Water Shortage: Lack of Water Storage Facilities is the Real Problem

Water_droplet_blue_bg05

Every week the Central Water Commission (CWC) puts out the total volume of water that it has in 91 storage reservoirs all over the country. These reservoirs have a total storage capacity of around 157.8 billion cubic metres(BCM). This amounts to around 62% of the total storage capacity of 253.4 BCM in the country.

Hence, the data put out by CWC is a good representation of the total water stored in the reservoirs across the country.  For the week ending April 13, 2016, the total amount of water stored in these reservoirs stood at 35.8 BCM. Given that the total storage capacity of these reservoirs is around 157.8 BCM, the total amount of water currently available amounts to around 23.3%. This is less than one-fourths of the total storage capacity.

How does the situation look if we were to compare it with the same time last year? As on April 16, 2015, the total amount of water in these 91 reservoirs had stood at 50.9 BCM. This amounted to around 33% of the total capacity of these reservoirs.

Further, the total amount of water currently available is around 70.3% of that was available last year. Hence, the situation has deteriorated since then. This can be explained by the fact that the country has had two bad monsoons.

In 2015, the monsoon rains had stood at 86% of the long period average (LPA). In 2014, the monsoon rains had stood at 88% of the long period average(LPA). Two bad monsoons have essentially ensured that the total amount of water available in the CWC reservoirs is currently very low.

The good news is that this time around the monsoon rains have been predicted to be at 106% of the long period average. Unless, the India Meteorological Department goes badly wrong, the monsoon rainfall is going to be much better than the previous two years. This should help building up the water levels in the CWC reservoirs.

But that is just the short-term solution.  The per capita water availability in India has been falling over the years. The average per capita availability of water as per the 2001 census was 1816 cubic meters. This fell to 1545 cubic metres as per the 2011 census. The number must have fallen further by now.

In fact, data from World Bank suggests that in 2014, the renewable internal freshwater resources per capita in India stood at 1,116 cubic metres. This had stood at 1,226 cubic metres in 2007.

As the Economic Survey of 2015-2016 points out: “India has much lower levels of water per capita than Brazil, one of the world’s leading agricultural countries. This constraint is exacerbated because, while Brazil and China use approximately 60 per cent of their renewable fresh water resources for agriculture, India uses a little over 90 per cent.”

 

So what is the way out of this? The simple answer is creation of more water storage capacity to start with. As Akhilesh Tilotia of Kotak Institutional Equities and author of The Making of India writes in a recent research note titled Dam It: “India’s consumption of water was estimated to be 1,030 BCM per year in 2010 and is expected to rise to 1,498 BCM by 2030E. The current consumption of water would hence be around 1,100 BCM (of which ~80% of the water is used for agriculture and rest is split between housing and industry). For a country that even in a failed monsoon gets 2,640 BCM of rain, servicing a requirement of 1,100 BCM should not ideally be a challenge – so what gives?

Further, there are rains, other than the monsoon, and then parts of India get snow as well. This leads Tilotia to conclude that India “receives a precipitation of ~4,000 BCM of rains (and snow) every year.”

So the consumption of water stands at 1100 BCM. Even a bad monsoon gets 2640 BCM of rain, so where does the real problem lie? As Tilotia writes: “It should be obvious that if the bulk of rains fall in a few months of the year, the only way to get water through the year is to bank it. There are two ways in which water can be banked: a natural process of water seeping underground which is then pulled out over the course of the year or by holding back the water in artificially created storage areas or dams. As we have noted above, India has the capacity to store only 253 BCM of water (or less than 10% of normal monsoon rains). It is no surprise that we annually find ourselves without water in summers!

The point being that if India’s water problem needs to be solved, then first and foremost we need to create more water storage capacity to start with.

Further, efficiency of water usage in agriculture also needs to improve. As the Economic Survey points out: “Although water is one of India’s most scarce natural resources, India uses 2 to 4 times more water to produce a unit of major food crop than does China and Brazil  (Hoekstra and Chapagain [2008]). Hence, it is imperative that the country focus on improving the efficiency of water use in agriculture.”

This will start to happen once state governments price power for agriculture at the right price, instead of selling it cheap or giving it away free. As the Economic Survey points out: “It has long been recognized that a key factor undermining the efficient use of water is subsidies on power for agriculture that, apart from its benefits towards farmers, incentivises wasteful use of water and hasten the decline of water tables.”

The solutions to the water problem are well known. The question is do the government(s) [state governments as well as the central government] have the political will and the necessary money to go ahead and implement them.

The column originally appeared on the Vivek Kaul’s Diary on April 20, 2016

Some New Lessons on Jobs from an Old Economist

hyman minsky
Many economists do not write in a language which is easily understandable. While John Maynard Keynes was a terrific writer (he is possibly the only economist who actually came up with one-liners), his magnum opus The General Theory of Money, Interest and Employment, which was published in 1936, isn’t such an easy read.

Believe you me! I have tried reading it several times over the years.

Just because the book isn’t an uneasy read, doesn’t mean that the points it is trying to make are not important. As Paul Samuelson, the first American economist to win a Nobel Prize, wrote about Keynes’ book, in a research paper titled Lord Keynes and the General Theory. As he wrote: “It is a badly written book, poorly organized; any layman who, beguiled by the author’s previous reputation, bought the book was cheated of his five shillings…It is arrogant, bad tempered, polemical and not overly generous in its acknowledgements. It abounds in mares’ nests and confusions…In short, it is a work of genius.”

Another economist whose work is not easy to read is the American economist Hyman Minsky, who died in 1996. The world discovered Minsky and his work in the aftermath of the financial crisis that started in September 2008 and so did I.

I tried reading Minsky’s magnum opus Stabilizing an Unstable Economy but could only read it half way through. I have been lucky to have since discovered other authors and economists who have tried to explain Minsky’s work in a language that I have been able to understand.

Over the last few days I have been reading L Randall Wray’s Why Minsky Matters—An Introduction to the Work of a Maverick Economist. Other than discussing Minsky’s views on banking and the financial system in great detail, Wray also discusses what Minsky thought of unemployment. Minsky’s interest in unemployment primarily came from the fact that he was brought up during The Great Depression, when the United States saw never before seen levels of unemployment and a huge contraction of the economy.

And what did Minsky think of the unemployment problem? As Wray writes: “His argument [i.e. Minsky’s] was that simply increasing the “employability” of the poor by providing training without increasing the supply of jobs would just redistribute unemployment and poverty. For every better trained worker who got a job, a worker with less training would become unemployed. Minsky was not arguing against better education and training—he was arguing that to reduce unemployment and poverty we need more jobs, too.”

Minsky also argued against the idea that “if the economy grows at a sufficiently robust pace, the jobs will automatically appear.” As Wray writes: “The notion that economic growth together with supply-side policies to upgrade workers and provide proper work incentives would be enough to eliminate poverty was recognized by Minsky at the time to be fallacious. Indeed, evidence suggests that economic growth mildly favours the “haves” over the “have-nots”—increasing inequality—and that jobs do not simply trickle down.”
How do things stack up in the Indian context? First and foremost, let’s look at the youth literacy number and how it has changed over the years. As per the Human Development Report, in 1990, the youth literacy rate (i.e. individuals in the age 15 and 24) was at 64.3% in 1990. This improved to 76.4% in 2003. In 2013, the youth literacy rate for men was at 88.4% and for women at 74.4%.

What these data points tell us clearly is that the education level of India’s youth has improved over the years. But has this led to more jobs? Answering this question is a little tricky given how bad Indian data on jobs is.

Nevertheless, as the Economic Survey released in February 2015 points out: “Regardless of which data source is used, it seems clear that employment growth is lagging behind growth in the labour force. For example, according to the Census, between 2001 and 2011, labour force growth was 2.23 percent (male and female combined). This is lower than most estimates of employment growth in this decade of closer to 1.4 percent.”

Hence, even though the youth education has improved over the years, this hasn’t led to an adequate number of jobs. This is clearly visible in all the engineers and MBAs that we produce without having the right jobs for them.

As Akhilesh Tilotia writes in The Making of India: “An analysis of the demand-supply scenario in the higher education industry shows significant capacity addition over the last few years: 2.4 million higher education seats in 2012 from 1.1 million in 2008.” In 2016, India will produce 1.5 million engineers. This is more than the United States (0.1 million) and China (1.1 million) put together.
The number of MBAs between 2012 and 2008 has also jumped to 4 lakh from the earlier 1 lakh. As Tilotia writes: “India faces a unique situation where some institutes (IITs,IIMs, etc.) are intensely contested while a large number of the recently-opened institutes struggle to fill seats…With most of the 3 million people wanting to pursue higher education now having an opportunity to do so, the big question that should…be asked…are all these trained personnel required? Our analysis seems to suggest that India may be over-educating its people relative to the current and at least the medium-term forecast requirement of the economy.”

This explains why many engineers and MBAs cannot find the right kind of jobs and have to settle for other jobs.

A major reason for the lack of enough jobs is the fact that Indian firms start small and continue to remain small. As Economist Pranab Bardhan writes in Globalisation, Democracy and Corruption: “Take the highly labour-intensive garments industry, for example. A combined dataset [of both the formal and informal sectors] shows that about 92 per cent of garment firms in India have fewer than eight employees.”

It’s only when small firms start to become bigger, will jobs be created. As the Economic Survey points out: “A major impediment to the pace of quality employment generation in India is the small share of manufacturing in total employment…This is significant given that the National Manufacturing Policy 2011 has set a target of creating 100 million jobs by 2022. Promoting growth of micro, small, and medium enterprises (MSME) is critical from the perspective of job creation which has been recognized as a prime mover of the development agenda in India.”

And this, as I keep saying, is easier said than done.

The column originally appeared on the Vivek Kaul Diary on January 20, 2016

 

The Make in India lesson I learnt when I bought a television set

make in indiaVivek Kaul

Yesterday’s edition of The Times of India had a very interesting newsreport. As per the newsreport: “Data available with the Bureau of Indian Standards (BIS) shows that over 60% of the recently registered products are “Made in China.””
These include products like mobile phones, printers, power adapters, notebooks, tablets and so on. What this tells you clearly is that a vast majority of electronic products that we buy in India are not made in India, but in China.
Interestingly, the last time I bought a television set few years back, it came with a weird looking plug—something that I had never seen before. It wouldn’t fit into the electrical socket at home. It took a helpful neighbour to solve the problem. He told me that I would need a converter to fit the plug into the socket. The converter cost me Rs 25 and left me wondering that why did a company which sold a product worth Rs 15,000 inconvenience its customers for something worth Rs 25? Maybe marketing professionals can throw some light on that.
Last year when I bought a smart phone a similar experience awaited me. But this time around I was prepared and as soon as the smart phone was delivered at home (I had ordered it online), I went out and bought a converter, which cost Rs 20 this time around.
As you must have figured out by now, dear reader, both the products were made in China. Not just technology products which are made in China are flooding the Indian market. There are other products as well. As The Times of India newsreport referred to earlier points out: “There are a vast majority of goods — from electricity bulbs and thermometers to Ganesha and Laxmi idols — where the government is yet to have domestic standards resulting in unregulated entry of Chinese product.” Even Rakhis are now made in China. Indeed, this has been a worrying trend for sometime now.
The reason for this is fairly straightforward—no country has gone from developing to developed without the expansion and success of its manufacturing sector. As Cambridge University economist Ha-Joon Chang writes in 
Bad Samaritans—The Guilty Secrets of Rich Nations & the Threat to Global Prosperity: “History has repeatedly shown that the single most important thing that distinguishes rich countries from poor ones is basically their higher capabilities in manufacturing, where productivity is generally higher, and more importantly, where productivity tends to grow faster than agriculture and services.”
And the Indian manufacturing sector cannot flourish with products being made in China. For a while there was great hope that India does not need to go through a manufacturing revolution to pull its citizens out of poverty. And that the information technology led services revolution would do that trick. But services by their very design have certain limitations.
As Chang writes: “There are certainly some services that have high productivity and considerable scope for further productivity growth—banking and other financial services, management consulting, technical consulting and IT support come to mind. But most other services have low productivity and, more importantly, have little scope for productivity growth due their very nature (how much more ‘efficient’ can a hairdresser, a nurse or a call centre telephonist become 
without diluting the quality of their services?).”
So, where does that leave us? Over the last few years the education infrastructure that has been built to feed trained individuals into the services sector has been huge. As Akhilesh Tilotia writes in The Making of India: “An analysis of the demand-supply scenario in the higher education industry shows significant capacity addition over the last few years: 2.4 million higher education seats in 2012 from 1.1 million in 2008.” In 2016, India will produce 1.5 million engineers. This is more than the United States (0.1 million) and China (1.1 million) put together.
The number of MBAs between 2012 and 2008 has also jumped to 4 lakh from the earlier 1 lakh. As Tilotia writes: “India faces a unique situation where some institutes(IITs,IIMs, etc.) are intensely contested while a large number of the recently-opened institutes struggle to fill seats…With most of the 3 million people wanting to pursue higher education now having an opportunity to do so, the big question that should…be asked…are all these trained personnel required? Our analysis seems to suggest that India may be over-educating its people relative to the current and at least the medium-term forecast requirement of the economy.”
What this means is that a large number of people going in for higher education will find it difficult to find jobs which are commiserate with the kind of money they have paid for their education, after they pass out. And they will not be the only ones having a tough time. India is adding nearly 13 million people to the workforce every year. And enough jobs are not being created.
This is something that the latest economic survey points out: “Regardless of which data source is used, it seems clear that employment growth is lagging behind growth in the labour force. For example, according to the Census, between 2001 and 2011, labor force growth was 2.23 percent (male and female combined). This is lower than most estimates of employment growth in this decade of closer to 1.4 percent. Creating more rapid employment opportunities is clearly a major policy challenge.”
And these rapid employment opportunities will be created only if more and more products are made in India and not China. For products to be made in India, major labour reforms need to happen.
A report in The Indian Express seems to suggest that the government is working on this front. It is planning to make amendments to the Industrial Disputes Act, 1947. The government is also planning to: “codify the Central labour law architecture wherein the labour ministry plans to merge all 44 Central legislations into four codes on labour laws — one each on wages, industrial relations, social security and safety & welfare. Apart from industrial relations and wages, other codes are likely to be released during the course of the year.”
Let’s see how far is it able to go with this. 

The column originally appeared on The Daily Reckoning on May 6,2015

Of budget, black money and housing

India-Real-Estate-MarketVivek Kaul

Arun Jaitley’s second budget as finance minister was slightly high on the policy front. One of the things that Jaitley talked about was tackling the black money menace in the country. This was the first time anyone from the Modi government has talked comprehensively about the black money within the country. Before this, the entire focus was on getting back the black money which has left the shores of the country. Focusing on black money in the country makes more sense simply because it would be easier to recover.
Jaitley announced a spate of measures in the budget to curb domestic black money (though he announced many more to curb black money leaving the country). He said: “a new and more comprehensive Benami Transactions (Prohibition) Bill will be introduced in the current session of the Parliament…This law will enable confiscation of benami property and provide for prosecution, thus blocking a major avenue for generation and holding of black money in the form of benami property, especially in real estate.”
The finance minister also said that the Income Tax Act would amended to “prohibit acceptance or payment of an advance of Rs 20,000 or more in cash for purchase of immovable property.” How will this provision be implemented remains to be seen.
Further, quoting of the permanent account number(PAN) has been made mandatory for purchase or sale exceeding the value of Rs 1 lakh. This is a good move. In fact, it would have been an even better move if Aadhar cards were made compulsory for real estate transactions, given that it is a tad easier to fudge the PAN card in comparison to the Aadhar card.
The ministry of finance now also plans to use technology to improve tax enforcement. As Jaitley said: “To improve enforcement, Central Board of Direct Taxes(CBDT) and Central Board of Excise and Customs(CBEC) will leverage technology and have access to information in each other’s database.”
The move to leverage technology is very interesting. In the February 2013 budget speech, the then finance minister P Chidambaram had estimated that India had only 42,800 people with a taxable income of Rs 1 crore or more. Contrast this with the fact that more than 30,000 luxury cars are sold in India every year. Both Audi and Mercedes sold more than 10,000 cars in India in 2014.
What this clearly tells us is that a lot of Indians are not paying their taxes properly. And technology can help in narrowing down who these people are.
Income on which taxes are not paid ends up as black money. A lot of black money that is generated finds it’s way into real estate in
benami form. This is the major reason why real estate prices do not fall, despite sales having come to a standstill for a while now.
Further, once black money enters real estate it tends to generate more black money. Consider this—an individual buys a house for Rs 50 lakh, of which he pays 30% or Rs 15 lakh in black. The proportion could be higher or lower depending on which part of the country the individual is in. The black money portion tends to be on the higher side in the national capital territory. The same cannot be said about cities like Bangalore.
Getting back to the example. Let’s say a few years later the price has gone up to Rs 1 crore. The individual now sells the home and gets Rs 30 lakh in black, which is 100% more than what he started with. This amount then finds its way back again into real estate.
This phenomenon has led to a situation where a huge portion of the homes being built are just being built so that investors can hide their black money. This essentially ensures that those who want to buy homes to live in simply can’t afford them. As the latest Economic Survey points out: “The widening gap between demand and supply of housing units and affordable housing finance solutions is a major policy concern for India. At present urban housing shortage is 18.8 million units of which 95.6 per cent is in economically weaker sections (EWS) / low income group (LIG) segments and requires huge financial investment to overcome.” The housing shortage in rural India stands at 43.1 million homes.
A recent report by Liases Foras, a real estate research and rating company, put the weighted average price of a flat in Mumbai at Rs 1.32 crore. For the National Capital Territory the price was around Rs 75 lakh. Even in a smaller metro like Pune, the average price was around Rs 57 lakh.
Most Indians can’t afford these kind of prices. Akhilesh Tilotia in his new book
The Making of India, makes an estimate of the price range at which homes will be affordable: “A large portion of the unmet housing needs are at an economic value of Rs 5-10 lakh. Assuming that households of five members can crowd into space of between 250-400 sq ft, housing stock in the range of Rs 1,250-Rs 4,000 per sq ft will be needed.” What this clearly shows is that homes that are currently being built in cities are way beyond what most people can afford.
And this explains why “real estate and ownership of dwelling” constitute only “7.8 per cent of India’s GDP in 2013-14”. In comparison, as data from the National Housing Bank shows, China was at 20%, Malaysia at 29% and the United States at 81%. This number needs to go up in the years to come. And the only way that is possible is if affordable homes become available.
In order to ensure that the nexus between real estate and black money needs to be broken down, so that builders start making homes for people to live in. Whether Jaitley’s efforts bear some fruit remains to be seen, given that many real estate companies are essentially fronts for politicians to hide their ill-gotten wealth.
The last financial year’s Economic Survey made a very interesting point: “Nearly 30 per cent of the country’s population lives in cities and urban areas and this figure is projected to reach 50 per cent in 2030.” If affordable homes are not built, where will all these people live?

The column originally appeared in the Daily News and Analysis dated Mar 3, 2015 

(Vivek Kaul is the author of the Easy Money trilogy. He can be reached at [email protected]

One of the best kept secrets of Indian real estate is out…

India-Real-Estate-Market

Vivek Kaul

The Economic Survey for the last financial year states: “Data shows that the first claim upon the savings of households is physical assets such as gold and real estate.”
That Indians love their ‘real estate’ would be like stating the obvious. But sometimes it is necessary to state the obvious as well. Why? That will soon become clear.
AkhileshTilotia, a thematic research analyst with the institutional equities arm of the Kotak Mahindra Group, makes a very interesting point in his new book
The Making of India—Gamechanging Transitions. As he writes: “Thanks to its love for real estate investments, India is in a curious position of having more houses than it has households.”
This becomes clear from the Census 2011 data. “India’s households increased by 60 million to 247 million from 187 million between 2001-2011. Reflecting India’s higher ‘physical’ savings, the number of houses went up by 81 million to 331 million from 250 million. The urban increases is telling: 38 million new houses for 24 million new households,” writes Tilotia.
So what is happening here? One explanation for the number of houses rising faster than the number of households may lie in the fact that houses are being bought as investment and not to be lived in.
What this means is that many Indians own more than one house and then there are many more who do not own any, because prices are way beyond what they can afford. Further, given our penchant for owning real estate, a lot of real estate is being built sheerly from the point of view of fulfilling investment demand.
The Caravan magazine in a 2011 article, when real estate investment was at its peak, quoted Gautam Bhan, a consultant with the Indian Institute for Human Settlements, to make this point: “This economy is being built solely on speculation…These properties are being built solely for investment cycles. Why else would you build halfway to Agra? If you have ten businessmen who occasionally want to get rid of black money, you’ll have an apartment building. These flats will be bought and resold and bought and resold. Nobody even needs to live there.”
This is the best possible explanation for why the number of houses has gone up at a much faster pace than the number of households.
Further, those who have black money to hide, don’t bother much about the location of where houses are being built. And that explains why houses even miles away from India’s biggest cities are so expensive.
So what is the way out of this mess? How can houses be built and sold at prices so that people can buy them to live in them? As I have mentioned more than a few times in the past, the government needs to actively go after the black money hidden in physical assets like gold and real estate. There is no point in trying to actively pursue all the black money that has left the country and not do anything about all the black money lying in the country.
A crackdown on black money will lead to better tax compliance, meaning more taxes for the government. Further, it will also bring down the amount of black money that goes into black estate. This is easier said than done and will need solid political will for many years, if it has to be pursued seriously.
Further, it is high time that agricultural income be brought under the tax net. There is no reason that rich farmers should not be paying income tax. In fact, in cities like Shimla, Chandigarh and even the National Capital Region, all the untaxed agricultural income chasing real estate has also been responsible for driving up home prices, among other things.
Ensuring affordable housing becomes available at a large scale level should be a major priority for the Narendra Modi government. As the Economic Survey points out: “Nearly 30 per cent of the country’s population lives in cities and urban areas and this figure is projected to reach 50 per cent in 2030.” If affordable housing does not become the order of the day slums will become as common place in other cities, as they are currently in Mumbai. And that is not a happy thought to look forward to.
Also, as Tilotia points out in his book,
more than three-fourths of urban residents live cheek by jowl in cramped spaces.” This basically happens because of two reasons. The first reason is the low FSI ratio which has made land very expensive. The second reason is “the inability to commute cheaply and quickly, which means that people have to congregate in and around areas where they can find economic activity and public infrastructure.”
If affordable housing has to take off, all this needs to be set right.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The column originally appeared on www.firstpost.com on Feb 18, 2015