Japan in India

Amongst the several national themes that kept our minds busy, “Japan in India” is one that appeared consistently throughout legs 1 and 2, and would at times surface when we least expected it. Aside from the routine Honda car showroom, Sony outlets, and Yamaha motorcycles parked outside nearly every dhaba/tea vendor we visited, the presence of Japanese companies and culture in India is palpable.

During our visit to Ludhiana (India’s manufacturing hub) in Leg 1, we were fortunate to have visited the factory of Rajnish International, which specializes in the manufacturing and export of diesel fuel injection spares and other components for the auto industry. While Rajnish takes pride in having developed the vast majority of its production technology in-house, we were shown one Fanuc machine that performs an aspect of the steel cutting process that is too intricate for the domestic technology.

in-house technology at Rajnish Int'l

Fast forward to our trip to Kolkata, where we visited the manufacturing facility of formal menswear brand, Success, and learned that all of their polyester is imported from Teijin Fibers. The Japanese textile manufacturer’s product is described as superior to its cheaper Chinese counterparts in fabric quality and dye (particularly black), and this gives Teijin its edge. In Aizawl, we spotted DVD’s of Japanese soap operas being sold on the street (although Korean dramas were more popular) and L&T-Komatsu construction equipment at work on the road from the airport to the hotel. In Bodhgaya, we visited Japanese shrines and encountered several hotels and restaurants with signs catered to the hoards of Japanese tourists. Even at home in Mumbai, TATA Hitachi machinery can often be seen at construction sites and the annoyingly catchy tune of TATA DoCoMo ads has us reaching for our remotes during commercial breaks.

Japanese sign in Bodhgaya

Komatsu building Mizoram

Aside from private ventures, projects are being undertaken on a government-level to strengthen economic ties: the USD 90 billion Delhi-Mumbai Industrial Corridor being in the spotlight. In September 2009, the Indian Union Cabinet approved an INR 17,700 crore (USD 3.7 billion) conditional loan from Japan to help build the western arm of the corridor. The condition is simple: give the biggest contracts to Japanese companies. As mint points out, the conditions officially state that 1/3 of the total contracts must go to Japanese firms. However, if India uses Japanese equipment to build a part of the corridor, chances are high that it will have to use Japanese equipment to build the whole thing.

Map of the DMIC, source: delhimumbaiindustrialcorridor.com

In Delhi, we were lucky to meet with Amitabh Kant, Principal Secretary & Special Commissioner, Industries (Government of Kerala) and CEO of the DMIC.  He articulated that the project will be managed by an entity resembling a private company, which will effectively streamline the entire investment process for Japanese companies looking to be a part of the project. This is comforting when picturing a scenario where Japanese delegates and their interpreters have to struggle with local agencies for land acquisition rights or a consistent supply of power and water.

The DMIC will certainly serve as a cornerstone of the economic relationship between the two countries, as mint anticipates it will attract new investments of ~USD 50 billion and create jobs along the corridor for several years. While it took slightly longer to hit news pages in Japan, the project finally received coverage in the Nikkei this month and is gradually gathering excitement in the Far East.

Yukio Hatoyama with Manmohan Singh in Dec. 2009, source: thehindu.com

As Japan copes with soon becoming the world’s number 3 economy, the need to maintain a close economic relationship with India will only get stronger. Demographically, India is the dream partner for a graying Japan who has slowly but surely been running out of gas. On the flip side, Japan has the organizational and technical expertise to create the infrastructural foundation that India needs to reach the next stage of its development. The hope is that more private ventures and projects like the DMIC are implemented and that politics do not get in the way of what can evolve into one of the world’s most powerful and lucrative economic partnerships.

Fuel For Our Country

The Vidarbha region in eastern Maharashtra, along with parts of Chhattisgarh, Orissa and Jharkhand, is extremely rich in natural resources, particularly coal and iron ore. Chandrapur, known as the “Black Diamond” city, has developed around these mines and is considered to be the most polluted city the world[1] – we could attest to that unenviable tag. We noticed the roads leading up to and from the city to be terrible, mainly a result of the umpteen trucks filled with coal, iron ore and timber (the Ballarpur paper mill is nearby) that ply these roads. Had rail connectivity been able to handle the volumes generated by these industries, maybe the situation wouldn’t have been so bad.

The underground coal mine we visited has been run by Coal India since 1968, which has confirmed reserves for the next 100 years. Most of the coal mined from here is used in the local industries and power plants. The site itself doesn’t seem to have changed in the last 40 years, and the elevator that took us down 170m wasn’t for the faint-hearted. Trolleys carrying the mined coal have dedicated tracks on both sides, with a narrow walking path through the middle. Communication with other workers on the site and managers above is done through an antiquated system (probably with some divine assistance, as shown below).

In spite of the gods

The manager who took us around the mine declared that the quality of the coal was comparable to that mined in some of the best Australian sites, with high calorific content. However, the mine has been running losses for a few years now, mainly due to high operating costs. This can be attributed to lower productivity rates, both in labor and capital (limited technology use), essential components of the Solow growth model. We witnessed the laggard labor productivity first hand during the hour we spent in the mine, and the manager rightly lamented that the day’s tonnage target will probably not be met, yet again.

Coal mining is a very hazardous job and as a result daily wages can reach upto Rs.1000/day (compared to Rs.120/day for other labor). Health concerns such as asthma, bronchitis and life expectancy notwithstanding, this is a “get rich quickly” occupation, which was also apparent when we spoke with a young miner who said his life would be made after a few years. Incidentally, during our train ride to Patna this had come up in conversation with Chotey, and he mentioned that some of his friends work in these mines but he didn’t want to due to the health issues involved. India’s dependence on coal as a source of power[2] and the demands we will face is no secret. For the sake of uninterrupted industrialization, there is no knee-jerk solution to substituting this fossil fuel. However, this doesn’t absolve us of our responsibility to develop clean, renewable fuels so that coal could one day join the club of “has beens”.

---

[1] Its ppm level is 924 micrograms, compared to a normal/healthy level of 100 worldwide

[2] Coal based power plants contribute ~63% of India’s power requirements

Meeting the Bihar Government

RCP Singh

Mr. Singh is the Principal Secretary of Bihar. He has immense responsibility on his shoulders as he is responsible for executing the state government’s plans. We met him at his chamber which is located next to the chief minister’s office.

When we walked into his office, Mr. Singh was sitting with members of a tribal group who had come in with a list of demands. The CM is due to visit their village in a month and is likely to announce a set of steps aimed at economically empowering the community. Listening to the conversation, we learnt about various interesting facets of the state and got a sense of the precepts of the Bihar government.

Cash Transfers

The government of Bihar believes in direct cash transfers to the beneficiaries of a proposed scheme. It trusts the people more than the bureaucracy and believes that leakage is minimized as a result of this practice. According to Mr. Singh, there is a 10-15% chance of misuse of funds when such transfers take place and this outcome is better than relying on governmental agencies for procurement or dissemination of goods. He highlighted the success of 2 schemes as a testament to his mantra – the ‘Bicycles for Girls’ scheme and the ‘Uniforms for Girls’ scheme. Girls aged 11 and upwards are given money for procurement of a bicycle and school uniforms. This has, apparently, reduced dropout rates among girls by alleviating the financial burden on their families.

How Footballs Are Changing Lives

According to the villagers and Mr. Singh, football has had a transformational impact on certain youngsters in the state. In Mr. Singh’s words, “1 football keeps 2 dozen young men busy.” In the absence of a recreational activity that keeps them gainfully occupied, these men would have been vulnerable to Naxalism – an epidemic in this part of the country. The game does a world of good to their stamina and induces them to apply for positions in the Indian Army and other security forces. A number of young tribals in the region have chosen law enforcement over agriculture as their profession. In fact, while we were in Kashmir, we had met a young tribal jawaan from Jharkhand. The government is planning to endow a number of villages with the necessary equipment for them to enjoy the game.

This, we think, is an amazing story of a small investment having a tremendous impact.   

NREGS

While in Punjab, we had heard industrialists lamenting the loss of cheap labor from states like Bihar and UP. They blamed NREGS for their loss. Accordingly, we were hoping to find NREGS eulogies in Bihar. To our surprise, we were told that NREGS has, in fact, not been as effective as it is made out to be, due to leakages in the elusive ‘system.’ Wage rates in Bihar are as high as INR 150, corroborated by our conversation with Chotey, our mason friend. Demand for labor – both skilled and unskilled – has risen in the recent past due to the infrastructural work in progress. Thus, the migrant labor pool has shrunk.

Law & Order

Mr. Singh also informed us about the CM’s Durbar, which has been a cornerstone initiative of the government led by Nitish Kumar. Every Monday, the chief minister meets citizens of his state and listens to their complaints. Each Monday has a different theme ranging from law and order to health to infrastructure. Officials from the concerned departments are encouraged to attend the durbar so that the process of resolution of matters is kick-started. It appears that this been a great learning exercise for the administration since it notifies the officials of the systemic issues that need attention.

According to Mr. Singh, the greatest numbers of grievances come in on the first Monday of every month when law and order problems are entertained. Hence, the government has focused on resolving issues related to law order ever since it came into power. It boasts of a robust speedy trial system which has convicted wrongdoers at a record pace. This seemed like a reasonable way to address the multifaceted problems of Bihar as sound law and order is a prerequisite to any sort of economic activity.

Nitish Kumar

We got a chance to meet the chief minister himself, albeit briefly. He beamed with avuncular pride as we explained our travels. He appreciated the initiative and spoke about the cultural affinity that Indians tend to have with the railways. As opposed to the ex-chief minister, Laloo Yadav, Mr. Kumar was genuinely interested in our story and gave us his undivided attention. He was very approving of our idea to blog our experiences. Here he cited the example of Xuanzang who recorded his visit to Nalanda. That account has been extremely helpful in understanding one of the world’s oldest universities. The chief minister urged us to visit the Patna museum and the Khuda Bakhsh library, 2 stellar monuments.

After meeting the 2 most important figures of the Bihar government, we certainly felt that they are sincere about fixing the state. It is difficult to ascertain the effectiveness of their actions. For that we’ll have to wait till the assembly elections which will be held next year.

Jamshedpur

Jamshedpur, named after the scion of the Tata family Jamsetji Nusserwanji Tata, is the township created around their flagship TATA Steel factory in Jharkhand. Established in the early part of the 20^th century after clearing out dense forest, this location provided easy access to the abundant iron ore deposits present in the nearby districts. The city is well endowed with a large public park, sprawling accommodations for its employees, a zoo and even an amusement park. Conversations with employees/affiliates reinforced our belief that the TATA management has taken great care in providing for its employees. Today, ~80% of the city’s population is connected to the steel works plant.

Our first stop in the city was the Russi Mody Center for Excellence. This serves as a center where professional institutions[i] from various business fields have their regional offices. The center has exhibition halls dedicated to J.N. and J.R.D Tata’s achievements, the former providing the foreground for India’s industrialization process. In addition, it also houses corporate India’s first business archives, right from the company registration documents in 1904. Designed by the well known architect Hafeez Contractor, this complex is supposed to be an elegant blend of international edifices such as the Colosseum and Hanging Gardens of Babylon, with a rare and enviable collection of paintings by M.F. Husain.

Registration document for TATA Steel

M.F. Husain's painting

Next, we were given a brief tour of the steel plant, which covers an area of 24 square km and provides the city its skyline. Currently producing 6.5m tons of steel per annum, the plant employs a total of ~45,000[ii] employees. The environment lends itself as a city buzzing in activity with bikers, cyclists and cars moving from one part of the plant to the other. It also has its own locomotive tracks to transport slag and other materials. We observed three different parts of the process: a) Washing the iron ore and smelting it into slag b) hot pressing the slag and turning it into a coil and c) galvanizing and cold rolling, where elements such as zinc are added to prevent rusting. Among the many uses that steel produced in this factory has seen range from the Howrah bridge in Calcutta to that used in the construction of facilities for the Beijing Olympics. The plant was no doubt an exceptional industrial achievement and with the history that comes with it, makes for something we should be proud of.

Tribes form an important part of the Jharkhand economy, and it is predominantly in their surroundings that the abundant natural resources of the state are found. Even today, industrialists grapple with the government over land acquisition and rights of tribal populations. The TATA group has been doing its part in helping the tribal economy to develop and integrate with mainstream society. The Tribal Cultural Center was set up with this purpose in mind, and to help spread awareness of their way of life. Very professionally designed and informative, this is definitely a stop on the itinerary of visitors of the plant.

Tribal Cultural Centre

Re-creation of tribal hut

Another aspect of TATA’s social action plan includes the Community Development Center, addressing social issues in urban areas. We met with Mr. Ranjit Bhattacharya, head of the center and a national level powerlifter (and self-proclaimed actor, director and songwriter). Among the activities conducted include vocational courses, skills development (e.g. computers) and socially relevant training. Himself a sportsman, he also places a large emphasis on sports such as volleyball, football, cricket, weightlifting and basketball. Apparently MS Dhoni[iii] has also used Jamshedpur’s extensive sports facilities for his training, which are considered second only to Calcutta in the East. Our conversation slowly drifted to the killing of other sports by cricket, to a torrent on Alok for not speaking Hindi to jokes on marriage (sprinkled with mimics of Japanese shop owners and Shammi Kapoor impersonations, and other highlights not suitable for this blog). One of the most colourful personalities on our travels so far, it is in search of people like him that we are exploring the country.

---

[i] E.g. Institute of Chartered Accountants, Indian Institute of Industrial Technology

 

[ii] This is down from 70,000 a few years back, mainly due to automated technologies

[iii] This anecdote had a clear tone of distaste to it, as Mr. Bhattacharya said “he (Dhoni) has forgotten his roots. You boys, on the other hand, should never forget your roots”

Temple Visits in Orissa

To complete our visit to Orissa, we dedicated a day to visiting the Konark ruins and the Jagannath temple. The ruins of Konark, one of the 4 sun temples in India, are located ~65km outside of Bhubaneshwar on the road to Puri. While a guide is helpful for explaining the history behind the construction/destruction of the temple, this information can also be found easily on Wikipedia. What we found fascinating were the intricate, and graphic, carvings on the temple walls.

The Konark temple ruin

The enormous wheels that border the temple were geometrically designed as timetables- depicting what people should be doing at different times of the day under social norms. Most of the other 100’s of carvings on the walls had one defining feature in common- they were all depiction of the kama sutra. A barrage of positions will keep you engaged as you stroll around the main structure, and a guide would be able to provide interesting insight as some may be difficult to decipher. The morning, mid-day, and evening sun gods overlook the grounds, and each is given the spotlight during his respective hour while you find the others in the shade. The geometrical precision and cultural boldness in the carvings make for an eye-opening spiritual/historical experience.

Konark wheel in midday shadow

Polygamy

The Jagannath temple, located in the city of Puri[1], is more aligned with what we are used to seeing in Hindu places of worship. We left our cameras and phones in the car, because photography is prohibited, and headed up the 2km road to the temple on rickshaws. The shrewd locals have capitalized on this being one of the most popular religious destinations in the world, erecting dharamsalas lining both sides of the road. Later that evening, the city market was buzzing with a peculiar energy. Fish vendors, local pujas, rickshaw wallahs and snack stalls were all in action, while an old-fashioned cremation was taking place just off the road. Everyone was spending money in some way or another and contributing to the unofficial “C” that is not reflected in India’s GDP. This sparked thoughts on the suffocating grip that religion holds over the Indian economy…

What would happen if a Prime Minister ever announced that s/he was an atheist?

Can the number of religious holidays/occasions ever be curbed in the interest of productivity?

What is the country’s ratio of temples to schools or hospitals?

…Just food for thought

Puri- the Goa of East India

---

[1] Puri is also home to one of India’s cleanest beaches (comparable to Goa), where dolphins are occasionally spotted.

Raghurajpur — The Village of Artists

On our way back from Puri to Bhubaneshwar, we decided to take a short detour to Raghurajpur-known as the village of artists. Inspired by Dr. Jagannath Mohapatra, every household in the village is engaged in some form of craftsmanship. The vibrant colors and the laid-back atmosphere were inviting, and the villagers were eager to show us their work. As we sat down with the artists, they discussed the philosophy behind their art while also pushing their merchandise.

The villagers cultivate their innate interest in art from an early age in order to develop the handicraft economy and promote eco-tourism. Their materials are 100% organic as the colors used are extracted from sea shells, stones and plants, while the fabric is generally made of palm. In addition, each household holds expertise in a distinct art-form and has a unique style. For example, the first house we visited specializes in intricately designed bookmarks (which make for great gifts), while the last house offered an elaborate beer cooler made from the shell of a coconut. This distinctiveness has given birth to a healthy, competitive market.

At the conclusion of our visit, a local explained that during peak season, foreigners visit the village nearly every day. He has also set up accommodation for such tourists to immerse themselves in the “real” Orissa for a few days and interact with the villagers. This is a heartening example of a society that is capitalizing on their natural abilities to generate revenue for the state and promote a different form of tourism.

Thoughts on NREGS

One of the studies we’ve been performing nationally is a practical review of the implementation, and impact, of NREGS – considered the UPA’s flagship scheme. We’ve found that the plan has evoked all sorts of reactions: praise in Rajasthan, inapplicability in Gujarat, censure in Punjab and constructive criticism in Kashmir. Writing in the Indian Express, Ashwani Kumar avows:

The truth is that the fate of NREGA and democracy in India are intertwined. In fact, NREGA is locked in an eccentric paradox: its promise to secure rural livelihood is embedded in the decentralization of state power, but its implementation is unfortunately driven by a multilayered, centralized, bureaucratic mode of governance.

Dr. Kumar’s assertion is in line with our findings. After having toured 14 Indian states thus far, we are of the opinion that micromanagement of schemes such as this must be the district’s prerogative. The needs of every region are diverse and having a restrictive, centralized structure inhibits the right kind of realization. The difference between a relatively successful NRHM and an evolving NREGS is the manner in which it is executed.

The entrepreneurial energy of the districts must be given a chance to flourish. This necessitates a move from autocratic implementation to accountable allocation. What we are thinking is fundamental: more power to the people.

Dinner with Himanta Biswa Sarma

Upon arrival in Guwahati, we noticed a barrage of modern ambulances with NRHM (National Rural Health Mission) logos imprinted on their side. A drive through Assam also revealed that NRHM has been well advertised in the state. In Sibsagar, we visited the civil hospital and noticed that the scheme was also being effectively implemented. In addition to being one of the most hygienic and orderly hospitals we have seen, doctors were attending to patients and medicines were being provided free of cost. We learnt that all this was made possible by Dr. Himanta Biswa Sarma, Assam’s Health, IT (Information Technology) and GMDA (Guwahati Metropolitan Development Authority) Minister.

While in Tezpur, our local host thought that it would be a good idea for us to meet Dr. Sarma, who is considered Assam’s most dynamic young leader. We wrote to him, introducing ourselves as a group of students exploring the country. He responded within 48 hours, promising to meet us after returning to Guwahati. Such responsiveness is generally uncharacteristic of a politician.

We were invited to his residence for dinner which was preceded by a long conversation in his work chamber. We began by asking him about his role in implementing NRHM across Assam. He told us that the successful execution was a result of district level planning, an inherent feature of the policy. He talked about India’s heterogeneity and told us that in order for a scheme to be successful, mandates can be national but states must be given entrepreneurial leeway in execution[1]. He also credited his team for looking after the micromanagement of the program. Dr. Sarma stated that he provides the vision[2] but responsibility and accountability are shared by the team.

We proceeded to ask him about his role as the GDD Minister. Dr. Sarma is not in favor of urbanization at the cost of agriculture. He lamented that agriculture is losing its prestige/importance and that in order for India to embark on a path of sustainable economic development, more Green Revolutions are needed. He spoke of Punjab as a showcase state which had benefitted from the introduction of advanced agricultural techniques, and where farmers have social clout. He longs for a day when the agricultural domain is considered prestigious enough for a father to get his daughter married to an agriculturist.

We also asked Dr. Sarma to shed some light on the subject of illegal immigration from Bangladesh into India. He urged us to consider the social impact of such migration (in the form of religious imbalance) in the long run, as opposed to the short term economic impact. According to him, Assam needs labor from outside the state as there are not enough locals available for low-skill jobs. He also thinks that the issue is not limited to Assam anymore as Bangladeshis travel to other parts of the country for work.

Dr. Sarma concerns himself with the attitude of the Assamese people. His mission is to transform the lackadaisical mindset of the local into an energetic and optimistic one. He believes in youthful enthusiasm and sees it as a game-changer in contemporary India. He travels extensively in order to familiarize himself with best practices in other regions. The conversation also revealed that he surfs the internet regularly and is an avid reader, especially of his critics. Watch out for this young leader who lends the political class much needed positivity.

---

[1] Here he suggested that policymakers from the southern part of the country are better equipped to design policy due to their preference for a decentralized form of governance as opposed to an overarching federal structure.

[2] According to him, those below 40 are the doers while the 40 plus generation is responsible for leadership and vision.

Auctions in Assam — Crony Capitalism

In Assam, business owners and traders have the option to participate in government auctions in order to source raw materials at a relatively low cost. Different government departments (army, railways, power, telecom etc.) hold these auctions to dispose off excess waste/scrap material, and for some, it turns out to be a significant source of revenue. For hazardous materials, the system requires participants to obtain certification from the central government in order to participate; i.e. only a registered lead smelter can bid for waste batteries from the government.

Auction Format

The format is that of an on-the-floor 1st-price auction, where a reserve price, R, is set by the hosting department. The highest bidder wins and pays a price, P, which is equal to his bid, given that the bid exceeds R. Officially, departments determine R by looking at market prices of the goods and set R < market price. However, since this can be tiresome for the government bodies when dealing with hundreds of goods, they often just determine R arbitrarily by gauging demand, using the previously held R as a benchmark. For example, if in the previous auction for the same good, R was INR30 and the good sold for INR50, the department is likely to set the next R > INR30 to take advantage of this demand.

Corruption in the System

While this system is designed to supply all business owners with cheap raw materials and to minimize waste amongst government departments, the local mafia groups (syndicates) are corrupting the system. Syndicates are groups of people with substantial influence in various departments of the government, who prevent the auctions from functioning fairly. These groups forcibly prevent local traders and business owners from participating in various auctions, and therefore, have control over the prices. With extensive experience they are able to estimate the reserve price before the auction is held, and then do not compete with each other during the official auction.

After the syndicate buys the goods, they meet privately to hold an unofficial auction. Here, members of the syndicate compete with each other, and then split the profits evenly after all the goods are exchanged. So technically, a syndicate member who does not actively participate in either auction will make money through this system. Finally, after the unofficial auction, the individual winners proceed to sell the goods in the market at a high price or use them in their independent scrap-dealing businesses.

Getting around the System

Our friend and local host, Rishi Todi, has a lead smelting business in Guwahati, Assam and has experienced this system first hand when trying to participate in an auction for waste batteries held by the railways department. Knowing that it was a complicated and risky process, Rishi visited a Railway official in Assam beforehand for advice on how to participate in such an auction. The official gave him a run-down of the system, and explained that the government is fully aware of the fact that syndicates are controlling the prices at departmental auctions. He then advised Rishi to meet privately with a member of the syndicate before the auction to reach an agreement to procure the batteries. The official even provided Rishi with a contact inside the syndicate. In making deal with a syndicate member before the auction, one would tell the member the maximum price at which he would buy the batteries. Then, the syndicate member would try to win the unofficial auction at a price lower than his buyer’s maximum price in order to sell it to him at a profit.

Rishi at his lead smelting factory

Conclusion

Auctions in Assam are a prime example of crony capitalism. They illustrate how intertwined bureaucracy, business and corruption are in India. In this case, both the government and the entrepreneurs are trying to create efficient markets, but independent syndicates are asserting their power over both entities. The tragedy is that either the government officials find themselves helpless in the face of these local gangsters, or that they are enjoying a mutually beneficial relationship with them under the table. In both cases, it is the entrepreneurs who are losing – the only group of people who have the ability to generate the employment and economic activity that the country needs.

Paddy Cultivation Revisited: Drought-proofing

After touring Punjab, we had written (1,2) about the negative externalities associated with paddy cultivation. Normally, 3,000 — 5,000 litres of water are needed to produce a kilogramme of rice. We inferred that this level of water usage is unsustainable (this is reflected by a depleting water table). In a column in the Business Standard, Surinder Sud covers a potential solution to the problem in the form of  “aerobic rice cultivation”.

This is exactly the kind of technological innovation that is needed to curb the painful wastage of water associated with growing rice in India. According to Sud, the water saved using this technique can equal a fourth of all the water used in Asia. It seems that China had the method figured out in 2002 and that Pakistan was contemplating a similar practice in 2005.

Conversation with Narendra Modi, Chief Minister of Gujarat

We contacted Narendra Modi’s office on Monday, introducing ourselves as recent graduates from US colleges on an all-India tour. We received a meeting confirmation 2 days later. It was clear that Modi enjoys meeting young people, and the efficiency of his office was representative of the state of Gujarat as a whole.

What Sets Gujarat Apart?

The meeting began with Modi explaining what sets Gujarat apart from the rest of India. Firstly, his policy-driven approach to governance allows businesses to run with minimal interference, so long as they operate within the clearly prescribed rules and regulations set forth by the state government. Secondly, maintaining 24-hour power supply to every household and business across the state has always been a top priority (Gujarat was the only state where we didn’t experience a single power cut). He is also currently working on spreading broadband connectivity across the rural villages of the state. Thirdly, Gujarat’s implementation of the National Highway Authority of India’s (NHAI) schemes has been more effective than other states. These are some of the drivers behind Gujarat’s unrivaled intra-state road connectivity and infrastructure.

The DMIC and GIFT

The Delhi-Mumbai Industrial Corridor (DMIC) is a large-scale national project which will likely shape the country’s economic future as it is implemented. Modi believes that Gujarat will be a key beneficiary of the project. He also holds a positive outlook on its feasibility- so much so that he has commissioned the erection of 9 state highways (which are already built) in support of the corridor.

Gujarat International Finance Tec-City (GIFT) is Modi’s baby. We were shown a premium quality coffee table book on the project as he explained its place in the future of Gujarat. His vision is to make a financial hub of international standards in India. Gujarat would be a natural birthplace for such a project as it houses the highest number of Chartered Accountants in the country and is a breeding ground for people who are interested in financial services. If all goes as planned, we envision GIFT turning into the financial hub of India, in spite of Mumbai being the official financial capital (like how Hong Kong is China’s financial hub, in spite of Shanghai being the official financial capital).

Graphic design of GIFT skyline

Constant Learning

When asked what the rest of India should learn from Gujarat, Modi instead chose to talk about what Gujarat learns from the rest of the country. He explained that if he notices anything working successfully in other states (be it in public works, the arts or education), he immediately sends a 10-person team there to understand the strategy. Modi also routinely dispatches all his MLA’s to different states to learn about those states’ best practices and adapt them to Gujarat’s growth model.

Wrapping-up…

Modi runs a tight ship, and this has allowed him to build a state with road connectivity, power supply and infrastructure that is superior to any of the states we have covered so far. It is a combination of the CM’s leadership and the enterprising nature of the Gujarati people that has made the state what it is today. With such large-scale economic and financial projects underway, we expect to see it develop into a major commercial hub of the country.

Notes From Israma: Mineral Water Plant & NREGS

Reverse Osmosis Water Plant

After seeing the Amul operation at Israma, the sarpanch (head) of the village took us to a “mineral water plant” installed in the community. We learnt that an ex-resident of the village, who is now settled abroad, had donated an INR 250,000 reverse osmosis water plant to the community. Water from the plant is sold for INR 0.25/liter to the villagers who use it for all domestic purposes. Revenue generated from sales is used for maintenance. The low price makes clean water an affordable utility and reduces wastage of a precious resource. Moreover, the practice of making regular payments for utilities is a positive step towards good civic discipline. Lastly, clean water will reduce the incidence/spread of water-borne diseases. We thought this was a remarkable initiative which could be replicated in other villages across the country.

RO Plant Installed In Israma

NREGS

We learnt that the NREGS has not taken off in Israma. The numbers confirm this fact. 3 factors explain this phenomenon:

1. Literacy rates are high in the village and majority of the youth move to urban areas in search for skilled jobs.
2. Physical infrastructure in Gujarat is much better relative to other states in the country. Therefore, there is little (if any) need for locals to work on infrastructure projects.
3. Primary sector employment and opportunities to generate a supplementary income (think Amul) are abundant.

The Real Amul: Our Visit to Israma

Politics is outside the door of this collection center. Inside, it’s just business.

— Amul Society Supervisor

In order to fully understand (and appreciate) the Amul model, we visited Israma, a village in the Anand district of Gujarat. Milk collection at the designated centers takes place twice daily, at 6am and at 5.30pm. An Amul tanker arrives at the village at 10am to gather milk collected that morning and the previous evening. This tanker takes the stock to the Amul factory in Anand for pasteurization.

Milk Storage Tank At the Collection Center

We reached Israma at 6:30am and found that the collection process was under way. The fat content of the milk is checked by a masked officer who uses a digital instrument which is connected to a computer that runs Gujarati software. The villagers are paid every 5 days but have the option of taking daily payments. The center is supervised by a Society Chairman, elected at the local level by members of the co-operative. Israma has a total population of 2,500 and 360 co-operative members (nearly every family in the village is involved). Membership can be obtained by supplying 700 liters of milk or by contributing for 180 days (in addition to paying a fee of INR 10).

Collection Process

Villager pouring milk into collection bucket

The Israma collection center was established in 1965. Last year, it generated profits of INR 900,000 which were re-distributed among the villagers in direct proportion to their contribution. This center has an ISO standard which is reviewed annually. In order to meet the requirements, the center maintains its own scorecard and updates it every month. The unit also has a cattle feed storage room where 17kg sacks of mixed grains are stored. These are sold to farmers at a discounted price.

The ISO Certificate

Grain Storage At the Collection Center

1,100 such centers are spread across the Kaira and Anand districts of Gujarat. Most villagers in these districts are members of the co-operative as it is a robust secondary source of income. In times of drought, this option is no short of life-saving. Amul is working towards providing broadband internet to these centers.

This institution works on simple traits – trust and teamwork. The system is unique in that it provides incentive for each farmer to be diligent and maintain healthy cattle. The center is decorated with posters that educate villagers on how to provide optimal nutrition for their cows. It sets an example for efficiency, hygiene and solidarity. To see such a co-operative thrive was heartwarming, and we hope Amul’s presence in rural India continues to grow for years to come.

Amul (Anand Milk Union Ltd.)

We visited the headquarters of Amul (Asia’s largest food products company) in Anand, Gujarat, and spoke to the MD after touring the milk factory. Unlike other dairy product companies, Amul is a co-operative, wholly owned by thousands of villagers who become members by paying a fee of INR 10. These members are also Amul’s milk suppliers, selling their cattle’s milk to the company. They are paid in cash based on the fat content of the milk they sell. They also receive training on animal husbandry from the company and other welfare benefits. They democratically elect local representatives, who in turn select the firm’s board of directors. The entire retained profits of the firm’s activities thus go back to the villagers, in the form of development aid and/or dividends.

Demonstration of tech infrastructure in Amul lobby

The Amul initiative gives otherwise distressed farmers an opportunity to raise cash for daily sustenance. This cooperative has brought prosperity to the villages it operates in, and reduced farmer suicides, by providing them a second source of income. As advised by the MD of Amul, we plan to visit an ‘Amul village’ and get a true sense of the development that the organization has brought about on the ground level.

The Amul complex in Anand, Gujarat

We expected this unusual structure to make the management of the firm a little more challenging. We found out however, that the Board (comprising of ‘illiterate’ villagers) interfered little with the top management. The MD had several opportunities to expand, take on debt and make investments in technology even though this meant lower returns to the cooperative members. Also, political corruption/interference within the electoral procedures of Amul was limited, especially when compared to labor unions, university student councils and other democratic bodies in India.

Cow and milkman figurines in the waiting room

We were positively surprised by this level of efficiency, and walked out with a favorable impression of this ‘socialist’ organization, despite having been trained in America to think like die-hard capitalists.

Kota: The Cram Capital of India

Because of its history as an industrial town with prominent factories, like JK Synthetics, Kota was an ideal breeding ground for IIT coaching classes. Engineering aspirants have always been abundant, and the city itself is conducive to study due to the lack of distractions relative to the metros. The market for IIT coaching classes thus developed and one Prof. Bansal soon began administering mathematics tuitions for the IIT-JEE. Soon after, Pramod Maheshwari of Career Point started physics coaching classes. In a matter of a few years, test training centers sprang up all over Kota. Bansal and Maheshwari had the first mover advantage and developed a brand which attracted IIT hopefuls from across the country because they maintained a robust success rate. Since the criteria for admission into these classes were strict, they attracted the best of the best and a sample selection bias perpetuated their distinction.

We met Mr. Pramod Maheshwari and Mr. Pramod Bansal, CEOs of Career Point and Bansal Classes respectively and sought their thoughts on the history and prospects of the test training industry.  Mr. Maheshwari explained to us that education cannot be tested like a product; as a result ‘believability’ drives a customer’s decision to enroll in coaching classes. According to him, it is an industry that runs on trust. Coaching centers in Kota have managed to build and retain this trust but the city faces the risk of losing its charm if other educationalists build similar ‘believability’ elsewhere.

For both promoters their selection policy of admitting the best performing applicants (on their own entrance tests) into their academies justifies their success rate. As both firms began growing their capacity, they automatically lowered the bar for admissions, resulting in lower success rates. This strategy helped them prevent their competitors from becoming cash rich. Surplus cash would enable competitors to poach faculty members, the firms’ most valuable assets. Therefore, it seems that this model is not very scalable. As larger number of admissions will lower performance rates and plateau the growth of these firms, their reputation for excellence will also diminish.

Our conclusion: Kota is not a knowledge-development center. It is a site for test-prep and assistance in gaining admission into top-tier engineering colleges. In most cases, IIT aspirants do not need to enroll in the coaching classes because the Bansals and Career Points only admit applicants who they believe would get into IIT anyway. To their advantage, they exploit the rigid Indian parental tendency towards pushing their children into engineering/medicine colleges.

Follow-up: Paddy Cultivation

Previously, we wrote about the negative externality (in the form of water table depletion) associated with paddy cultivation in Punjab. Jyoti Kamal of CNN-IBN has covered the same story in Haryana.

Paddy Cultivation in Punjab: An Alternative View

Yesterday, an editorial in the Indian Express suggested that farmers in states like Punjab and Haryana have escaped the drought by switching to Basmati cultivation. It lauded the “foresight” of certain regional and national politicians who made strategic investments in irrigation and power. While it is true that these investments are now turning out to be nothing short of life-saving, the negative externalities associated with endowing every farmer with a water pumping set needs to be assessed. During our stay in Punjab, we found out that due to paddy cultivation, the water table in Punjab is falling by 20 feet every year. This is a major problem for a state whose residents rely on groundwater for drinking and whose industries are lamenting water shortage.

An Evening with the Zargars

Dr. Jaleel Ahsan Zargar, Lecturer in Philosophy at the Women’s College in Anantnag, hosted us during our trip to Salian in the Seer district of J&K. We discussed the Kashmir issue, topics on Islam, youth exposure to education, and NREGS.

Dr. Zargar and his brother, Qayoom Zargar, share their messages for us:

According to Mr. Qayoom Zargar:

1. The cap on 100 days of employment per annum should be removed.
2. Construction of sanitation facilities, bylanes should be part of the approved projects list.
3. Construction of rain water harvesting facilities should be encouraged under the scheme.
4. More than 1 member of every household should be allowed to work.
5. The spend ratio, labour:equipment (60:40), is too restrictive.

Ludhiana, NREGS, Dr. Montek Singh Ahluwalia

Our stay in Ludhiana revolved around multiple factory visits. In the richest district and most populous city of Punjab, we toured a small (Rajnish International), a medium (Avon Cycles) and a large manufacturing unit (Vardhman Spinning). We were fortunate enough to meet the proprietors of 2 of the 3 factories and seek their thoughts on business conditions in India. Specifically, we asked them about the impact of NREGS on their concern.

The Chairman of Rajnish International (an automotive components manufacturer), Mr. Rajnish Ahuja, spoke candidly about the ramifications of NREGS. According to him, the scheme epitomizes “political corruption.” He lamented the inadequate supply of labor from states like Uttar Pradesh and Bihar, which has led to a sharp escalation of wages. According to him, salaries for unskilled labour have gone up by 200-300% as a result of the scheme. This increase in labour costs has compelled him to consider a move towards a capital-intensive production chain. This was evident in the factory as we saw that most of the labour was employed for low skill jobs such as alignment, material moving or handling. Mr. Ahuja believes that the labour force has become lazy due to the availability of free money and has been given unfair bargaining power. For over a decade, he paid INR 2,000/month/head. Now, he must recalibrate that figure.

Outside almost every factory in Ludhiana, we saw ‘wanted’ posters soliciting skilled labour. Due to the pre-existing shortage of skilled manpower, coupled with consequences of NREGS, wages for skilled labour have also gone up. Since factories are cutting down on labour usage in production and are moving towards a more mechanized process, demand for skilled labour seems to have also increased. Again, business owners are slow, if not reluctant, to accept this change. This, we think, is neo-capitalism in India – labour is no longer inexpensive.

In Delhi, we met the Deputy Chairman of the Planning Commission, Dr. Montek Singh Ahluwalia, in order to seek his thoughts on NREGS. He sees the scheme as a “social security provision”, one that is not supposed to train people. When asked about the impact the scheme has had on the industrial sector in the form of a higher wage bill, he acknowledged that this was an intended, and even welcomed, consequence. He did acknowledge that the lack of long term skill development was a concern. About the restrictive approved projects list that NREGS beneficiaries and contractors have to abide by, Dr. Ahluwalia pointed to other public welfare schemes that address the relevant issues. Dr. Ahluwalia urged us to visit a dozen districts where the scheme is being implemented in order to check the actual progress of the programme. This, he felt, would be a meaningful study.

Conversation with Professor Nisar Ali

Nisar Ali:

–Chief coordinator, Post Graduate Centers, University of Kashmir

-Member of State Finance Commission

Professor Ali met with us for tea on a houseboat, where he discussed the economic history of Kashmir, as well as crises facing the region today. 2 important topics were inter-sectoral labour mobility and Kashmir’s inability to effectively tap its water resources for hydro-power.

Push Factors in the Labour Market:

Labour is divided into the primary, secondary and tertiary (services) sectors. Ali applied theories in conflict economics to show that push factors are leading the market towards crisis. Under healthy economic growth, labour generally transitions from the primary sector à secondary sector à services sector. However, Kashmir’s secondary sector has remained stagnant since the 1950s due to a lack of private investment (article 370 and political instability has limited Indian/foreign businesses from coming in). This results in labour getting pushed back from the secondary sector to the primary sector, which is already saturated with employment. Unemployment rises, workers lose bargaining power, wages fall, consumption decreases, prices suffer and so on.

Ali explained that if this first stage of crisis is not effectively addressed, the service sector will also fail to develop. This would result in a second push of labour from the services sector to the primary and secondary sectors. Ali refers to this second stage as explosive crisis, or “the point of no return.”

Water

Human capital and natural resources are abundant in Kashmir, but have not yet been tapped to reach a fraction of the region’s economic potential. There is enough Gypsum to supply all of Asia for 150 years. There is potential to generate 20,000MW of hydropower, enough to power the region and sell surplus to other countries for hefty returns. However, articles such as the 1960 Indus Waters Treaty are preventing such development from taking place. Under this international law, 6 river basins are divided between India and Pakistan. India was given rights over the Ravi, Beas and Satlug rivers (all run through Punjab), and Pakistan was given rights to the Chenab, Jhelum and Indus (all run through J&K). India has to seek Pakistani clearance for any infrastructural project involving the J&K rivers, and as a result, dams cannot be created to generate even 10% of the region’s potential in hydropower. A state that should be selling surplus power to neighboring regions is plagued by electricity shortages throughout the year.

The Rangarajan committee recommendations, if implemented, will end the Kashmir crisis. The Kashmir crisis stems from the power issue. –Professor Nisar Ali

A message to investors from Nisar Ali: