The DAME Was Late

October 12, 2010

Swami A Aiyar’s latest column is about how the messes in the Commonwealth Games are the ones the government has made, while the few successes involved are the ones the private sector are involved in. This is a sentiment that I generally agree with, but it commits one key error when it talks about how the Airport Express line opening late is an example of government failure.

Actually, the public sector DMRC completed almost all its work within the hard deadline of the Games opening ceremony. Though they did miss their own deadlines; and the violet line still isn’t operating on the last few stations. The Airport Express line however was a private sector responsibility – it’s being operated by Reliance Infra (Anilbhai, that is). The DMRC was supposed to do the civil engineering, and R Infra (whose website’s core infrastructure page says it’s under construction – tee hee) didn’t do the electrical work and testing on time. To be fair, the DMRC has an interest in putting the blame on Reliance – they get to charge it a penalty.

The Swaminomics column also mentions Reliance’s putting up the world’s biggest refinery in record time as an example of private sector excellence; so the Reliance failure this time around is kind of piquant. The difference between the two situations could be explained by:

  • Dhirubhai was betting the farm with the Jamnagar refinery, and this added a little bit of desperation. The Airport Express Link is nowhere as important or as much of a flagship project; so management was not quite so obsessive about getting things done ahead of schedule.
  • Dhirubhai had it in him, while Anilbhai is a wanker. This is my favourite explanation, but then I’m biased. It is an explanation that is shared, though – some years ago I read either in Business Standard or Business World a deliciously snarky editorial that when talking about Anil Ambani’s attempt to set up ultra-mega power plants in UP, talked about how only an idiot would want to sell power to the bankrupt Uttar Pradesh electrical utilities. Sadly, I’ve lost the link.
  • Or to be very cynical, since this is a public-private partnership project, Reliance Infra presumably ends up making money no matter how late they are.

That last point could work the other way around too, though. Maybe Reliance Infra isn’t actually that late, and the Commissioner of Metro Rail Safety is refusing to give the clearance to extort a bribe out of Anilbhai.

The exasperating thing is that ever since the news about the Airport link not opening on time came out, there’s been a news blackout on what is going on. There was that one Business Standard article I linked above on the penalty, and nothing since then. Not even news about when the line will open. So we can’t actually know what is going on, and who actually fucked up. What sadness.

On a more personal note, I wish there was at least some information on where the airport station actually is. At present, DIAL hasn’t got the Terminal 3 parking completely functional; so being picked up at the new terminal is a nightmare. If the metro station is right inside T3, though, it would mean I could come to Delhi, catch the metro to Dhaula Kuan, and get picked up from there. That would be awesome. Of course, this would also require domestic operations to start at Terminal 3. They haven’t, and this time this is because of fuckups from both the private and public sector – the IT systems didn’t work back in July, but now the bottlenecks are the entirely government owned and run Delhi Transco and Delhi Jal Board.

Oh, and for a very well written piece on how the vast majority of fuckups are governmental, not private sector, here’s Salil Tripathi in WSJ.

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Massage Parlour Madness

July 1, 2010

In Hyderabad, Commissioner of Police AK Khan has discovered that brothels often advertise themselves as massage parlours because, well, advertising themselves as brothels is illegal. He has swung into action and it is now illegal in Hyderabad for masseurs to massage women, and masseuses to massage men.

I really want to know what happens when Commissioner Khan finds out about gay prostitutes. Will the ban then be extended to all massage parlours? That will be kind of awesome. Hyderabad has already had alcohol prohibition – then it will have massage prohibition as well. Every weekend, really rich Hyderabadis will fly to Singapore or Kochi for their massages. For the merely moderately rich ones, massage parlours will spring up as soon as the Greater Hyderabad Municipal Corporation limit ends. In fact, Y Rajeev Reddy will set up a Country Club with a massage parlour just outside municipal limits for this very purpose, and unleash ads showing him thumbs-upping next to a bevy of massage professionals.

Alternately, things could get all 1930s US-Prohibition style. News of massage parlours would circulate surreptitiously through word of mouth (or in these days, private facebook groups and twitter direct messages). People would go there in ones or twos, knock on an unmarked door, give a password and be let in for a massage. In case of a police raid, they will flee out the back door, leaving oil and towels in disarray.

Moreover, now that there is a beef ban in Karnataka, a massage ban in Hyderabad, and a virtual ban on decent booze in Tamland, the potential for a three-way smuggling operation is immense. Saileshbhai and Kalpeshbhai must be salivating.

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Twenty First Century Land Purchases

April 26, 2010

This is pretty interesting. The state of New York is practically broke, but the city of New York is merely deeply indebted. To ease its fiscal crisis, the state of New York is transferring an island from joint administration to the sole administration of New York City:

After more than a year of negotiations, New York City has reached a deal to take control of Governors Island from the state, moving a prime 172-acre piece of waterfront real estate into the hands of a land-starved city and closer to an ambitious redevelopment, city and state officials announced on Sunday.

…

These agreements represent a reversal from 35 years ago, when a city on the verge of bankruptcy parted with a number of its assets and relied on the state to shore up its finances.

Raymond Horton, a professor at Columbia Business School who ran a commission that studied New York City’s finances during the fiscal crisis of the 1970s, said that by taking over properties like Governors Island, Mr. Bloomberg achieved a milestone that had eluded many of his predecessors.

“What tips the balance here is the state’s fiscal crisis,” Mr. Horton said. “The state is in a dire situation. The city is much better managed at this moment. That makes possible something that was not when the two governments’ finances were in similar condition.”

(New York Times)

This is not something very novel though. Throughout the nineteenth century countries that were broke or defeated in war would sell their territories, or give them up against war reparations, or sign long or perpetual leases. Some notable examples are:

  • New York City itself! After the Dutch lost the Anglo-Dutch war, they allowed the British to keep New York in return for the island of Run in the East Indies, which at the time was the only place in the world where nutmeg used to grow. Talk about excessive discount rates.
  • The Guantanamo Bay Naval Base, which Cuba handed over to America as a perpetual lease back in 1903.
  • Hong Kong, which the Chinese empire leased to Great Britain for 99 years in 1900.
  • Alaska, which the Russians sold to America for 7.2 million dollars.
  • Almost a third of the continental United States, when the Thomas Jefferson administration paid Napoleon 15 million dollars in the Louisiana Purchase. They had offered him 10 million dollars just for New Orleans, but Napoleon had wars to fight and was desperate for cash, so he threw in pretty much the middle third of the United States. The extra 5 million dollars kept Napoleon’s armies going successfully until the Russian front in 1812, when famine decimated his army. On the other hand, Napoleon thought that by giving all that land to the US, he would make life even more difficult for Great Britain, which was hostile to America at that point of time. While Napoleon’s forces were being thulped at Moscow, America and Britain were actually fighting the War of 1812 which ended in a stalemate, so maybe this worked. Incidentally, the financing for the Louisiana Purchase was a fascinating piece of structuring.

Sadly Purchase, New York does not seem to fit this category.

Anyhow, it looks like the twenty-first century is going to see the return of grossly broke countries selling off their territory to keep up with the payments. The first inkling that it’s making a comeback came when two German MPs demanded that Greece sell off its islands (oh, and the Acropolis) if they wanted a bailout. It didn’t happen, but considering that Greece will probably default on its debt again soon, we may see this idea being taken up again. Portugal, Italy and Spain are also headed towards default, so we may soon witness the spectacle of Mediterranean beaches and slopes of Alpine mountains up for auction. It will be awesome.

The fiscal situation of the PIGS countries now is of course tiny compared to the fiscal situation of the United States a few years down the line. With the demographic bulge of the Baby Boom coming into Medicare and Social Security payout ages, the chances of the United States defaulting on its debt are beginning to look likely. The USA too may have to start selling its territory. Fortunately, it has a lot of empty territory to sell. Especially Michigan, which is rapidly depopulating.

The only thing is that selling something only works if there’s a buyer. That would involve either handing the territory over to whoever was holding the US debt and furious about the default, or someone with a shitload of cash.

The major holder of US debt is… the US government. Right, the major holder of US debt that is in a position to demand payments pronto is Japan, followed by China. Out of these, China is in a better position to throw its weight around.

Naturally, the prospect of China occupying Idaho or Nevada may not thrill the Americans, and they would be under pressure to sell to someone with a shitload of cash instead. Extrapolating from current trends, that would be… Apple. Steve Jobs has always been megalomaniac enough to want to own a country, but until now, it never looked like he actually would.

iDaho, iOwa, and iLlinois are on their way. We’re doomed.

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The SEBI-IRDA Fight

April 26, 2010

As a free market fundamentalist, it is embarrassing for me to admit that a regulator is doing a good job where the market has failed. However I am so pleased about how SEBI has taken on IRDA that I shall suppress my instincts and praise a regulator to the skies. Since this will mean unleashing my inner financial regulation geek, I shall do this in an easy question and answer format, so that even Nilu can understand what I am talking about.

Shortly before everyone’s attention was occupied by Shashi-Lalit-Sunanda and Sania-Shoaib, the SEBI had released an order barring insurers from issuing ULIPs. This got the insurers and the IRDA into a tizzy. Personally, I think this was awesome.

Wait, what does that even mean?

The SEBI (Security and Exchanges Board of India) is the semi-independent regulator of everything to do with financial markets in India. It sets the rules under which stock markets, commodity exchanges, and mutual funds operate. Technically, it regulates debt securities as well; but as Percy Mistry and Ajay Shah keep lamenting, India has no debt market to speak of.

A ULIP, or Unit Linked Insurance Product is a life insurance policy that doesn’t just give you life insurance cover but invests part of your premium payments into securities. It (claims to) therefore work as a savings and investment plan as well as a life insurance policy.

A ULIP is also pure evil. It is to consumer finance what the Chili’s Smokehouse Bacon Triple Cheese Big Mouth Burger with Jalapeno ranch dressing is to food. Actually, it’s worse, because the burger at least tastes decent. Compared to a normal life insurance policy, a ULIP gives you far less cover for the same premium – sometimes ten to twenty times less. As for the promise of investment, they deduct so much money for “administrative charges” that you might not even make the money you put in for six years at a time. There are other issues with ULIPs that make them terrible products, but that would make the post too long. If you’re interested, Deepak Shenoy has a post about how awful they are. Unfortunately, because the sales commissions on ULIPs are so high – that’s where the “administrative charges” go – insurance salespeople will keep trying to pitch you a ULIP unless you know what you’re looking for and actively demand traditional life insurance plans.

This year, the SEBI decided that enough was enough, and told insurance companies to stop coming up with new ULIPs unless SEBI approved them first.

It’s supposed to do that, right?

Ah, that’s the interesting bit. See, insurance companies are actually not regulated by SEBI, but by IRDA – the Insurance Regulatory and Development Authority. IRDA was very pissed off that SEBI is encroaching on its turf.

SEBI’s position was that since the investment portion of ULIP premiums is going into mutual funds run by the ULIPs, it needs to approve the mutual funds first. Specifically, it wanted to bring the administrative charges of ULIP funds into line with those that apply to regular mutual funds (it did a big overhaul of how mutual funds could deduct loads and charges last year).

So the situation was that two semi-independent regulators under the Ministry of Finance were fighting over who was in charge. Ajay Shah has a blogpost about how this is the outcome of not having overall financial regulators. I am far ruder than Ajay Shah, so I will make I-told-you-so noises about how this is what happens when the Finance Ministry doesn’t implement the Percy Mistry report – the one that, you know, it asked Percy Mistry to write.

What happened next?

There was a media circus about Sania Mirza and Shoaib Akhtar getting married.

No, no, I mean about the SEBI-IRDA smackdown.

Oh. Pranab Mukherjee told them to take it to the courts and get it sorted out over there. Professor Jayanth Varma was absolutely delighted about this, because past history shows that courts resolve disputes much faster than bureaucracy does. The BJP was much less delighted about this, and Arun Jaitley demanded to know why it was being taken to the courts and not being resolved by the Finance Minister himself. But now that they’ve got phone wiretaps to stall parliament over, we probably won’t hear anything about that again. It’s certainly disappeared from Google News search results.

Whatever happens next will happen in court now. But SEBI has a decent case.

Hee hee. You’re actually supporting a regulator.

Oddly enough, yes. Then again, I’m pretty gleeful about IRDA being pwned. So it evens out. I should also point out that IRDA represents a lot of what is wrong with regulation, both Indian and in general. It’s far more concerned about the welfare of insurance companies than insurance consumers, and about a month ago was actually running newspaper ads about the benefits of ULIPs. IRDA, not SEBI, should have cracked down on insurance companies about excessive charges and transparency.

On a less dogmatic and free market fundamentalist note, I like regulators who are heavily involved with creating the start conditions and rules of their market, and then creating a set of rules so good that the market can run by itself with minimal interference. I dislike the other extreme of regulation, where the regulator keeps getting involved with every little thing the market players do – think of a cricket match where the umpire doesn’t just call no balls and wides, but tells the bowler how to do the run up before every ball. Over the past few years, SEBI has been moving to the space where it only addresses the rules. The RBI and IRDA are still very much in the micromanaging space.

So I think this particular spat is very exciting in that it will provide an impetus to move to the regulatory model I like.

Confession: I bought a ULIP myself six years ago. In my defence, I was a filthy undergrad at the time and knew no better. I exited it this March. Fortunately stock prices are so high right now (unreasonably so, in my opinion) that I was able to get back all the money I’d put in and then some. My mum had also bought a ULIP a couple of years after me, and that still hadn’t broken even the last time we’d checked.

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Size Does Matter

December 12, 2009

For small or mid-sized companies in India, especially manufacturers, it’s impossible to avoid government interference. Whether it’s the town and country department, or the electricity board, or the state industry ministry, or the central ministry which is in charge, everyone will demand some sort of cut or speed money or the other. It is a chronic pain in the corporate arse.

On the other hand, as Sainath keeps pointing out, if you’re a huge company like Reliance, then the government bends over backwards to please you for fear that you won’t invest and generate employment. It gives you free land, builds a road to your factory or airport, gives you excise holidays and suchlike.

The implication is that at some specific turnover between 100 crore rupees and 5000 crore rupees, the government stops harassing you and you start harassing the government. The exact figure is something that needs to be researched, but for obvious reasons, I think it should be called the Yakov Smirnoff turnover.

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What’s With Salman Khurshid?

October 10, 2009

In the past ten days Salman Khurshid has advocated a return to 1980s Comptroller of Capital Issues style pricing, and also done the headline-hogging complaint about Indian CEOs drawing too much pay. The CEO pay issue is truely bizarre and WTF, for a number of reasons, including:

  1. As Deepak Shenoy points out, Khurshid is currently getting free acco in a house that would rent out at 10 lakhs a month if it was on the market.
  2. US CEO compensation is an issue because half of Wall Street has been nationalised and so the government has a right to decide compensation policies. What the hell is the Indian government losing if CEOs are paid too much?
  3. As this Business Standard oped points out (link will decay eventually), it’s not even like Indian CEOs are paid obscene amounts (not only by global standards, but by Khurshid’s own standards). So what is the bogeyman of vulgar salaries that he’s raising? The true scandal occurs in the millions of small companies where the directors or majority partners siphon money out at the expense of minority shareholders and employees, as the Satyam issue showed us.
  4. And culturally, it’s not like Indians resent highly paid CEOs. They want to be highly paid CEOs. The mango man’s reaction to high pay is aspiration, not envy. So what vulgarity?

Forget all that. Even if Indian CEOs were paid obscene salaries, and Indians resented this, and Salman Khurshid wasn’t a sanctimonious arsehole living off the public trough, this is India, where we outperform the rest of the world when it comes to innovation in corruption and fiddling accounts. If there’s a salary cap on CEOs, does he really think companies won’t find a way to get the money to the CEOs off the books anyway? Gah.

Searching for a reason for this utter lunacy, I’ve come up with:

  • Salman Khurshid is a moron. This explanation has the benefit of fitting Hanlon’s Razor.
  • Salman Khurshid wants CEO salary to start getting paid out in black money and lots of manipulation in IPO issuing so that the amount of black money in the economy increases. After all black money is the lifeblood of the Congress party.
  • Salman Khurshid is trying to raise money from Indian businesses ahead of the Haryana and Maharashtra elections. “Nice salary package you have here. Shame if anything happened to it.”
  • The whole thing is not for the benefit of Indian CEOs, or the media, but for Sonia Gandhi, who Salman Khurshid is trying to impress by showing how quick he is to catch up with American trends.

Anything I’ve missed?

(Pssst: Sainath gets into the act too, and manages to not mention Vidarbha or the HDI. There’s hope yet.).

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Thatzwhy (Buffalo and Bangalore Edition)

May 30, 2009

The President of the United States, Mr Obama, recently announced that he would eliminate a notorious tax law loophole that rewarded companies for creating jobs in Bangalore and punished them for doing so in Buffalo. American corporations will no longer be able to get away with not paying tax on their income from foreign operations!

Unfortunately it turns out that the Canadians are determined to foil his plans. Toronto and Calgary have the lowest tax rates in G-7 countries, and American companies are expected reincorporate and shift their head offices over there. In effect, American companies will turn themselves into foreign subsidiaries of Canadian ones.

There should be strong regulations to prevent American companies from reincorporating themselves in other countries to run away from strong regulations.

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The New Government Gets to Work

May 29, 2009

My aunt who runs a hospital informed us today that the Central Government Health Scheme (the single payer health system for Indian central government employees) has mailed hospitals all over the country. It has informed the hospitals that they can no longer get away with continuous empanelment and lax standards. To remain empanelled with the CGHS, they must get accredited with the National Advisory Board for Hospitals.

So far, any private or charitable hospital could get empanelled with the CGHS. Once this was done, it would get an endless stream of central government employees as patients. It would then conduct say one test and one surgery, and send the CGHS a bill for ten tests and five surgeries. This is an example of how the corrupt private sector commits atrocities upon the government.

Fortunately as soon as the last date of campaigning ended, the CGHS moved to ensure that this disgusting state of affairs does not continue. Now all these hospitals will have to be accredited with the NABH. Since this is a long and complicated process, it will ensure that hospitals can no longer exploit the CGHS’s unwillingness or inability to audit and control the reimbursement process. Now at least some of the money they are making will return to CGHS officials to hasten and ensure the accreditation.

We are greatly fortunate that we are getting strong regulations in healthcare. It will ensure that the new health minister and his administration are able to raise the necessary funds.

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The Middle Class Apathy Myth

May 11, 2009

It’s pretty much an article of faith in India that the educated middle class doesn’t vote. (Some recent blogposts and articles that touch on this: Sainath, The Acorn and Great Bong) But this election is beginning to shake up that assumption.

Yes, the super-rich South Bombay had a 44% turnout rate, the lowest in Bombay. But Delhi’s most “middle” “class” constituency, New Delhi managed 56%, the highest in any Delhi constituency. But forget that. Patna had a turnout of 37%. Lucknow had 35%. Are Lucknow and Patna really full of middle class Barista-visiting dilettantes? According to Google’s Lok Sabha portal, New Delhi’s poverty rate is 15%, Lucknow’s is 18% and Patna Saheb’s is 49%. That means that at least half of New Delhi’s richer-than-poor voted, and at least a third of Patna’s poor didn’t.

I don’t think middle class apathy is a complete myth, but the Patna and New Delhi counterfactuals seem to show that blaming all low voter turnout on middle class apathy is not feasible. If someone ran the numbers, it could show that the urban poor too are disinclined to vote, or that middle class apathy is true in some constituencies or circumstances but not all of them. Just breaking the cliche would be a very worthwhile activity.

I think the cliche has two origins – the first is that middle class apathy is much more visible than the apathy of the poor simply because the middle class is much more visible. The second is that condescension and sanctimony are definitive Indian middle class traits, and talking about how you vote but everyone else in your class doesn’t allows you to express this very effectively.

By the way, I didn’t vote. But that was because my name wasn’t on the list even though I registered in time. How apathetic does that make me according to Sainath?

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Voting for WTFness

April 30, 2009

Although India’s mainstream political parties are WTF enough – banning computerisation, resisting improved diplomatic relations with the US, asking if loyalty to the Gandhi family counts for nothing, and thinking that a Ram temple is India’s greatest preoccupation come to mind – for true, diamond-hard, industrial strength WTF-ness you have to look at the fringe parties and candidates.

Starting with the Pyramid Party of India.

The name itself is weird enough and brings to mind Amway distributors or Ponzi schemes. But their Wikipedia entry (which seems to be self-written) helpfully informs us that their political agenda surpasses all expectations raised by the name:

The “ Pyramid Party of India ” is formed to transform all the People of India into meditators, enlightened persons, vegetarians and peace loving people during our current life-time itself through the methodology of the Electoral Process !

The Pyramid Party of India, formed in the year 1999, participated in the General Elections for the first time in the State of Andhra Pradesh in more than 50 constituencies and polled several hundreds of votes per constituency. Again, in the year 2004 it was General Elections time and again it was time to participate in the elections and to spread the twin concepts of vegetarianism and meditation. This time it was nearly a hundred constituencies ! And, thousands of votes were polled for the Pyramid Party per constituency !

…

The ancient Greek philosopher, Socrates, firmly believed that the best form of government was one ruled by an individual possessing the greatest ability, knowledge, and virtue. And, the highest knowledge is possessed by that individual who truly knows himself. This knowledge constitutes ultimate wisdom. It enables man to act in a virtuous manner at all times, because he knows what will bring him true happiness. And the highest good for any human being is happiness.

This essential Socratic Teaching is the Founding Theme for the “Pyramid Party of India” conceptualized for the first time in the year 1998 by Brahmarshi Patriji and actualized in the year 1999 by the PSSM.

Wow. But let’s not forget about the Humanist Party of India. They plan to put the mass media at the service of the cultural debate, ban authoritarianism, compulsion and separation of sexes, leave the discriminatory WTO, nationalise foreign banking and commerce, and eliminate hospital fees. On the other hand, they also plan to give land and agricultural rights to tribals and farmers, which is a start.

My favourite, though, is the independent candidate from South Delhi BP Pandey. According to the short Hindustan Times writeup on Mr Pandey (can’t find it online anywhere), he believes that all that is wrong with India today is happening because the gods have abandoned it. Therefore, if elected he will win back the favour of the gods and free Indian from demonic influence by building 108 temples.

This is magnificent. I wonder if BP Pandey is a relative of Acharya Somuchidononanda Pandey. I appeal to Mayank Austen Soofi to provide a great service to humanity and interview BP Pandey as soon as possible. Inquiring minds want to know more about this great man.

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