment as of today. As the cellular subscription is on a heavy high, the gaming market is set to outgrow in its womb – the mobile industry. There are more than 1.25 million GPRS consumers. The number of paid downloads for GSM handsets is around 600,000 a month. Apart from the paid downloads there are also free downloads that are available. The revenue is expected to touch $400 million in another couple of years. Entertainment industry , the next big thing. So go home and play. If not go home and create one.
Wednesday, April 19, 2006
Roads to Development - II
Changing Conditions
In recent times however a lot of emphasis is being placed on Road development, this can be verified from the fact that the National plan had listed Road development as a priority area for economic development. The Golden quadrilateral aimed to connect the four major cities in India Viz Bombay, Chennai, Delhi and Kolkatta is close to completion and in pipeline is also projects like the North- south and East- West Corridor, Port connectivity projects. Increasing Competition between states in attracting foreign investments has also been an impetus for development.
What more can be done
Highway projects in India are handled through a government engine in the form of National Highways authority of India (NHAI). NHAI is responsible for executing all National Highway projects, similarly there are road development corporations (RDC) which operate in certain states, but their work force is very small and hence their reach. RDC's also have very limited power and restricted capabilities to manage. Considering the expanse of road networks in each state, the work force that these RDC's have are grossly insufficient.Additionally, they usually do not have enough funds to do studies on traffic patterns to suggest road improvements, most of their information is borrowed from studies by other organisations. This means they do not have enough data to advocate the need to build more roads and how to utilise them optimally.
The RDC's have no fixed way of income generation, and have to primarily depend on government allocations for funds. There is no transparency in the way that these RDC's handle their finance, since there is no form of accounting being done, hence there is no way to ascertain the returns on the investments made by these corporations. This puts them at a disadvantage when they go for borrowing, leading to higher rates.This also puts them at a disadvantage when showcasing their plans the common public since they cannot clearly establish a revenue model and cannot explain to tax payers as to why they are being charged acertain toll to cover for the costs of these roads. These are things that can be looked at the state level RDC's.
Another area of improvement is in involving more Private sector participation. Throughout the world the private sector financing model has been succesfully used to build road networks. A national level policy on Private sector participation should be created and a suitable regulatory and legal environment should be created. It would be very important to make sure that we do not have another incident like Dabhol when involving foreign and private participation.
And finally it is important to make sure politicians and politics don't hamper improvements. Anew government should not stop a good initiative started earlier or change policy matters introduced by previous governments. Road transport and road infrastructure are vital for accelerating the rate of economic growth in India, Unless major reforms as well as investment are made, India’s road infrastructure will be an impediment to economic growth and social development.
Monday, April 17, 2006
Roads to Development
How Important are Roads to us?, On any given day, I travel atleast 15 km on roads, small and big ones all included, probably everyone uses them in their day to day life. Roads have been and will be an integral part of a individual's life for years to come until we devise a way to travel in cable cars like people(and robots) did in Asimov's novels or until someone is succesfull with his Teleporting experiment.
India's road network at 3.5 million km of roads is only a little shy of the distance between earth and Moon. India is vast, and most developed countries are comparable in size only to a small region of India. So the problems we have are much different and in bigger magnitude when compared to what they faced building their road networks. For our sake of ease lets classify the road network in India into the following four categories
1. National Highways (NH Roads)
2. State Highways (SH Roads)
3. City/District Roads (Both Arterial and Non Arterial)
4. Urban Roads (75%)
Issues we face
Inspite of our greater dependence on roads, we still treat them very shabbily and do not give them the importance they deserve. A look at roads today would reveal different kinds of problems. Some of the the common issues we face with most of these roads are similar and can be classified under these major heads,
i Existing Roads that are narrow or substandard.
ii Existing Roads that are badly maintained
iii Non Existent Roads.
lets cover some of these issues here,
Substandard roads -
Most NH and SH roads in India are two laned, causing slow speeds and congestion issues( A census shows that only only 2 to 3% of the primary network in India is 4 laned). Most of our NH roads pass through the cities,adding to the city traffic and causing more congestion. By routing NH roads through cities,the traffic flow in smaller roads is being increased to a magnitude that are not capable of taking. This causes more wear and tear on the smaller city roads and thereby increasing maintenance costs. A common solution for this issue, is to build NH roads such that they by pass cities hence reducing the traffic flow into state and city roads.
A look at city roads reveal that enroachments are a major issue. A typical 100 feet road in India only has a carriage way of 70 feet. The rest 30 feet is lost due to enroachments by street hawkers and other haphazard drivers who park their vehicles on the roads. Just making sure that the enroachments are being removed regularly, would ensure that we have enough space available to the road users.
The urbans face a different kind of issue, most of their roads are of the Kutcha type and therefore are not suitable for vehicular traffic, the only solution here would be to make sure that we increase the coverage of pucca roads in villages.
Bad Roads - Next major issue with most roads are related to poor maintenance of roads. This is very common in cities and villages alike. A cursory look would reveal that the roads in India haven't grown in the same pace as the number of vehicles have, this means these roads are bearing capacities many times more than they were built for.
Non existent Roads - Many regions of India are still unconnected to the mainland country. This problem is severe in NE states like Meghalaya, Assam etc. which has very poor connectivity to the rest of the country.
A look at the issues would reveal that road development in India has been neglected for quite some time now. The only major development that we saw was the Golden quadrilateral project initiated by BJP a few years back. Reasons for this neglect included among many things Red tapism in the government bodies in awarding contracts and non conducive environment for private partnerships. The end sufferer were the common folks who was left to break his spine traveling on the bad roads. The road conditions and network are a major factor of consideration for most MNC's when they decide to set up shop at a particular location. Even Indian majors have started assigning a importance to the availability of good road network before they make a decision on locating their facilities. The recent decisions by companies like Infosys and Wipro to expand in other cities were due to reason that Bangalore had not focused on improving their Infrastructure (Particular refernces were made by NR Murthy to the bad state of road network) leading to poor connectivities and duels between India Inc and state governments.
The problems we face in maintaining and building new networks are related to the investments they need. One study estimates that Maintaining India’s present highway network to full maintenance standards will require annual funding of about Rs. 70 billion, and that is not including the investments to build new roads. Given that India is developing and facing many other issues including poverty, power etc , It would be unfair to expect all the investment to be focusedd on developing road network. Given the scenario, we have quite a few tried and trusted methods that we can use to garner that kind of money including
Toll/ cess on the road users
Annual vehicle fee
Fuel Cess ( Fuel cess in India is among the lowest in the world)
Private Funding
Return more road related revenue back to the sector and more
Some of these methods like Toll/ cess, Private participation are already of revenue generation are already in vogue, but still the methodology is not mature to be adopted widely. for eg, There are quite a lot of impediments in the current policies that do not allow for a smooth Private sector funding, like the legal environment for dispute resolution, toll determination, contract monitoring processes etc.
Article will continue
India's road network at 3.5 million km of roads is only a little shy of the distance between earth and Moon. India is vast, and most developed countries are comparable in size only to a small region of India. So the problems we have are much different and in bigger magnitude when compared to what they faced building their road networks. For our sake of ease lets classify the road network in India into the following four categories
1. National Highways (NH Roads)
2. State Highways (SH Roads)
3. City/District Roads (Both Arterial and Non Arterial)
4. Urban Roads (75%)
Issues we face
Inspite of our greater dependence on roads, we still treat them very shabbily and do not give them the importance they deserve. A look at roads today would reveal different kinds of problems. Some of the the common issues we face with most of these roads are similar and can be classified under these major heads,
i Existing Roads that are narrow or substandard.
ii Existing Roads that are badly maintained
iii Non Existent Roads.
lets cover some of these issues here,
Substandard roads -
Most NH and SH roads in India are two laned, causing slow speeds and congestion issues( A census shows that only only 2 to 3% of the primary network in India is 4 laned). Most of our NH roads pass through the cities,adding to the city traffic and causing more congestion. By routing NH roads through cities,the traffic flow in smaller roads is being increased to a magnitude that are not capable of taking. This causes more wear and tear on the smaller city roads and thereby increasing maintenance costs. A common solution for this issue, is to build NH roads such that they by pass cities hence reducing the traffic flow into state and city roads.
A look at city roads reveal that enroachments are a major issue. A typical 100 feet road in India only has a carriage way of 70 feet. The rest 30 feet is lost due to enroachments by street hawkers and other haphazard drivers who park their vehicles on the roads. Just making sure that the enroachments are being removed regularly, would ensure that we have enough space available to the road users.
The urbans face a different kind of issue, most of their roads are of the Kutcha type and therefore are not suitable for vehicular traffic, the only solution here would be to make sure that we increase the coverage of pucca roads in villages.
Bad Roads - Next major issue with most roads are related to poor maintenance of roads. This is very common in cities and villages alike. A cursory look would reveal that the roads in India haven't grown in the same pace as the number of vehicles have, this means these roads are bearing capacities many times more than they were built for.
Non existent Roads - Many regions of India are still unconnected to the mainland country. This problem is severe in NE states like Meghalaya, Assam etc. which has very poor connectivity to the rest of the country.
A look at the issues would reveal that road development in India has been neglected for quite some time now. The only major development that we saw was the Golden quadrilateral project initiated by BJP a few years back. Reasons for this neglect included among many things Red tapism in the government bodies in awarding contracts and non conducive environment for private partnerships. The end sufferer were the common folks who was left to break his spine traveling on the bad roads. The road conditions and network are a major factor of consideration for most MNC's when they decide to set up shop at a particular location. Even Indian majors have started assigning a importance to the availability of good road network before they make a decision on locating their facilities. The recent decisions by companies like Infosys and Wipro to expand in other cities were due to reason that Bangalore had not focused on improving their Infrastructure (Particular refernces were made by NR Murthy to the bad state of road network) leading to poor connectivities and duels between India Inc and state governments.
The problems we face in maintaining and building new networks are related to the investments they need. One study estimates that Maintaining India’s present highway network to full maintenance standards will require annual funding of about Rs. 70 billion, and that is not including the investments to build new roads. Given that India is developing and facing many other issues including poverty, power etc , It would be unfair to expect all the investment to be focusedd on developing road network. Given the scenario, we have quite a few tried and trusted methods that we can use to garner that kind of money including
Toll/ cess on the road users
Annual vehicle fee
Fuel Cess ( Fuel cess in India is among the lowest in the world)
Private Funding
Return more road related revenue back to the sector and more
Some of these methods like Toll/ cess, Private participation are already of revenue generation are already in vogue, but still the methodology is not mature to be adopted widely. for eg, There are quite a lot of impediments in the current policies that do not allow for a smooth Private sector funding, like the legal environment for dispute resolution, toll determination, contract monitoring processes etc.
Article will continue
Friday, April 14, 2006
China heading north???
Some editor of a Magazine compared the unique features of India and China. Just answer these following questions. Who invented gun powder? Who invented paper? Etc….. and the answer would be China. See these questions now. Who invented zero? Who invented geometry ? and the answer would be India. So that’s the logical reason that the author gives to say why China is leading the manufacturing sector as they were always good at it and why India is leading the software sector as they were also good at it.
Ok. Now China is heading North in its manufacturing capabilities. But at what cost? Its at the expense of its environment. The most serious problem that’s facing China today is its severe air pollution and inadequate water supply, rising of volumes of waste and land consumption. Not only this, the country also faces some traditional environmental problems that has been prevalent for centuries like drought, flooding, desertification and erosion. When it comes to matters of money, the cost of environmental pollution is around 8 – 12 % of China’s GDP. Also China stands as the second biggest petroleum importer.
The most serious problem in China today is its air pollution. Metro cities permanently suffer from smog. Of the 20 cities featuring worst quality of air in the whole world, you wouldn’t believe but 16 are in China alone. The loss in Agriculture is estimated around 20bn USD because of acid rain. Not only the water from the rivers are contaminated ( around 75%) but also the ground water levels suffer from serious contamination and its witnessing steady drop in its ground water table.
Coal-mine related fires are very common in china and the loss of lives last year due to this is roughly around 6000 and even this is on an increase every year.
China at this rate would be curtailing its growth potential in the future years if it does not take measures to restore its already lost natural resources in a big way. If “India Shining” was for us then I think we should say “China Breathing” for them.
Ok. Now China is heading North in its manufacturing capabilities. But at what cost? Its at the expense of its environment. The most serious problem that’s facing China today is its severe air pollution and inadequate water supply, rising of volumes of waste and land consumption. Not only this, the country also faces some traditional environmental problems that has been prevalent for centuries like drought, flooding, desertification and erosion. When it comes to matters of money, the cost of environmental pollution is around 8 – 12 % of China’s GDP. Also China stands as the second biggest petroleum importer.
The most serious problem in China today is its air pollution. Metro cities permanently suffer from smog. Of the 20 cities featuring worst quality of air in the whole world, you wouldn’t believe but 16 are in China alone. The loss in Agriculture is estimated around 20bn USD because of acid rain. Not only the water from the rivers are contaminated ( around 75%) but also the ground water levels suffer from serious contamination and its witnessing steady drop in its ground water table.
Coal-mine related fires are very common in china and the loss of lives last year due to this is roughly around 6000 and even this is on an increase every year.
China at this rate would be curtailing its growth potential in the future years if it does not take measures to restore its already lost natural resources in a big way. If “India Shining” was for us then I think we should say “China Breathing” for them.
Tuesday, April 11, 2006
The infrastructure drive of India Inc.
Advantage India
Commenced in 1998-99, the Indian infrastructure drive spelt a lot of good for the Indians. Ostensible ones are faster, comfortable journeys, safer travel, and lower maitenance, fuel, and logistic costs. But there were lot of intangibles that were tagged along. These include the increase in employment rate and in turn increase in the per capita income, augmentation to the GDP (construction industry alone accounts for about 7% of the GDP) and a steady increase in FDI and FII investments.
Company's benefit too
Construction companies had a lot to cheer as well. Picture this. Two years ago, a spate of leading companies such as Nagarjuna Construction, IVRCL Infrastructures were trading at a PE (price as a proportion of earnings) multiple of about 3 to 4. Now, almost all the construction companies are trading at a PE multiple of over 20; valuations that were only garnered by the behemoths like Larsen & Toubro. One may argue that this across the board revaluation is due to the buoyancy in the stock markets. A closer picture, however, reveals a different story. In the past, construction companies were plagued with issues related corporate governance and window dressing. Now, driven by the investments made by agencies such as the World Bank and ADB in the Indian infrastructure, particularly the roads, the order book of these companies have swollen substantially. Some of these companies have strong order books to beget stable revenues for the next two years even if they don’t get any more orders.
Will it sustain?
The question is will these companies continue to sustain such superior valuations? The answer is yes. At least for the next one year, in the wake of the recent budget proposals. However, given that most of the road projects will come to an end by 2007-08, these companies will soon should start to seek their fortunes elsewhere. Perhaps, the probable second phase of the infrastructure drive, (Development of ports, Airports, Irrigation, interlinking of rivers etc) should help their cause. However, most of these proposals are still in the conception stage and nothing concrete has emerged so far.
Madhan Gopalan
The author is the Head of Investment Research and Advisory Services of Ness Innovative Business Services (Ness IBS). The views expressed are his own and not that of Ness IBS.
Commenced in 1998-99, the Indian infrastructure drive spelt a lot of good for the Indians. Ostensible ones are faster, comfortable journeys, safer travel, and lower maitenance, fuel, and logistic costs. But there were lot of intangibles that were tagged along. These include the increase in employment rate and in turn increase in the per capita income, augmentation to the GDP (construction industry alone accounts for about 7% of the GDP) and a steady increase in FDI and FII investments.
Company's benefit too
Construction companies had a lot to cheer as well. Picture this. Two years ago, a spate of leading companies such as Nagarjuna Construction, IVRCL Infrastructures were trading at a PE (price as a proportion of earnings) multiple of about 3 to 4. Now, almost all the construction companies are trading at a PE multiple of over 20; valuations that were only garnered by the behemoths like Larsen & Toubro. One may argue that this across the board revaluation is due to the buoyancy in the stock markets. A closer picture, however, reveals a different story. In the past, construction companies were plagued with issues related corporate governance and window dressing. Now, driven by the investments made by agencies such as the World Bank and ADB in the Indian infrastructure, particularly the roads, the order book of these companies have swollen substantially. Some of these companies have strong order books to beget stable revenues for the next two years even if they don’t get any more orders.
Will it sustain?
The question is will these companies continue to sustain such superior valuations? The answer is yes. At least for the next one year, in the wake of the recent budget proposals. However, given that most of the road projects will come to an end by 2007-08, these companies will soon should start to seek their fortunes elsewhere. Perhaps, the probable second phase of the infrastructure drive, (Development of ports, Airports, Irrigation, interlinking of rivers etc) should help their cause. However, most of these proposals are still in the conception stage and nothing concrete has emerged so far.
Madhan Gopalan
The author is the Head of Investment Research and Advisory Services of Ness Innovative Business Services (Ness IBS). The views expressed are his own and not that of Ness IBS.
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