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WHAT IS WRONG WITH US?
Monday, 17 January 2011
Adarsh becomes the right way in India today
Mood:  crushed out
Now Playing: Mumbai’s real estate symptomatic of corrupt polity
Topic: Corrupt Indians

Small real estate developers openly admit during business conferences that they have to earmark Rs 200 per square feet for bribing government officials for approvals. So when Maharashtra chief minister Prithivraj Chawan said that the builder-neta-bureaucrat nexus is out to sell the city to the highest bidder, people in the corporate world were not very surprised. Chawan was talking at the Global BITS alumni meet in Gurgaon.

The chief minister’s candidness comes in the wake of repeated scandals in

 Mumbai involving the highest officials in the government including former chief minister of Maharashtra Ashok Chawan. Even as the economy boomed Congress party found many of its veterans and local chieftains embroiled in multi-million dollar scandals.

Mumbai is a strange market for real estate developers from other parts of the country. There are real estate developers in Mumbai who are brazen enough to say that obtaining government approvals is the biggest uncertainty for any project, more than even acquiring land for real estate development. “In case of land acquisition for projects like private townships, the last patch of land is the only difficult part as the sellers know that they can quote as high price as ten times the market value. And the developer will cough up the money easily even as its impact on project costs is minimal. But when it comes to getting approvals from government and local bodies like state government departments, municipalities and gram panchayats there is no certainty if the approvals will come through at all if you don’t pay up in the auction-like rush for getting approvals. This is a reason why small real estate players who don’t have deep pockets for this kind of corruption, get weeded out”, said a developer recently at a seminar in Mumbai.

This also has given rise to new trends in real estate development in almost all metros, not just Mumbai. The rich and hence influential property developers have started to corner all the prime estates in mega cities, and because the corruption cost is so high that the developers can only build swanky high rises and luxury homes leaving little room for mid-income and lower income housing segment in the city.

Most of the real estate developers now fear that there will be no space for middle and lower-middle class population in the city. This could have even worse repercussions on city life as the infrastructure development, though much below the expected mark, would prove to be gravely inadequate to take the pressure of millions travelling by public transport system from far flung areas to the city for work. When the world over walk-to-work culture is building, the neta-builder-bureaucrat nexus in Mumbai is making people stay far away from their place of work.

Recently, a leading business journalist put it succinctly on Twitter, “Building

 brand New cities is answer to decongesting mumbai/ delhi etc. Won't happen cause builders (read netas) & financiers stand to lose… Govt won't allow new cities cause prices in metros will fall & it allows them to hike property cess, insurance, parking, tolls etc”.

The other industry demand that there should be a single window clearance for real estate development anywhere in the country will not come through as transparency will only reduce opportunities for government officials for corruption, even as the influential developers lobby for a status quo in policy making so that they can get things done by illegal means easily. What is dangerous is that such development makes town planning completely in favour of developers than on the societal needs.

Although chief minister of Maharashtra Prithivrao Chawan started off on a good wicket by sacking the state information commissioner Ramanand Tiwari, it will in all probability be a case of new brooms sweeping well. The High Command must have forced his hand to take some action to get rid of the party’s growing corruption taint.

“When you see colour think of us, and when you see corruption think of Congress” is an ad punchline senior BJP leader Arun Jaitley used recently in Delhi during a public meeting quoting from a paint company’s campaign on home interiors. Real estate sector, to which paint industry belong to, couldn’t agree more with Arun Jaitley.

****************


Posted by Anil Nair at 9:17 AM
Thursday, 13 January 2011
Has Pakistan become an impossible task?
Mood:  don't ask
Now Playing: Salman Taseer's death killed freedom
Topic: PAKISTAN'S DILEMMA
THE merciless killing of Governor of Pakistan’s Punjab province Salman Taseer did not come as a surprise just as he had himself said so on Twitter, almost on premonition in December 2010. The dastardly assassination of the high official reflects on several grave issues in Pakistan today. First, the security guard who killed him had been having a record of delinquency and was banned five months ago by a provincial police official from providing security to VIP personnel. Faisal Raza Abidi, special political adviser for Pakistan’s President told the media that the director inspector general of Punjab police had earlier barred Muhammad Mumtaz Qadri because of his extremist views, and it had been determined it was unsafe for him to guard important officials. Now the point that becomes moot, especially in a highly surcharged security enironment like Pakistan, is that how did Muhammad Mumtaz Qadri get a posting in the internal circle of security of an important person whose has been known for his straight talk on liberty and religion. 
 
Almost as predicted Muhammad Mumtaz Qadri killed Salman Taseer in broad daylight and leaving no chance for the Governor to survive the brutal attack. Most journalists who have been interacting with Taseer, including Christina Lamb, Sunday Times foreign correspondent and an unparalleled expert on Afghanistan and Pakistan, wrote about their exchanges with Taseer on various religious issues Pakistan is grappling with in the recent times. 

Intelligence agencies in Pakistan had warned officials in 2004 not to use Muhammad Mumtaz Qadri after they discovered connections between him and the religious group Dawat-e-Islami -- a Sunni group that claims it has a closer connection to Prophet Mohammed than other Muslims. The two main questions raised in international forums these days after the death of the governor of the Punjab province is that has religious zealots infiltrated the security systems in Pakistan quite irreversibly. Though India and Indian experts have always maintained that Pakistan as a country has been a moth-eaten state precisely because the power and influence of religion has been all-pervading to the extent that extremists have wide support base, the developments in recent history starting with the equally brutal killing of Wall Street Journal South Asian correspondent Daniel Pearl, have slowly made the West, and America in particular, see the truth as it is. 

Wikileaks by Julian Assange have confirmed America’s real understanding of the situation in South Asia and its master ploy to play along Pakistan to keep its interests secured -- all this even if President Barrack Obama’s officials in public forums talking about Pakistan’s ability to control the ever-increasing threat of religious extremism which will soon subsume the country, 
What would also come as a surprise for India is that the Western media is no more enamoured by the freedom struggle in Kashmir, which often resulted in tacit support for Pakistan in its coverage in the past. The American media has been recently making it amply clear that giving away Kashmir to Pakistan would only mean extending the extremism in Pakistan to the valley. The shut-up-or-be-shot-dead philosophy of the religious extremists which often gets correlated to terrorism all over the world, has found lesser and lesser takers in the West. The killing of the governor of Punjab province in Pakistan was about four Muslim women being served water by a Christian lady and the religious overtones of that snowballed into a major crisis and the arrest and death sentencing of the Christian lady Asia bibi. 

Governor Salman Taseer had spoken against the blasphemy law in Pakistan and its abrogation in keeping with modern, civilized tenets of legal system. His outspokenness attracted severe reproach from even the educated class in Pakistan. But the killing of the governor of Punjab province only proves that bringing back Pakistan from the brink will be an almost impossible task. Not even the West and the Americans believe that economic resurgence and inclusive growth can help matters.
 
**************** 

Posted by Anil Nair at 11:04 AM
Thursday, 6 January 2011
More than meets the eye
Mood:  caffeinated
Now Playing: Inflation has other reasons than the usual
Topic: ECONOMICS

The food inflation was pegged at 12.13 per cent in the previous week, but this is the fifth consecutive week when the price of food items has increased inexorably. During the same week last year too, with some active machanisation by a few Union Ministries like the Food and Agriculture, food inflation had touched 21.19 per cent. 

The strategy seems to be to obfuscate serious issues with another. If you watch news channels or read the front page of the newspapers, scandals after scandals running into lakhs of crores of rupees have occurred. Other than muted posturing the government seems to be unwilling to take any concrete steps. Asking the Union ministers found with their hand in the till is supposed to be the only action worthy of this government. 

And as seen in Maharashtra, ministers who resign on grave charges are brought back in active ministership or in any other similar political role after a few years in exile. Vilasrao Deshmukh, former Chief Minister of Maharashtra, who had resigned under a cloud for mismanagement during the Mumbai attacks by Pakistan-led terrorists, was back in the race for the post when Adarsh scandal broke out in Mumbai. On price rise issue, the larger scandals have completely relegated inflation to the back pages or after-the-break TV news. 

Onions had to be imported from Pakistan at a ridiculous price of Rs18 (inclusive of all the customs levies, cess and transportation costs). According to government data released on December 29, onions became costlier by 4.36 per cent (annualised), whereas on a week-on-week basis the increase was 3.49 per cent. The rise in prices of vegetables on an annualised basis was 5.78 per cent, while it was 4.58 per cent on a weekly basis. 

During the week under review prices of fruits rose by 19.01 per cent, while milk became 24.64 per cent costlier on a year-on-year basis. Similarly, on an annualised basis, eggs, meat and fish prices rose by 31.21 per cent! On the other hand, prices of cereal went up by 7.77 per cent year-on-year, while pulses grew 13.82 per cent dearer. 

On other essential commodities like rice, the price rise was about 7.36 per cent year-on-year and while wheat became dearer by 8.32 per cent. Only a few weeks ago, the government was gloating in confidence over the bountiful rains that would bring food prices down. 

What gives credence to accusations of price manipulation by the government is

 that food prices have not spiraled abroad as much as in India. Last time, during the boom period of 2006-07 food prices across the world had shown a sharp uptick owning to the economic growth in countries like India and China where consumption had far outstripped production. 

Even then President of the United States George W Bush had laid the blame of price rise squarely on developing countries like India and China. But this time round, even though food prices have risen only marginally the world over, and in some cases the prices have actually come down, resurgent inflationary pressure has made the Union Government look helpless. The helplessness could be owning to the fact that the ministries are themselves involved in manipulations. 

On policy matters, the high food inflation could prompt the central bank to hike key short-term rates at its policy review next month. RBI Deputy Governor Subir Gokarn dropped dark hints last week about tightening monetary measures as a reaction to the unbridled inflation in food items. The headline inflation, the Reserve Bank of India has conceded, is not easing as fast as it would like, and the upside risks still remain high. 

Needless to say, the rise in food inflation will in all likelihood, have serious repercussions on the final WPI inflation figures for December. Hence, there are more than one ways to look at the price rise in food items. People, on the other hand, have lost faith in a government so caught up in a bind over various multi-lakh-crores scandals of various ministries. Probably the least the voters would expect is for the government to call for mid-term elections to gauge if it has got any support left even in its own ranks.

************* 


Posted by Anil Nair at 11:49 AM
Saturday, 20 November 2010
Between the rock and a soft place
Mood:  don't ask
Now Playing: Why Deepak Parekh should change his usual line of argument
Topic: Real Estate Conundrum

The government has a two-pronged approach to housing sector, one that of preventing bubbles, which ends up strangulating the industry and second, complete apathy towards formulating policies to help meet the burgeoning demand.

By Anil Parameswaran Nair

The latest video on youtube.com (http://www.youtube.com/watch?v=Ps0DSihggio) on constructing a 15-storey building in six days in Shanghai is probably the most forwarded link among the real estate professionals today. It would be instructive if critics of teaser loans and 10-90 loan schemes like Deepak Parekh saw it.

The central bank of India in early November tightened the provisions for housing loans which singularly created a dent in the real estate growth story. The higher provisioning requirement for teaser loan rates will, in all probability, affect the sector in the short term.

The motive behind the move by Reserve Bank of India (RBI) is essentially to prevent excessive leveraging by banks. Most market watchers are of the view that if the RBI starts to take such punitive action against financial instruments brought out by innovative thinking, the real estate sector as a whole will suffer. It is true that the regulators have held the industry is good stead in the past and have prevented market bubbles, but the over-caution might be uncalled for.

The fact of the matter is that asset prices might be rising inexorably in some markets though in others they are more sobering, mostly due to demand. A market like Goa has seen stabilised pricing for the last decade, even during the previous economic downturn, so much so that asset buyers and investors have increasingly flocked to these markets in tandem with the construction activity.

“The asset prices will not be brought down by simplistic moves like higher provisioning requirements for loans in a demand-led economy. The government has to increase FSI across the board and improve infrastructure development to control prices”, said a leading NCR-based real estate developer during a recent conference on hotels and organised retail in Mumbai.

The regulators have an uncanny detailing of the property sector than any other
industry. The central bank capped the loan-to-value ratio for housing loan exposure at 80 per cent, even while increasing risk weightage for residential housing loans worth Rs75-lakh or more by 125 per cent.

The RBI in its combined wisdom raised the standard asset provisioning by commercial banks for teaser loans to 2 per cent from 0.4 per cent. This step seems wholly unnecessary in view of the sector’s struggle to come out of the slump seen a year ago. Even stock markets gave RBI a thumbs-down when the markets tanked after its decision mostly because of the ‘negative surprise’.

In other words, for all outstanding teaser loans the banks will have to make a one-time additional standard provisioning of 1.6 per cent. Also, in future they will need to take into account these additional standard provisioning norms if they continue with the teaser loan schemes.

It is not just the developers and intermediaries which are cut up with the decision of the central bank. Commercial banks which have been forced to look the other way when developers seek debt financing, have also expressed their chagrin at measures like tightening provisions for loans.

In the mid-term review of monetary policy, RBI raised provisions for standard assets of teaser loans five fold. The ostensible reason is that last time the RBI tried to control teaser loans the banks conveniently bypassed it and continued to selective offer teaser loans. This is not to say that all such loans are above board, but to club them all in one basket is a mistake that RBI commits with impunity.

The higher provisioning will jack up cost of funds for banks and discourage them from aggressively pushing for teaser loans. The reason for such tight measures is that such loans affect the quality of assets and chances of defaults by borrowers are high. The RBI might also be playing into the SBI versus HDFC game being played out in public for a long time now.

The home loan default for SBI, for instance, is known to be about 3 per cent and that can be considered an industry average. This kind of default in payments does not usually affect the balance sheet of banks like SBI because mortgages as a percentage of total assets are very low. Of the total loan portfolio of Rs80,000-crore, special loans would be in the vicinity of Rs20,000-crore.

Even HDFC’s teaser loan portfolio is about 27 per cent of its retail home loans provided. HDFC’s mortgage book, it is known, is around Rs1.06-trillion and retail loan makes up about 68 per cent of that.

In regulation of loan to value (LTV) ratios the RBI has said that banks will be able to give up to 80 per cent loans to Rs50-lakh worth property. Till now the LTV was unregulated and banks used to give up to 85 per cent loans. In many of the developed and a few developing countries the LTV is regulated, but the government also helps people to buy houses in terms of down payment assistance for first time buyers.

In India the government has no such plans or provisioning and hence the lower end of the market, where the demand is real and bereft of investor-buyers, will be adversely affected. In the higher end of the market, which includes even affordable homes in some metro cities and luxury in smaller cities, the new regulation will not mean any thing.

There is little speculation in the higher end of the market even today and hence the increase in risk weightage will dampen the 10-90 schemes popular in cities like Mumbai where the down payment is broken into two parts – 10 per cent while booking and 5 per cent while taking possession.

But most big developers any where in the country are not quite given to taking these measures as a bad thing, more because the economy is growing and the demand will only firm up even more. The price and demand have not been affected in the festive season which ended recently.

Pricing in real estate can only be controlled by increasing supply in housing segment. Even if the floating rates for housing loans are likely to rise, developers don’t see any denting in the demand – it is almost like the Shanghai building which rises tall in six days to 15 storey. But the point that is moot is: will the approvals in India come so fast to build a structure of that kind?

**************


Posted by Anil Nair at 8:48 PM
Friday, 5 November 2010
US President's visit could be harbinger of change
Now Playing: India can benefit only if the govt plays the cards well
Topic: INDO-US RELATIONS

“We don’t want to be part of arming you against India, so let me be very clear about that”, US President Barack Obama told Pakistan President Asif Ali Zardari a few days ago just as his plans to visit India on a business trip firmed up. There is much of agonizing heartache which Pakistan can’t hide, so much that the border districts of Jammu and Kashmir have been getting an artillery pounding from across the Line of Control.


But then, the biggest fear that Pakistan has is that the business emphasis of the US President’s visit can relegate its pet peeve Kashmir to the back-burner as India and the US warms up to better relations like no other President did in the past. President Barack Obama is slated to be in India for three days, which is by far his longest visit to any country yet.


Though there has been trouble on the outsourcing front as pointed out by this magazine a few weeks ago, the market size of India is the biggest draw for any US President. Coupled with that is the fact that the US will always look to India as a countervailing force to hegemony of China in the region.


The benefits for the US in dealing with India and its burgeoning market is that it can hugely affect US corporates, especially in the FMCG and retail sector. Wal-Mart CEO Mike Duke has repeatedly said that the direct effect of allowing FDI in organised retail will be in controlling inflation. Prices of agricultural commodities will plummet if organised retail sector gets the FDI fillip in expanding to rural unexplored areas, just as the farmers would get better realization on their produce.


President Obama is coming along with a high-powered business delegation which includes CEOs of many Fortune 500 companies. The delegation’s main agenda would be about outsourcing of information technology services, entity list, science and technology agreements, social security tax and aviation. The discussions will take place with Indian counterparts on November 6.


It is to be noted that Obama’s predecessors George Bush and Bill Clinton also addressed Indian industry leaders when they visited India during their tenure. The visit of President George Bush, whom Prime Minister Manmohan Singh once addressed as India’s best friend, had a better rapport with the Indians than Bill Clinton, though the picture of Clinton dancing with the tribals in Rajasthan is etched in the minds of Indians like none else.


Even if the agenda of the US President is quite a secret, news reports suggest that the US-India Business Council (USIBC) will jointly host a day-long seminar with the Confederation of Indian Industry (CII) and Federation of Indian Chambers of Commerce & Industry (FICCI).


It is also known that Terry McGraw, USIBC chairman would lead the US delegation. Just as in previous US President’s visit to India US secretary of commerce Garry Locke, treasury secretary Tim Geithner, and agriculture secretary Tom Vilsack are expected to be accompanying the delegation.


There is also speculation over `entity list’ which will figure in the talks between the US President’s delegation and their Indian counterparts. The entity list contains names of companies and individuals dealing in `sensitive’ areas.


The US Export Administration Regulations (EAR) put out by the US Bureau of Industry & Security (Department of Commerce) contain a list of names of certain foreign persons that are subject to specific licence requirements for the export, re-export and transfer of specified items. The list includes businesses, research institutions, government and private organisations, individuals, and other types of legal persons. It is this list which India would like to see altered.


Another area of contention is aviation. The penalty for late delivery of commercial aircraft to India could also figure in the talks. For many Indians visiting US on short term visa there is this crying need to alter the social security tax paid.


India is quite clear on what it wants on this issue – businessmen paying tax in India should be exempted from social security tax in the US when they are on a short-term visa. It is estimated that if India gets this leeway there could be an annual saving of $1.5-billion.


Beyond business, India is seriously concerned with the delay in full implementation of Indo-US civilian nuclear agreement. After the hype over the deal which was much to the chagrin of Pakistan, Obama Administration has been squarely blamed by Indian government for the delay.


But more than seen in the public eye about business and trade which can keep the constituencies in the US as well as India happy for US President Barack Obama and Indian Prime Minister Dr Manmohan Singh, the tenor of dialogue on various terror related issues would decide how life will be different in the near term for both countries.


Pakistan’s complicity in terror attacks in India is beyond doubt and the US President’s statements have increasingly been over the edge, almost as if there is an attempt to control his fury. And the US has every reason to be furious at the double game played in India’s neighbourhood in the name of freedom and azadi.

******************

 


Posted by Anil Nair at 6:21 PM
Updated: Friday, 5 November 2010 6:30 PM

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