Aqua-nomy : Visualizing 'Water' through Strategic Lens

Newton in his 3rd law states that - 'For every action there is an equal and opposite reaction'.

We apply this law in every facet of human advancement but when it comes to nature we just seem to forget the essence of it.
Take the instance of 'water usage'. Water is the most important, most under-priced, most undervalued and easily accessible, of all the natural resources we have on planet 'Earth'. Since it is available in plenty, we have been unlimitedly exploiting it. So much so that, in our part of the world we seem to pay the due reverence to the 'Jal Devta' and 'Godess Ganga' only during Worships.

We are using water at a rate higher than its rate of replenishment. Our Industries don't hesitate to draw water from dams recklessly. Our farmers don't refrain from switching on the gen-set because power to them is absolutely free, diesel to them comes subsidized and there is no tax on drawing water from underground. Our urban citizens too don't really pay the real price of water. But this 'marginal gain' at one side is offset by the similar or in fact higher 'marginal losses' at the other side. The oil subsidy bill is one such example, that comprise costs accruing due to sheer extravagant usage of water and in turn ramps up the oil consumption.

Kids in our schools are taught that water is a renewable resource. But water is seemingly, getting finite. It's sources such as polar caps and glaciers are melting day by day. The excessive, unwarranted and free usage of water is making us pay that cost of water some-where else.

So, the question is that where then does the common man  pay the cost of water?  Well we pay the price of water on :

Vegetables and Fruits Prices 
Courtesy poor monsoon, the water is procured from underground water table using pumps. Consequently, due to declining water table, farmers need to dig deeper and water is pumped from deep inside earth. This increases energy consumption per hectare for the farmers and hence increases the cost to the farmer which in turn is passed on to the end consumer when the consumer purchases food grains, vegetables and fruits etc...

Electricity Costs 
Due to rising demand of water and receding water tables , water is transported from far-off places to the water starved localities. This long distance transportaion through pipelines soaks up lot of energy , which could have been used for some better purposes. Hence causing the electricity shortage .

Crude Oil Prices 
As we need more and more crops to feed our burgeoning population , we need more energy to draw water for our agriculture, consequently we need more oil . In a way, agriculture is converting oil into food. Urban consumers too rely on oil for water. Most cities are transporting water from far off sources. Electric generator sets, backed by diesel ones, pump water to the end consumers at a price that is rising with each hike in energy tariffs.
Water that trickles from our tap every morning has a high correlation with the crude oil docking at port.

Government Subsidies 
Due to erratic monsoon , the farm output decreases. This leads to lower contribution of agriculture to the GDP, consequently pulling down the overall GDP. Which pushes government to take some measures to instill confidence in the market, thereby it spends more of its tax collected in providing relief to farmers rather than investing in infrastructure and other employment generating opportunities.

Reduced Exports
Agriculture in India contributes over 10% to the national exports. Over drawing of water and unpredictable monsoon leads to imbalance in the water supply needed for agriculture and impacts the farm produce. Thus paucity of water impacts the agriculture production, and hence the exports, which ultimately impacts our Balance of payment.

What can be done therefore, to increase the SUPPLY of water?
Our industries suck up more than 50% of water from dams. So they need to lead the show, by consuming water economically. Our Government can help by rectifying leaking pipelines, using treated waste water for agriculture and industry, more fuel-efficient gen-sets. Our farmers can do their bit, by responsibly drawing water for their land and our urban population can assist by resorting to civilized usage of tap water.
Need of the hour is that we build as many Desalination (a technology which converts sea water into drinking water) Plants we can, along the coastal belts, that we are blessed with. More projects such as that in Minjur (Tamilnadu) or the upcoming one at Dahej (Gujarat), needs to be created on war level, so that more sweet water can be made available to industrial use.Middle east countries are mitigating their water crisis by investing in desalination. Today, Saudi Arabia uses 85% of water from the desalinated plants for the purpose of  irrigation.

On legislature front, requisite Water Policies should be rolled out of the parliament , which guides the consumers on its usage and price etc..

After all Water is Life. And we are playing with it......  Aren't we?

Source:  www.ghoshmalay.blogspot.in

- Malay Ghosh

Shadow Banking

As I write - Shanghai is going gung-ho on shadow banking via web, harnessing E-commerce to its best. A  significant chunk of unregulated $ 2.4 Trillion* market in China is eventually moving online.

 What specially caught my attention, when I researched further was, that this conduit of capital, is making up 25-30% of the World's Financial System. In 2010 itself, just before when governments world over started tightening their credit policies, the market was an estimated $ 60 trillion** , truly reflecting, the impact it has on the global economy.

To my thinking, China's spurt in such unorganized retail lending, points at 2 things for Asia:

 - First, it aptly validates the acuteness of credit shortage all across Asia. Post 2010, with an ever increasing tightening of credit, there has been a mass acceptance of such institutions primarily because of more hurdles and checks put by banks and at the same time, quick availability of desired credit from these shadow banks without any process hiccups.

- Second, it is a precursor to the future Asian Credit crisis. With the sudden surge of such institutions and hence, of such unorganized loans, the quantum of bad debts are bound to go up, as these institutions are not guided/governed or regulated by central bank. These toxic debts will eventually worsen the overall credit flow. That day may not be far then... when analysts and economists globe-over start envisaging Asian crisis, on the footprints of European or American credit defaults. 

However, shadow banking is not all that villainous... It offers customers a  wider array of choices, in terms of credit supply. These institutions can often provide credit, that is more cost-efficient than banks. And most importantly, to customer segment , who might not otherwise have such access, in a way, aiding respective governments, in their financial inclusion drive.

There are disadvantages though...  These institutions have the tendency to lure customers by doling out more rewards out of the investments, much more than banks, thereby increasing risks mounting in the financial system. On a more of illegal means of funding, these unregulated shadow institutions can be used to circumvent the strictly regulated mainstream banking system and therefore avoid rules designed to prevent financial crises. 

If we recall, it were these shadow banks sitting in tax havens, that created the real estate bubble during first few years of this millennium that jettisoned the world economy out of the safety zone and landing amidst the Financial Crisis which we are still struggling from...

 - Article written by Malay Ghosh, IPMX05 

*    Data picked from Economic Times, 25 July 2012.

 ** As reported by  Financial Stability Board  (a regulatory task force for the world's group of top 20 economies (G20).

Sab waqt ki hera pehri hai – Looming Currency War

“Currency war” (jargon made popular by Brazilian prime minister) has brought out three points very clearly:

1) Too much of everything is bad, even the money.

2) Hard hit every country has taken due to the recession and even the great USA, the most ardent proponent of free market now actually not interested in free market, ask President Obama.

3) With time everything changes including the needs and perception - earlier everybody was running behind capital but now no one wants it.

Third point is going to be the centre of attraction in the article.

The lines from the song “Sab waqt ki hera pheri hai” from the Bollywood movie Hera Pheri is becoming more and more apt with each passing day. These lines mean that with the time all needs and perception change. It were the emerging economies like Brazil, India etc which wanted to capital most in early 90s, and now they want none. Earlier emerging economies were running behind the capital. Now capital is running behind these economies. Who can forget the crisis India faced because of inadequate foreign exchange. It was blessing in disguise for sure because it caused India to open its market for the world and since then India has not looked back. The growth story is there for everybody to see. Clocking above 7% growth is no mean feat, ask USA but don’t ask China.

So suddenly what has happened that caused this war of currency. As usual whatever happens nowadays, it is because of recession root of this “war” is also in recession. Huge amount of money to the tune of 12 trillion dollars as per IMF estimates is pumped by the central governments in their respective economies to revive them. But as an old saying goes you can take horse up to lake to drink water, but you cannot make it drink. So even though money was pumped in the system, people and businesses were sceptical about the recovery and demand and hence demand for money didn’t increase in these economies. Returns nosedived in sync with dip in growth of the economy. The effect is two pronged. Manufactures have to search for market and hence exports become more and more important just not for China but also for every nation in the world as consumption in their economies is not reviving. Secondly investors (read speculators) started moving out of these economies looking for good returns and growth. Their search (Even Google was not required) landed them in developing economies market.

Problem arising out of excess capital inflow is also twofold. As money inflow increased, the country in which it started flowing in, its currency started appreciating making exports more and more uncompetitive. Cost of sterilization kept rising. Secondly markets started becoming more and more speculative and volatility increased as most the capital inflow is portfolio investment. Hence to tackle these problems governments started taking measures to stop appreciation of their currency. Like Brazil’s doubling of transaction tax on fixed income flows. These kinds of measures are being taken by China for years and it is able to keep its currency down artificially to keep up its export competitiveness. Problem now is that these kinds of measures are being taken by every other government. So if all government start taking steps to depreciate their currencies, it will trigger a downward spiral which may be detrimental for the growth revival in the world and everybody will be worse off. Question is in this game who will blink first.

Soon it will be Rime of an Investor – Money money everywhere not a penny to invest.

Dushyant Chaturvedi

Infrastructure in India - An opportunity

It takes just few minutes on a railway station in India to understand what it means when somebody says India lacks Infrastructure. No doubt India has to go a long way as far as achieving infrastructure revolution. The path will be very difficult and will require commitment not only from government but from every citizen of India. What citizens have to do with it? Isn’t building infrastructure government’s job? I think we the people of India now have to come out of this mould of leaving our issues to be resolved by some unknown hand of God. It has to be the society and people of India to come out and build the nation. It will be a painful process and the worst part of it is that those who are going to build it will not be able to enjoy its fruits. Every generation builds for the future generations and that is how nations are built.

Now after philosophy it is time for business. Economics sense says any rational investor will not take up that venture, which cannot provide economic returns. So is there profit in this market? Actually how big is the market? Is there really an opportunity? Well to answer these question just consider this fact that Indian’s eleventh five year plan envisaged Rs 20,00,000 crore requirement for infrastructure development in 5 years completing in 2012. So we are talking about a market which requires investment of tune to 9% of India’s GDP in five years. So at modest 10% return we are talking about Rs 2,00,000 crore profits over the five years i.e. 40,000 crore per year. There are not many industries who can boast of such returns. But are these returns sustainable? Definitely so if we consider the fact that above requirement is expected to remain so in the years to come with growing urban areas, development of rural areas and increasing population.

A back of the envelope analysis of the sector tells us that there are very favourable government policies to encourage investment. There is demand, which is heading north. Competition is yet not fierce. Users are too many and need the services. Suppliers are too eager to cater. So it seems that it is one of the most profitable sectors in India. But then the big question why investments are not coming up. Why it is still lagging?

Infrastructure projects generally require huge investment and generally affect large no. of people while implementation. Risk increases more so when we consider that generally these are long duration projects and for getting the returns investor may have to wait for years. The very nature and structure of this sector makes it a difficult sector to enter.

There are 2 major challenges in infrastructure projects at the moment:

1. Long term sustainable financing for these mega projects

           - It is easier to get the initial funding, but getting a sustained funding in long term is a challenge,

             which causes stoppage or delays in projects.
           - Sources of funds should be increased within the Indian economy. Currently, Banks are a major 

             source of funding. They themselves face liquidity issues in long term. Apart from Banks, other 

             financial institutions such as insurance companies should also come forward for financing.
           - Government issues infrastructure bonds for raising funds. Banks and other FIs can also look for 

             this option, though ICICI already follows this practice.
           - It is important to start generating some cash flows after some time, so as to keep the interest of 

             debtors in long term

       2. Execution Challenges

           - Land acquisition
           - Environment policies very confusing for the companies right now
           - Delays in approvals from government side

It is critical for the success of ventures to take care of above issues and create better models for implementation, models that achieve participation and support from public also. That will be most critical factor above all.

Otherwise years after years we will be standing on the same railways stations wondering why trains get late. And while waiting for the train we will be wondering why India lacks Infrastructure.

- Dushyant Chaturvedi and Rishi Khanna