WEALTH STUDY WWAR Vol. 98

8/17/2019 WEALTH STUDY WWAR Vol. 98

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02/03/2016 Polavaram is reaping the Jan Dhan benefit | Business Line

http://www.thehindubusinessline.com/specials/india-file/polavaram-is-reaping-the-jan-dhan-benefit/article8241246.ece?css=print 1/3

Polavaram is reaping the Jan Dhan benefit

Gunturi Naga Sridhar

The scheme has made life easier for the people of this Andhra Pradesh village, one of the first in the state to have 100 percent financial inclusion. But the local experience also throws up a few questions relevant nationally, reports Gunturi Naga

Sridhar

Fourty-year-old M Ravamma, from Polavaram, a village in the Krishna district of Andhra Pradesh, had a nightmarishexperience two months ago. Her husband complained of chest pain and passed away before medical help could reachhim. Despite the irreparable loss, Ravamma got financial support from an unexpected quarter, the insurance claim thatcame attached with the Jan Dhan Yojana account her husband had.

“The claim amount (of 30,000) was paid promptly and helped us to stabilise our life after my husband suddenly died because of a stroke of fate,’’ recounts the mother-of-two.

It is not just insurance claims. The Pradhan Mantri Jan-Dhan Yojana (PMJDY), which was launched by Prime MinisterNarendra Modi in August 2014, has helped scores of people in the village in many day-to-day transactions.

Take the case of S Edukondalu, a farmer who grows bananas. “Till about a year ago, I used to make business relatedpayments in cash but now I am doing them in cheques,’’ he says about his deals with traders from Vijaywada, about 80kms away. The farmer adds that his average balance in the savings bank account, opened under the scheme, is now adequate to maintain a cheque book.

There are 3,000 people in this village, which is one of the first in Andhra Pradesh to achieve 100 per cent coverage of the Jan Dhan scheme. The scheme aims to promote financial inclusion by ensuring access to basic services such assavings accounts, credit, insurance and pension. The coverage in Polavaram was accomplished by a three-member

branch of Andhra Bank in a record time. Most of the account holders were out of the banking system till now.

National impact

Not just Andhra Pradesh, but the PMJDY numbers are stunning nationally. About 20.20 crore people across thecountry have opened accounts under the scheme; with over a half of them operating the accounts through the RuPay cards, the Indian version of a Mastercard or Visa debit cards.

According to the AP Hota, Managing Director and CEO of National Payment Corporation of India, the new accountholders generate 27 lakh transactions per day. This figure will touch 30 lakh per day very soon, says the ManagingDirector of NPCI, which is the umbrella organisation for retail payment systems in India.

The accounts together hold deposits of 32,000 crore, with an average transaction value of 2,000. An enquiry withthe bankers show that the numbers continue to grow as people open accounts even after the banks have stoppedcampaigns for new enrolments.

The drivers

Timely help Ravamma, at her home in Polavaram, was struck by tragedy when her

husband died. The insurance money of 30,000 that came attached with her husband'sJan Dhan Yojana account helped stabilise her life.

http://www.thehindubusinessline.com/http://www.thehindubusinessline.com/


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The trends lead to a simple, yet vital question: What is driving these numbers when the old financial inclusion plansthrust by the Reserve Bank of India on public sector banks, which failed to generate enthusiasm in people, as well asthe bankers?

As has been the case of Ravamma, the increasing awareness about the social security being offered under the schemehas been an attraction, says Venkatappa Rao, the 24-year-old Manager of Andhra Bank’s Polavaram branch. A post-graduate in biotechnology, Rao wanted to be a scientist but now has found his calling in the banking sector. “Luckily,the claims in cases were settled very fast, spreading the message about the scheme’s inherent financial protection,” saysRao.

There is a huge gap in insurance for the underprivileged in the country. The insurance penetration, measured as a

percentage of insurance premiums to the Gross Domestic Product (GDP), stands at 3.3 per cent in India last year,according to data of Insurance Regulatory and Development Authority of India (IRDAI). It is the lowest level of insurance penetration since 2005.

Under the Jan Dhan scheme, the RuPay card comes with an inbuilt accident insurance cover of 1 lakh for up to 90days after the cardholder carries out a successful financial or non-financial transaction at a merchant establishment, an

ATM or an e-commerce platform.

There are other drivers too. Prakash Goud, a vegetable seller in Kandi village in Sangareddy district of Telangana, iselated about the overdraft facility for 5,000 that comes with the PMJDY account. “This is quite a sum for me andhelps in mobilising daily working capital for my business,” he says.

Till recently, Goud had to depend on the local money lenders who would provide call money, to buy vegetables. Callmoney is a form of private lending where a loan is available immediately, but comes with exorbitant rate of interest. He

would walk back with little returns after paying back the borrowed money to the money lender, who would charge an

average interest rate of 10 per cent. But now, thanks to the overdraft facility, the vegetable seller doesn’t need the callmoney anymore.

While in banking parlance, call money is short-term finance for periods ranging from one to fifteen days and mainly aninter-bank deal, the term is now in liberal use for the personal loans taken by individuals from money-lenders at 20-30per cent per annum and often at even higher rates.

The overdraft facility has also come handy for other purposes such as paying school fee for kids and buying books,points out M Jyothi, a labour whose two children are in 10{+t}{+h} and 6{+t}{+h} standard.

As on Jan 15, 2016, 166 crore has been extended by banks to the Jan Dhan account holders in the form of overdraft, afirst of its kind for any model of financial inclusion. The amount given to an account holder can be up to four times theaverage balance he has maintained in the last six month; the overdraft has an upper limit of 5,000. There are someother facilities as well.

A PMJDY account holder can withdraw up to 2,000 using debt cards and open system prepaid cards at PoS in Tier-III and Tier-VI centres. Till late last year, the limit was 1,000. Banks have also been asked not to levy any SMS/message charges on the PMJDY accounts and basic savings bank deposits accounts.

The scheme’s simple Know Your Customer (KYC) norms are also driving the increase in number of accounts. If one hasan Aadhaar card, then no other documents are required for opening an account. If address has changed, then a self-certification of current address is sufficient.

Further, if a person does not have any of the officially valid documents, it is still possible to open an account by submitting an identity card, with applicant's photograph, issued by Central/State government departments,statutory/regulatory authorities, public sector companies, scheduled commercial banks and public financial institutionor a letter issued by a gazette officer.

What has worked

Experts point out that the strength of the model is also another positive factor. Globally, models for financial inclusionare either driven by credit or savings. The PMJDY began as a savings-led model, even though some argue that it isactually a hybrid model in view of the overdraft service, which is a credit facility. However, the predominance of savingselement qualifies the scheme to be labelled as a savings-driven.

In a recent speech, RBI Governor Raghuram Rajan extended support to the scheme when he observed: “When creditleads the process of financial inclusion, we risk lending to people who have little ability to manage money andoverburdening them.

By drawing them into the formal system through savings and payments first, then insurance, we get them accustomedto managing money before tempting them with credit.’’

PMJDY created accounts for much of the excluded population, and went a step ahead by attaching a variety of financialservices such as accident and life insurance to these accounts, and sending direct benefits such as scholarships,pensions, and subsidies to these account holders.


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The model is integrated through business correspondents, payment banks, and point-of-sales machines so that theservices are used frequently.

Any expansion of the direct benefit transfer will be easier with beneficiaries having operative accounts. Governments of Puducherry and Chandigarh have already used the system to directly transfer money in lieu of food grains through thefair price shops. The money transfer saves the government money and brings in efficiencies in the system.

Disparities

Bankers are a bit troubled by zero-balance accounts, which make up for 29 per cent of the accounts under the Jan Dhanscheme. Though the proportion of these accounts have come down from a high of 75 per cent last year, the impact of the scheme will be higher once more of these accounts become operative. Maintaining these accounts adds to the costs

of the banks, who are squeezed for margins.

Also, while places such as Delhi, with higher standard of living and more earning opportunities, will have a lower percent of zero-balance accounts, the total deposit is low. Delhi, with 29 lakh accounts, has about 818 crore in deposits.States with highest deposits are Uttar Pradesh, West Bengal, Rajasthan with 4,069 crore, 3,269 crore and 2,209crore respectively, in their Jan Dhan accounts.

It is also a challenge to ensure that the overdrafts extended to the account holders will be collected back without any trouble. It remains to be seen if a good credit culture accompanies the interest in opening accounts from a customerpoint of view.

A speedier transition to a wide range of direct benefit transfers like pensions and foods subsidies could make thescheme complete as the main objective is financial inclusion.

(This article was published on February 15, 2016)

Printable version | Mar 2, 2016 12:42:23 PM | http://www.thehindubusinessline.com/specials/india-file/polavaram-is-reaping-the-jan-dhan- benefit/article8241246.e ce © The Hindu Business Line


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Here’s How Electric Cars Will Cause the Next Oil

Crisis A shift is under way that will lead to widespread adoption of EVs in the

next decade.

By Tom Randall | Feb. 25, 2016

With all good technologies, there comes a time when buying the alternative no longer

makes sense. Think smartphones in the past decade, color TVs in the 1970s, or even

gasoline cars in the early 20th century. Predicting the timing of these shifts is difficult,

but when it happens, the whole world changes.

It’s looking like the 2020s will be the decade of the electric car.

Battery prices fell 35 percent last year and are on a trajectory to make unsubsidized

electric vehicles as affordable as their gasoline counterparts in the next six years,

according to a new analysis of the electric-vehicle market by Bloomberg New Energy

Finance (BNEF). That will be the start of a real mass-market liftoff for electric cars.


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By 2040, long-range electric cars will cost less than $22,000 (in today’s dollars),

according to the projections. Thirty-five percent of new cars worldwide will have a plug.

This isn’t something oil markets are planning for, and it’s easy to see why. Plug-in cars

make up just one-tenth of 1 percent of the global car market today. They’re a rarity on

the streets of most countries and still cost significantly more than similar gasoline

burners. OPEC maintains that electric vehicles (EVs) will make up just 1 percent of cars

in 2040. Last year ConocoPhillips Chief Executive Officer Ryan Lance told me EVs

won’t have a material impact for another 50 years—probably not in his lifetime.

But here’s what we know: In the next few years, Tesla, Chevy, and Nissan plan to start

selling long-range electric cars in the $30,000 range. Other carmakers and tech

companies are investing billions on dozens of new models. By 2020, some of these will

cost less and perform better than their gasoline counterparts. The aim would be to

match the success of Tesla’s Model S, which now outsells its competitors in the largeluxury class in the U.S. The question then is how much oil demand will these cars

displace? And when will the reduced demand be enough to tip the scales and cause the

next oil crisis?

First we need an estimate for how quickly sales will grow.

Last year EV sales grew by about 60 percent worldwide. That’s an interesting number,

because it’s also roughly the annual growth rate that Tesla forecasts for sales through

2020, and it’s the same growth rate that helped the Ford Model T cruise past the horse

and buggy in the 1910s. For comparison, solar panels are following a similar curve at

around 50 percent growth each year, while LED light-bulb sales are soaring by about

140 percent each year.

Yesterday, on the first episode of Bloomberg’s new animated series Sooner Than You

Think, we calculated the effect of continued 60 percent growth. We found that electric

vehicles could displace oil demand of 2 million barrels a day as early as 2023. That

would create a glut of oil equivalent to what triggered the 2014 oil crisis.

Compound annual growth rates as high as 60 percent can’t hold up for long, so it’s a

very aggressive forecast. BNEF takes a more methodical approach in its analysis today,

breaking down electric vehicles to their component costs to forecast when prices will

drop enough to lure the average car buyer. Using BNEF’s model, we’ll cross the oil-

crash benchmark of 2 million barrels a few years later—in 2028.


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Predictions like these are tricky at best. The best one can hope for is to be more

accurate than conventional wisdom, which in the oil industry is for little interest in

electric cars going forward.

“If you look at reports like what OPEC puts out, what Exxon puts out, they put adoption

at like 2 percent,” said Salim Morsy, BNEF analyst and author of today’s EV report.

“Whether the end number by 2040 is 25 percent or 50 percent, it frankly doesn’t matter

as much as making the binary call that there will be mass adoption.”

BNEF’s analysis focuses on the total cost of ownership of electric vehicles, including

things like maintenance, gasoline costs, and—most important—the cost of batteries.

Batteries account for a third of the cost of building an electric car. For EVs to achieve

widespread adoption, one of four things must happen:

1. Governments must offer incentives to lower the costs.

2. Manufacturers must accept extremely low profit margins.

3. Customers must be willing to pay more to drive electric.

4. The cost of batteries must come down.


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The first three things are happening now in the early-adopter days of electric vehicles,

but they can’t be sustained. Fortunately, the cost of batteries is headed in the right

direction.

There’s another side to this EV equation: Where will all this electricity come from? By2040, electric cars will draw 1,900 terawatt-hours of electricity, according to BNEF.

That’s equivalent to 10 percent of humanity’s electricity produced last year.

The good news is electricity is getting cleaner. Since 2013, the world has been adding

more electricity-generating capacity from wind and solar than from coal, natural gas,

and oil combined. Electric cars will reduce the cost of battery storage and help store

intermittent sun and wind power. In the move toward a cleaner grid, electric vehicles

and renewable power create a mutually beneficial circle of demand.

And what about all the lithium and other finite materials used in the batteries? BNEF

analyzed those markets as well, and found they’re just not an issue. Through 2030,

battery packs will require less than 1 percent of the known reserves of lithium, nickel,

manganese, and copper. They’ll require 4 percent of the world’s cobalt. After 2030, new

battery chemistries will probably shift to other source materials, making packs lighter,

smaller, and cheaper.


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Despite all this, there’s still reason for oil markets to be skeptical. Manufacturers need

to actually follow through on bringing down the price of electric cars, and there aren’t

yet enough fast-charging stations for convenient long-distance travel. Many new drivers

in China and India will continue to choose gasoline and diesel. Rising oil demand from

developing countries could outweigh the impact of electric cars, especially if crude

prices fall to $20 a barrel and stay there.

The other unknown that BNEF considers is the rise of autonomous cars and ride-

sharing services like Uber and Lyft, which would all put more cars on the road that

drive more than 20,000 miles a year. The more miles a car drives, the more economical

battery packs become. If these new services are successful, they could boost electric-

vehicle market share to 50 percent of new cars by 2040, according to BNEF.

One thing is certain: Whenever the oil crash comes, it will be only the beginning. Every

year that follows will bring more electric cars to the road, and less demand for oil.Someone will be left holding the barrel.


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Gates foundation‐ 2016 Annual Letter

More Energy

by Bill Gates

At some point today, you’ll probably do one or all of these things: Flip a switch for light. Take fresh foodfrom a refrigerator. Turn a dial to make your home warmer or cooler. Press a button on your laptop to go

online.

You probably won’t think twice about any of these actions, but you will actually be doing something

extraordinary. You will be using a superpower—your access to energy.

Does that sound ridiculous?

Just imagine, for a minute, life without energy.

You don’t have a way to run a laptop, mobile phone, TV, or video games. You don’t have lights, heat, air

conditioning, or even the Internet to read this letter.

About 1.3 billion people—18 percent of the world’s population—don’t need to imagine. That’s what life islike for them every day.

You can see this fact for yourself in this photograph of Africa at night taken from space.

Africa has made extraordinary progress in recent decades. It is one of the fastest-growing regions of theworld with modern cities, hundreds of millions of mobile phone users, growing Internet access, and a

vibrant middle class.

But as you can see from the areas without lights, that prosperity has not reached everyone. In fact, of the

nearly one billion people in sub-Saharan Africa, 7 out of every 10 of them live in the dark, without

electricity. The majority of them live in rural areas. You would see the same problem in Asia. In India

alone, more than 300 million people don’t have electricity.

If you could zoom into one of those dark areas in that photograph, you might see a scene like this one. This

is a student doing her homework by candlelight.


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A young girl studies by candlelight in Tanzania, 2015

I’m always a little stunned when I see photographs like this. It’s been well over a century since Thomas

Edison demonstrated how an incandescent light bulb could turn night into day. (I’m lucky enough to own

one of his sketches of how he planned to improve his light bulb. It’s dated 1885.) And yet, there are parts of

the world where people are still waiting to enjoy the benefits of his invention.

If I could have just one wish to help the poorest people, it would be to find a cheap, clean source of energy

to power our world.

You might be wondering, “Aren’t people just trying to stay healthy and find enough to eat? Isn’t thatimportant too?” Yes, of course it is, and our foundation is working hard to help them. But energy makes all

those things easier. It means you can run hospitals, light up schools, and use tractors to grow more food.

Think about the history classes you’re taking. If I had to sum up history in one sentence it would be: “Lifegets better—not for everyone all the time, but for most people most of the time.” And the reason is energy.

For thousands of years, people burned wood for fuel. Their lives were, by and large, short and hard. But

when we started using coal in the 1800s, life started getting better a lot faster. Pretty soon we had lights,refrigerators, skyscrapers, elevators, air conditioning, cars, planes, and all the other things that make up

modern life, from lifesaving medicines and moon landings to fertilizer and Matt Damon movies. (The

Martian was my favorite movie last year.)

Without access to energy, the poor are stuck in the dark, denied all of these benefits and opportunities that

come with power.

So if we really want to help the world’s poorest families, we need to find a way to get them cheap, clean

energy. Cheap because everyone must be able to afford it. Clean because it must not emit any carbon

dioxide—which is driving climate change.

I’m sure you have read about climate change and maybe—hopefully!—studied it in school. You might be

worried about how it will affect you. The truth is, the people who will be hit the hardest are the world’s

poorest. Millions of the poorest families work as farmers. Changes in weather often mean that their crops

won’t grow because of too little rain or too much rain. That sinks them deeper into poverty. That’s


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particularly unfair because they’re the least responsible for emitting CO2, which is causing the problem inthe first place.I’m sure you have read about climate change and maybe studied it in school. You might be

worried about how it will affect you. The truth is, the people who will be hit the hardest are the world’s

poorest. Millions of the poorest families work as farmers. Changes in weather often mean that their crops

won’t grow because of too little rain or too much rain. That sinks them deeper into poverty. That’s particularly unfair because they’re the least responsible for emitting CO2, which is causing the problem in

the first place.

Scientists say that to avoid these dramatic long-term changes to the climate, the world must cut greenhousegas emissions by up to 80 percent by 2050, and eliminate them entirely by the end of the century.

A farmer’s dried‐up cropland, Assam, India 2014

When I first heard this I was surprised. Can’t we just aim to cut carbon emissions in half? I asked many

scientists. But they all agreed that wouldn’t be enough. The problem is that CO2 lingers in the atmosphere

for decades. Even if we halted carbon emissions tomorrow, the temperature would still rise because of the

carbon that’s already been released. No, we need to get all the way down to zero.

That’s a huge challenge. In 2015, the world emitted 36 billion tons of carbon dioxide to produce energy.

This is a mind-boggling number. (It’s worth remembering, because it will come in handy. For example,

someone may tell you they know how to remove 100 million tons of carbon per year. That sounds like a lot, but if you do the math—100 million divided by 36 billion—you’ll see that they’re talking about 0.3 percent

of the problem. Every reduction in emissions helps, but we still have to work on the other 99.7 percent.)


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How can we ever reduce a number like 36 billion tons to zero?

Whenever I’m confronted with a big problem I turn to my favorite subject: math. It’s one subject that

always came naturally to me, even in middle school when my grades weren’t that great. Math cuts out the

noise and helps me distill a problem down to its basic elements.

Climate change is an issue that has plenty of noise surrounding it. There are those who deny it is a problem

at all. Others exaggerate the immediate risks.

What I needed was an equation that would help me understand how we might get our CO2 down to zero.

Here’s what I came up with:

That might look complicated. It’s not.

On the right side you have the total amount of carbon dioxide (CO2) we put in the atmosphere. This is what

we need to get to zero. It’s based on the four factors on the left side of the equation: the world’s population(P) multiplied by the services (S) used by each person; the energy (E) needed to provide each of those

services; and finally, the carbon dioxide (C) produced by that energy.

As you learned in math class, any number multiplied by zero will equal zero. So if we want to get to zero

CO2, then we need to get at least one of the four factors on the left to zero.

Let’s go through them, one by one, and see what we get.

The world’s population (P) is currently 7 billion and expected to increase to 9 billion by 2050. No chance

it’ll be zero. (If it is, we won’t have climate change, but something else bad must have happened!) The

world’s population (P) is currently 7 billion and expected to increase to 9 billion by 2050. No chance it’ll

be zero.

Next, services. This is everything: food, clothing, heat, houses, cars, TV, toothbrushes, Elmo dolls, TaylorSwift albums, etc. This is the number that I was saying earlier needs to go up in poor countries, so people

can have lights, refrigerators, and so on. So (S) can’t be zero, either.


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Let’s take a look at (E). That’s the energy needed per service. There’s some good news here. Fuel-efficient

cars, LED light bulbs, and other inventions are making it possible to use energy more efficiently.

Many people, and you may be one of them, are also changing their lifestyles to conserve energy. They’re

biking and carpooling to save gas, turning down the heat a couple degrees, adding insulation to their homes.

All of these efforts help cut down on energy use.

Unfortunately, they don’t get us to zero. In fact, most scientists agree that by 2050 we’ll be using 50 percent

more energy than we do today.

So none of the first three—population, services, and energy—are getting close to zero. That leaves the final

factor (C), the amount of carbon emitted per each unit of energy.

The majority of the world’s energy, other than hydro and nuclear, is produced by fossil fuels like coal thatemit an overwhelming amount of CO2. But there’s some good news here, too. New green technologies are

allowing the world to produce more carbon-free energy from solar and wind power. Maybe you live near a

wind farm or have seen solar panels near your school.

It’s great that these are getting cheaper and more people are using them. We should use more of them where

it makes sense, like in places where it’s especially sunny or windy. And by installing special new powerlines we could make even more use of solar and wind power.

But to stop climate change and make energy affordable for everyone, we’re also going to need some new

inventions.

Why? Solar and wind power are reliable energy sources so long as the sun is shining and the wind is

blowing. But people still need dependable energy on cloudy days, at nighttime, and when the air is still.

That means power companies often back up these renewable sources with fossil fuels like coal or natural

gas, which emit greenhouse gases.

It would help, of course, if we had a great system for storing solar and wind power. But right now, the beststorage option is rechargeable batteries, and they are expensive. Lithium-ion batteries like the one inside

your laptop are still the gold standard. If you wanted to use one to store enough electricity to run everything

in your house for a week, you would need a huge battery—and it would triple your electric bill.

So we need more powerful, more economical solutions.

In short, we need an energy miracle.

When I say “miracle,” I don’t mean something that’s impossible. I’ve seen miracles happen before. The

personal computer. The Internet. The polio vaccine. None of them happened by chance. They are the result

of research and development and the human capacity to innovate.

In this case, however, time is not on our side. Every day we are releasing more and more CO2 into our

atmosphere and making our climate change problem even worse. We need a massive amount of researchinto thousands of new ideas—even ones that might sound a little crazy—if we want to get to zero emissions

by the end of this century.

New ways to make solar and wind power available to everyone around the clock could be one solution.

Some of the crazier inventions I’m excited about are a possible way to use solar energy to

produce fuel, much like plants use sunlight to make food for themselves, and batteries the size

of swimming pools with huge storage capacity.


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Many of these ideas won’t work, but that’s okay. Each dead end will teach us something useful and keep usmoving forward. As Thomas Edison famously said, “I have not failed 10,000 times. I’ve successfully found

10,000 ways that will not work.”

But to find thousands of ways that won’t work, you first need to try thousands of different ideas. That’s not

happening nearly enough.

Governments have a big role to play in sparking new advances, as they have for other scientific research.

U.S. government funding was behind breakthrough cancer treatments and the moon landing. If you’rereading this online, you have the government to thank for that too. Research paid for by the U.S.

government helped create the Internet.

But energy research and the transition to new energy sources takes a long time. It took four decades for oilto go from 5 percent of the world’s energy supply to 25 percent. Today, renewable energy sources like wind

and solar account for less than 5 percent of the world’s energy.

So we need to get started now. I recently helped launch an effort by more than two dozen private citizensthat will complement government research being done by several countries. It’s all aimed at delivering

energy miracles.

You may be wondering what you can do to help.

First, it’s important for everyone to get educated about this energy challenge. Many young people are

already actively involved in climate and energy issues and I’m sure they could use more help. Yourgeneration is one of the most globally minded in history, adept at looking at our world’s problems beyond

national borders. This will be a valuable asset as we work on global solutions in the decades ahead.

Second, if you’re someone with some crazy-sounding ideas to solve our energy challenge, the world needs

you. Study extra hard in your math and sciences. You might just have the answer.

The challenge we face is big, perhaps bigger than many people imagine. But so is the opportunity. If theworld can find a source of cheap, clean energy, it will do more than halt climate change. It will transform

the lives of millions of the poorest families.

I'm so optimistic about the world’s ability to make a miracle happen that I’m willing to make a

prediction. Within the next 15 years—and especially if young people get involved—I expect the world

will discover a clean energy breakthrough that will save our planet and power our world.

I like to think about what an energy miracle like that would mean in a slum I once visited in Nigeria. It was

home to tens of thousands of people but there was no electricity. As night fell, no lights flickered on. Theonly glow came from open fires lit in metal barrels, where people gathered for the evening. There was no

other light for kids to study by, no easy way to run a business or power local clinics and hospitals. It was sadto think about all of the potential in this community that was going untapped.

A cheap, clean source of energy would change everything.

Imagine that.


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Asia in Focus

India’s external debt – not an immediate concern

3 March 2016

India’s external debt has increased threefold in the last decade to US$483bn,

driven by a rise in commercial borrowings and non-resident deposits. However,

external debt as a share of GDP has remained stable at around 23%.

We estimate that about US$125bn (6% of GDP) of Indian companies’ FX-

denominated debt could be unhedged.

In our view, the unhedged portion of external debt may not be a significant macro

risk in the near term due to better external ratios such as largely stable external

debt-to-GDP ratio, lower current account deficit, relatively better FX reserves and

fall in short-term FX liabilities. Moreover, there has been no major increase in the

external debt service payments of Indian firms as a proportion of GDP in periods

of the USD strengthening in the past.

While we expect the INR to depreciate gradually against the USD—our twelve-

month forecast is 68.5—individual Indian companies still need to keep a close

watch on their unhedged exposure to avoid the risk of FX mismatch in the risk

scenario of a significant depreciation in the INR.

India’s external debt as a share of GDP is largely stable

Source: Ministry of Finance, Haver Analytics, Goldman Sachs Global Investment Research

Vishal Vaibhaw+91(22)6616-9376 |[email protected] Sachs India SPL

Tushar Poddar+91(22)6616-9042 |[email protected] Sachs India SPL

Nupur Gupta+65-6654-5438 | [email protected] Sachs (Singapore) Pte

Investors should consider this report as only a single factor in making their investment decision. For Reg ACcertification and other important disclosures, see the Disclosure Appendix, or go towww.gs.com/research/hedge.html .

mailto:[email protected]?subject=India%E2%80%99s%20external%20debt%20%E2%80%93%20not%20an%20immediate%20concern%20mailto:[email protected]?subject=India%E2%80%99s%20external%20debt%20%E2%80%93%20not%20an%20immediate%20concern%20mailto:[email protected]?subject=India%E2%80%99s%20external%20debt%20%E2%80%93%20not%20an%20immediate%20concern%20mailto:[email protected]?subject=India%E2%80%99s%20external%20debt%20%E2%80%93%20not%20an%20immediate%20concern%20http://www.gs.com/research/hedge.htmlhttps://360.gs.com/gs/portal/research/macro/econ/overview/http://www.gs.com/research/hedge.htmlmailto:[email protected]?subject=India%E2%80%99s%20external%20debt%20%E2%80%93%20not%20an%20immediate%20concern%20mailto:[email protected]?subject=India%E2%80%99s%20external%20debt%20%E2%80%93%20not%20an%20immediate%20concern%20mailto:[email protected]?subject=India%E2%80%99s%20external%20debt%20%E2%80%93%20not%20an%20immediate%20concern%20


16/48

India’s external debt – not an immediate concern

India’s external debt has increased threefold in the last decade, rising to US$483bn

in FY16 from US$172bn in FY07. However, when normalized by GDP, external debt

has been relatively stable, reaching 23.6% of GDP as of end-September 2015

(Exhibit 1). A comparison with other major economies in the region also suggests

that India’s external debt ratio is low. However, with the bulk of debt to foreign

creditors denominated in FX, the 6% depreciation in the INR against the USD sinceAugust 2015 has raised concerns relating to India’s external balance sheet, in

particular in terms of Indian corporate unhedged foreign currency liabilities.

External debt profile

The maturity profile of external debt suggests that long-term debt accounts for over

80% of the total. The share of short-term debt in total external debt has declined to

18% as of September 2015 from a peak of 24% in FY13. This is due to lower trade-related credits on weak global trade and to restrictions (since early 2014) on foreign

investment in government securities with a residual maturity of less than one year.

From a borrower side, non-financial corporates are the largest borrowers with about

50% share of external debt, followed by the financial sector and the government. In

terms of change over the past couple of years, the financial sector’s share of total

external debt has experienced the largest increase driven by a significant pick up in

non-resident Indian deposits. Non-financial corporates’ share has declined due to a

drop in short-term external liabilities. However, external commercial borrowings

(external banks loans as well as securitized borrowing) remained mostly robust

before moderating in the September quarter. The government’s share of total debt

has remained largely flat at 18%.

Exhibit 1: India’s external debt as a share of GDP is largely

stable….

Exhibit 2: ….and one of the lowest in the region

Source: Ministry of Finance, Haver Analytics, Goldman Sachs Global Investment Research Source: Haver Analytics, Goldman Sachs Global Investment Research

3 March 2016 Page 2

Goldman Sachs Asia in Focus


17/48

Looking at the currency profile of India’s external debt, we estimate that foreign

currency debt accounts for 72% of external debt (US$346bn). Digging down further,

58% of external debt is USD denominated and the remaining 14% of non-INR debt

is denominated in other currencies such as the EUR and JPY.

Exhibit 3: Non-financial corporates are the largest borrowers

Source: World Bank, Haver Analytics, Goldman Sachs Global Investment Research

Exhibit 4: Deciphering India’s external debt

Source: World Bank, Haver Analytics, Goldman Sachs Global Investment Research

3 March 2016 Page 3



18/48

Is external debt a key vulnerability?

The INR has depreciated by 6% versus USD since August 2015. The weakening INR

has raised concerns relating to India’s external debt position given a large proportion

of corporate debt is unhedged.

Foreign currency-denominated debt of Indian non-financial corporates stood at

US$216bn as of September 2015. As per the RBI estimates, the hedge ratio was

around 42% of total foreign currency debt in the first three quarters of FY161.. Weestimate that US$125bn (6% of GDP) of non-financial corporates FX debt could be

unhedged as of end-September 2015. Apart from the direct risk of potential FX debt

mismatches from unhedged exposure, there could be indirect risks to the banking

system, which has loan exposure to these firms2..

However, several factors suggest the unhedged debt should not be an immediate

source of macro vulnerabilities.

Past episodes of USD appreciation: Past episodes of USD appreciation and changes

in India’s corporate external debt service payment as a share of GDP suggest that

the spillovers from USD appreciation on India’s external balance sheet have been

largely limited. Between FY95 and FY16, in periods of USD strengthening (as

measured by appreciation of the real trade-weighted dollar index), the average

change in external debt service payment as a proportion of GDP for Indian firms

remained mostly contained at 0.3 pp of GDP. Appreciation in the USD was helpful in

moderating the increase in India’s external debt through the favorable valuation

effect since not all commercial borrowings were priced in USD.

1. Edited Transcript of Reserve Bank of India’s Post Policy Conference Call with Researchers andAnalysts, February 2, 2016

2. Capital and Provisioning Requirements for Exposures to Entities with Unhedged Foreign CurrencyExposure, RBI, January 15, 2014

Exhibit 5: A large proportion of Indian non-financial corporates’ debt is unhedged

Source: Haver Analytics, Goldman Sachs Global Investment Research

3 March 2016 Page 4



19/48

Relatively better external ratios: As India’s external debt ratios as a percentage of

GDP (both total and short term) are lower than most Asian peers, they do not

suggest reason to be overly concerned yet, in our view. India is relatively betterpositioned than other countries in the region in terms of indicators of reserve

buffers, such as FX reserves as a proportion of short-term debt and in months of

imports. While India’s current account and net international investment positions are

in deficits, they have shown a significant improvement as a share of GDP since the

‘taper tantrum’ in 2013.

Fall in short-term FX liabilities: Short-term FX liabilities of non-financial corporates

have fallen by 0.7 percentage points of GDP between FY14 and FY16, suggesting

less pressure on the external account. In addition, companies generally tend to

hedge their short-term interest payments and principal repayments. Some

companies have natural hedges due to USD revenues and do not carry the risk of FX

debt mismatches.

Exhibit 6: No sharp increase in debt service payments in the past

episodes of USD appreciation

Source: Ministry of Finance, Haver Analytics, Goldman Sachs Global Investment Research

Exhibit 7: India’s external ratios look relatively better compared to regional peers

Source: Haver Analytics, Goldman Sachs Global Investment Research

3 March 2016 Page 5



20/48

Recent changes in policies: While the RBI does not prescribe a specific hedge ratio

for corporates’ external borrowings, it put in place recent changes in policies to

reduce currency-related risks. The RBI increased access to rupee-denominated

borrowings by raising the limit on rupee-denominated corporate bonds to US$51bn

for foreign investors and allowing Indian firms to issue rupee-denominated bonds

abroad. A number of companies, infrastructure companies in particular, are already

moving to local currency debt from FX debt according to the RBI. The RBI also

prescribed additional provisions for domestic banks to discourage lending to

companies that have large unhedged FX exposure.

To conclude, we do not see Indian companies’ unhedged FX exposure, as whole, to

be a major macro risk in the near term due to India’s relatively better external ratios

such as largely stable external-debt-to-GDP ratio, lower current account deficit,

relatively better FX reserves and fall in short-term FX liabilities. While we expect the

INR to depreciate gradually against the USD (our 12-month forecast is 68.5), we do

think that individual Indian companies still need to keep a close watch on their

unhedged exposure to avoid the risk of FX mismatch in the risk scenario of a

significant depreciation in the INR.

3 March 2016 Page 6



21/48

INSTITUTIONAL EQUITY RESEARCH

Page | 1 | PHILLIPCAPITAL INDIA RESEARCH

Evaluating rural revival Rains, grains and gains

INDIA | Strategy3 March 2016

Meteorological models of various agencies (global and local) are pointing to a normal

monsoon in FY17. Our analysis of the long-term historical trend of monsoon and agri-

growth suggests that after a deficient monsoon year, the average agri-GDP (real) growth in

a normal monsoon is 8.7%. While the Indian economy has been moving away from

agriculture (agriculture/services/industrial at 17%/53%/30% of GDP), 58% of rural

households are still agricultural.

Rural labour has suffered from low wages in the past two years, especially due to a fall in

MNREGA spending. This trend has reversed in the last few months with revised estimates

surpassing the budgeted amount. With a 17% increase in rural developmental expenditure

projected in FY17, there is comfortable visibility for wage growth coming in rural areas. With

an imminent recovery in rural economy in sight, this is the time to add rural stocks.

Case for a normal monsoon in 2016: According to the latest updates compiled by Australian

Bureau of Meteorology, Climate Prediction Center (USA), and from the Indian Institute of

Tropical Meteorology (IITM) – the El Niño condition started weakening in January and is likely to

turn neutral in June-August 2016. IITM also forecasts Indian Ocean Dipole (Indian Niño)

remaining neutral in the monsoons. Historically, there have never been three consecutive strong

El Niño years and India has never experienced three consecutive droughts. The ENSO chart

reveals that whenever El Niño has reverted to normal, India has had a normal monsoon. While

modelling climatic patterns comes with its own set of forecast errors, these are encouraging

signs. The final verdict on monsoons will come from IMD and Skymet in April 2016.

Agri-GDP posts strong recovery when monsoon reverts to normal from deficiency: In such a

year, agri-GDP sees sharper growth (from a low base) of around 8.7%. With almost 64% of rural

employment engaged in agriculture, an agrarian recovery has the potential to drive rural growth

in FY17. Decent MSP growth (usually decided by the CACP before the monsoon kicks in) could

front-load rural consumption.

Rural wages take-off a reality: Wage growth for rural labourers is important for the rural

economy, as wages are a major source of income for 35% of agri-households. A major negative

for rural India in FY16 was declining wage growth, which was at historical lows (when adjusted

for inflation). Nominal rural wage growth was 3.6% in May 2015 (latest available RBI data). Rural

CPI Labourers data, which roughly traces the same trend, saw an uptick in the later part of FY16,

as wages expenditure under MNREGA – households availing work under the scheme saw a huge

spurt from September 2015. The government has increased its planned expenditure under

various rural development schemes by 17% in the FY17 budget – which should help sustain ruralwage growth.

Similarities with FY11: The current scenario is reminiscent of FY11, when rural India bounced

back from a drought year, thanks to 2% above-normal monsoons and the government’s rural

stimuli. In that year, agri-GDP saw 8% growth, tractors grew 20%, 2-wheelers grew by 19%, rural

fmcg sales was growing at almost double of urban sales and ad revenue in print grew by 20%.

Rural plays: Mahindra & Mahindra, Hero Motocorp Ltd, Bajaj Corp, Dabur, Emami, Mahindra &

Mahindra Financial services, Monsanto, Coromandel International, Finolex cables, DB Corp and

Hindustan Media Ventures Ltd stand out to be major beneficiaries.

Anindya Bhowmik (+ 9122 6667 9764)[email protected]


22/48


INDIA STRATEGY UPDATE

Likelihood of a normal monsoon is higherStrong El-Nino occurrence in the past two years was the principal cause for India receiving

sub-normal (below 10%) monsoon in FY15-16. However, latest data from various agencies

points at El Nino weakening by June 2016.

El Nino is likely to fall to the neutral zone by June 2016

Source: Australian Bureau of Meteorology (28th

February 2016), PhillipCapital Research India

Forecasts suggest significant El Nino weakening by June

Source: CPC-IRI, PhillipCapital Research India

NINO anomaly will fall below threshold considered for Neutral zone

Source: CPC-IRI, PhillipCapital Research India

Consensus probability models of CPC/IRI

(early February) suggest significant El

Nino weakening by June, the beginning of

Indian monsoon

Majority of the models suggest that NINO

anomaly will fall below 0.5 by JJA period,

the threshold considered for Neutral zone


23/48



Dark blue is the median forecast of IITM, which too is below 0.5 by June

Source: IITM, PhillipCapital Research India

In the last 65 years, El Nino was normal (Ocean Nino index between -0.5 and 0.5) in 34

instances during monsoon – India experienced deficient rainfall thrice (1966, 1979, and

2014) and below-normal rainfall in five instances.

Indian monsoon during all the neutral El Nino yearsYear Oceanic Nino Index India monsoon deviation

1952 0 -6%

1959 -0.3 18%

1960 0 3%

1961 0.1 19%1962 -0.1 2%

1966 0.2 -11%

1967 0 0%

1969 0.4 1%

1976 0.1 1%

1977 0.4 2%

1978 -0.4 6%

1979 0.1 -18%

1980 0.3 5%

1981 -0.3 0%

1983 0.3 12%

1984 -0.3 0%

1985 -0.4 -6%

1986 0.2 -9%1989 -0.3 0%

1990 0.3 9%

1993 0.3 0%

1994 0.4 12%

1995 -0.2 3%

1996 -0.2 0%

2001 0 -7%

2003 0.1 7%

2005 0.1 -1%

2006 0.2 0%

2007 -0.3 6%

2008 -0.3 -1%

2011 -0.3 2%

2012 0.1 -7%

2013 -0.2 6%

Source: CPC- USA Weather Bureau, data.gov.in, PhillipCapital Research India

Dark blue is the median forecast of IITM,

which too is below 0.5. This is the latest

orecast published on Feb 10, 2016


24/48



However, in the years succeeding the El-Nino years where EL-Nino receded to normal,

drought was experienced only once (in 1966) out of seven times.

Indian monsoon has usually bounced back to normal in the year after El Nino weakensYear Oceanic Nino Index (JJA) India monsoon deviation

1951 0.5 -14%1952 0 -6%

1953 0.7 9%

1954 -0.5 4%

1957 1 -4%

1958 0.5 12%

1959 -0.3 18%

1963 0.7 3%

1964 -0.7 13%

1965 1 -20%

1966 0.2 -11%

1972 1.1 -24%

1973 -1 4%

1982 0.8 -13%

1983 0.3 12%

1987 1.4 -15%

1988 -1.2 19%

1991 0.7 -1%

1992 0.5 -4%

1993 0.3 0%

1997 1.4 -2%

1998 -0.7 0%

2002 0.8 -16%

2003 0.1 7%

2004 0.5 -13%

2005 0.1 -1%

2009 0.5 -21%

2010 -0.8 3%

Source: CPC-USA Weather Bureau, data.gov.in, PhillipCapital Research India

According to Indian climatologists, El Nino is not the only factor to govern Indian

monsoon, but is a key component of their weather models. Indian Ocean Dipole (IOD) is

another important phenomenon that can add/negate the impact of El Nino. While

tracking of IOD is quite recent, an above normal IOD (surface temperature rising above

0.4˚C) is said to favour Indian monsoon winds. IITM model suggest that IOD is projected to

be in the normal region and thus unlikely to aid or deter monsoons.

IITM’s IOD model plot of its median and majority of contributors are in the normal

zonez

Source: IITM, PhillipCapital Research India


25/48



Impact of a normal monsoon subsequent to a deficient oneIndian Agriculture has been historically dependent on monsoon, due to lack of

improvement in irrigation. The long-term data shows a 60% correlation of growth in

agricultural GDP and deviation of monsoon from normal. The average agri-GDP growth in

India for years of neutral El Nino was 4.1%.

Monsoon characteristics and agri-GDP growth in normal El Nino periods (rhs)

Source: CPC- USA Weather Bureau, RBI, PhillipCapital Research India

Note: This is a discrete time-series and considers the particular years when ONI effect was neutral to depict

rainfall situation in those years. Neutral Nino is marked when ONI is between -0.5 and 0.5

The impact is felt all the more in the year following the drought year when monsoon

returns to normal. While the long-term agri-GDP growth average in a non-deficient yearis 5%, the same for the post-drought year not facing a drought is 10%, with the minimum

being 3.2% in 1952. If we remove the four La Nina years following a drought year, the

same average still remains a strong 8.7%. It is also pertinent to point out that in 2001,

when the rainfall was 7% below normal after the near-drought situation in 2000, the

corresponding growth was at 6%!! This suggest that the upside potential impact of a slight

sub-normal monsoon too is HUGE!

Trend of Indian agri-GDP when monsoon comes back to normal from a deficient year

Source: data.gov.in, MOSPI, RBI, PhillipCapital Research India

-0.6

-0.5

-0.4

-0.3-0.2

-0.1

0

0.1

0.2

0.3

0.4

0.5

-15

-10

-5

0

5

10

15

20

25

1 9 5 6

1 9 6 2

1 9 7 7

1 9 8 9

9 9 4

2 0 0 3

0 0 8

India monsoon deviation (%) Agri-GDP growth(%) Oceanic Nino Index (JJA)

-5

+5

-30

-25

-20

-15

-10

-5

-

5

10

15

20

25 India monsoon deviation (%) Agri-GDP growth (%)


26/48



Agri-growth and food-grains output trend from a deficient year to a normal year

Year

India monsoon

deviation (%) Agri-GDP growth (%)

Food-grain production

growth (%)

MSP growth - cereals

(%)

FY1952 -13.8 1.5 2 NA

FY1953 -6.4 3.2 14 NA

FY1966 -20.0 -11.0 -19 NAFY1967 -11.0 -1.4 3 NA

FY1968 -0.1 14.9 28 NA

FY1973 -23.8 -5.0 -8 NA

FY1974 3.9 7.2 8 NA

FY1975 -11.5 -1.5 -5 NA

FY1976 13.3 12.9 21 NA

FY1980 -17.8 -12.8 -17 8

FY1981 5.3 12.9 18 11

FY1983 -13.0 -0.3 -3 5

FY1984 11.7 10.1 18 5

FY1988 -15.1 -1.6 -2 3

FY1989 18.5 15.6 21 7

FY2001 -9.9 0.0 -6 5FY2002 -7.1 6.0 8 5

FY2003 -16.4 -6.6 -18 0

FY2004 7.1 9.0 22 3

FY2005 -12.6 0.2 -7 2

FY2006 -1.3 5.1 5 2

FY2010 -21.1 0.8 -7 6

FY2011 2.9 8.6 12 2

Source: data.gov.in, MOSPI, RBI, PhillipCapital Research India

Tractor sales too have seen strong growth in periods when rainfall turns normal after a

deficient one. Since 1974, in years that fit this scenario, average tractor sales growth was

13%. The only outlier was 2002, when tractor sales posted a decline of 16% despite agri-

GDP growing 6% – this was because the season ended with rainfall at 7% below normal.

Tractor sales growth trends when monsoon returns to normal from deficient

Source: MOSPI, RBI, PhillipCapital Research India

Our economist is expecting a 3% growth in agri-GDP in FY17 with the assumption of a

normal monsoon. Statistically speaking, a positive surprise to this number is easier to

achieve than a negative surprise, if the monsoon pans out normally.

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

F Y 1 9 7 6

F Y 1 9 8 2

F Y 2 0 0 4

F Y 2 0 1 0

Tractor Growth (lhs) Rainfall (vs. normal)


27/48



De-constructing rural households

According to the NSS 70th

round, 90 mn (58%) of 156 mn rural households are agricultural

households; 63% of these households derive their principal source of income from

agriculture.

Income distribution for agricultural households

Source: NSS 70th

round, PhillipCapital Research India

Land possession is the principal determinant for the principal source of agricultural

income. 34.5% of the 90mn agricultural households possess land size of less than 0.4 ha.

For them, wage/ salary income is the principal source. Also, as it is the most indebtedgroup, its consumption per month is less than average rural consumption. While rural

wage growth is very important for these groups, that growth will benefit the rural

consumer staples more.

De-constructing agri households on the basis of land possession

land size (ha)

wage/ salary

income as

% of total

Cultivation

as % of total

Animal

farming

as % of total

Non-farm

business as

% of total

Total income

per month

(Rs)

Consumption

per month

(Rs)

Estd

households

(mn)

% of total

households

operated on

agri-activities

(%)

% having

MGNREG job

card

< 0.01 64% 1% 26% 10% 4,561 5,108 2 2.6% 46.6 38.3

0.01 - 0.40 57% 17% 15% 11% 4,152 5,401 29 31.9% 94.8 45.3

0.41 - 1.00 38% 41% 12% 9% 5,247 6,020 32 34.9% 99.4 46.3

1.01 - 2.00 24% 57% 11% 8% 7,348 6,457 15 17.2% 99.6 43.8

2.01 - 4.00 15% 69% 11% 5% 10,730 7,786 8 9.3% 99.8 41.4

4.01 -10.00 10% 78% 8% 4% 19,637 10,104 3 3.7% 99.6 36.1

10.00 + 3% 86% 6% 4% 41,388 14,447 0 0.4% 97.5 29.3

all sizes 32% 48% 12% 8% 6,426 6,223 90 96.6 44.4

Source: NSS 70th

round, PhillipCapital Research India

Most households that have spending power in the rural region derived it from agriculture.

For them, a good monsoon is more important than growth in rural labour wages. Rural

discretionary income will thus be more dependent on farm output.

63%

1%

22%

4%

5%5%

Cultivation

other agri activities

wage employment

livestock

non-agri enterprises

others


28/48



Depressed rural wages can see take-off in FY17 – but

depend on central budgetary allocationSince October 2013, rural wage growth started to decline steadily from 15% yoy down to

3.6% in May 2015 (RBI data). However, tracking the data against Rural CPI Labourers, for

which the latest data is available, there seems to be a marginal increase in wages recentlythanks to the increased spending under MNREGA since August 2015.

Rural wages declined sharply in mid-2014 and have been suppressed ever since

Source: RBI, Bloomberg, PhillipCapital Research India

MNREGA expenditure and the amount spent on rural wages were falling from FY13 to

FY15. This trend has changed only recently in FY16. This declining trend was a major

factor in deciding the base price in the rural labour economy, consequently keeping prices

suppressed. Cumulative rural wages spend under MNREGA in FY16 until January was 3%

higher yoy over the total expenditure in rural wages in FY15.

Spending trend under MNREGA (Rs bn) turned positive in FY16; the 2016 budget

continues with this trend

Source: NREGA website, Union Budget 2016, PhillipCapital Research India

The recent spurt in the Rural CPI Labourers coincides with the increased spending focus

under MNREGA. This was partly necessitated because it became clear by August 2015

that monsoon was going to be deficient. Cumulative wage expenditure increase until

January for FY16 under MNREGA is now at 3% yoy. Revised estimates for FY16 showMNREGA to exceed allocated amount and the expenditure on rural wages is expected to

increase by 13% in FY16.

-5

0

5

10

15

20

-20

-10

0

10

20

30

40

a r - 1 0

J u n - 1 0

S e p - 1 0

D e c - 1 0

a r - 1 1

J u n - 1 1

S e p - 1 1

D e c - 1 1

a r - 1 2

J u n - 1 2

S e p - 1 2

D e c - 1 2

a r - 1 3

J u n - 1 3

S e p - 1 3

D e c - 1 3

a r - 1 4

J u n - 1 4

S e p - 1 4

D e c - 1 4

a r - 1 5

J u n - 1 5

S e p - 1 5

D e c - 1 5

nominal wage growth (%) (lhs) cpi rural laborers(%) (rhs)

-10%

-5%

0%

5%

10%

15%

0

50

100

150

200

250

300

350

400

450

FY2013 FY2014 FY2015 FY2016 RE FY2017 (BE)

Total MNREGA expenditure Expenditure in rural wages

Expenditure in rural wages yoy (rhs) (%)


29/48



Households (in mn) who availed jobs under MNREGA

Source: NREGA website, PhillipCapital Research India

Expenditure on rural wages (Rs bn) under MNREGA has also seen a marked jump

towards end 2015

Source: NREGA website, PhillipCapital Research India

The recent fervour of MNREGA spending has continued – with increase in allocation for

MNREGA and other rural schemes in the 2016 budget. Rural developmental expenditure

has seen a 17% increase in budgetary allocation.

Budgetary allocation for rural developmental expenditure (major heads)

In Rs bn FY17 FY16 yoy (%)

MGNREGA 385.0 347.0 11.0

National Livelihood mission (rural) 15.3 14.6 4.9

Rural housing (PMAY) 150.0 100.0 50.0

Rural roads (PMGSY) 175.8 151.9 15.8

Rural sanitation (Swachh bharat) 90.0 60.0 50.0

Irrigation (PMKSY) 58.4 53.0 10.2

DD Gram Jyoti Scheme 29.3 44.1 -33.6

Total 903.8 770.6 17.3

Source: Union Budget, PhillipCapital Research India

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

0

5

10

15

20

25

Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

Fy2015 Fy2016 yoy (rhs)

-100%

-50%

0%

50%

100%

150%

200%

0

5

10

15

20

25

30

35

40

Apr May Jun Jul Aug Sep Oct Nov Dec Jan

Fy2015 Fy2016 yoy (rhs) cumulative yoy (rhs)


30/48



FY11 – lessons from the pastFY11 could provide insights into to how FY17 can pan out for the rural economy –2009

was a drought year; subsequently, FY10 was a difficult year for rural India with agri-GDP

growing at 0.8% (similar to FY16’s 1%). In the 2010 budget, spending in agriculture and

allied services was increased 26% to Rs 780bn to alleviate rural pain, with 15% increase in

rural development to Rs 487bn. While total expenditure under MNREGA increased by just

4% in FY11 to Rs 394bn, it was up 40% in FY10 to Rs 379bn from Rs 273bn in FY09.

Trend in central agrarian expenditure (Rs bn) in FY09-11

Source: RBI, NREGA website, PhillipCapital Research India

While expenditure through MNREGA saw marginal growth, Bharat Nirman, the flagship

programme for rural infrastructure, saw 18% growth to Rs 480bn in FY11, after a 45%

growth in FY10.

In terms of MSP for paddy, FY11 had seen a 5% reduction after a 17% increase in FY10.

This was offset because of a 12% growth in crop yields. These were the major drivers

behind India realising an 8.6% growth in agri-GDP in FY11.

Quarterly trend in agri-GDP growth during the boom period of FY11

Source: Bloomberg, PhillipCapital Research India

Thus, FY11 was one of the rosy years for rural consumption. Two-wheeler sales grew 26%

in FY11, buoyed by rural growth (then declined sharply afterwards). Tractor sales grew

20%. Rural sales of FMCG companies were almost double of urban and ad revenue

growth for print media was at 20%.

0

100

200

300

400

500

600

700

800

900

FY09 Fy10 Fy11

Agri spending Rural development MNREGA expenditure

-2

0

2

4

6

8

10

12

14

01-09-2009 01-03-2010 01-09-2010 01-03-2011 01-09-2011 01-03-2012


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02/03/2016 Print: Trai shows the expressway to broadbanding India – The Financial Express - Page 99

http://www.financialexpress.com/article/fe-columnist/trai-shows-the-expressway-to-broadbanding-india/218352/99/print/ 1/2

Trai shows the expressway to broadbanding India

We have two excellent sets of detailed recommendations by Trai in 2015 and 2016, andclear guidelines for implementing them efficiently and delivering broadbandexpeditiously.It is pertinent to remind ourselves that “like electricity a century ago, broadband will be the foundation of economic growth, job

creation, global competitiveness and a better way of life,” (Trai, April 17, 2015). Unfortunately, despite years of discussion, we are

only slipping compared to other nations. In the ITU 2014 State of Broadband Report, India is ranked 142 out of 166 nations with

respect to internet usage, way below even Sri Lanka and Bhutan. We are placed in the distinctive class of 42 least connected

countries, with 11 countries from Africa ranked higher than us. The need to improve data usage and broadband is, obviously,

urgent. Understanding Trai’s recommendations on the matter is, therefore, of paramount importance to all of us.

Fibre, a fundamental need: Despite the importance of wireless and notwithstanding the availability of adequate and robust mobilenetworks, sustainability in broadband and telecom is not possible without enough optic fibre all over the country. India is at

tremendous disadvantage compared to modern digital regimes of the US, Europe, China, etc.

If not remedied quickly, this handicap could become an increasingly formidable challenge for the achievement of Broadband for All

and Digital India, initiatives since these demand tremendous data back-haul capacity, far beyond the limits of most microwave

solutions. Only E-Band spectrum or ‘wireless fibre’ can serve some important niche applications.

NOFN is a non-starter: In 2011, the government had sanctioned the National Optical Fibre Network (NOFN) project and a budget of

Rs 20,000 crore to achieve it. However, NOFN was dogged by bad luck as well as ineffective design and poor implementation, right

from the start. After four years of little progress against relaxed deadlines, instead of burying the basic fibre in the ground, NOFN

was ironically given a quiet burial around mid-2015. This had been preceded by an excellent set of Trai recommendations in April

2015 for Delivering Broadband Quickly through much revamping and a more holistic approach. Trai now has launched acomprehensive Consultation Process for Implementation of BharatNet, the new name of NOFN.

Comprehensive consultations and recommendations, 2015-16: Against the background of its own recommendations of April 2015

and the DoT Expert Committee Review of NOFN, Trai launched its next exercise and innovated an effective methodology for

implementation consultations. It first had a couple of rounds of in-depth consultations with subject matter experts from academia,

research institutions, industry and specialist consultancies, followed by an exhaustive open house discussion, before coming out,

on February 1, 2016, with its final set of recommendations for implementation of BharatNet. It is rare that regulatory

recommendations are equally acceptable to all stakeholders. However, this time, there is all-round acceptance that the measures

suggested by Trai would give Project BharatNet a boost and help achieve Broadband for All.

Huge revenue upside: If Trai recommendations are implemented, the revenue potential from broadband services by 2020 could be

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02/03/2016 Print: Trai shows the expressway to broadbanding India – The Financial Express - Page 99

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in the range of R1 lakh crore. The revenue potential could even breach these estimates given the huge potential that these services

have to offer for India.

Broadband revenue will depend on availability of content (especially vernacular), availability of affordable handsets, and friendly

government regulations and policies. In fact, BharatNet as the prime engine of Digital India can be a potential GDP multiplier,

equivalent to up to 2-4 times the $18 billion that is proposed to be invested in Digital India—it can add between $36 billion and $72

billion to India’s GDP in the coming years.

Government ownership, a strategic essential: The key to success would be the Trai-recommended BOOT model with involvement

of the private sector for deployment and operations. But experts are of the view that, for strategic reasons, ownership/funding mustremain predominantly with the government. Such an ownership structure is essential to ensure open, non-discriminatory access to

all operators. Moreover, given the size and complexity of the project along with associated capital risks, it may not be prudent to

consider handing over the ownership to private sector.

Key recommendations: Trai has rightly stressed that RoW (Right of Way) must be provided free of cost by all states to the

executing agency. This is the most fundamental requirement not only for this project, but also for OFC-laying anywhere.

Many (as many as 14) Trai recommendations are in complete congruence with stakeholders’ suggestions.

* Concessionaire period of operation/agreement be kept as 25 years, co-terminus with the life of the optical fibre. This would give

the operator sufficient incentive to recover the costs sunk into the project. Also, extension of lease/agreement for a further period in

blocks of 10/20/30 years, subject to mutual agreement;

* Involvement of government (Centre/states) as an equity partner in the consortium, as it will help in getting faster government

clearances, resolve the risk of monopolistic behaviour while also automatically solving the risks associated with windfall profits;

* Flexibility in terms of route for laying optical fibre, and the choice of construction, topology and technology to be allowed to the

bidder/executing agency;

* Selection of bidder based on the minimum viability gap funding (VGF) sought and to align the service area as the licensed service

area or the state/circle itself;

* Incentives to private operators for early achievements against pre-defined milestones;

* Inbuilt measures to ensure access is provided to all service providers in a non-discriminatory and transparent manner;

* Regulation of wholesale pricing by Trai to safeguard against anti-competitive behaviour and to ensure affordability;

* Liberal eligibility criteria to allow maximum participation of bidders.

Trai is to be commended for seriously considering stakeholders’ suggestions regarding alternate technology options, such as

satellite communication for expediting the rollout of the project. However, keeping in view NOFN expert committee suggestions and

that the prevailing regulatory environment does not encourage for smooth and efficient deployment of latest Satcom technologies,

the choice of alternate technologies was left to the implementing agency.

It is heartening to hear that DoT is now considering connecting 6,000 remote and difficult-to-access gram panchayats of the

Northeast and Jammu & Kashmir. If this comes true, it would be a historic step towards the achievement of inclusive broadband.

In the digital world of today, as Bernard Shaw might have put it, “the greatest of evils and the worst of crimes is poverty of

bandwidth and broadband.” We are potentially at the cusp of a great transformation. We not only have two excellent sets of detailed

recommendations by Trai in 2015 and 2016, but also clear guidelines for implementing them efficiently and delivering broadband

expeditiously. What more could one ask for?

There is a tide in our broadband affairs, which, if taken at the flood, will surely lead to fortune, but if we miss it again, all possible

inclusive growth could be mired in shallows and miseries.

The author is president, Broadband India Forum, and chairman, Telecom Council of the European Business Group. Views are

personal

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e merits of f iscal prudence

en by Neelkanth Mishra | Published:March 2, 2016 12:28 am

States spend substantially

e than the Central government. But there is limited attention paid by the media and even analysts.

e are calling this a political budget. But that’s like blaming a businessman for focusing on profits — what he does to generate

profits should be judged, not the desire for profits. In a similar vein, an elected government targeting votes is stating the obvious

ey need to be judged on how they go about it. If they go about their vote-seeking without creating medium- to long-term

ediments to economic growth (my remit is purely the economic), the efforts should be lauded.

e run-up to the budget, there seemed to be a temptation in some sections of the government to further push out the fiscal

solidation. It’s not hard to imagine the arguments favouring that — it’s not enough being the fastest-growing economy in the

d and the political necessity is absolute growth that creates jobs; in fact, to offset the drag from a slower global economy, the

ernment ought to do more. Further, the three critical risks of a higher fiscal deficit — higher inflation, higher interest rates and a

ker currency — could all be offset by global trends.

t large economies are struggling with deflationary risks, negative interest rates, and widespread devaluation of fiat currencies.

may have worked, but not before creating macroeconomic turbulence. Foreign investors in Indian bonds are the bond market

valent of adventurers: The outstanding amount of Indian bonds that foreigners can buy is not large enough for India to be part

ny major bond indices. So there is no necessity for these investors to be in India — the ones who are invested in India are

cted by the good yields and macroeconomic stability. A whiff of potential instability, and these investors could stampede out,

ng in motion a scenario not unlike (though perhaps not as severe as) what happened in the summer of 2013. The discourse on

a would quickly change to almost forgotten debates, like if the country has sufficient currency reserves or do rates need to be

d. Bond markets were already starting to get jittery in the run-up to the budget. That the government chose to stick to the fiscal

solidation roadmap obviates this period of instability.

episode highlights India’s institutional strength. The government by definition (given that it needs to be re-elected) would want

pend more; but the RBI, playing its role in the economy, stood its ground in demanding fiscal prudence. This balancing interplay

stitutions is a structural positive for India, irrespective of whether the RBI follows through with a rate cut or not.

ticking to the word it gave earlier, the government boosts its credibility. This trust is also bolstered by it being very conservative

budgetary assumptions. It also makes the big uncertainties on the fiscal front dependent on government execution rather thanly aggressive growth or tax estimates that are harder to debate. There are four major fronts on which there is risk of slippage:

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nadequate provision for the pay commission recommendations (the jump in salaries and pensions is provided for, but not the

ease in allowances), no increase in the amount set aside for recapitalisation of PSU banks, a clearly optimistic assessment of

eeds from telecom spectrum sales, and a persistence with the strategic disinvestment figure despite repeated disappointments

ior years. Put together, these can add up to nearly Rs 90,000 crore, in our estimate. At the same time, we also believe overly

ious tax receipt projections have created a significant buffer that can offset slippage on some or all of these fronts. Proceeds

the tax amnesty scheme, currently not accounted for in the budget, should also support the achievement of the 3.5 per cent

et.

reliance on extra budgetary resources to continue its investment in (mainly) roads and railways is also a prudent choice. These

ds of expenditure have a high fiscal multiplier — that is, according to separate RBI and NIPFP studies, for every rupee spent on

e, nearly Rs 2 gets added to the country’s output in the very first year. The government has chosen to fund these through direct

raising for roads and railways rather than through general government borrowing. This has two advantages: First, investors

more likely to provide funds for specific productivity-boosting investments backed by real assets than for general government

owing that can potentially be frittered away. Second, a higher headline fiscal deficit pushes up bond yields throughout the

nomy, and thus raises the cost of borrowing for more than just the government.

other fronts, there are several steps taken that seem retrograde or half-hearted — the dividend distribution tax on recipients of

ends, for example, is effectively triple-taxation, even if it’s politically hard to oppose. The much-needed boost to housing, one of

key self-imposed targets for the government, also seems inadequate and tentative. This is even as, encouragingly, deadlines

ther targets on electrification and all-weather road connectivity for villages have been pulled forward.

non-fiscal measures taken to simplify tax administration, in attempting to reduce the discretion available to tax officers (by

cing the upfront penalty that needs to be paid from 50 per cent to 15 per cent), or the set-up of new benches to speed-up tax

ute resolution, seem minor, but can have a meaningful impact in the day-to-day lives

usinesses.

e risk of sounding like a broken record, the importance of the Union budget for the economy has fallen meaningfully in the past

decades. In addition to the growing role of the private sector, the amount of funds and the discretion available to state

ernments have risen as well. Put together, they now spend substantially more than the Central government.

here is limited attention paid by the media and even analysts — note the surprise in the bond markets — when state

ernments’ fourth-quarter borrowing schedule was finalised. Attention should now move to state capitals — greater market

tiny is necessary to improve the quality of their budgeting exercise.

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22/02/2016 Waiting longer for the big one | Outlook Business

http://www.outlookbusiness.com/perspective/waiting-longer-for-the-big-one-2557 1/6

The economic outlook is less bad than recent commentaries would

have you believe

Jeremy Grantham

Co-founder & chief investment strategist, Grantham Mayo vanOtterloo

FEB 09 , 2016

Looking back to last year we could simplify it by saying that the big positive

was, as usual, support from the Fed and its allies, as they continued to

maintain lower than market rates. You know my view: These lower rates

have surprisingly little ef fect on the economy but a big effect on pushing up

asset prices. Historically – well for 25 years anyway – the lack of reasonable

values has often not impeded the Fed’s ability to push equity prices higher.

Indeed, by any traditional measure we have spent over 80% of the last 25

years overpriced. The big negative in 2015, of course, was China slowing

down, especially in areas requiring raw materials. This helped to broadly

lower global GDP growth. Loosely speaking, the closer investments were to

China – say, miners, countries supplying raw materials, and emerging

markets with heavy Chinese trade – then the relatively worse they did. And

the closer to the Fed, as the U.S. is, the less badly they did.

The global bear market bias of 2015 was also helped along everywhere by

the plunging oil price, which caused layoffs, reductions in capital spending,

Waiting Longer For The Big One

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22/02/2016 Waiting longer for the big one | Outlook Business

http://www.outlookbusiness.com/perspective/waiting-longer-for-the-big-one-2557 2/6

and, probably more importantly for equities, increased global uncertainties

both at the company financial level and the country political level. Right

behind that as a negative, particularly in the U.S., was a decline in profit

margins. Finally! But the drop was from levels so far above the old trend

that even after recent declines they remain handsome.

Looking at the U.S. equity market I think we might agree on how powerful

the Fed is in the market equation. It approximately offset these three very large negatives: China, oil, and declining margins, which together caused

disappointing global growth. But in addition, it had to neutralize the

justifiable nervousness caused by increased terrorism, immigrant problems,

Russia’s sharp elbows, and an apparently disheveled Europe. Not bad!

Year ahead

Looking to 2016, we can agree that uncertainties are above average. But I

think the global economy and the U.S. in particular will do better than the

bears believe it will because they appear to underestimate the slow-burning but huge positive of much-reduced resource prices in the U.S. and the

availability of capacity both in labor and machinery. So even though I

believe our trend line growth capability is only 1.5%, our spare capacity and

lower input prices make 2.5% quite attainable for this year. And growth at

this level would make a major market break unlikely. As discussed

elsewhere, this situation feels at worst like an ordinary bear market lasting a

few months and not like a major collapse. That, I think, will come later after

the final ingredients of a major bubble fall into place.

As always, though, prudent investors should ignore historical niceties like

these and invest according to GMO’s rather depressing 7-year forecast. The

U.S. equity market, although not in bubble territory, is very overpriced

(+50% to 60%) and the outlook for fixed income is dismal. At current asset

prices no pension fund requirements can be met. Thus, we should welcome

a major market break that will leave us with more reasonable investment

growth potential for the longer term, but I suspect that we will have to wait

patiently for such a major decline. The ability of the market to hurt eager

bears some more is probably not exhausted. I still believe that, with the help

of the Fed and its allies, the U.S. market will rally once again to become a

fully-fledged bubble before it breaks. That is, after all, the logical outcome of

a Fed policy that stimulates and overestimates some more until, finally,

some strut in the complicated economi

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