Why 'manufacturing' growth on borrowed capital is not sustainable

Global debt now stands at a staggering $200 trillion (28 per cent of global annual produce), an increase of $57 trillion since 2008 when spiraling debt burden led to an unprecedented financial crisis. Ever since the financial crisis—when the world was forced to gulp the unpalatable truth that fancied financial engineering wherein risky mortgages were sliced and resold, riding on the misplaced hope that realty prices will keep surging and rake in gravity defying returns—rising debt level continued to ring alarm bells. Eurozone sovereign debt crisis and the mounting debt in emerging markets are just a couple of sour examples.

For 30 years since early 1950s, global financial markets enjoyed a relatively stable run. Then from early 1980s, debt started surging and spotted larger spikes in mid-1980s and late 1990s. Over the last 30 years, global debt has rocketed not only in absolute terms but clearly outpaced economic expansion over that period.

While some developed markets such as the US and the UK showed signs of the pace of debt surge slowing down of late, spike in debt in emerging markets nullified it. Of the close to $57 trillion rise since the financial crisis, government debt accounted for a significant share as countries has tried to revamp economies following the near collapse during the financial crisis. Corporate debt too spiraled more than 63 per cent, mostly in emerging markets.

In fact , the increasing number of corporate defaults reflects the unhealthy stature of the overall global debt situation—more than 100 global firm defaulted in 2015 alone (US companies accounted more than 60 defaults), the second greatest tally in more than a decade, lagging behind more than 200 defaults seen in 2009, as per data compiled by Standard & Poor’s.

Emerging market borrowers accounted for close to 20 defaults and Europe represented more than 15 while other developed countries including Japan and Canada shared the rest. Since early 2007, the proportion of corporate bonds rated as junk or speculative-grade by S&P rose to  over 50 per cent from 40 per cent.

The mounting number of defaults is a clear indication that firms across the globe are facing a sluggish operating environment, falling revenues and surging debt burden.

A sharp decline in oil and commodity prices has also exacerbated the problem by hurting the fortunes of energy producing firms, as OPEC countries continue to dump oil in an effort to retain market share.

In fact, the increasing debt in emerging markets compelled analysts at Goldman Sachs to speculate about a ‘third wave’ of the financial crisis that raised its ugly head in 2008.

Economic growth is seen as crucial for lifting living standards, snapping poverty and solve multitude of problems faced by indebted people, corporate and countries. Economics across the globe cite strong economic growth as panacea for financial and political ill-health and also assume that governments and central bankers can kind of prod economies to turn healthy and record impressive growth.

However, the key to this assumption is the premise that strong growth is ‘normal’ and that companies and countries can keep on fuelling growth year after year. However, a crucial missing element in the whole game is the fact that in modern times economic activity and wealth creation significantly reply on borrowed money and speculation. Another folly nursed by advocates of perennial growth is that natural resources such as oil, water and soil can be plundered to fuel economic growth and that unsustainable degradation of the environment is not a sin if it is done under the garb of ‘manufacturing’ growth.

A key conundrum integral to the assumption of ever rising growth triggered by debt is that borrowed money is used to purchase something against the promise of paying back in the future. Cheap capital enables spending which would otherwise have been spread across a long period of time to be condensed to a short period. When demand slows down, the ability of businesses to generate excess cash-flows through increased sales diminishes, leading to debt and interest pile-up and landing them in trouble.

Contrary to what debt advocates make us believe, the precondition that debt will have to be repaid out of future income or proceeds of asset sales actually drags down growth. The idea of sacrificing future for short-term gains now is also unrealistic in a world where resources are limited. For instance, arable land available globally has remained almost constant at 3.4 billion acres over the last decade. Humans’ unrealistic desire for engineering extra growth by borrowing and amassing debt is also adds to the burden on Earth and its resources which is already battered by ever increasing global population. This leads to the question why humans continue to be foolish to sacrifice sustainable growth for unrealistic ‘virtual’ growth boosted by borrowed capital which is a recipe for an eventual financial collapse. 

Are economists good investors?

When asked about their personal investment portfolio at a conference organised by Boston University’s School of Management a few years ago, three Nobel prize winning economists—Robert C Merton, Paul A Samuelson and Robert Solow—gave divergent answers. Harvard economist Merton, who won the Nobel Prize in economics in 1997 for his study of stock options, said the bulk of his portfolio was in a global index fund and inflation-protected securities and a hedge fund. He said he also invested in a commercial real estate fund, but dropped when its value rose too quickly.

Asked about his views on timing investments, Samuelson, one of the pre-eminent American economists of the 20th century and the sole winner of the 1970 Nobel in economic sciences, said:  “History teaches no lessons,” adding, “You don’t know when to get in” (Samuelson, who taught economics for many years at Massachusetts Institute of Technology, became the first American to win the Nobel in economics for raising the level of scientific analysis in economic theory).

However, queried about his personal investments and asset allocation, Robert Solow, who like Samuelson, taught economics for many years at MIT and won the Nobel in 1987 mostly for his work on the theory of economic growth that culminated in the exogenous growth model named after him, gave the most startling answer, saying he had no idea what was in his portfolio. “I just never paid any attention,” he said, adding, “That’s because I don’t care. And I’m lucky to have a wife who doesn’t care.”

These divergent responses point to something interesting—when it comes to investing economists do not necessarily have access to tools or approaches that average investors don’t have and that insights into economics or finance don’t easily help them come up with market-beating investment performance.

In order to understand if economists excel as investors, it is better to turn the question on its head and see how many among the legendary investors in history have been trained in economics—almost none. A random look at some of the best investors—Warren Buffett, George Soros, Peter Lynch, Jesse Livermore, John Neff, Thomas Rowe Price, Jr., John Templeton and Benjamin Graham—reveals that none of them have been known for their acumen in understanding economic theories and that their investment approaches have never been specifically dictated by economic theories.

While Buffett, who learned investment insights from Graham, relied on his core investment principles of discipline, patience and value that helped him emerge as arguably the best investor in history (those who invested $10,000 in his Berkshire Hathaway in 1965 are above the $50 million mark today), Soros adopted a more riskier approach of a short-term speculator, making huge bets on the directions of financial markets. While Neff’s preferred investment tactic involved investing in popular industries through indirect paths and focused on companies with low P/E ratios and strong dividend yields, Rowe Price viewed financial markets as cyclical and took to investing in good companies for the long term, which was virtually unheard of when he was an active investor. Similarly, while Graham, who is equally known as a financial educator as an investment manager, has been recognised as the father of two fundamental investment disciplines – security analysis and value investing, Templeton smartly diversified his portfolio by investing in different markets across the globe.

Interestingly the investment approach of none of these masters has born out of a closer understanding of economic sciences rather they relied on their own experience and understanding of the vagaries of the financial markets though most of them stood apart from typical investors—who embrace too much short-term risk to net quick returns and often are battered for the same—by adhering to value and growth investment, a clear long-term market perspective, a keen understanding of the cyclical nature of market and exercising the time-tested way of ‘buying low and selling high’ which to a great extend depends on timing the market.  

In fact, when it comes to investing, economists see a tussle between their macro training and practical wisdom and the challenge of how to adapt high finance to retail investing. Often, this struggle also puts them at odds with advice pushed by the personal finance industry. So whether to rely on hard-learnt macro-economic principles or tips from the portfolio manager can become a tough call to make. Depending on risk profile, what the investment manager at the mutual fund calls ‘passive’ may seem ‘aggressive’ to an economist and ‘focused’ may seem ‘diversified’

Most economists wouldn’t want to stack up against the herd and rather prefer to follow what they call life-cycle investing—a combination of maximising wealth and never taking a big hit in terms of lifestyle. Economists also don’t support brokerage firms’ approach of promoting investment products that lend them a hefty fee and selecting stocks based of strange algorithms.

Broadly, economists would be capable of long term forecast and not short and medium terms that drive stock markets. They also tend to believe in the efficient market theory and invest in market indexes and bonds. They are known to be conservative investors because they believe it is almost impossible to beat the market. 

Why the days of the petrol-driven cars are numbered

Rumours of Apple’s plans to launch an electric car gained credence last week after news reports said the technology firm recently registered several automobile-related internet domains, including apple.car and apple.auto, though it is yet to formally announce that it is working on a vehicle. The news on Apple’s possible entry into the automobile space came after The Wall Street Journal reported that Ford and Google are in talks to form a joint venture for launching autonomous driving cars and that the deal would see a new company created, in which Ford would develop software and systems for automotive components, while Google would focus on the master self-driving software, leveraging Ford’s strength in making cars and Google’s experience in putting together a self-driving fleet.

These developments hogged limelight against the backdrop of an ongoing search for an alternative to fossil fuels—essentially petrol, diesel, LPG and CNG—that are currently used to drive vehicles all around world. Fossil fuel has already proven be unsustainable given its huge impact on the environment and the fact that Earth’s atmosphere is fast depleting due to carbon emissions. So the question is: What’s next?

When it comes to alternatives, there have been two camps advocating different approaches.  On the one side is a bunch of behemoths in car making: Japanese giant Toyota; its domestic rival Honda; and their Asian neighbour Hyundai, which are betting big on hydrogen fuel cell vehicles, popularly known as fuel cell electric vehicle (FCEV). On the other side are those cite electric vehicles (EVs) as a sustainable and scalable alternative and who is convinced that vehicles powered by batteries represent the future, led by tech visionary and chief of electric vehicle maker Tesla and Nissan boss Carlos Ghosn who have been betting on lithium-ion batteries.

Hydrogen fuel cells were invented in the 1880s; they work by mixing outside air with the hydrogen they carry in pressurised tanks where electricity is created in a chemical reaction, with the only waste product being water. This electricity is used to charge a battery or drive electric motors to power the car.

Toyota has already spent billions into research to manufacture Mirai, its first car powered by a hydrogen fuel cell. Hyundai’s ix35 and the Honda Clarity are also on the road.
Hydrogen’s edge is that as a fuel it is similar to petrol in the sense that it takes a few minutes to fill a tank. It also offers a long range—Mirai runs 350 kms on a single charging. Long range is the major advantage of FCEVs over EVs despite their size and weight—Mirai is nearly 5 metres (16 feet) long and weighs more than two tones.

However, fuel cells have a problem—they are very costly, though with Mirai, a family-sized car, Toyota has managed to bring the price down to around $60,000. Developing the infrastructure to support hydrogen—creating enough gas, transporting it and building a network of filling stations—is also a huge task.

Storing enough alternative fuel onboard to give the car the kind of range consumers expect without compromising passenger or cargo space is also a challenge.  There are also concerns as to how safe hydrogen as a fuel is.

Despite the challenges, Toyota plans to deliver more than 30,000 FCEVs within five years. This would involve networks of hydrogen filling stations which can generate the gas through renewable power such as wind turbines.

Germany plans to build a network of 500 hydrogen filling stations, pointing to the possibility that infrastructure to support hydrogen-powered vehicles can be built once a critical mass of FCEVs are on the road.

However, the wait for mass-produced FCEVs can be really long—just 700 Mirai units will be made this year; if you order one now, it may not arrive before end of 2018.

In contrast, EVs are much more accessible—if you want a battery car, there is much more choice and it is cheaper compared with an FCEV.
However, there are hiccups—EVs powered by batteries have shorter ranges and charging them takes longer—as long as an hour—though introducing the infrastructure to support battery charging less challenging than that for FCEVs.

However, the delay is getting EVs charged is being addressed and many EVs now sport comparatively lesser charging time—for instance, Nissan’s Leaf needs less than 30 minutes to get fully charged. Also, unlike home electricity supply (which runs on 110 or 240 volts AC), quick charging stations supply 500 volts DC at a much higher current of 125 amps. Prices of EVs are also falling—you can get the Leaf for around $26,000 now.

Resultantly, EVs are gaining momentum. Last year, BMW launched i3. Renault's Zoe model offers a more affordable option. Mercedes and Volkswagen, besides Ford, are following suit their own battery electric vehicles. This is in addition to Tesla S, the most expensive and luxurious battery car so far. The Tesla also has a range of more than 400 km on one charge. Besides there more ambitious EV manufacturing startups, including China-based NextEV, which recently roped in former Cisco CTO, and US-based, Chinese-backed Faraday Future which is investing more than $1 billion to set up its manufacturing facility for EVs.

While the debate over FCEVs versus EVs is likely to continue till technology and innovation make the answer clearer, a mix of both technologies would provide a feasible alternative to gasoline—use battery range to start and then rely on hydrogen range for the long haul.

Beyond the nitty-gritty of which of the two alternatives holds an edge, the more encouraging fact is that use of fossil fuel to drive vehicles is increasingly seen as unsustainable. As countries world over are coming to grips with the perils of global warming, it appears that the days of gasoline-driven vehicles—a major contributor of carbon emission—are numbered. 

Why tech-savvy manipulators can take the market for granted

The recent incident where the Syrian Electronic Army (SEA) hacked AP’s Twitter account and posted fake tweets reporting explosions in the White House and the injury of President Barack Obama, leading to a 1 per cent fall in US financial markets, points to the fact that shrewd manipulators, aided by technology, can ‘manufacture’ news and make gains from the market’s inability to immediately ascertain if a piece of news is authentic or fraudulent.

There can be many reasons why the financial market is inherently weak when it comes to countering such vulnerabilities. For one, the market is not known to be god at ascertaining truth. On the other hand, it has immense faith in the wisdom of the majority. Therefore, if the majority reacts to a piece of news in a certain way, irrespective of whether it is valid or faked, then their perspective, or the lack of it, is seen as the market’s  perspective. The reason is simple: for most investors it is easy to ‘follow the herd’ than spending time and effort to ascertain the veracity of news and information when it comes to making investment decisions. Legendary investor Benjamin Graham and his more illustrious disciple Warren Buffett have warned against the herd mentality which has over and over again proved to be a real chink in armor of even those investors who claimed to be systematic and disciplined. But why most investors tend to be part of the herd and react to a piece of news or event irrationally despite possibly knowing that it is not the right thing to do?

The efficient market theory says that the decisions of the well-informed buyers and sellers lead to fair prices. But if the theory is true, then stocks are always fairly priced and it makes as much sense to by them when they are trading at 30 times their earnings as when they are trading at three times. Obviously there are some gaps in the theory. Behavioral finance tends to offer a clue as to why humans possess ample traits that prevent rational stock market behavior and prominent among these traits are greed and fear (existence of casinos means humans are not rational about money), vanity (this forces investors to hold on to their picks even when stocks keep going down) and an unfounded respect for the majority’s whims (most investors believe the market, or herd, is always right while the truth may be other way around).

Stock prices are nothing but the present value of expected future earnings and the present has already been discounted by the market six or 12 months ago. This points to a certain correlation between an event and the time the market takes to react to it. Therefore, if a technologically innovative market manipulator, using a fast algorithm, can get insights into emerging events before others; hack into news sources, and post flashes that can potentially push the market up or pull it down; he/she can make gains during the intervening time when the market—which is nothing but the collective wisdom of the majority—tries to figure out the veracity of the information.

Fourth industrial revolution: A boon or peril for India?

The recent World Economic Forum (WEF) in Davos was noted for creating a buzz around ‘Fourth Industrial Revolution (FIR)’, which was defined by WEF founder and executive chairman Klaus Schwab as a “technological revolution that will fundamentally alter the way humans live, work and relate to one another”.

The first industrial revolution started in England towards the end of the 18th century with use of steam power and revamping of the textile industry through mechanisation. The second revolution began a century later and culminated in early 20th century; it was driven by electricity and a cluster of inventions including the internal combustion engine, the aeroplane and moving pictures. The third industrial revolution, which was started in early 1970s, was basically digital in nature—it involved application of electronics and information technology to enhance production, and centred around concepts such as mass customisation and additive manufacturing (for instance, 3D printing) whose applications are yet to be explored fully.  

The fourth industrial revolution is seen as an upgrade on the third one and is noted for a mix of technologies across biological, physical and digital worlds.

Nicholas Davis, head of Society and Innovation at the World Economic Forum, has defined the fourth revolution as the advent of “cyber-physical systems which represent entirely new ways in which technology becomes embedded within societies and even our human bodies”.

In a WEF paper, Davis has spotted genome editing, new forms of machine intelligence, and breakthrough approaches to governance that rely on cryptographic methods such as blockchain, as the early signs of the advent of the fourth revolution.

While the fourth revolution will help lift incomes and improve lives, and lead to long-term gains in efficiency and productivity, it will also pose formidable challenges.

As the world moved on to succeeding industrial revolutions, the impact of disruptions became increasingly profound. For example, the music industry turned upside down with the Apple iPod. Going by this logic, FIR will usher in the most unpredictable disruptions. For example, the smartphone industry could be erased by the next big thing in technology about which even predictions are next to impossible.

Going by the device and product cycles that are increasingly getting shortened, even FIR can prove to be short-lived with the ‘fifth industrial revolution’ making inroads before the so-called technology pundits start predicting the same.

According to MIT Sloan School of Management economists Erik Brynjolfsson and Andrew McAfee, the revolution is likely to increase inequality in the world as the spread of machines increases unemployment and disrupts labour markets.

According to Schwab, “in the future, talent, more than capital, will represent the critical factor of production, giving rise to a job market increasingly segregated into low-skill/low-pay and high-skill/high-pay segments, which in turn will lead to an increase in social tensions”.

This was highlighted by Swiss bank UBS in a report launched at Davos that said, ”There will be a “polarisation of the labour force as low-skill jobs continue to be automated and this trend increasingly spreads to middle class jobs.”

Just to elaborate, while driverless cars will lead to an increase in demand for smart coders who can make such cars ply the roads in different parts of the world safely, it will make drivers obsolete, leading to huge job losses.

Loss of low-end jobs is where India, which is known for a very large low-skilled or unskilled youth population, is likely to face severe challenges.

In India, where more than 60 per cent of population still don’t have access to basic amenities, lack potable water and toilets, live in one-room huts with no electricity and  is exposed to all sorts of pollution, FIR can further unsettle the social fabric, with the rich getting even more richer and the poor becoming more doomed.

The country, which still relies a lot on the agricultural sector for a major chunk of its GDP, already faces several crises in farming that include lack of labour, low prices of produce, shortage of water and poor soil.

As FIR catches up, newer agricultural  methods, including precision land-based farming or container agriculture, powered by solar energy and other renewable energy systems, are set to revolutionise the way farming is done, making it efficient, high yielding and remunerative.

Container-based farming, which is fast gaining momentum in developed world, can help grow any agricultural produce, including fruits,  grain and vegetables with the use of precise levels of light, temperature, humidity and nutrients which are precisely monitored and controlled by smart sensors and computers.

While these new methods will significantly enhance productivity, they (based on the principle of hydroponics or aeroponics) will hugely hurt farmers’ income as these methods would require only a few labourers, very little soil and water.

After having seen the immerse perils of being left behind in the first three industrial revolutions, India cannot afford to be a laggard as FIR unravels. However, how to ensure parity among the rich and the poor when it comes to income creation will continue to be a tough nut to crack.   

Why US, China and EU together can save planet Earth

Copenhagen summit on climate control in 2009 came a cropper after the US, China, the EU and other countries failed to sign a legally binding pact, enforcing themselves to agree to a successor to the Kyoto Protocol, whose validity ended in 2012. Six years later, countries from across the globe are meeting again in Paris in December this year for the UN climate summit to formulate a legally binding agreement that set specific time frame for top polluting countries to cut carbon emissions. While country heads miserably failed to show responsible leadership traits at Copenhagen, leaders of the world’s biggest economies will get another opportunity to initiate responsible action and the change the course of history which can otherwise turn catastrophic in the near future as global warming has already transitioned from a rhetoric of doomsday mongering environmentalists to a real life-or-death question for the humanity.

There are some positive signs that world leaders are likely to exhibit more shades of prudence this time. The US and China, the world’s biggest polluters, began tackling climate change together when they announced an agreement last November to curb carbon emissions. While the US promised to double the speed at which it will reduce carbon emissions, aiming for a 26-to-28 per cent reduction by 2025 from 2005 levels, China agreed to peak emissions by around 2030. Also, recently, China and India issued a joint statement on climate change, promising to submit plans carbon targets before the Paris conference. These gestures assume significance as such joint statements were unthinkable six years ago. Now climate science is forcing country heads to look at global warming more seriously. So what is the science behind environmentalists’ alarm signals on global warming?

Since the beginning of human civilisation, the atmosphere contained about 275 ppm of carbon dioxide, one of the most heat trapping gases (ppm stands for ‘parts per million’, which is a way of measuring the ratio of carbon dioxide molecules to other molecules in the atmosphere). A few hundred years ago, as humans began to burn coal, gas, and oil to produce energy and goods, the amount of carbon in the atmosphere began to rise. Most human activities like cooking food, heating homes and turning the lights on rely on energy sources that emit carbon dioxide and other heat-trapping gases and in the process humans are releasing into the atmosphere millions of years worth of carbon, once stored beneath the earth as fossil fuel. The carbon dioxide levels in the atmosphere currently stand at 400 ppm and humans are adding 2 ppm of carbon dioxide to the atmosphere every year.

Climatologists say if humanity wishes to preserve a planet similar to that on which civilization developed and to which life on Earth is adapted, carbon dioxide levels in the atmosphere needs to be reduced from 400 ppm currently to 350 ppm—the carbon dioxide level scientists say is ‘safe’ for humanity survival on planet Earth. If we don’t rapidly turn the maddening carbon dioxide addition around and return to below 350 ppm level, we risk triggering tipping points and irreversible impacts that could send climate change spinning truly beyond our control, climatologists warn.

China, the US, the EU, India, Russia, Japan are topping the list of countries with maximum CO2 emissions; while China's CO2 emissions were estimated around 10 billion tonnes in 2012, that of the US was more than 5 billion tonnes and EU more than 4 billion tones. India’s contribution was roughly one-third of China's and half of the US’.      

Between 1850 and 2012, the US and Europe produced 45 per cent of greenhouse gases currently in the atmosphere, compared to 18 per cent from China and India, according Climate Analytics, a non-profit organisation. However, it is estimated that by 2020, China alone will produce 24 per cent of global greenhouse gas emissions, the US 13 per cent and the EU 8 per cent and India 7 per cent. So mathematically China, the US, the EU along with India can play a large part in shaping the future of the planet by reducing carbon emissions.

While the US’ emissions are less than China’s, its per-capita emissions are three times that of China and 10 times India’s. Therefore, if the US wants to persuade China, the EU and India to reduce CO2 emissions, it must lead the way by switching to low-carbon energy sources. India (along with China) fears that radical action on greenhouse gas emissions will hamper economic growth at a time when poverty reduction remains a key priority.

However, considering the larger threats that climate change poses—for instance, enhanced melting of Himalayan glaciers and increased coastal flooding due to warming; rising temperatures making water security a crucial concern with significant ramifications on already strained India-Pakistan relations, etc—it makes sense for India too to join the growing ‘save Earth’ chorus.

However, what India can do would make sense only when the top three polluting countries—China, the US, the EU—make a determined effort to set an example by snip their carbon footprint. So will these countries show responsibility at the upcoming UN climate change summit in Paris—which could be the world’s last big opportunity to regain sanity and stop abusing planet Earth’s delicate atmosphere—to take lead and positively change the course of human history from a possible catastrophic end to sustenance and balance?

The world is watching.

Climate change: Obama and the art of creating a legacy

In June when President Barack Obama used his executive power—bypassing the Congress—to order a regulation forcing American coal-fired power plants to cut carbon emissions, his admires hailed it as an aberration. However, giving credence to his foes’ accusation that he has been devising ways to work around congressional opposition against a clutch of controversial issues, now his administration is reportedly working on an international pact that will seek countries to reduce fossil fuel emissions. The pact, which is aimed to be signed at a United Nations summit next year, is expected to again bypass ratification by the Congress that involves a two-thirds vote from the Senate, setting the stage for another showdown between the President and the Congress. Obama is free to sign such pacts with his foreign counterparts but those agreements will neither change the behavior of Americans nor lead to a fall in carbon emissions by the country unless the Congress passes a related law.

So why is Obama pressing for something that is unlikely to be made into a law? First, as his stint at White House is winding down, Obama wants to leave a legacy as a president who has made an earnest attempt to do what he could to address climate change, arguably the most imminent threat that is challenging the very survival of humans and other species on Planet Earth. Based on the perception that climate change cannot be addressed without collective initiatives by countries across the globe, he is aiming to forge a ‘political agreement’ that will encourage other countries, mainly China, to follow suit. Second, the failure of world leaders in Copenhagen in 2009 to forge a new legally binding treaty to replace the 1997 Kyoto Protocol is fresh in the memory of Obama administration’s climate change negotiators and they don’t want to take chances going ahead. As the chances for a legally binding pact to force reduction of carbon emissions are fairly remote, they feel that this is the only ‘realistic’ way.

Will Obama succeed in pushing this pact through? Technically yes. Section 115 of the Clean Air Act—which states that if air pollutants emitted within US states are found to “cause or contribute” to the endangerment of public health or welfare in another country, the Environmental Protection Agency (EPA) can require the governors of those states to reduce the emissions of  the harmful chemicals—alone is more than enough for the safe passage of the pact.

Also, there ample precedents that point to the fact that Obama will not only be able to push through what he wants without sweating much but this may even be hailed as his best strategic move on the world stage by a future generation of fans in different countries. In 1975, Gerald Ford signed the Helsinki Accords that required the US and European countries to recognise the territorial boundaries of the Soviet Union and the Soviet bloc to respect human rights. The accords elicited hostile reactions back at home at the time, but historians believe that they reduced Cold War tensions and offered some space for dissidents in communist states to express their views and get away with them. The Roosevelt (1933) and the Carter (1981) administrations too went ahead circumventing the Congress for settling claims with the Soviet Union and Iran, respectively, and eventually won backing by the courts for doing so.
 
As scientists warn that the earth has started experiencing the effects of human-caused global warming—devastating storms, rising sea levels, stronger wildfires and severe droughts—and the UN is running out of its chances to help thwart catastrophic climate-change related repercussions, Obama is likely to be exonerated for bypassing the Congress for what he can claim to be a larger common good.

Why a shift away from fossil fuels is crucial

The climate pact signed by over 200 countries in Paris in the second week of December, setting a new goal to reach net zero emissions in the second half of the century, has hastened the transition away from fossil fuels and to a clean energy economy. Given the toll that burning coal and oil takes on climate and health of humans, a possible end of the fossil era is too good to be true.

However, for billions of people battered by air pollution caused by burning of fossil fuels—especially those in cities like Beijing, Delhi and Tehran that are choking with dirty emissions—it is likely to a long wait before the fossil fuel reduction targets are achieved. Over the past 200 years, humans have made a huge effect on the carbon cycle. One of the biggest changes to the carbon cycle has occurred as a result of the widespread use of fossil fuels. Burning fossil fuel releases carbon dioxide that adds carbon that has been out of circulation for millions of years directly to the atmosphere. Over the last two centuries, concentration of carbon dioxide in the atmosphere has hugely increased—in 1800, the carbon dioxide concentration in the atmosphere was about 280 parts per million, but now it has crossed 400 parts per million (‘parts per million’ points to the number of carbon dioxide particles out of every million molecules of air). Scientists believe that if humanity wishes to preserve a planet similar to that on which civilization developed and to which life on Earth is adapted, CO2 will need to be reduced from current levels to at least 350 ppm. The statistics are alarming: More than 4,000 Chinese die daily from air pollution.

In recent times use of vehicles run by fossil fuels have been reduced in many cities in Iran and Italy—besides the Delhi government’s decision to allow vehicles with alternative numbers to enter the city going ahead to reduce the number of vehicles by half—in efforts to clean up the toxic air. According to WHO, bad air causes premature deaths of more than 7 million people every year. India, whose rapidly growing population is hugely dependent on coal, is likely to have severe repercussions. A recent study found that 660 million Indians lose an average of 3.2 years of life due to exposure to air pollution. Experts warn that the tragedy that is unfolding is threatening to escalate going ahead.

The murky picture that is emerging as a result of reliance of fossil fuels has led to renewed focus on a shift towards alternative energy sources to run vehicles and in turn to enhanced development of electric vehicles (EVs) and vehicles run by hydrogen fuel cells (HFCVs).

The ongoing talks between Google and automaker Ford Motor Co to help build the Internet search company's autonomous cars is seen as part of the emerging initiatives to move towards vehicles that reduce emissions. Electric vehicles are cleaner than petroleum-fueled vehicles and seen as a partial solution to global warming. Using low carbon power electric car emissions are about a quarter of an inefficient gasoline car and half that of a top hybrid.

The recent launch of Tesla's long-awaited Model X electric car has created a lot of buzz. But given its huge pricing—$130,000 per car— it will be long wait for most environment-conscious car enthusiasts before seeing a palpable shift from fossil fuel-powered cars to EVs.

However, since the release of the all-electric Nissan Leaf in 2011, an increasing number of automakers have jumped on the battery-electric or plug-in hybrid bandwagon. Between 2016 and 2020, 24 new electric car models are expected to be launched in the US alone. Also, competition for the luxury Tesla Model S—which has about a 265-mile range between charges and costs between $70,000 and $105,000—has been mounting from mainstream car makers—Audi, Porsche and Mercedes are investing heavily on electric cars.

As competition grows tougher, price of EVs is expected to fall. In fact, besides battery cost, costs of motors and controllers have started dropping significantly. Taking a leaf from what happened to price of computers and smartphones, experts say as more electric cars are made, the sticker price of EVs will be equal to that of a similar-sized gasoline car within 10 years.

Along with EVs, HFCVs are also gaining acceptance and momentum. Global automobile major Toyota is betting big on hydrogen fuel cell cars and is aiming to encourage an ecosystem of fuel cell suppliers and hydrogen fueling stations to enhance its plans to focus more on manufacture of HFCVs.

However, the fact that HFCVs are more expensive—even if fuel-cells become cheaper and hydrogen production reach a critical mass, it will still be at least three times more expensive to power an HFCV car than an EV—will prove to be a drag on mass production of HFCVs in the near future.

However, as the perils of continued use of fossil fuels become more evident, countries across the globe are encouraging production of EVs and HFCVs, through tax cuts and subsidies, hoping vehicles driven by non-fossil fuels will help humanity combat climate change.

Deciphering the bankruptcy code

The Insolvency and Bankruptcy Code 2015, tabled in the parliament last week, assumes importance as one of the most important items on the government’s agenda after the constitutional amendment bill to roll out the Goods and Services Tax. As the logjam in the Parliament in the last two sessions for reasons that are frivolous at their core – opposition demand for resignation of External Affairs Minister Sushma Swaraj and two chief ministers over Lalit Modi row and Vyapam scam as well as the raucous created by the Congress over dragging Sonia Gandhi and Rahul Gandhi to court in the National Herald case – hurt the government’s plan to roll out GST by April 2016, the government hopes to save face by pushing the bankruptcy law.

For starters, the bankruptcy law is aimed at unifying and overhauling rules governing the liquidation or revival of ailing firms into a single code. The bankruptcy code will make it easier for companies to wind up failed businesses and bring India on a par with developed nations in terms of resolving bankruptcy issues. Currently, the country has no comprehensive law to deal with bankruptcy and insolvency, ranking the country lower than most nations in this respect.

India is placed 136 in terms of resolving insolvency in a World Bank list of 189 nations. Despite being, the world’s fastest-growing major economy, the country takes 4.3 years to resolve insolvency issues while Nepal does it in less than half the time. The bankruptcy code is expected to bring the time down to less than a year.

A single comprehensive law will also place India on a level-playing field along with developed countries. For example, the US has a bankruptcy code that comprises a few procedures offering quicker liquidation or reorganisation of businesses, including Chapter 7 that enables cases to be filed in bankruptcy courts, Chapter 11, which deals with reorganisation of businesses and Chapter 15 that addresses cross-border insolvencies. In the UK, 12 months after bankruptcy cases being filed assets are used to pay off debts or court-appointed administrators help firms turn around. In Germany, independent court-appointed insolvency practitioners help firms realise assets or reorganise the business.

As the Narendra Modi-led government is looking at enhancing the investment and credit mechanism through reforms, the code is also expected to simplify the whole issue of doing business in the country. As the government pushes to get the bankruptcy law passed at the earliest, one may wonder why after all the country needs such an initiative. For one, when a business winds up, it hurts employees, shareholders, lenders and the broader economy. Expediting the process of winding up of the business can help reduce the negative effect of such as eventuality. In Indian, the winding up process—
including assessing viability of the business, changing the management and selling off assets—is usually a long affair. Especially bankruptcy and winding down-related litigations carry on for several years, proving to be a drag on jobs, income generation and broader economic growth.

In fact, there are some related laws— Sick Industrial Companies Act or SICA and mechanisms such as Corporate Debt Restructuring or CDR, to address the issue of insolvency of firms. But these mechanisms have been ineffective due to improper implementation, enforcement and court delays.

A unified law with a focus on speedy closure will enable ailing companies to be either restructured or sold off with limited hassles. In many cases, assets can be better utilised and the firms can be restructured. Lenders and banks would be able to lend recovered money again, leading to better allocation of resources, which will have a ripple effect on the market and economy. A better insolvency ambience will also ensure enhanced availability of credit or funds for businesses by freeing up capital which in turn provides a leg-up to productivity.

Earlier, a panel headed by former law secretary T K Viswanathan has suggested a 180-day timeline to deal with applications for resolving cases of insolvency or bankruptcy. During this period, the management of troubled companies is recommended to be helped by resolution professionals who in turn will be supervised by a proposed regulator.

As per the recommendations of the panel, a debt recovery tribunal will act as the adjudicating authority over unlimited liability partnership firms, while the National Company Law Tribunal will be the adjudicating authority for firms with limited liability.

Also, the Financial Sector Legislative Reforms Commission has recommended the creation of a resolution corporation to monitor financial firms and to either change management to protect investors or depositors or close them altogether. This is aimed at preventing failure of large banks or financial institutions.

The proposed bankruptcy law is now sent for review after the government gave in to a demand by opposition members for a scrutiny by a parliamentary panel. The panel has been asked to submit its suggestions before the parliament begins its next session in February.

As passage of key bills, including bankruptcy code, will be crucial to take the government’s reforms agenda ahead, one hopes lawmakers will learn to behave responsibly, regain a sense of sanity and resist from resorting to reckless disruptive tactics that spoils crucial law making process that leads to huge losses to the exchequer besides stalling much-needed reforms.

Are MFIs striking a balance between profit and social responsibility?

In April this year, Kolkata-based Bandhan Financial Services emerged one among the only two entities (the other being IDFC) that were granted in-principle banking licences by the Reserve Bank of India after a hiatus of more than 10 years (no new Indian bank has been formed since 2004 when Yes Bank launched operations). The fact that Bandhan pipped around two dozen other applicants—including high-profile names such as Reliance Capital, controlled by billionaire Anil Ambani and Aditya Birla Nuvo, part of the Aditya Birla conglomerate—highlighted the government’s focus on providing banking licence to players that will ensure financial inclusion, by offering banking services to the bottom-of-the-pyramid group in rural areas who have little or no access to traditional banking services. Granting of banking licence to Bandhan has in fact proved to be a boost to the microfinance industry in the country which has been trying to gain momentum after the crisis in Andhra Pradesh in 2010 when the state government took tough regulatory measures, leading to the closure of many MFIs, after indebtedness to these firms prompted several farmers to commit suicide.

Microfinance, which was non-existent till early seventies, came into being in 1974 when Dr Muhammad Yunus, an economics professor born in Chittagong in Bangladesh (who went on to win the Nobel Peace Prize in 2006), loaned $27 to 42 poor women to pay off the loan they had taken from local loan sharks who charged exorbitant interest. That marked the birth of microfinance with the key idea of providing the poor small loans for their micro-enterprises to help them come out of poverty. The growth of Grameen Bank, set up by Yunus to help the poor fight poverty by becoming entrepreneurs, to an institution lending more than $1 billion a year to the have-nots, especially women, has proven that microfinance has a universal social applicability.

The microfinance industry in India witnessed significant growth in the years preceding the global financial crisis in 2008. SKS, which then was the country’s biggest microfinance firm with a $1.2 billion loan book, went public in July 2010. The $350 million offering was oversubscribed more than 13 times. But just a few months after SKS’ public offering, the AP microfinance crisis followed and things took an ugly turn. As farmers’ suicides abounded, AP government stiffened rules and all loans distributed in the state were written off, bringing the industry to a grinding halt as AP accounted for the bulk of microfinance lending disbursed in the country till then.

After years of muted growth, the industry has started showing signs of renewal, albeit under stricter norms issued by RBI. The investors have started responding to the sector’s renewed vigor. Last year, Indian microlenders raised a combined $470 million from investors such as Morgan Stanley Private Equity Asia and International Finance Corporation. Pune-based Suryoday Microfinance which raised Rs 27 crore led IFC; Bhubaneshwar-based Annapurna Microfinance which raised Rs 30 crore from Belgian Investment Company for Developing Countries and others and Bangalore-based Grameen Koota which raised Rs 80 crore from MicroVentures Investments are specific examples. Deals worth another $100 million are said to be in the pipeline, initiated by investors who are seeing MFIs as potential banks—the investment today may help them own part of a bank tomorrow—as illustrated by Bandhan.

While investors are bullish, there are those who say that the industry is headed in the wrong director from a social perspective. For decades, microfinance was mainly promoted by activists working for charities and NGOs, driven by a sense of social mission to improve the lot of the poor. But over the last decade, it has transformed into a global enterprise (the global commercial microfinance industry is expected to grow 20 per cent a year in the near future), with a portfolio worth $81 billion driven by profit more than social responsibility.

Also, the increasing interest rates charged by MFIs from impoverished borrowers—though global average interest rate is estimated at 37%, rates are as high as 70% in some markets while in India rates hover around 24-28%--seem to betray one of the key objectives of microfinance—providing small loans to the poor at an affordable cost.

However, going by the constructive and socially responsible role played by Grameen Bank in alleviating poverty in Bangladesh by helping transforming millions of poor into small entrepreneurs, one hopes the bank’s peers in India will follow suit, playing the dual role of agents of social change in fighting poverty while creating wealth through transparent business practices, thus contributing to overall economic growth.

Why a recovery in oil prices seems distant

The recent sharp dip of brent crude—the global oil benchmark—that breached the psychologically sensitive $30 a barrel mark to touch a 12-year low of $27.10 has stirred up lingering concerns about where the oil is headed and how that will affect the broader commodity market which has been languishing for some time now, pulling down growth forecasts globally.

For those who look for a upturn in oil prices, it has been a long wait—brent has slipped to below $30 a barrel level from more than $100 a barrel two years ago. The deep desperation among market players looking for the remotest positive cues was evident in the close to 8 per cent surge in brent prices seen this Thursday soon after Russia apparently said it is ready to discuss output levels with OPEC—opening the door for a deal with Saudi Arabia to revive oil prices—after vehemently opposing any chances of production cuts for months (till recently, it maintained that a cheap ruble, which has fallen to a record low against the US dollar, protected its energy industry from the worst of the oil slump). However, within hours, OPEC delegates said they knew nothing about a potential meeting with Russia next month, let alone output cuts, pushing prices back to $34 from a brief stay close to $36.

Russia’s unconfirmed comments are seen as a ploy to test the waters to gauge how OPEC members would respond to the idea of possible cuts. Even if Russia is truly keen on talks on likely production cuts with peers in the Middle East, there are a host of obstacles in its way before it reaches out to OPEC. The opposing views of Russia and Saudi Arabia on Syria—Russia has been supporting President Bashar Al-Assad while Saudi Arabia has been trying to push him out—make consensus between the two countries on terms of the discussion over oil price cuts unlikely. Saudi Arabia is also keen to defend its market share, especially in China where it has been battling with Russia to be the biggest oil supplier. Also, going by the spike in Russia’s oil production recently, it is hard to believe that Kremlin is sincere in its intention. Russia’s crude oil output is set to reach a post-Soviet record of 10.89 million barrels a day in a few weeks, up 83,000 barrels a day—the biggest monthly increase since September 2014.

There are several other reasons to believe why the unprecedented glut in oil production across the globe—resulting in unusual dips in prices—is likely to continue. Following the lifting of years of nuclear sanctions, Iran is ramping up oil production—last week it signed a deal with Total SA to ship crude to France. Also, acute cash crunch may force OPEC peers Angola, Nigeria and Venezuela to refrain from output cuts as they scramble to sell as much oil as they can to stay afloat. Besides, production from Iraq continue to rise unabated—the country recorded record output in December, with its fields in the central and southern regions producing as much as 4.13 million barrels a day, and it is planning to hike output going ahead.

As production is unlikely to slow down in near future, a growing number of analysts expect prices to remain sluggish—Standard Chartered expects oil prices to remain volatile in the near future as the underlying negative sentiment in the market seems little changed. Joining a host of banks that that have trimmed oil outlook due to the excess supply in the market, HSBC and UniCredit slashed oil price forecasts for 2016. Despite some near-term bullish signals, most analysts expect oil markets to remain oversupplied, keeping prices mostly at current levels. In fact, a few of them even expect oil process to touch $20 a barrel.

Such pessimism is not unwarranted as the world currently remains oversupplied by roughly 1 million to 2 million barrels per day. A majority of analysts expect glut to persist through the first half of 2016. Tighter monetary policy in the US and the euro area is expected to weigh on global oil demand at least for a few quarters more. The slump seen by China and its spillover effect across Asia and the rest of the world too is likely to play spoilsport.

With the shale revolution, the US is now among the top oil producers globally—it produces 9.3 million barrels a day against Russia’s 11.1 million barrels a day and Saudi Arabia’s 10.3 million barrels a day. The surge of the US as a key oil producer has unsettled the OPEC centric world view when it comes to oil production and over-supply driven by unbridled shale oil production, among other factors, is likely to keep prices languished, though a minority among oil watchers may not be surprised if prices surge back to $50-60 a barrel by the end of the year.

Plummeting oil prices – who stands to gain?

As this piece is being written, the global benchmark Brent crude fell to a six-year nadir of $45.23 a barrel, the lowest since March 2009 amid forecast by top investment banks including Goldman Sachs warning a further dip to $40 a barrel where it may stay for most of the first half of this year. The oil prices have now fallen by more than half since June, when they stood at $115 per barrel.

A slew of reasons are cited for the steep fall in oil prices. Production from North American shale companies has increased the supply of oil and gas, dragging prices down. Slowing global economic demand and a surging dollar against a range of global currencies are two other key reasons why oil prices have declined significantly.

Usually when oil process dip, Opec, the oil producing countries' cartel, tends to respond with a cut in output, thus boosting prices. However, at its most recent meeting in November, top oil producer Saudi Arabia coerced other member countries to retain oil output at the current levels, pushing oil prices further down. The surprising move by Saudi Arabia was triggered by a convoluted reason. It’s relatively cheap to pump oil out of Middle East countries including Saudi Arabia and Kuwait. But it's more expensive to extract oil from shale formations in the US. Therefore a continued fall in oil prices will make US oil production unprofitable and hence should push some of the US oil producing firms out of business. The subsequent dip in production of US oil will then help stabilise prices. Essentially, Saudi Arabia simply doesn’t want its market share to be hurt even at the cost of falling prices and the subsequent effect on the country’s GDP.

Though Opec member Venezuela subsequently said it will work with Saudi Arabia for a recovery in oil prices, no measures has been taken by the countries so far.

For much of the past decade, oil prices were high — bouncing around $100 per barrel since 2010 — because of soaring oil consumption in countries like China and conflicts in key oil nations like Iraq. Prices surged as oil production couldn't keep up with the rising demand.

High prices encouraged companies in the US and Canada to start drilling for new, hard-to-extract crude in shale formations in North Dakota and oil sands in Alberta, which slowly lead to a glut in oil production. At the same time, demand for oil in Europe dipped as the its economy weakened. In addition, countries like Iraq started producing more oil which also added to the glut. As in any other demand-supply mismatch scenario, production soon overtook demand and by 2014, supply far outpaced demand, speeding up oil’s downward journey.

Low prices are good for oil consumers in countries like Japan or the US. But it will hit hard nations reliant on oil sales. For instance, it is estimated that Russia's GDP will shrink at least 4.5 per cent in 2015 if oil stayed at $60 per barrel. Falling oil prices have also caused the ruble's value to collapse, triggering panic across  the country.

There is concern that the oil crash could cause Venezuela, whose economy is heavily dependent on oil revenue, to default. Even better-prepared countries like Saudi Arabia could face heavy pressure if oil prices stay low.

For India, which imports 75 per cent of its oil, the price fall will ease its current account deficit. The cost of India's fuel subsidies is also expected to fall by $2.5 billion if oil prices stay low. Will global oil prices stay low is a question that is in the minds of industry watchers. A possible political turmoil in oil producing countries such as Iraq and Libya, an faster-than-expected growth in Chinese  economy, an economic rebound in Europe and a decision by Saudi Arabia to cut production are among a few scenarios that may lead to a turnaround in oil prices.

Venture capital and gender gap

A recent study found that only less than 3 per cent of comments on venture capital blogs focusing on US financial and startup space are by women. While it is commonly understood that the proportion of women in the tech sector is low, this study showed that the engagement of women with the VC industry is even lower. Another recent study found that only about 15 per cent of US companies receiving venture-capital investment included at least one woman in the executive team. If this is the case in a mature startup ecosystem like the US, one can imagine how inadequate the representation of women in a nascent startup ecosystem like the one in India which is slowly catching up with the emerged markets in terms of cash flow to VC-funded enterprises.

Of the top VC firms operating in India, Accel Partners India, Bessemer Venture Partner, Blume Ventures, Helion venture Partners, IDG VC India, Inventus Capital, Nexus Venture Partners, Matrix Partners India, SAIF Partners and Sequoia Capital India have no women partners or managing directors while Kalaari Capital and Seedfund have just one each.
    
Among reasons for the limited representation of women at the top strata of VC firms—and thus the nature of decisions that are made or not made in the country’s startup ecosystem, which will lead to wealth creation and drive growth in the long run—is the fact that the ‘men club’ that leads most VC firms tends to opt for people like them when it comes to recruiting talent.

Secondly, since VC industry in India is at a nascent stage and is not well understood, women perceive VC jobs as something that belong to the area of hardcore finance and number crunching rather than a business model evaluation, and hence tend to stay away from it. Another reason is the lack of awareness at business school level which results in very few women taking up internships at VC firms that will help them mould their career in the VC space at an early stage.  

Since Indian startup ecosystem is still at its cradle, even those women who would want to take up a corporate career have not got enough opportunity to see how investments in startups would turn around in the long run and how innovative ideas can give birth to multi-billion dollar companies in the future, unlike in mature markets like the US where there are ample examples of startups, which were bit players at certain point in time, emerging as corporate behemoths valued at billions of dollars. Mobile-app-based radio taxi aggregator Uber, which raised a recent funding round at a staggering valuation of $40 billion within five years of being launched, is just one example of startups turning billion dollar opportunities for VC firms.  

More cash flow to startups owned by women entrepreneurs will happen only when a larger percentage of decision makers at VC firms become women who would want to nurture fellow women as future corporate leaders.

Another drag is lack of concentrated efforts from the government to nurture VC investments and support the startup ecosystem. Despite the ‘Make in India’ campaign, the recent Budget presented a miserly picture when it came to allocation to nurture startups.

However, the silver lining is the new law announced by market regulator SEBI, mandating at least one woman on the board of publicly-listed companies though it exempted SMEs having equity share capital of up to Rs 10 crore and net worth not exceeding Rs 25 crore.

Also, corporate India seems to be slowly awakening to the need for more women in the ranks of the top honchos. The Indian unit of telecom firm Vodafone recently said it increased the percentage of women employees in its workforce to 20 per cent currently from 14 per cent two years ago and will hire even more women across levels and functions. Group Executive Council of the Tata Group too is said to be planning to double the count of women to over 300,000 from 115,000 currently in its 540,000-strong workforce.

One hopes VC players in the country, too, take a cue from the SEBI directive and what larger industry peers like Vodafone and Tata Group are trying to do bring about a change when it comes to ensuring women representation in the country’s investment space.

How Modi government used India Economic Summit to showcase its reforms agenda

The recently concluded World Economic Forum’s three-day India Economic Summit focusing on the nation’s economic prospects and social development (organised along with industry body Confederation of Indian Industry in New Delhi) was an opportune platform for the newly formed Narendra Modi-led government to emphatically tell  global investors and the industry and economy watchers that it is determined to bring a clutch of path-breaking reforms that will transform the country from a ‘paralysed’ economy to a high-growth juggernaut and a world power.

In fact, the Modi government had a string of pro-reform measures—which it has already initiated—under its belt to showcase at the summit. First it tried to make the mammoth slouching bureaucracy accountable. Then came the ‘Make in India’ campaign which aims to transform the country to the world’s factory and create 100 million jobs by 2022, which was followed by the politically sensitive decision to cut in diesel subsidy which is expected to help hugely reduce fiscal deficit and the move to open the coal sector to the private sector.

The significant representation from the government at the summit—close to half a dozen ministers from Modi’s cabinet, including finance minister Arun Jaitley and power and coal minister Piyush Goyal,  addressed the summit—helped sent a strong message that the steps that have already been initiated are just a beginning. This was amply conveyed by Jaitley who inspired hope among the investor community—at home and spread across the globe—by assuring a transparent and rule-based policy environment and promising to continue to push for economic policy changes to make regulations in India more business-friendly. He touched upon two key expected moves to help push this change. First, the government’s resolve to aggressively continue its divestment agenda—Jaitley said the government is open to completely privatising loss-making public sector undertakings (the country has 79 loss-making PSUs of which 49 are sick enterprises) and the government is aiming to bring down its equity in public sector banks to about 52 per cent. Second, the decision to push ahead with reforming the land purchase law, blamed by the industry and business community for slowing industrial projects. The complex procedures of the law—which seeks to set fair compensation for loss of livelihood for farmers who sell their land to industrial or infrastructure projects—have made it hard for companies to acquire land for large-scale industrial projects.

The optimism was echoed by World Economic Forum's managing director Philipp Rosler who told a business daily that Modi government seems to have a strategic vision and the right approach to reform and that the ‘standstill’ like sentiment about India that prevailed before the elections has turned around. Rosler said Modi government has shown that it has a long term perspective and wants to go step by step which is much more realistic than promise everything and achieve nothing.

However, critics are as vocal as supporters and fans and say that the new government has failed to live up to the expectations stirred during Modi’s glossy election campaign trail studded with rhetoric (bullet trains, 100 smart cities, et al). They also say the government failed to use the India Economic Summit as a platform to announce ‘big bang’ reforms desperately needed to take the country ahead towards high voltage growth after years of stagnated momentum, scams and policy paralysis.

Jaitley tried to counter this argument at the summit when he said that consistently and relentlessly pursuing economic reforms, which the government is trying to do, is more practically feasible that a few sweeping big bang steps. It seems, for a change, the investors—in India and elsewhere—have enough reasons to believe what Jaitley is saying.

Deciphering Modi government’s roadmap to ‘deliver growth in the new context’

In a chat with World Economic Form’s founder and executive chairman Klaus Schwab at the recently concluded WEF meet in New Delhi, India’s Finance Minister Arun Jaitley made an earnest attempt to define what is meant by ‘Delivering Growth in the New Context’ which was the theme of the summit, together organised by CII.

Jaitley claims he has a reasonable sense of satisfaction over the government's performance in the last 17 months for a few reasons. First, confidence of domestic and international investors in the India story enhanced at a time when the global markets are going through a challenging phase. Second, the BJP government under Narendra Modi which assumed power at the centre in May 2014, has managed to set a clear direction for Indian economy.

According to Jaitley, India has become more ‘aspirational’ compared with say 25 years ago when those who tried to obstruct change and growth was a majority. Now those who support growth initiatives—both within the government apparatus and among public—outnumber those who resists them. While there are those who oppose these initiatives for political reasons (as Indian is a large functional democracy), they will not be able to do that consistently over the long term.

The government over the one-and-a-half years consistently worked to remove adversarial and oppressive direct tax measures one by one. Now domestic taxation processes are simpler—tax returns can be filed online and taxpayers can get refunds online. The government has also charted a roadmap for bring down corporate tax to 25 per cent while phasing out some exemptions.

Also, the government has made a considerable headway in its attempt to implement GST—the biggest indirect tax reform measure envisaged in the country’s history. The lower house passed the GST bill; all state governments are on board; and the select committee of the upper house approved it. According to Jaitley, GST is only a question of time—the government has the numbers on its side; the bill will pass once it is put to vote.

However, the government is concerned over the fact that capex by private firms is not at a desired level. The slow pace of private sector investments has been conditioned by the over-borrowed and overstretched nature of private firms in the country. Ideally the private sector should lead the government when it comes to investments that aimed at driving long-term growth. But at a time when the global economy is trying to emerge from the slowdown that started in 2008, public investments can take the lead and the private sector can follow suit.

Fortunately, with the current subdued global oil and commodity price regime, there is a visible availability of public investment resources. Therefore, the government is in a position to make sure investments happen in infra and other sectors, supported by the public sector. Also, with the liberalisation in the FDI policy, India has attracted one of the largest FDIs anywhere in the world. So with large public investments and significantly huge FDI inflow, the investment cycle is expected to be revived.

To supplement this momentum, the government is also addressing issues of stressed sectors such as steel, which has been hurt by cheep steel imports from China, and power. The government is expected to announce initiatives to revive these sectors.

It is also planning to enhance initiatives to build infrastructure to support growth. In fact, inflows from the subsidy reform supported by the dip in oil and commodity prices lend the government extra resources to augment investments in this space. The drop in oil prices also helped improve balance sheet of oil firms, growth of which can enhance overall economic revival given the size of oil majors. Besides, the infrastructure cess announced by the government is expected to provide further leg-up for investments in infrastructure.

In an attempt to enhance growth momentum, the government is also earmarking huge investments to revive railways. The railways, despite being a sunshine sector, has seen abysmally slow growth (it saw addition of hardly 10-12 per cent in terms of size of tracks, for instance) over the last 60 years. With expected public and private sector investments, including participation from international firms, this is expected to change and railways is estimated to see far-reaching reforms. LIC has already agreed to lend a Rs 150,000 crore infra loan which will be used to redevelop more than 400 railway stations.

To supplement its reform initiatives, the government is also trying to streamline the legal framework currently existing in the country.   Some provisions of the Indian law are obsolete. For instance, the arbitration process goes on and on. The government has issued an ordnance which provides fast track arbitration by a single arbitrator—the arbitrator has to sit on a day to day basis to close contractual disputes.  It has also issued an ordinance to set up a commercial bench at every high court to settle arbitration which is beyond the scope of the arbitrator.

Will its earnest attempts to streamline tax regime, build infrastructure and revive the investment cycle help the Modi government to deliver growth in the changing socioeconomic milieu and challenging economic scenario prevailing globally? One has to wait and watch.

World Economic Forum: has India made its presence felt?

The recently concluded annual World Economic Forum in Swiss mountain resort of Davos reinforced WEF’s image as an event where elite leaders from the world of business and politics debate select themes inside comforting enclosures while the world outside remains distrustful about what they talk and weather their deliberations will translate into actionable items.

There are two reasons why this is so. For one, across the world people mostly don’t trust business and political leaders. According to the annual ‘Trust Barometer’ survey published by Edelman, a public-relations firm, there is widespread scepticism about the ethics practised by political and business leaders. When those surveyed were asked if they trust leaders to “tell the truth, regardless of how complex or unpopular it is”, only 18 per cent said they trusted business leaders, whilst a paltry 13 per cent said they trusted political leaders and those run governments. This huge element of mistrust means people across the globe take what select leaders debate at events like WEF with a pinch of salt.

Secondly, according to a recent study by Oxfam, the richest 1 per cent of the global population will by the next year amass more wealth than the remaining 99 per cent. As inequality—one of the key themes on which leaders debated at Davos—keeps widening, summits like WEF are seen as an exercise for the elite and by the elite which excludes the huge majority who are battered at the lower end of the earnings spectrum. In fact, the average income of the richest 10 per cent of nations in the Organisation for Economic Co-operation and Development (OECD) is now nine times larger than that of the poorest 10 per cent, bolstering argument that inequality is growing. Rightfully, a section of leaders gathered at the forum, including Bill and Marissa Gates and Oxfam International executive director Winnie Byanyima argued for enhancing support for developing nations.

With last year being the warmest on record, climate change resurfaced as another key theme, with ‘environmentalists’ including former US vice-president Al Gore, describing global warming as ‘the biggest challenge in the history of human civilisation.

The rising conflict in the Middle East with militant Islamic groups resorting to the game of imprisoning and beheading innocent victims to drive home their secessionist agenda made political stability another key topic of debate, with top Middle Eastern leaders Egypt’s president Abdel Fatah al-Sisi and Jordan’s King Abdullah making their presence felt.

With Sir Tim Berners-Lee, the inventor of the world wide web, being one of keynote speakers, technology in general and cyber security in particular elicited a heated discussion with participation from Google’s Eric Schmidt and Microsoft’s Satya Nadella. Leaders also deliberated on the direction of quantitative easing globally and diverging monetary policy stances between Europe and the US and the ramifications of the fast falling oil prices.

A strong 100-member Indian delegation led by Finance Minister Arun Jaitley signalled the resurgence of India as a key business and investment destination after Narendra Modi took charge in May last year. Enthused by a slew of recent policy initiatives—revival of seven mega projects worth Rs 21,000 crore after being stuck for decades due to financial or environment issues; raising of overseas investment limits in sectors such as defence; ordinances on land acquisition, coal auctions and insurance; and progress in setting the stage for unveiling of GST—that enlivened India’s image as an investment destination, the Indian delegation had a hectic schedule meeting the bigwigs of global trade which is expected to lead to increased capital inflow going ahead. Clearly, the Modi camp is expecting a leg-up to the ‘Make In India’ campaign from the global investment community in the aftermath of the impressive Indian representation at the forum.

Visa: The art of merging physical and digital spaces

Visa, which is pitted against MasterCard to emerge the top player in the credit card industry globally, reported impressive numbers for the quarter ended June 30, 2014— a 5.3 per cent rise in operating revenues to $3.16 billion and a 11.4 per cent increase in net to $1.37 billion. But it is in no mood to rest on its laurels and instead unveiled Visa Digital Solutions which is designed to help facilitate secure payments across a broad range of Internet-connected products, in a bid to position itself as the preferred digital payments enabler for customers and partners.

Will the new initiative help Visa replicate its success in the physical world of plastic cards in the digital world? Before answering this query, let’s rewind briefly to recap Visa’s foray into the digital payment space and figure out what value it added to customers.    

Visa made its intension to be the credit card of choice for digital transactions clear when it launched its online digital wallet service V.me a couple of years ago (for starters, a ‘digital’ wallet isn’t necessarily same as a ‘mobile wallet’ though a digital wallet service could also be housed in a mobile app interface).

V.me was aimed at making it easier for consumers to shop online, whether via web, mobile or tablet. The digital payments service stored not only the customer’s Visa card information, but also that of his/her MasterCard, American Express and Discover cards. It enabled the customer to just enter his/her V.me email and password while transacting at a supported merchant’s website, instead of entering in his/her payment information and shipping preferences manually. It also offered an added layer of security as the customer’s 16-digit card number was not displayed on the merchant’s site.

V.me effectively replaced the ‘Verified by Visa’ online authentication system. Typing in a 16-digit card number and expiry date to pay online has always been a disheartening customer experience and Visa aimed to position V.me as an online payment mechanism that can match the simplicity of PayPal and Amazon’s 1-Click payment option.

Recognizing that most customers will want only one wallet, Visa let them include cards and accounts from multiple banks in their V.me wallet, with the customer’s email address being a unique identifier. Besides enabling mobile contactless payments, V.me also supported a variety of ways to initiate payments, including bar and QR codes as well as NFC. Then in July 2014, Visa replaced V.me with Visa Checkout that enables consumers in the US, Canada and Australia to pay for goods online, on any device, in ‘just a few clicks’. The customer using Visa Checkout first creates an account and then links multiple Visa, MasterCard, American Express and Discover cards to his/her account. He/she is then able to select the ‘Visa Checkout’ button on participating merchants’ online and mobile commerce sites to pay by providing his/her username and password.

Extending its digital ambitions, it now intends to focus on activities that will accelerate digital commerce with Visa as a platform partner. To achieve this, Visa will enable more than traditional issuers and acquirers access to the network’s platforms so they can build experiences that use Visa’s payment capabilities. These new partners would include mobile operators, telcos, technology companies, device manufacturers, social networks and the application developer community. Visa is also offering specs and software development kits to enable solutions to embed Visa payWave and QR codes as the partners develop their solutions.

The idea is to help clients and their customers use Visa products in the digital world as easily as they can in the physical world. Sounds good. But Visa is not the lone player looking to grab a larger pie of the digital payment enabling space. Besides, MasterCard which is offering PayPass Wallet Services, PayPal and Amazon’s 1-Click, American Express, through its Serve platform, is not only competing head-to-head in the online payments space, but is working to enable other features like peer-to-peer payments. Then there are Google Wallet and other emerging players like Square, Dwolla, Direct Debit, BPAY, iDeal, etc. So in this more than cluttered space characterized by the problem of plenty, how will Visa grab customers’ and partners’ eyeballs and emerge a winner?

The answer possibly lies in larger partnerships and smarter branding. Visa has already roped in more than 180 FIs and organizations to offer Visa Checkout to their customers, including Bank of America, Chase and Citi. It may have to enlarge and strengthen this partnership roster besides coming out with a stellar, out-of-the box marketing initiative that will make Visa Checkout the Visa card of the digital world.

Why video on demand will make traditional TV obsolete

Why should one pay for cable operators for watching favourite TV shows when these shows can be watched through online video-on demand platforms such as YouTube, Netflix, Hulu, HBO Go and Amazon Video (formerly known as Amazon Unbox and Amazon Video on Demand, it is now available in the US, the UK, Japan, Austria and Germany and is coming to India soon) for a fraction of the cost charged by cable players? Ever since video-on-demand players gained momentum in terms of the number of viewers worldwide, billions of people across the globe have been asking this question themselves.

The dwindling number of people who are ready to pay for cable TV across the globe has lent credence to video on demand pundits who have long been vouching that online video services will kill pay TV. A recent survey of more than 20,000 TV viewers around the globe— Ericsson ConsumerLab TV and Media Report 2015—found that consumers spend more time watching online video-on-demand and streaming video to mobile devices.

The survey found that consumers spend 6 hours per week streaming on-demand TV series, programmes and movies online — more than double the time seen in 2011. If one includes recorded and downloaded content, 35 per cent of all TV and video viewing is on demand compared with traditional TV mode. It also found that two-thirds of teenagers' total TV and video viewing is done via smartphone, tablet, or laptop, and 53 per cent of millennials watch TV on these devices. Across all age groups, the number of consumers watching video on their smartphones has increased 71 per cent since 2012.

The findings of the survey reinforced the marked shift in viewing habits during the last few years which will likely add the pressure cable TV players across the globe.

Online-video services offer a lot of advantages over pay TV. For one, they are convenient: subscribers can watch programmes when and how they want. They can do so outside their home too on their smartpones and tablets, virtually liberating them the debilitating constraint of stay indoors and slouch before the so-called idiot box to see their favourite shows.

Also, online-video services are cheaper—in the US, Netflix costs around $10 a month compared with $80 or more paid by each subscriber for a single month for cable TV watching.

By encouraging an entire generation to watch television without commercials, pushing away viewers from live shows and forcing them to reschedule their viewing experience on their own terms, Netflix and peers are draining the very source of revenues that for decades sustained TV content providers. It is true that audiences are watching more television than ever but they are doing so on on-demand platforms instead of gluing on to TV boxes.

If viewers continue to avoid the advertising that is TV sector’s bread and butter and ad revenue continues to dwindle, how will TV content producers and cable players find alternative sources revenues without which their death would be expedited?

Branded content and promotion are touted as one alternative. Producers of TV shows can partner with brands to create sponsored promotional vehicles for the show that also help boost awareness for the brand. By being associated with viewers’ favourite programmes, brands gain and expand visibility, in turn, forcing them to sponsor such shows. TV content producers can also lease the programmes to more platforms, including social networks, leveraging the huge user base of Facebook, Twitter, etc.

However, these alternatives can fill in only a minuscule portion of the windfall revenues TV sector has generated in yesteryears through real-time advertising. So far pay television players have managed to escape an untimely death by making sure consumers cannot watch current episodes of their popular shows unless they pay for cable. In this respect, they stayed away from committing a horrendous mistake that newspapers did a decade ago—offering the same content online for free and expecting subscribers to pay for it. Pay TV players and content producers and owners have restricted on video service providers’ ability to buy rights to shows until after they have aired on television.

However, this seems to have only prolonged the demise for traditional television players. As online video subscription services are draining television advertising revenues, the cable TV sector needs to reinvent its business model to ensure there is enough revenue to fund production of shows, failing to do which will make its journey hazardous and perilous going ahead.

In an age where the division between virtual and physical is getting blurred, viewers would also look for ways to get entertained with minimal expenditure physical effort. Going ahead, entertainment devices, including video streaming ones, have to be embedded to one’s physique similar to the way watches and specs are worn. And internet-linked players such as Netflix and peers whose offerings can be delivered on smaller, wearable devices, are going to trump pay TV here too. As challenges mount, how long can pay TV prolong its demise? One has to wait and watch.

Venture capital and gender gap: Where is India headed?

A recent study found that only less than 3 per cent of comments on venture capital blogs focusing on US financial and startup space are by women. While it is commonly understood that the proportion of women in the tech sector is low, this study showed that the engagement of women with the VC industry is even lower. Another recent study found that only about 15 per cent of US companies receiving venture-capital investment included at least one woman in the executive team. If this is the case in a mature startup ecosystem like the US, one can imagine how inadequate the representation of women in a nascent startup ecosystem like the one in India which is slowly catching up with the emerged markets in terms of cash flow to VC-funded enterprises.

Of the top VC firms operating in India, Accel Partners India, Bessemer Venture Partner, Blume Ventures, Helion venture Partners, IDG VC India, Inventus Capital, Nexus Venture Partners, Matrix Partners India, SAIF Partners and Sequoia Capital India have no women partners or managing directors while Kalaari Capital and Seedfund have just one each.      

Among reasons for the limited representation of women at the top strata of VC firms—and thus the nature of decisions that are made or not made in the country’s startup ecosystem, which will lead to wealth creation and drive growth in the long run—is the fact that the ‘men club’ that leads most VC firms tends to opt for people like them when it comes to recruiting talent.

Secondly, since VC industry in India is at a nascent stage and is not well understood, women perceive VC jobs as something that belong to the area of hardcore finance and number crunching rather than a business model evaluation, and hence tend to stay away from it.

Another reason is the lack of awareness at business school level which results in very few women taking up internships at VC firms that will help them mould their career in the VC space at an early stage.  

Since Indian startup ecosystem is still at its cradle, even those women who would want to take up a corporate career have not got enough opportunity to see how investments in startups would turn around in the long run and how innovative ideas can give birth to multi-billion dollar companies in the future, unlike in mature markets like the US where there are ample examples of startups, which were bit players at certain point in time, emerging as corporate behemoths valued at billions of dollars. Mobile-app-based radio taxi aggregator Uber, which raised a recent funding round at a staggering valuation of $40 billion within five years of being launched, is just one example of startups turning billion dollar opportunities for VC firms.  

More cash flow to startups owned by women entrepreneurs will happen only when a larger percentage of decision makers at VC firms become women who would want to nurture fellow women as future corporate leaders.

Another drag is lack of concentrated efforts from the government to nurture VC investments and support the startup ecosystem. Despite the ‘Make in India’ campaign, the recent Budget presented a miserly picture when it came to allocation to nurture startups.

However, the silver lining is the new law announced by market regulator SEBI, mandating at least one woman on the board of publicly-listed companies though it exempted SMEs having equity share capital of up to Rs 10 crore and net worth not exceeding Rs 25 crore.

Also, corporate India seems to be slowly awakening to the need for more women in the ranks of the top honchos. The Indian unit of telecom firm Vodafone recently said it increased the percentage of women employees in its workforce to 20 per cent currently from 14 per cent two years ago and will hire even more women across levels and functions. Group Executive Council of the Tata Group too is said to be planning to double the count of women to over 300,000 from 115,000 currently in its 540,000-strong workforce.

One hopes VC players in the country, too, take a cue from the SEBI directive and what larger industry peers like Vodafone and Tata Group are trying to do bring about a change when it comes to ensuring women representation in the country’s investment space.

CBO’s deficit forecast: Why complacency can be lethal

The Congressional Budget Office (CBO)’s forecast of federal deficit of $506 billion—simply put, spending would exceed revenue by this much—during the current fiscal ending September sounds positive in the shirt team and hugely negative in the long term. First the good news: though a slight rise from April forecast of a deficit of $492 billion, due to a fall in income from corporate tax, this is clearly less than the $680 billion deficit reported during the previous fiscal. This would also be the fifth consecutive year the deficit has fallen as a share of GDP from 9.8 percent in 2009 to an expected 2.9 percent during the current fiscal.

The murkier picture lying deep beneath the seemingly balanced short-term prediction is this: CBO expects the accumulated federal debt held by the public to reach 74 percent of GDP by the end of this year—the highest debt to GDP ratio since 1950—and 77.2 percent by 2024.

Why should the federal government stop being complacent and start worrying deeply about something that is expected to happen 10 years from now? There are ample reasons. First, debt reaching 77.2 percent of GDP is within a stone’s throw of 90 percent that is seen by a growing group of economists as the danger mark crossing which would push the economy to a realm where a complete collapse would be a constant reality. Beyond this cut-off point, economists warn, inflation will shoot up, interest rates will spiral and private investment will crowd out, severely hurting all Americans, especially the middle class, the elderly and the have-nots.  

Spiraling cumulative federal debt would also escalate the chances of a sudden fiscal crisis, dampening investors’ confidence in the government’s ability to manage its finances. At this point, the government will begin to lose ability to borrow at affordable rates to meet expenses, getting trapped in a vicious circle. Debt at stratospheric levels will pull down growth steeply and severely hamper the federal government’s capability to respond to out-of the-blue challenges, possibly precipitating a debt-driven financial mess.

Having already hit the debt ceiling and revised it with great difficulty—three years ago, after an acrimonious debate, President Barack Obama and Congress decided to lift debt ceiling by $2.1 trillion to $16.39 trillion from $14.29 trillion in exchange for a series of spending cuts spread over 10 years, forcing S&P to cut the country’s glossy AAA credit rating—the government does not have too many options at hand.  It is staring at the double whammy of already bloated debt and expenditure and an even greater climb in future debt and costs. To rub salt to the wound, spending in Social Security and Medicare is expected to mount further. Besides, surging interest on existing and expected debt will gulp possible returns from tax collection.

This may seem an unlikely comparison but learning a lesson or two from the travails suffered by some of the European countries whose debt crossed 90 percent of GDP—in 2011, Greece touched a debt-to-GDP ratio of 165 percent; Italy 100 percent and Portugal 97 percent—would help. The combination of bailout and fiscal austerity cobbled up by European lawmakers couldn’t restore investors’ lost confidence in Greece’s ability to manage its debt. Is drawing a parallel with European economic weaklings such as Greece realistic? Well, predictions of the 2008 financial crisis were denounced as unrealistic when they were made years before the deep slump.

So what should the federal government do? Mounting obligations to retain the seemingly unsustainable entitlement programs and spiraling expenditure are two ghosts that should be fought immediately. Reforming entitlements and deeply cutting spending could be the humble but earnest first step. Then the President and the Congress should initiate harsh but realistic steps to balance the federal budget over the long term, say a 10-year period.

Smart cities are good idea, but what about existing ones?

The Modi government’s plan to develop 100 smart cities has stirred a debate on its strategy or lack of it on the fate of the existing cities in the country. Over the years, lack of infrastructure and unplanned growth have turned Indian cities into a real mess. While urbanisation has enhanced economic, social and political progress, it has resulted in socio-economic mismatch among people. Also, rapid growth of urban population has put enormous pressure on public utilities like housing, sanitation, transport, water and electricity besides pushing unemployment among rural immigrants. Urbanisation deserves immediate attention as by 2030, more than 50 per cent of India’s population is expected to live in urban areas.

Urban sprawl, the expansion of the cities in terms of population and geographical area (which is rapidly encroaching the precious agricultural land) has been one of the key problems which authorities failed to tackle. Continuous immigration from rural areas has consistently added to the size of the cities. This led to a situation where economic base of most cities is incapable of dealing with the problems created by the huge growth of urban population. Metro cities are clear examples urban sprawl due to large scale migration of people from the different states, seeking employment opportunities.

Unplanned growth has also resulted in overcrowding—a situation where too many people live in too little space. For instance, Mumbai has one-sixth of an acre open space per thousand people though four acre is considered normal. This kind of overcrowding leads to tremendous pressure on infrastructural facilities.

Overcrowding leads to shortage of houses in urban areas. Housing is a bigger issue in those cities where there is large influx of unemployed or underemployed immigrants who have no place to live in when they enter cities from villages. According to a recent study, 39 per cent of all married couples in India do not have an independent room for themselves. As many as 35 per cent urban families live in one-room houses. For about a third of urban Indian families, a house does not include a kitchen, a bathroom and a toilet—and in many cases there is no power and water supply.

Overcrowded cities are a breeding ground for unemployment. It is estimated that about half of all educated urban unemployed are concentrated in Delhi, Mumbai, Kolkata and Chennai. Though those living in cities earn more than those in the villages, their incomes are low in view of high cost of living in urban areas. Unless government streamlines the large-scale migration to cities, unemployment in cities will continue to rise.

Another consequence of unplanned growth of urban areas is the spread of slums. The rapid urbanisation in conjunction with industrialisation has resulted in undeterred growth of slums. A slew of reasons such as the large influx of rural migrants to the cities, the shortage of developed land for housing and high prices of land beyond the reach of urban poor contribute to the growth of slums which has been exerting huge pressure on civic amenities and infrastructure. Inadequate transportation facilities is another challenge faced by people living in cities. As cities grow, more people are required to travel to work or shop, leading to clogged roads and unending traffic jams.

Scarcity of drinking water is perhaps the biggest challenge thrown up by haphazard development of cities in India. In fact, no city in India gets sufficient water to meet the needs of city dwellers. In many cities, people get water from the municipal sources for less than half an hour every alternative day. In dry summer season, taps remain dry for days together.

This is addition to growing problems of lack of proper sewerage management, trash disposal and pollution besides surging crime rates in cities. It is high time the government figured out whether developing select smart cities or solving the litany of problems faced by people living in existing cities should be its priority.