Burn the farms

That was one of the controversial remarks I had made recently on suggestions of how to make a prosperous India. I am using this forum to defend myself.
Let me start with a few data points:
For simplicity let us assume that there are 1 billion working Indians and the size of economy is $1 trillion.

GDP by sector agriculture: 13.7%, industry: 21.5%, services: 64.8% (2013)
Labour force by occupation agriculture: 49%, industry: 20%, services: 31% (2012 est.)

So it takes 490 million Indians to produce $137 billion worth of agricultural produce, while $648 billion worth of services are produced by 310 million individuals. Essentially1 service sector worker produces 7.5 times more wealth. No wonder, on an average, they are paid better and are better educated.
Secondly right from the birth of industrial revolution in 18th century United Kingdom to post world war 2 development the only common factor is fall in the workforce employed in agriculture as the country prospers. Urbanization is inevitable for the country to develop and only dictators like Pol Pot would try to reverse the trend.
Thirdly, the extent of disguised unemployment is so high that in US less than 2% of the workforce is employed in farming. Yet the value and quantity of agricultural produce exceeds that produced by India. Considering that India has 50% of the workforce employed in agriculture and our workforce size is 3-4 times larger, the inefficiencies are staggering.
With the help of technology almost every farm can reduce its workforce by 50-60%. Schemes like MGNREGA are designed to weed out this disguised unemployment without impacting the productivity of the farms.
No child of a farmer, rich or poor wants to pursue farming as a career if they have a choice. The hard work, uncertainties of weather and long gestation period often don’t result in commensurate compensation. The rich farmers are modern day zamidars who live a lavish lifestyle without even touching the soil. Most of them are trying to buy political influence so that either their land gets acquired for highway/canals or some infrastructure projects or they can sell the land to a property developer. The taxes from farming is minuscule while subsidizes staggeringly large. The faster our country’s farmer let go of their ploughs, the faster we could prosper as a nation.


Regressive Taxes in India

All democratic countries have a tax structure that increases the tax rate with increase in income. This achieves a double whammy higher taxable income and higher % share of taxes.
The noble aim of these progressive taxes being:

  1. Cross subsidizing the poor with taxes from the rich.
  2. Creating a healthy socio-economic mobility in through merit, diligence and luck anybody can scale up the social ladder.
  3. The society benefits from people who earning/spending is a reflection of the superior human capital, enterprising nature and hard work. Living off the inheritance (solely) is not productive for the society.

In US there has been so many voices saying that the rich are not taxed enough. Surprisingly when I take their arguments in Indian context, I feel that rich Indians are not taxed at all. Here is why:

  1. Estate tax & inheritance tax. These 2 taxes, ensure that inherited wealth cannot fuel the opulent lifestyle of the rich. Everybody needs to work hard to sustain themselves rather than the fortunes of their ancestors. Every developed nation has one version of this tax or the other. It allows government to prevent wealthy become super rich. Incidentally independent India has a land ceiling bill to prevent too much land (Wealth) concentration, modern India feels no need and is happy taxing the poor.
  2. Capital gains tax is surprisingly lower than regular income tax. Not surprisingly it is only the rich that have capital to gain on. The poor will put their money in Bank FD which are taxed at the full 33% rate (no inflation indexing or lower tax benefits)
  3. Most people often don’t end up paying the capital gains tax because if you re-invest in property the government will forgive it. No idea what is the rationale for this ruling
  4. Dividend income in India is tax free! WHY should you and I sweat and give 1/3 of our earnings as taxes while the rich can earn tax free. Even any gains from day trading is lower and if you hold your stocks for 12 months it is completely tax free.
  5. The industries have access to so many government subsidies, SEZ, tax holidays and sops but I have never heard a middle class getting a letter saying “Your work is important and I understand that you are finding it difficult to make your ends meet. Hence I honor you with a 5 year Income Tax holiday.”
  6. Unlike the west India collects more spending based taxes than income tax. The problem with this is that the poor spend a larger portion of their paycheck on consumption than rich. Hence effectively VAT, sales tax, exercise tax, octroi are taxes on poor. Also sales/service/exercise tax is payed at a flat rate rather than progressive slabs as in Income tax. This means that effective tax rate for the poor is higher.
  7. Government of India subsidizes higher education (IIT/IIM) for rich kids that will go abroad, air travel (Air India) for rich. While the quality of road, power, water, education & basic infrastructure needed for social mobility is low. This means that poor don’t get an equal opportunity to move up the social strata.
  8. Rather than investing to improve the reach of clean water, electricity, railways and primary education we subsidize them. This in effect means that rich who have access to these amenities to begin with continue to enjoy it at the expense of the poor.

I have always been intrigued by the book “Rich Dad, Poor Dad” by Robert Kiyosaki. Essentially it says:  “Individuals who earn and then pay taxes on what they earn, corporations earn, spend what they want to spend, and pay taxes on what’s left.” This compounded by knowledge of tax legislatures and effective use of tax havens, subsidies and incentives ensures that over time Rich grows richer.


Muslims in India

10 years ago Sachar committee published some starkling facts about conditions of Muslim in India. through a detailed district/region by region analysis they found that Muslims were worse off than SC, ST and other marginalized communities.
It is unlikely that the current regime will be setting up a second committee to analyze if the situation has bettered or deteriorated. Are we closer or farther away from our goal of communal harmony and holistic socio-economic development? Hence I was loudly thinking:
1. Are there more avenues for socio-economic development? Is the economic disparity lessen over the past decade?
2. Are the goals of healthcare, access to public welfare programs really reaching the masses?
3. Are the minorities still being cornered and forced to live in enclaves/ghettos? Are more Muslims than Hindus dying in communal violence even today?
4. Is the problem of access to credit, technical education and entrepreneurship being solved?
5. Are they still discriminated against in industry, public employment schemes?
6. Is the next generation being equipped to be proud of being part of India?
Providing sufficient avenues for pursuit of happiness or economic development has been the cornerstone for any diverse multi-cultural society to achieve harmony. Khalisthan movement was solved by strategic affirmative action to achieve economic development of the region. North Western India today is the most prosperous and peaceful region in the country. India has the largest Muslim population in the world and continuing to ignore them is just a ticking time-bomb. For the country to really progress, people from all walks of the society should prosper with it.


Indian Logic & education

This article in Hindu made me think.
1. I purchased Petrol at INR 67/- a liter approx $4/gallon, Diesel at $3.2/gallon while the rest of world is able to procure fuel at half my price
2. Oil distribution/marketing is not a monopoly. There are half a dozen companies some PSU, some indian private, one even multi-national giant and all of them are allowed to set their own independent prices. Yet the prices are the same in all fuel bunks?
I don’t know what convoluted logic applies, but we have created a miraculous scenario in which oil companies are perpetually bankrupt, government is unable to sustain fuel subsidy while the consumers end up paying twice as much?
One of my uncle had once quoted:
“School education is a very stabilizing powerful tool to mass breed the doctrines, beliefs and principals of the regime. However, there is no greater destructive force then college education for the lower echelons of the society. This is the reason why all dictators or quasi-democracies esp. around Gulf and Africa invest billions in primary education but will import college graduates at exorbitant sums.”
He had traveled to 40 odd countries and yet could not explain the simple logic how a country like India can skip primary education to invest in secondary education only and yet not have any revolution?


Renew Bank fixed deposits

New year is a time for reflection and these are the thoughts that came to my mind:
Q1: Should you check the “auto-renew” option in your FD?
NO, Never! Seems to be that this is a huge scam. The banks seems to offer interest rates based on the duration of the FD and the slab for the highest interest rate changes every month/quarter. Hence an auto-renew option will only lock you in an unfavorable interest rate slab. Refer to the Citibank interest table to understand what I am trying to say.
Q2: Is FD best investment options?
It provides good flexibility (you could open an FD any day for any amount and withdraw it at an hour’s notice) but this comes at a cost. i.e. interest rate/returns are substantially lower. So generally speaking it is better to keep money in FD rather than savings bank account, but not for multiple years.
Also one should be aware that there is TDS (tax deduction at source) and interest income is fully taxable. Hence one should look for more tax-friendly options. Generally I use FD for 2 purposes:
1. Planned expenses: purchase of house/car, insurance premium, vacation, tuition fees etc. FD allows you to accumulate funds whose maturity matches with your cash-flow projections ensuring that one is not cash-strapped at any time.
2. Unplanned savings: Procrastination & asset sterilization: Excess money in one’s bank account always gets spend. Many people avoid credit cards as it prompts them to spend more. Fixed deposit is a good place to park the savings (esp. excess monthly surplus) till one finds a more lucrative use for them.
So essentially use FD as a planning tool rather than an investment tool.
Q3: Should you break an FD or take a loan against it?
As a rule of thumb any FD opened less than 6 month ago should be broken rather than restructured (loan/borrowed against). the accumulated interest will not be substantial enough to make a difference. Similarly for a long duration FD, if you want to liquidate just a few days before maturity, it is advisable to take a loan rather than break it. This way one saves a lot on the penalty and reduced interest rate due to pre-mature closing.
If you are somewhere in the middle, one has to make an assessment on the difference between the FD interest rate vs. prevailing interest rate, how long do you need the funds for, and how much do you lose due to premature withdrawal.
Q4: What is the ideal tenure of an Fixed Deposit?
rule of thumb: make it long enough that it is meaningful and earns you a decent interest rate. However don’t make it so long that you are locked in and cannot use when you need it. The purpose of FD and money is storage of wealth and what good is a stash if it cannot be accessed easily. If you want to park the funds for 2 years and interest rate for a 365 day FD is same that for 2 years, then go for 1 year FD and renew it on the second year (provided you believe interest rates are not going to change) this way if you want to premature withdraw the funds, then you loose lesser money.
Q5: Should you opt for monthly, quarterly or interest payment at maturity
If the amount is small and the duration not in decades then it hardly matters. However a periodic interest credit in your account is a good reminder that you have and FD and at maturity it needs to be processed.
Here is the Citibank India’s Fixed deposit interest rate

Tenure In Days 7-14 15-25 26-35 36-45 46-60 61-90 91-150 151-180 181-270 271-400 401-731 732-1095 1096-3659 >=3660
For amount <1 crore* 3.00% 3.25% 3.50% 4.50% 6.25% 7.75% 7.00% 7.75% 7.00% 7.75% 7.50% 7.75% 6.75% 6.75%

Although one of the lest glamorous of the investment instruments, bank fixed deposits are widely used by individuals and corporate to park their surplus. It is flexible, but it is not as simple a instrument as it appears to be.


Redmi: FOMO genius

Majority of Cellphones purchases worldwide are triggered by two basic events: First is the celebration/festival/bonus/windfall which is the occasion for an indulgence into a luxury item. Second, is the need based emergency purchase due to your old device going Kaput or stolen. Unfortunately both of the purchase decisions require instant gratification which cannot be solved by precarious flash sales. So who is buying them and why? How is that Xiaomi (北京小米科技有限责任公司) a company that does not have any brand recall, advertising, store/physical presence or offer any warranties able to do $10mn worth of business in 4 seconds ever week? (100,000 phones @INR 6,000/- sold in 4 seconds every 2pm on Tuesday on Flipkart)
Like any Chinese product, specs wise it is at a 20-30% discount to similarly priced models but what is the nudge that is prompting a million Indians to risk their money without touching/feeling/testing the product? Ryanair CEO Michael O’Leary had once said “passengers will crawl bullock-naked over broken glass to grab the cheapest tickets”, but is cost the only driving factor for this mad rush?
6,000/- is a considerable sum in India and the online reviews (at the only authorized seller website) is quite pessimistic. Almost everybody is complaining of the battery life issue and heating problem. Major problem in India where there are not many avenues to charge the cellphone and mobile is the exclusive means of employment and socializing for many Indian urban middle class. So a dead/discharged phone = loss of pay. A huge risk!
It is the classic case of FOMO (Fear of missing out), the entire purchase is converted into a game and 2pm every Tuesday people log on their screens in the hope/anticipation of getting lucky. It’s a strange buyer behavior I see where seemingly rational people are behaving impulsively. In such frenzy sales, the need for the purchase only arises AFTER the sale / event is announced.
I have known people who can spend the entire weekend indoors (watching youtube or wasting time). However the second you tell them that you have locked them in, they will have the urge of taking a stroll outdoors every 5-10 minutes. Similarly by denying people this phone for 6 days, 23 hours, 59 minutes and 56 seconds (and no guarantees even after that) the entire purchase decisions is converted into a binary groups of haves and have-nots.
Several people log on to the website just to get the thrill, some have bought multiple devices (for the entire family), some even call up friends and family to offer them the phones. Some even go to olx/quickr to resell and make some quick bucks. Essentially the flash sales has converted the consumers into not only adherent fans, but also (unpaid) sales agent, stockiest and retailers.
In the 80s the scooter were lopsided design (the engine/weight was not symmetrically distributed) as a result they were prone to accidents when braked hard. Even then my father loved his Bajaj Scooter…. Why he waited 5 years (and paid a bribe) to get one. Several Redmi fans simply yap endlessly about the difficult purchase process and several attempts they had to patiently make. The biggest call for fame for this phone is that it allows ordinary folks live the life of the trigger happy gun-slingers of the wild-west. They have a cute little trophy to prove that they are the fastest clicker amongst their peers.


Indian Immigration Policy

Indians seriously need to be taught a lesson on love thy neighbor. The PIO card website states that the eligibility criteria for PIO card is “All persons of Indian origin who are in possession of the passport of any other country except Pakistan, Bangladesh, Afghanistan, Nepal, Bhutan, China, Sri Lanka…” Who exactly is eligible then? Probably India would be the only large country in the world whose ALL neighbors hate/have dispute/cold war/active war(with no exception). That probably is a notable record for a so called peace loving nation.
At the time of Independence India had a sizable population of people from Chinese origin. But they locked them up for 5 years without any trial/justified reason. Between 1962 and 1967 differently looking people were rounded up (sometimes at the middle of the night) and shipped to remote desert concentration camps Deoli, Rajasthan. Some were never heard of again and some were forcefully deported. Defense of India Act 1962 and war with China were a convenient excuses to do an ethnic cleansing and seize the property of these folks.
This was not a one of incident. In Feb 2014 the Delhi law minster did a citizen arrest of Nigerian nationals living in Delhi. They were released soon afterwards because authorities could not charge them for any violations. Bangladeshi immigrants are prosecuted everyday due to political reasons. Infact we sometimes don’t even spare people of Indian origin. You don’t have to go in history to read about Mihirakula or find why Buddhism was eliminated from its birth country. Anti-sikh riots of 1984 or Anti-Muslim riots which happens several times every year are live examples.
What I am trying to ask is by what right do we ask Western countries modify its foreign policy when we ourselves are not tolerant of foreigners or cultural diversity?


swachh bharat abhiyaan: 7 point metric

Just do a small experiment, don’t clean your room for a week, throw your laundry around, tilt your paintings & decos and you yourself will notice a perceivable difference in your attitude & emotions. Now imagine the entire country has been in the state of disarray for centuries. I cannot even extrapolate what benefits we can accrue by cleaning it up.
Hygiene is important not only for aesthetic and psychological reasons, according to UNO it has tangible economical benefits too. A substantial portion of productive manpower is lost due to illness and weakening due to chronic diseases caused due to consumption of unsanitary water, food and air. The degradation of environment due to human waste imposes additional cost to the consumers who need to clean their food, water and other natural resources before consumption. Foul smell and uncleanness triggers our primal survival instincts. Several research has proven that youth brought up in clean & green neighborhood are less prone to acts of vandalism & crime. Also hygiene is one of the most important criteria for tourism and even investments/expansions or even procurement decisions.
India has has a long history of clean and hygienic practices.  Even the religion degrees Hindus to take bath daily, daily clean the house before putting the rangoli/white powder drawing in the front yard. These were followed in the times when the rest of the world practiced weekly/monthly baths. However somewhere down the line we forgot to develop on these noble thoughts.
Modi’s mission of clean India is an amazing policy initiative whose benefits will accrue across demographics, industries & pan India. I have a simple metric to gauge to gauge the relevance of any public policy:
1. Is it tangible? The benefits/results of the movement can be gauged by individuals themselves.
2. Does it inspire? It primarily involves changes in attitude & behavior and can easily become a self sustainable engine.
3. Who benefits? Unlike subsidies that benefit only those who have connects/well to do, there is no license/document requirement to enjoy the fruits of the initiative
4. Can it provide some short term low hanging results immediately to sustain the momentum: 2nd Oct drive itself was a great showcase story.
5. Does it improve the socio-economic mobility? (help the poor to overcome adversity that limits their ability to achieve “pursuit of happiness”) The poor will benefit the most from improved sanitation, lesser instance of diarrhea, cholera, malaria, good toilets, clean drinking water and food.
6. Intangible benefits: Cleaner environment and improved state of public resources (streets, rivers, air, public places etc.), better health.
7. Investment requirement is also minimal. Hence it is unlikely to be reversed/slashed by the subsequent government.
The only other policy in the past 3 decades that had such remarkable impact on this 7 scale metric was mid-day meal which aimed at eliminating child malnutrition and poor school attendance due to pressure from the family to earn (child labor). I am hoping that this policy will make India a cleaner and greener place.


Lease not Buy

Everyone realize that cost of ownership of a car is probably as high as maintaining a white elephant. Not only there are regular EMIs to be paid but also weekly fueling bill, 6 monthly service workshop bills & annual insurance payments to be made apart from any additional accident or breakdown repairs. Why can’t I lease the cars rather than buy one and pay a single comprehensive payments…. eg: pay 5,000/- and drive as much as you want for a month all inclusive (except maybe gas/petrol/diesel)
Tesla’s electric cars come with a less than a $ per mile leasing and an unconditional 9 year warranty (even covering user error).
Xerox photo-copiers were available at pay per copy lease. Meaning that customer does not have to pay separately for hardware, refills, paper or repairs.
Even Rols Royce leases aircraft engines at thrust per hour, “pay per flying hour” model.
America sells state of the art defense installations to Canada at PSI (performance -based product support integrator) mode or optimised weapon system support (OWSS). NATO & UK procures arms at Through life customer support (TLCS) contracts.
So from most mundane to state of the art flight and military hardware is available on leasing then why not Cars? Earlier the argument was that people will switch off their odometer/speed gauge to hide the distance traveled, but now there are so many GPS based telematics & navigational tools that can be screwed to the car to make this difficult.
Today the manufacturer has to make many compromises to keep the initial cost low often at an expense of higher upkeep cost. Parking sensors & collision detectors are not very expensive yet most cars don’t have it. My Realtor used to say that installing double ceiling and insulation in the house would reduce the air-conditioning bill by half but nobody want to pay for installing it. Maybe a leasing model will help us get rid of this myopic view and help us make greener, more reliable and economical cars.


Impact of Indians

This week’s economist had an interesting article on Detroit. The opening line really catched my attention. ” City seems filled with people working for exciting startups, a bit like Silicon Valley but with fewer Indians.” Recently yoga pants are making a fashion statement and forcing every jeans manufacturer to rethink their sales & branding strategy.
The entire world is acknowledging the impact Indians are having world-wide but why not in India?
Living in India, I constantly get bombarded with claims about Indian IT, analytic brain, technology, engineering etc. But is it true? Name one Indian product, brand, idea (developed in the recent past) that has had a transformation impact on a global scale? The usual response is to deflect the question.
I always get reminded of my teacher’s pet phrase: “You guys can achieve anything you want… provided you have the aim, determination & right environment” Not sure which of the 3 ingredients is lacking, but surely NRI or people who have emmigrated are more successful.
PS: Yoga, Ayurveda, Buddism and all the other ancient ideas were long forgotten in mainland India and were re-invented abroad. Hence I don’t give Indians credit for it.