Ek akela is shehar main: This song tells us all that is wrong with Indian real estate

ek akela is shehar mainVivek Kaul

Very few songs survive the test of time. One such song is ek akela is shehar main from the 1977 movie Gharaonda, written by Gulzar, set to tune by Jaidev and sung by Bhupinder Singh. As the lines from the song go:

ek akela is shehar main
raat main aur dopahar main
aabodana dhoondta hai
aashiyana dhoondta hai

(aabodana = food and water. aashiyana = a home)

This iconic song has an iconic scene which most people miss. Some 3 minutes and 26-27 seconds into the song there is a shot of what looks like Marine Drive. The road is full of Premier Padminis (or Fiats as they were better known as) and Ambassadors. If you look carefully enough there is even a white Mercedes somewhere.
The movie
Gharaonda was released in 1977 and those were the days when Indians had the option of buying either the Ambassador produced by the Birlas at Uttarpara near Kolkata or the Premier Padmini produced by the Doshis at Kurla in Mumbai. The situation was akin to the early days of the American automobile. Henry Ford, the pioneer of the assembly line system of manufacturing remarked in 1909 that: “any customer can have a car painted any colour that he wants so long as it is black.”
In short the customer did not have any choice. The same was true about India in 1977. If one were to paraphrase Ford, “ any customer could buy any car that he wants so long as it is a Padmini or an Ambassador.”
But things have changed since then. Some 37 years later in 2014, a similar shot of the Marine Drive would show so many models of cars that it would be difficult to count the number quickly. This is the impact of competition and a largely free market which operates in the Indian automobile sector with very little interference from the government and in turn politicians. The companies compete with each other in order to offer the best possible features to consumers at the best possible price. This wasn’t the case in 1977 and the Indian consumer had a choice of two models of cars. The free market has clearly changed that.
Now let’s go back to the 1977 song that we started with—
ek akela is shehar main. The song is about the inability of a man to buy a home in Mumbai in 1977. Thirty seven years later nothing has changed on that front. In fact, things have only gotten worse.
And the reason for this is very simple. Most homes across Mumbai and large parts of this country remain unaffordable for the same reason as the Indian consumer had a choice of only two cars in 1977. There is no free market in real estate.
Most real estate companies are fronts for politicians. What makes this very clear is the fact that even though there are thousands of real estate companies operating across India, there is not a single pan India real estate company. Forget pan India, there are very few companies that operate across large states. Most of the big real estate companies have an expertise in a particular part of the country. Why is that the case?
The answer lies in the fact that for any real estate company to operate in any part of the country it needs the cooperation of local politicians. And politicians in every area have their favourite real estate companies. This effectively ensures that even though there are many real estate companies there is very little genuine competition among them to offer the best possible home at the best possible price to consumers. Also, it limits the ability of a real estate company to grow in different parts of the country. It is not possible for the same real estate company to manage politicians everywhere. In short, the free market is not allowed to operate.
There is huge government interference in the sector to ensure that the favoured real estate companies continue to benefit. As
Bombay First points out in a report titled My Bombay My Dream “Government and the land mafia in fact do not want more land on the market: after all, you make more money out of the spiraling prices resulting from scarcities than you could out of the hard work that goes into more construction.”
Over the years, the major infrastructure projects in Mumbai like the Bandra-Worli Sea Link or the Versova-Ghatkopar metro link, have addressed areas that have already been built up. The Sewri-Nhava Sheva link, which will open up a lot of land for housing is yet to see the light of day.
One excuse that is constantly offered by the real estate companies to justify spiralling prices is the lack of land. While this may be true about a city like Mumbai it is not true about most other Indian cities.
The 
Indian Institute for Human Settlements in a report titled Urban India 2011: Evidence esimates that “the top 10 cities are estimated to produce about 15% of the GDP, with 8% of the population and just 0.1% of the land area.” So clearly scarcity of land is not an issue.
This situation can be improved significantly if some of the land that the government has been sitting on can be made available for affordable housing. KPMG in a report titled 
Affordable Housing – A key growth driver in the real estate sector points out “The government holds substantial amount of urban land under ownership of port trusts, the Railways, the Ministry of Defence, land acquired under the Urban Land (Ceiling and Regulation) Act, the Airports Authority of India and other government departments.”
Over and above this the end consumer has almost no access to price and volume trends. He has to go by what brokers and real estate companies tell him. And for these insiders the real estate prices are always on their way up. In this scenario the real estate market is completely rigged in favour of brokers, real estate companies and politicians. This is what the Nobel prize winning economist George Akerlof called a scenario of “asymmetric information”.
As Guy Sorman writes in
An Optimist’s Diary “Economic actors don’t all have the same information at their disposal. Without institutions to improve transparency, insiders can easily manipulate markets.” This is precisely what is happening in India—politicians and real estate companies acting as their fronts, have been able to manipulate the entire system in their favour.
And unless this changes, the dream of owning a house will continue to be just a dream. Until then we can thank Gulzar, Jaidev and Bhupinder Singh for this beautiful song and hum it…
ek akela is shehar main…

The article originally appeared on www.Firstbiz.com on August 4, 2014

(Vivek Kaul is a writer. He tweets @kaul_vivek)

How the new Peter Principle caused Kingfisher’s downfall


Vivek Kaul
A few years back I had booked a ticket on an early morning Kingfisher flight from Mumbai to Ranchi, or so I had thought. I came to realize I was on Kingfisher Red and not the full service Kingfisher only once I was inside the aircraft.
Sometime later I came to realize that several people I knew had had a similar experience. They had booked flights thinking they were on the Kingfisher full service, only to realize later that they were on Kingfisher Red.
The airline clarified that it was not their mistake but the mistake of the websites that did not make a distinction between Kingfisher Red and Kingfisher First.
But the question that cropped up in my mind was that why would Kingfisher, a premium-upmarket brand, want to dilute its positioning by associating itself with Kingfisher Red, which was essentially a low-cost airline.
Vijay Mallya, started Kingfisher Airlines in 2005. A few years later he tried to get into the low cost airline business, which was the flavour of the season back then, by taking over Deccan Aviation which ran Air Deccan, a low cost airline. He rebranded it as Kingfisher Red. By doing this he diluted the premier positioning that Kingfisher Airlines had acquired in the minds of the consumer.
To explain this a little differently, let us take the example of Hindustan Unilever Ltd (HUL). It sells the Lifebuoy which is targeted at the lower end of the market and goes with the line tandurusti ki raksha karta hai Lifebuoy. The company also sells Lux which is targeted at the upper end of the market and comes with the tagline filmi sitaron ka saundarya sabun.
Of course, the positioning of Lifebuoy and Lux is totally different. And HUL tries to make this very very clear in the minds of the consumer. First of all, both the products have different names. Second the pricing is very different. And third, the advertisements of both the products emphasize on the “different” positioning over and over again.
Now Mallya running a low cost airline under the premium brand name of Kingfisher would be like HUL selling Lux soap under the name of Lifebuoy premium.
And it’s not just about the brand name and the positioning in the mind of the consumer. The philosophy required to run a premium brand is totally different in comparison to the philosophy required to run a low cost brand. Hence, Mallya buying Air Deccan was mistake. And then changing its name to Kingfisher Red was an even bigger mistake.
So in the end this did not work and Mallya decided to close down Kingfisher Red. He explained it by saying that “We are doing away with Kingfisher Red, we do not want to compete in the low-cost segment. We cannot continue to fly and make losses, but we have to be judicious to give choice to our customers.”
Kingfisher might have just survived if it had not made the mistake of buying Kingfisher Red. World-over several airlines have tried running a full-service and a low cost airline at the same time and made a mess of it. A company cannot run a low cost airline and a full service career at the same time. The basic philosophy required in running these two kind of careers is completely different from one another.
But the bigger question is what was Vijay Mallya trying to do by running a liquor business, a real estate business and an airline at the same time? This was other than spending substantial time on his expensive hobbies of trying to run a cricket and an FI team, and cheaper ones like commenting regularly on Twitter.
There isn’t really any link among the businesses Mallya runs. Some people have tried to explain that the airline was just surrogate advertising for the beer of the same name. But then there are cheaper ways of advertising than running an airline and losing thousands of crores doing it.
Businesses over the years have become more complicated. And just because a company has been good at one particular business doesn’t mean it will be good at another totally unrelated business.
Mallya is not the only one realizing this basic fact. The period between 2002 and 2008 was an era of easy money. Businesses could borrow money very easily to expand as well as get into new business. And this is what finally got businessmen like Mallya into trouble.
The British economist John Kay calls this the new Peter’s Principle. The original Peter’s Principle essentially states that every person rises to his or her level of incompetence in a hierarchy. Simply put, as a person keeps getting promoted he is bound to appointed to a job, he is not good at. The same is the case with companies which keep buying and diversifying into different businesses, until they land up in a business they don’t really understand. And that drives them down.
Mallya was a victim of the new Peter’s Principle, his non related diversification into the airline business cost him dearly. The lack of focus has hurt Mallya’s core alcohol business as well and United Spirits is no longer India’s most profitable alcohol company. That tag now belongs to the Indian division of the French giant Pernod Ricard.
An era of easy money got Indian entrepreneurs including Mallya to get into all kinds of things which they did not understand and had no clue about. Kishore Biyani brought the retail revolution to India, having been inspired by Sam Walton who started Wal-Mart. His retail businesses were doing decently well till he decided to get into a wide variety of businesses from launching an insurance company to even selling mobile phone connections. When times were good he accumulated a lot of debt in trying to grow fast. Now he is in trouble in trying to service the debt and rumors are flying thick and fast that he is planning to sell Big Bazaar, his equivalent of Wal-Mart. This after he sold controlling stake in the cloths retailer, Pantaloons.
Let’s take the case of DLF, the biggest real estate company in the country. It tried getting into the insurance and mutual fund business. It had to sell its stake in the mutual fund business and if news reports are to be believed it is trying to lower its stake in the insurance venture. It also tried unsuccessfully to get into the luxury hotel business and failed. Hotel Leela tried to get into the up-market apartments space and failed.
Reliance Energy (the erstwhile BSES) was turned into Reliance Infra and now is into all kinds of things. It is building one section of the Mumbai Metro, the completion of which keeps getting postponed. It is also supposed to build the remaining portion of the sealink in Mumbai.
The days when businesses like Tata and Birla used to do everything under the sun are long over. In fact, those were the days of license quota raj with very little competition. Hence companies could get into a new space as long as they got a license for it.
An interesting example is that of the Ambassador. The car had the same engine as of the original Morris Oxford which was made in 1944. The same engine was a part of the Ambassador car sold in India till 1982. The technology did not change for nearly four decades.
Given this lack of change, the businessmen could focus on multiple businesses at the same time. That is not possible anymore with technology and consumer needs and wants changing at a very fast pace. Even focused companies like Nokia missed out on the smart phone revolution in India.
Look at the newer businesses some of the big-older companies have got into over the years. The retail business of Ambanis hasn’t gone anywhere. Same is true with that of the retail business of the Aditya Birla group. The telecom business of the Tatas has lost a lot of money over the years. Though, they finally seem to be getting it right.
Hence it’s becoming more and more essential for businesses to focus on what they know best. And when it comes to airlines its time Mallya read what Warren Buffett told his shareholders a few years back.
Now let’s move to the gruesome. The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down. The airline industry’s demand for capital ever since that first flight has been insatiable. Investors have poured money into a bottomless pit, attracted by growth when they should have been repelled by it. And I, to my shame, participated in this foolishness when I had Berkshire buy U.S. Air preferred stock in 1989. As the ink was drying on our check, the company went into a tailspin, and before long our preferred dividend was no longer being paid. But we then got very lucky. In one of the recurrent, but always misguided, bursts of optimism for airlines, we were actually able to sell our shares in 1998 for a hefty gain. In the decade following our sale, the company went bankrupt.
The bigger sucker saved Buffett. But Mallya may not have any such luck
(The article originally appeared on www.firstpost.com on July 5,2012. http://www.firstpost.com/business/how-the-new-peter-principle-caused-kingfishers-downfall-368549.html)
(Vivek Kaul is a writer and can be reached at [email protected])