Bullish on India, bullish on Modi

Yesterday I met one IIM Indore batchmate of mine who works in Equity Sales role in USA. He was worried about where India is heading. Over beer we tried to discuss this but with limited time and so much to discuss it was impossible to have a meaningful discussion. This is my note to anybody who is concerned about where India is heading.

India is making structural changes – destruction before construction

India of today is like slums of Dharavi with ambition to be a rich nation like USA. To build the high rises India needs to destroy the slums, dig down to build a strong foundation and then only it can build high risers. India need to clean the politician – bureaucrat – businessman nexus that is holding back India. And India is doing just that. Do not get worried by downward direction. Think whether the steps are correct or not. These are major cleaning up steps taken by India:

1.      GST – Single tax system makes doing of business easy

2.      RERA – Helped deflate major real estate bubble and fraud going on in the country. Crazy price rise looks good in short term but in long term it only leads to defaults, frauds and tears.

3.      Demonetization – Although it failed substantially in execution, but it helped change mindset from black money to digital money

4.      Insolvency Act – One of the biggest achievements of last 5 years. It has created a fear among business class that if they default on bank loans, they will lose everything. India was writing off around 2 lakh crore every year in bank loan defaults. This was only making rich richer and poor poorer due to resulting inflation.

5.      PSU bank merger – PSU banks are black holes of Indian economy. Lesser the number of black holes the better.

6.      Corporate tax rate reduction – It makes corporate sector competitive and also changes the mindset that you have to avoid tax to remain competitive. Most companies were anyway paying lower taxes; hence loss of revenue would not be that substantial.

Employment problem

There is lot of jobs created in food delivery, eCommerce delivery, app taxi and other similar new age business. Uneducated Indians have opportunity to earn around 20-40K a month which is phenomenal.

However, there is big unemployment problem among:

a.      Educated Indians graduating out of low-quality schools and colleges – These people want white collar job but do not have any skill worth the money

b.      Uneducated people who are able to do only unskilled manual labour (who are not even smart enough to become an OLA driver or Swiggy delivery boy) – Mechanization is killing such jobs world-wide and India is no different. India has been using an army of labour instead of cranes but that can never be efficient.

India already suffer from high pollution and cannot afford to take up high pollution manufacturing. We are better off focusing on service sector that’s where we are doing well. This together with large population and low-quality education system makes the unemployment problem – a problem with no real solution.

The only way to deal with this problem is aggressive birth control and better-quality education in long run and Universal Basic Income (UBI) in the short run. Steps like Skill India will also help.

UBI is difficult as India’s finances are already in bad shape, but the 2 lakh crore per annum that we are right now using to bailout PSU banks and corporate sector can be diverted here. Lot of Government schemes are already giving lot of subsidy. These can also be converted to cash subsidy with Aadhaar linked bank account payment to ensure it reaches the right people.

Industries to create job

Let’s look at some of the biggest expenditure at individual level in our annual budget:

1.      Holiday

2.      Education

3.      Medical

4.      Wedding

Today we want to go abroad for holidays, go abroad for education, go abroad for Medical treatment and have destination wedding abroad. This is the industry we have to focus on and ensure Indians spend this money in India.

This requires quality service, but it also require marketing of brand India. Right now, people who can afford, would go abroad for these services just because it’s a status symbol. Over years we Indians have started looking down upon anything Indian. This need to be changed and for that we need a leader who is good at marketing India to our own people. Somebody needs to create pride in brand India. And when India builds the tallest statue in the world or markets Yoga to the world, it helps!

Tourism

Tourism is the best industry to solve our unemployment problem and help us achieve faster GDP growth without compromising on environment. 

An Indian earning Rs. 24 lakh plus a year is on an average taking 1 holiday abroad every year. Indian families are spending Rs. 2-5 lakh per annum on international holiday. India has so much to offer, why are we not able to attract our own population?

This is one industry which India need to focus hard on. Today the biggest challenge in this industry is:

a.      Airports: We do not have enough airports. We have increased the number of airports from around 50 to around 100 in last few years and need to take it to more than 200.

b.      Railway: We need to allow private players to operate certain railway routes (recent IRCTC move is a welcome move) and substantially upgrade the technology, speed and services. Rail ticket should be available on ‘walk in’ basis. Focus should be on running direct trains of upto 4 hour duration, at speed of minimum 150-200Kms per hour, from key airports to tourist locations where people can just walk in and travel. There should not be any need to pre-booking seats. Our railway system should be like that of Eurozone.

We also need to privatize railway station and convert them into Air-conditioned malls plus hotels similar to airports. There are enough footfalls on every major Indian railway station to make it viable.

c.      Hotels: We need to reduce taxes on hotels – recent reduction is GST is very welcome move

d.      Aviation fuel: We need to reduce taxes on aviation fuel – We need to change the mindset that aviation is a luxury good

e.      Branding: We need to market India as a tourism destination. We should select 1 -2 places in each of the 36 states / union territories and make each state market it hard. If Malaysia brands itself around Petronas towers, Dubai around Bhurj Khalifa, Singapore around Merlion / Marina bay sands, why cannot our states do the same. Make the states compete to attract Indian and foreign tourist.

Modi is doing a great job of promoting places like Mahabalipuram, Varanasi, Statue of Unity. But we need the states to do it. We are too big a country to be promoted at centre level. Each state should complete with Dubai / Singapore / Malaysia / Thailand / Indonesia / Srilanka.

Why can’t we make Ayodhya the “Mecca Madina” of Hindus and attract religious tourism? - https://www.financialexpress.com/lifestyle/travel-tourism/ayodhya-to-get-complete-makeover-from-international-airport-to-pilgrim-centeres-heres-everything-planned-for-ayodhya/1763533/

Education

We need to change education sector from a not for profit sector to for profit sector. We need to open up the education sector and attract international investments by best colleges of the world. Already Indians are one of the biggest target customers for these colleges. They would be more than happy to set up in India.

Medical

Our doctors are doing great across the world. But medical council is controlling the number of doctors we produce every year. We need to reform that. We should leverage on quality of our doctors to promote medical tourism Industry in India

Infrastructure

As mentioned earlier, India suffers for bad infrastructure and investment in infrastructure would not only help boost jobs but would also booth other industries like tourism and will boost growth. However, investment in infrastructure can no longer be done with project finance from Indian PSU banks. That only leads to corruption where promoters gold plate the cost to ensure project is funded by debt only and zero equity investment is made. It needs to be funded by risk capital from private equity investors.

Major reforms needed and underway:

1.      Judiciary – It needs to understand the value of time and become transparent specially in terms of appointment of judges. Collegium system suffers from nepotism / bhai-bhatijawad.

2.      Education – We need to get out of the social sector mindset and invite for-profit good institution to set up institutions here.

3.      Agriculture – Need to dismantle APMC and move to eTrading of commodities. https://www.financialexpress.com/economy/amazon-of-indian-farming-nirmala-sitharaman-wants-states-to-shun-physical-mandis-says-time-to-move-on/1761956/

4.      Financial Sector – Merger of PSUs, IBC, Aadhaar - Bank account – mobile trinity

5.      Real estate – RERA

6.      Tax reform – GST, reduction in Corporate Tax, simplification of personal tax and removal of exemptions

7.      Labour reforms – hire and fire, NPS

8.      Railway – Private sector participation https://www.livemint.com/news/india/india-s-first-private-train-lucknow-delhi-tejas-express-posts-profit-in-first-month-check-out-unique-features-11573546818252.html. Using of railway station real estate for malls and hotels.

9.      Bureaucracy – IAS and others bureaucrats are today trained to delay work so that citizens would be desperate and pay more bribe. “Government job security” need to go.

Modi is in T20 mode

Mark my words, Modi is in T20 mode. He recently told group of senior IAS officers – You wasted my 5 years, I will not let you waste my next 5 years. https://www.hindustantimes.com/india-news/modi-attempts-long-awaited-overhaul-in-bureaucracy/story-EWO2IHX6wTSpUNpIfDx6NL.html

Last five years Modi struggled with understanding the Lutyens Delhi, has false starts like Demonetization and was bogged down by problems like mind boggling NPAs in banking sector. Lack of majority in Rajya Sabha was also a big issue. But things have changed in second term with clear majority and almost majority in Rajya Sabha.

Now Modi will no longer play on backfoot. Article 370 and Ayodhya are examples of the same. The best thing about Modi is that he has bias for action and guts to go the full distance. He does not fear leaving the crease. He is a visionary, great marketer and executor. He is very clear in his mind what all he wants to do, and he will do in this 5 year term.

People used to call him FEKU. But he is fulfilling all his promises one by one. Article 370, Ayodhya, Demonetization, GST, RERA, IBC are all example of what he can execute against all odds. And when it is executed we will get a feeling – ‘oh, that was easy and anyway would have happened’. We got the same feeling with Integration of Kashmir (Article 370) and Ayodhya – but then why it did not happen in 70 years? These two are hallmark of his mastery of execution.

People laughed at him when he started the ‘Swacch Bharat Abhiyan’, today the world understands how big the environment crisis is. People laughed when he started marketing Yoga, today people realize how big is the mental and physical health crisis.

People are laughing when he sets the goal of $5 Trillion GDP, but I believe he is a visionary who can execute. I believe, this 5 years of Modi would change India from a developing country to a Developed country.