Friday, July 14, 2006

Why Indian farmers do not pay taxes

I have often wondered why farming income is exempt from income tax in India. It is one of the holy cows of Indian politics - any finance minister daring to even mention "income tax" and "farming" in the same sentence will be denounced by his colleagues, cutting across party lines, as "anti-poor" and "anti-farmer".

By the same token, are all governments "anti-salaried class" since these people pay tax? Or is a farmer with an income of Rs. 5 lakh "poor", or at least "poorer" than an executive earning the same amount? Is not the latter poorer than the former, because he pays out a portion of his income as tax while the former retains all of it? Is farming income somehow holier than income from other professions because farmers "feed the nation"? By that logic why should doctors be taxed? Or teachers? Are their occupations not equally important? (One can at least import food, importing healthcare or education is tougher)

The answer, of course, lies in the power of the small, concentrated minority against the wider, diffused majority. Exemption from income tax benefits a small group of rich farmers (poor farmers of course do not earn enough anyway to benefit from these concessions). These people have a strong incentive to support their local politicians in various ways to maintain the status quo. The local politician has a strong incentive to keep his support group happy. On the other hand the wider majority who would benefit from having their tax burden shared do not have enough of an incentive to lobby for this, simply because the additional benefit accruing to any single person is small. As a result, the tax-exempt farmer is much better off. Each taxpayer is slightly worse off - but not enough to raise a fuss about it.

German football and traffic chaos in India

As an outsider who's lived in Munich for the better part of four years, the sight of the normally taciturn Germans letting their hair down to celebrate their team's success in the World Cup was heart-warming. Leopoldstrasse in Schwabing, not far from where I live, was the centre of celebrations in Munich with much flag-waving and revelry following a German win.

So what, might you think, does this have to do with India's traffic problems? Well, for about four hours after the conclusion of the game, central Munich became a traffic free-for-all. There was no light-jumping (after all, we are talking about the Germans here - who will wait at pedestrian traffic lights at 2am) but plenty of joyous horn-tooting, the kind of which would land a person in serious trouble with the Polizei at any other time of the year. However, during that time, the police turned a blind eye - and the resulting noise would have rivalled ITO during rush hour on any given day.

The first law of economics according to Prof. Mankiw is: people respond to incentives. If I blow my horn or jump a red light in Germany, I can reckon with a pretty hefty fine and loss of driving privileges. If I continue to drive regardless and am caught, I will be a guest of the German government. Hence I have a pretty good incentive to obey traffic rules.

In India on the other hand, I can jump a light, honk at anyone I want, drive drunk, and if I happen to be a "celebrity" (or just rich enough), I can even run over people without fearing for the consequences. If I am caught I know I can pay my way out of trouble without denting my wallet too much. Hence my incentive to follow the traffic rules is pretty low. If everyone knows this and thinks like me, everyone will break the rules - resulting in chaos for all.

So what could be the solution? Simple - create enough disincentives for people breaking the rules. Impose stiff fines for traffic infringements. Cut out the middleman (the traffic police) by investing in cameras at junctions - they should pay back soon enough.

Will this happen? The first may, the second definitely won't. Again all to do with incentives - the first measure in the absence of the second will increase the potential earnings of the traffic police (since the heavier the fines, the more inclined I will be to pay off the cop). The second measure will wipe out these earnings - and who would willingly agree to do something which would reduce his income?

Wednesday, July 12, 2006

The Almighty - how long before fiction becomes reality?

The sensationalism with which Indian media treats just about any issue these days - be it Rahul Mahajan's overdose, the Mumbai blasts or even Matuknath Choudhary's infidelity - reminds me of a book I read a long time ago - Irving Wallace's "The Almighty".

The Almighty is about a media mogul who engineers news (a plane crash here, an assassination there) to ensure that his paper breaks the story first. Applied to the Indian context, how easy it would be for a channel to engineer a riot (hey, our politicians do it anyway, and I am sure they'd be happy to pass on a trick or two for a small consideration) and be the first to report on it (they could then have truly exclusive pictures, at least for a short while, and draw more eyeballs, and more advertising from non-AICTE recognised business schools). I am pretty sure the business case would work (relatively low upfront costs and risk due to a time-tested and refined model, high exposure and therefore revenue). In fact I am suprised why no one has thought of it before. Or mabye they have?

ps. I am not a conspiracy theorist by nature. This just occurred to me as the next logical step in the media war.

CNN-IBN: A little more sensitivity please

A few bloggers - notably Gaurav and Amit - have commented on Rajdeep Sardesai's tasteless trumpet-blowing during CNN-IBN's coverage of the Mumbai blasts. It seems that in the rush for eyeballs and advertising revenue, anything goes. The bigger the tragedy, the better, basic human values - empathy, humility and decency - be damned. It boils my blood to see callow reporters barely out of college going up to grieving family members and thrusting a mike into their faces, demanding an answer to "Aapke pati/bachche is durghatna ke shikar ho gaye, aapko kaisa lag raha hai?" When however experienced journalists do pretty much the same thing, it is a sad commentary on the state of our "fearless and fiercely independent" media. Should not sensitivity training be mandatory for journalists who cover these beats? But I guess that's too much to ask for, given that the majority of them seem unable to articulate themselves in English and/or Hindi!

Monday, July 10, 2006

Cricket stylists

How do you define a "stylist"?

Most professional cricketers are very good at their primary skill. Watching them play, you wonder at why, when you play the drive, the ball ends up at slip rather rather than crashing through the covers. Or why you can't pitch the ball on a good length six times an over. However, you think, you could what they do, given more time, and effort, and talent.

Few cricketers however, when on song, have the power to generate the sense of awe and wonder where you think, I could never have done that. Fewer still do it with the charm and elegance that separates the true stylist from the merely extraordinarily gifted. People like Denis Compton about whom Neville Cardus said

"Recorded centuries leave no trace,
Nor memories of that timeless grace"

Luckily, every generation produces a few such greats who remind us that modern-day cricket need not be only about biffs over third man and scythes over mid-wicket. Azhar fetching Allan Donald from outside off-stump and flicking him through mid-wicket. Mark Waugh clipping one through mid-on. Dada driving through cover (before even this became a lottery). A Martyn square cut.

Think back to these. And compare them Sehwag/Jayasuriya going over extra cover or anything in Dhoni's repertoire. Which would you rather watch?

Aaj Tak - the latest soap on Indian TV

The Aaj Tak story on Matuknath Choudhary, the Patna professor caught in flagrante delicato (Amit writes about it here) leaves me aghast at the state of Indian media, and their desperation to create a story out of any non-issue they can come up with. Aaj Tak is quickly assuming the TOI role on television.

Another worrisome trend I have noticed on the channel (again pioneered by TOI) is the attempt to package obviously advertised content as "news". Recently Aajtak's newsroll (the side-scroller at the bottom of the screen) informed me that Amity Business School had been ranked #x in rankings carried out by magazine y. It struck me as rather strange that Aaj Tak's editors considered this as either breaking news or a matter of national importance. This was followed by a commercial break for - you guessed it - Amity Business School. Curious.

Friday, July 07, 2006

Stock selection

As a former member of BCG's corporate finance practice, stock selection and valuation rank high among my interests. As an investor, I sit firmly near the conservative end of the spectrum. I find reading about new investing ideas great fun, and The Motley Fool website ranks as one of my favourites (have got some of my best investing ideas from there). My investing philosophy runs roughly thus:
  • Do not overpay. I generally avoid stocks with a P/E above 20, unless they are growing really fast. This cuts a lot of promising stocks out, but significantly reduces the risk losing lots of money very quickly.
  • Buy on price declines. I like price declines when I have the money to buy. If I don't intend to sell quickly, a price decline on a company I like is an opportunity to buy it at a discount. Who doesn't like discounts? As a Microsoft employee, I get to buy shares at a discount to the closing price at the end of each quarter. As a buyer, I am rooting for the price to go down as quarter-end approaches.
  • Dividends are good. Dividends pay you to hold. As companies grow they increase their dividends. I paid €18.6 per share of ING on average. The company has increased its dividend more than 25% since I first bought. As a result, I am earning a 6% return on the dividend alone - without any price appreciation.
  • Non-glam industries are good. Lots of companies make tons of money without any one following them. Buy them early and reap the rewards when analysts hear about them.
  • Glam industries are (usually) bad. Everyone is talking about them and has already bought them. Refer Technology 2000. China 2005? The two stocks I have been burned on (though neither was particularly expensive when I bought it) happen to be Chinese. Don't follow the story. Be there first.

Disclaimer: I own shares of ING and Microsoft at the time of writing. I am not recommending you to buy or sell shares of any company I have mentioned here (though by all means, buy insurance from ING and/or software from Microsoft if you want :-)

Bollywood cult film - Tehelka

There are good Bollywood films (very few of them). There are bad Bollywood films (very many of them). And then there is the rarest of rare breed, the Bollywood film that is so bad it's a classic. Most Mithun movies belong to this category, but Greatbong is the undisputed authority on them and I am not going to try and match him here. Instead I would like to draw your attention to a classic which, I assure you, shall be well worth your time:

Tehelka: Boasting of a star cast including Dharmendra, Naseer, Aditya Pan(s)choli, Shammi Kapoor and the Amrish Puri as the unforgettable Dong of "Dong kabhi wrong nahin hota" fame. Came across this one when we were channel-hopping in the IIMC common room. The plot has been done to death - bunch of brave commandos up against megalomaniac India-hating warlord with an appropriately demonaic warcry ("Shom shom shom shom sha sha"). Anil Sharma has directed this caper with heart-warming earnestness (to be refined in future classics such as the Sunny-paaji starrer The Hero - more on that one later). Be it Bhisma pitamah aka Mukesh Khanna tackling toughs on one leg or Bangladeshi superstar Chunkey Pandey and co. providing the baddies with self-excreted liquid refreshment, this movie deserves to be required viewing in any film appreciation course.
Have been searching around for this one but no luck so far - any ideas on where I can get hold of it?

Engineering - A waste of time

If I were to print a business card with my qualifications, it would say:
B.E. Electrical (DCE); PGDM (IIMC)
The first qualification is an utter, colossal waste - of taxpayers' money, which subsidised my four years at DCE; of my time, which was spent learning stuff I had no fascination for; and perhaps most importantly, of a precious seat which some other poor sod who actually liked the subject could have availed of.
College years are where one is supposed to have the time of his/her life. When I look back upon mine, I find not much I can look back upon with much fondness. Not the classes attended in dingy rooms with uninterested professors teaching even more uninterested students. Not the labs with Victorian equipment and frustrated assistants (my high point there was blowing up a transformer, which IS a fond memory!) And certainly not the administration, which seemed to take perverse pleasure in squeezing every bit of enthusiasm out of the students.

The bulk of my first year was taken up by a teacher's strike. From my second year onwards, I was under no illusions that I wanted out as soon as possible - CAT or a software job, but anything would do as long as it didn't have to do with electrical engineering. This sets me wondering - why should we regiment 18-year olds? Why not let them choose from as wide a basket as possible, and only later specialize in what they actually like?

My ideal mix at college would have been a bit of history, economics, mathematics and finance. Sort of what I studied at IIMC... :-)

Life in Consulting

Having worked for over three years at the firm that invented the 2x2 matix I feel qualified to write about the pros and cons of being a consultant.

The pros
  • Consulting is on a face-value basis extremely well paid. (i.e. if you do not take hours worked into account) At 23 I was making around what people in a "non-consulting non I-banking" industry make after 7-8 years of work experience. The year-end bonuses don't hurt either.
  • A top-notch consulting firm looks great on your CV. It almost ensures an interview call on the basis of the "if he has been there he can't be that bad" philosophy.
  • When frequent flyer miles add up they can lead to good things (such as flying to India first-class to attend a friend's wedding)
  • The jollies are great (in my first year, the entire Munich office flew to Crete for 3 days, we had "Practice Group" meetings in settings such as a chateau in Chantilly, and suchlike).
  • The work is occasionally stimulating, and you get to meet (some) people you read about in business magazines.

The cons
  • Catching 6:30am flights six months in a row at the height of the German winter (I know, 6:30am flights in any county are torture but -15 degrees adds a level or two)
  • Visiting a place 15 times and seeing less of it than a tourist would in a day
  • Soul-destroying work at times waiting for million-record databases to update
  • Clients feeling free to give you a piece of their mind for free (at least they pay for yours)
  • Living from review to review

All in all, it was a good three years. Saw a lot, learnt a lot. However, I never miss the life, and I'm getting paid more anyway (at least on a per-hour basis)

On Caste - Personal Experiences

Reams have been written on the reservations issue, so what do I have to add which hasn't been said before? Probably not much by way of argument, but one aspect I have missed so far is people recounting personal experiences to support these arguments.

Growing up in Delhi and studying at DPS, caste was a non-issue. I sort of vaguely knew what it was but couldn't be sure, and anyway it didn't matter. Sort of like Rashmi, here.

The full import of what caste meant hit me when I went to check the DCE entrance results. Unlike the IITs at that time, DCE was quite transparent about its results: a tabulated list with roll number, name, marks, rank and admission category. I had done worse than I expected: 361/720; rank 381 in the General Category; preliminary admission to Civil Engg. As it turned out, it was enough for admission to Electrical Engineering, but nowhere close to the cut-offs for Computers and/or Electronics. Then I happened to glance at the results of the SC/ST category - the highest score in that category was, well, 361/720. Preliminary admission to Electronics Engg. Further down the list, the last candidate to have been granted admission in the ST category had secured 52/720. Fifty-two marks. Thirteen questions right out of a hundred and eighty was good enough to secure admission to the only engineering college in Delhi University. Truly, a more meritorious candidate would have been hard to find.

Sporting Heroes

There are those who watch sport for its own sake. I am not one of them - I tend to agree with George Orwell's definition of "war minus the shooting". Sport without the passion and parochialism is sterile, sort of like watching controllers go about their daily jobs (Wow, brilliant Excel Sheet!!! anyone?)

Rare is the tribe of sportsmen who can evoke this passion - who have the capacity to make their fans rejoice at their successes, despair in their failures, even negotiate with God on their behalf (please God, if Becker wins this one I will donate my video game money to charity) Here are a few people who had this impact on me:

David Gower
India was touring England in 1986, not having won anything there since '71. Gower was England's captain for the first Test at Lord's which India won courtesy DBV's hundred. Those were the days when we relied on the radio for live commentary and on DD for 30-min highlights. One frame from that game still stands out in my memory - Maninder was bowling to a woolly-mopped blond left-hander. The ball was tossed up outside off-stump, inviting the drive. The batsman stretched his right foot out to the pitch of the ball, and pushed - never did the bat rise more that a foot above the ground in the follow through. The next shot was of an Indian fielder retrieving the ball from the boundary. I was hooked. And that is how this blog came to be named.

Boris Becker
It was 1985. I was a nine-year old with no clue about tennis. The sport, then as now to some extent, was considered elitist and a rich man's pastime in India. We had just got our first colour TV courtesy my father's uncle who lived with us (and was a huge Bollywood, and Mithun, fan). Wimbledon '85 was all about a tall, gawky youngster who didn't seem to be that much older than me. He was different. He dived around the net, coughed so loud you could hear the echo, screamed to himself, charmed the crowds and actually won! "Champion at 17!" screamed the headlines. That year affirmed the possibilities of youth. Never again did I think I was "too small" to do anything.

Sachin Tendulkar
"India is Tendulkar, Tendulkar is India" - the adage thankfully does not hold true any more for the Indian cricket team. However what a time it was. In a time when cricket was more in the news for bookies and intrigue, when stars made the headlines by their presence in MK Gupta's little black book rather than by their performances, one man carried a nation.
Desert Storm in Sharjah - the perfect example of why cricket is really about individuals and always will be.

Thursday, July 06, 2006

My favourite Indian blogs

A severe case of writer's cramp is probably not what one really wants before starting out on one's first blog post. I guess I could do worse than start out by reviewing my favourite Indian blogs - as they have inspired me to start my own.

Greatbong: #1 for the quality of his writing and the humour in his posts. That our interests are similar helps.

Jabberwock: For someone indifferent to Bollywood he manages to write quite well about it.

India Uncut: Great links.

Youth Curry: Topical issues close to my heart (does that make me a "youth"?)

Death Ends Fun: Proves that I can appreciate writing while seldom agreeing with the writer!