All Newspaper editorials in one place – January 24, 2024



January 24, 2024

Limits and borders

Centre must consult States before decisions that impinge on their powers


Litigation concerning the territorial jurisdiction of the Border Security Force (BSF) in Punjab seems to be the result of the lack of effective consultation between the central and State governments on the issue. Punjab has filed a suit against the Union government under Article 131 of the Constitution, challenging the decision to increase the operational jurisdiction of the BSF from 15 km to 50 km. The border State sees the Centre’s move as a breach of federal principles and an encroachment into the law and order powers of the Punjab police. West Bengal has a similar view, and both States have got resolutions passed in their Assemblies against the expansion. In this backdrop, the Supreme Court’s decision to examine the questions that arise from the expansion of the BSF’s area of operations acquires significance. In October 2021, the Centre had issued a notification under the provisions of the BSF Act, standardising the area over which the BSF would have jurisdiction to operate. In Punjab, West Bengal and Assam, the distance was raised from within 15 km from the border to 50 km, while it was reduced from 80 km to 50 km in Gujarat. For Rajasthan, it was kept unchanged at 50 km. The Union government said in a reply in the Rajya Sabha in December 2021 that the extension of the BSF’s jurisdiction will help it discharge its border patrol duty more effectively.


While the Union government may have valid reasons for its move, it should not be seen as encroaching into the domain of the State governments, which have the constitutional responsibility to maintain public order and exercise police powers. The BSF mainly focuses on preventing trans-border crimes, especially unauthorised entry into or exit from Indian territory. It does not have the power to investigate or prosecute offenders, but has to hand over those arrested and the contraband seized from them to the local police. In practice, BSF personnel usually work in close coordination with the police and there ought to be no clash of jurisdiction. It is possible to argue that the expanded jurisdiction merely authorises the BSF to conduct more searches and seizures, especially in cases in which the offenders manage to enter deep into the country’s territory. However, it goes without saying that there ought to be strong reasons for the expansion of the jurisdiction of any central force. In this regard, the most relevant questions among those framed by the Supreme Court are whether the Centre’s notification encroaches upon the State government’s domain; and what factors ought to be taken into account while determining the “local limits of areas adjoining the borders of India”.





January 24, 2024

Narrowing field

Trump’s ad hoc policymaking has many takers among Republicans


The 2024 U.S. presidential election’s Republican primaries race has already narrowed to two candidates, frontrunner and former President Donald Trump and former Governor of South Carolina, Indian-origin Nikki Haley. The latest twist in the election cycle saga, which kicked off last week with the Iowa caucuses, saw Florida Governor Ron DeSantis step off the contest after he admitted that he could not see a path to victory. Both he and Vivek Ramaswamy, a pharmaceuticals entrepreneur who exited the race earlier, have endorsed Mr. Trump, who leads by double digits, 50% to Ms. Haley’s 39% among likely Republican voters, in New Hampshire, the next Republican primary venue. In Iowa, he garnered 20 delegates to Ms. Haley’s eight, a wide margin, even if he has a long road ahead to acquire the 1,215 delegates necessary to capture the nomination. While there are no presidential debates on the cards at this time because Mr. Trump has refused to join them, the tenor of the remarks by the two candidates against their rival appeared to be getting sharper. Ms. Haley questioned Mr. Trump’s mental fitness to hold high office after he seemed to confuse her with former House of Representatives Speaker and Democrat Nancy Pelosi, in the context of the January 6, 2021 riots. Mr. Trump has mocked her first name Nimrata and, in an echo of the birther movement remarks he made against former President Barack Obama, implicitly questioned whether she was a natural-born U.S. citizen.


Unlike previous U.S. elections, such as in 2016, where there were no fewer than 10 candidates in the fray during the presidential debates, this time a considerable skew in voter preferences towards Mr. Trump is evident, leading to a lopsided primaries season. Ms. Haley is only likely to remain in the race for as long as she is able to raise sufficient funds to keep her campaign going, and donors are notoriously quick to pull out when they see a dead end for a candidate, regardless of their political leanings. The wholesale rush towards the aura of Trumpism, now apparently an ever-growing force despite Mr. Trump facing serious criminal indictments and other legal challenges, has in fact fractured mainstream Republicanism as a bulwark of the U.S. conservative movement. Voters now appear to prefer Mr. Trump’s chaotic ad hocism in policymaking, his aggressive views on immigration and minorities of all hues, and his relentless eschewing of political propriety even when dealing with institutional issues. Unless there is an impulse for new leadership within the Grand Old Party to challenge the Trump “paradigm”, the sheer lack of alternative voices with populist appeal will lead to Trumpism deepening its hold on U.S. institutions, governance and socio-economic outcomes.





January 24, 2024

India-Myanmar border: Keep it porous

Sealing border with Myanmar is no solution to complex problems of Northeast. The answer lies in greater engagement


The Centre should rethink its decision to fence the country’s 1,643-km border with Myanmar. Announcing the move last week, Union Home Minister Amit Shah said that plans to formally end the Free Movement Regime (FMR) regime, suspended since September 2022, are also on the government’s anvil. The FMR, which came into effect in 2018, allowed people living along the border of either side to travel up to 16 km into the other country without any visa. Admittedly, the situation along the Indo-Myanmar border has deteriorated after the Tadmadaw seized power in Yangon in February 2021.  The junta has persecuted the Kuki-Chin people and the turmoil has resulted in an influx of Myanmarese refugees in the country’s Northeast. The instability has sparked security concerns in Delhi. The trafficking of arms and drugs is also worrying. But sealing borders could complicate matters in parts of the Northeast that bear the scars of insurgencies and ethnic strife, past and present. Undermining people-to-people relations can cause heartburn amongst tribal groups like the Kukis in Mizoram and Manipur who share kinship ties with Myanmar’s Chin community. Mizoram’s Chief Minister Lalduhoma — like his predecessor Zoramthanga — has opposed the fencing and civil society groups in the state have also criticised the move.


The junta has ruled Myanmar for all but five years since 1990. Unlike Western powers, which have made democracy the sole prism of their Myanmar policy, India has chosen to do business with the military regime, and that also has to do with the latter’s help in the denial of a safe haven to insurgents from the Northeast. Myanmar has also been a part of India’s Look East Policy. The strategy to do business with Yangon worked to a large extent till the latest military takeover three years ago. Since February 2021, the country’s Chin province which shares a border with Mizoram has become a major battleground in the conflict between the junta and its opposition. Entire villages have reportedly been burnt down for failing to comply with the Tatmadaw’s writ. In August last year, External Affairs Minister S Jaishankar told his counterpart in Myanmar that “India’s border areas have been seriously disturbed and any action that aggravates the situation should be avoided”. That, however, was a rare admonition. Delhi has, by and large, failed to restrain Yangon from acting against Indian interests. Instead, the Union Home Ministry now seems to be picking on the junta’s victims.


Mizoram has provided a sanctuary to the refugees. In neighbouring Manipur, however, the Biren Singh government has framed the crisis in ways that help him gloss over his own government’s failures to stanch the state’s nearly nine-month-long ethnic strife. Singh has accused the chiefs of the Kuki community of “illegally settling immigrants” from Myanmar. Such hostility is part of a playbook that fails to acknowledge and address the complex nature of the frontiers in the Subcontinent, many of which are a creation of the colonial state. India’s border with Myanmar cuts through villages and divides families in Mizoram, Nagaland and Manipur. It should remain porous.



January 24, 2024

A limited growth

Centre’s capex push and residential housing drive investment activity. But there are few signs of broad-based pick-up in private sector spending


As per the first advance estimates of national income, released by the National Statistical Office in early January, the Indian economy is expected to grow at 7.3 per cent in the ongoing financial year. This growth estimate has surpassed even the most optimistic assessments by analysts. Now, a study by economists at the RBI notes that this stronger than expected growth is “underpinned by a shift from consumption to investment”. Investments, as measured by gross fixed capital formation, are estimated to grow at 10.3 per cent in 2023-24. Growth this year will push the investment to GDP ratio (at current prices) to 29.8 per cent in 2023-23, up almost one percentage point from 28.9 per cent in 2021-22.


The study says that investment activity is driven by the government’s sustained push on capex, which is beginning to crowd-in private investment, and investments by households in residential housing. The Centre’s capital spending is up around 31 per cent in the first nine months (April-November) of the year. And till November, it had sanctioned Rs 97,374 crore under the scheme for special assistance to states for investment as per the study. (This is roughly 75 per cent of the Rs 1.3 lakh crore allocated for the financial year). However, investment spending by state governments has been slower as per a study by economists at Bank of Baroda. Of the Rs 7 lakh crore of capex projected by 26 states, by November only Rs 3.18 lakh crore or 45 per cent had been spent. Household investments in real estate, though, continue to grow at a brisk pace. As per the study, the housing market “is seeing its highest sales in more than a decade”.


On private corporate sector investments, the study notes that public sector spending is beginning to crowd-in private investment, “as high corporate profitability… has begun to induce creation of fixed assets”. However, as per a report by economists at Bank of Baroda, new investment announcements during April-December were at the lowest levels in recent years (excluding 2020). Moreover, of all the new investments announced, almost half of them can be traced to the aviation sector, where airlines have placed large orders for new aircrafts. Gross inward foreign direct investments have also fallen by 4.1 per cent to $47 billion during April-November. So while private investments may have picked up in some sectors, there is little indication of a broad-based pick-up in corporate investment activity.





January 24, 2024

Finding grace

Filmmaker Jewison’s diverse oeuvre was marked by a sense of place and deep empathy for his characters


Norman Jewison’s neo-noir classic, In the Heat of the Night, adapted from John Ball’s eponymous novel, opened in theatres weeks after the 1967 Detroit riot, one of the worst instances of racial violence in the US. On screen, the murder mystery set in Sparta amplified the pernicious ramifications of racism, brought alive by Sidney Poitier and Rod Steiger’s sterling performances. But it was also a crowning moment for Jewison’s directorial vision — his depiction of the claustrophobic unease and distrust between communities in the American south won the film five Oscars. Jewison died on Saturday at the age of 97.


Even though he was known for musicals such as Fiddler on the Roof (1971), or the tender Moonstruck (1987), experiences of discrimination on account of his Jewish-sounding surname and observation of racism during his youth had made Jewison sensitive to causes of social justice, his liberalism further shaped by activists such as Martin Luther King Jr. It explained Jewison’s sense of place, his empathy for his characters and the diversity of his oeuvre. Born in Toronto in 1926, Jewison made his way up the ranks of television. His break came in 1962 with 40 Pounds of Trouble. It would be followed by films as diverse as Send Me No Flowers (1964), The Thomas Crown Affair (1968) and Only You (1992).


As a director who worked with some of the biggest actors of his time — Poitier and Day, but also a young Steve McQueen, Cher, Nicholas Cage, and Marisa Tomei — Jewison’s skill lay in bringing out the vulnerability of his actors to their advantage. Playing a black cop accused first of a murder and then tasked with solving it alongside a white, prejudiced, colleague in In the Heat of the Night, Poitier’s valiant assertion of his identity — “They call me Mister Tibbs” — remains one of the finest cinematic renditions of grace under fire.




January 24, 2024

Market Manthan

That Sensex fell yesterday is normal seesaw. Point is Indian markets can permanently overtake Hong Kong’s in value


India’s equity market on Monday crossed a threshold. Market value of all listed Indian shares was $4.33 trillion, pushing it ahead of Hong Kong to become the world’s fourth largest equity market. That it fell over 1000 points, or 1.5%, yesterday is a reminder of daily seesaws in valuation. But it’s really the long-trend that matters.


Asian pack shuffles | China and Japan are the biggest markets in Asia, followed by India. Beneath this headline lies a tale that encapsulates rapid changes driven by politics, capital flight and corporate governance reforms. Sensex has been a standout performer globally over last year, gaining 15.4%. China’s benchmark CSI 300 moved the other way. It lost 23% of its value. But it’s Japanese equities that are hot property, even for Chinese investors. Nikkei 225 gained about 33.7%.


Bouquet of magnets | India’s economic growth is driving equity prices as Indian companies are beneficiaries of an economy that IMF estimates will grow 5.7% in 2024. Japan, by contrast, is forecast to grow 1%. But what Japan lacks in growth momentum, it’s made up for in corporate governance reforms and its reputation as a stable alternative to China. Chinese communist party’s war on its tech firms has helped Japan’s equity market. Even Chinese investors are opting for an exposure to Japan through Shanghai-listed exchange-traded funds that track Nikkei.


India’s growing heft | A proxy indicator of the importance of Indian equities is that information on its indices is now published daily in Western business media. But the relative attention is not in sync with India’s economic performance. Nikkei and Hong Kong’s Hang Seng Index, which has declined 32% over the last year, still serve as handier proxies for Asia. However, Hang Seng’s fortunes are tied to China’s troubled economic future. This situation provides India an opportunity to become a key proxy for Asia.


Need for internationalisation | Global investors seek safety in familiarity. Therefore, when Warren Buffett opts for Japan as the second most important market after US for his flagship investment company, it draws in others. It makes no sense that UK, with a weak economy and short of world beating companies, gets more attention. India’s done well to start harmonising its corporate governance norms with the world. But it’s perceptions of quality that matter. As also homegrown companies that are global brand names. That is where we should be headed.




January 24, 2024

Absurdity Called UNSC

Musk is right, India deserves a permanent seat. 80-yr-old UN needs to reboot. But can anything make it effective?


We have said it for decades. But it might get a lot more pop play now that Elon Musk has said it. That it is “absurd” how India doesn’t have a permanent Security Council seat. This absurdity has obviously become starker since we became the world’s most populous country. UNSC’s structure with five veto-wielding permanent members is completely out of touch with today’s geopolitical realities.


Old world order | UN was born after WWII and continues to represent global power structures from 80 years ago. UK, for example, is a shadow of its former self. Its permanent UNSC seat will be a further absurdity if Scotland secedes. Or look at Russia, which replaced Soviet Union in UNSC, some say illegally. It is hardly a global security guarantor today. France barely registers, while US has undertaken many unilateral military actions outside UN purview.


Geographical bias | It’s also glaring that Africa doesn’t have permanent UNSC representation. Neither does South America. Meanwhile, Europe’s largest economy, Germany, remains outside. So does world’s third-largest economy, Japan.


Ineffective body | Permanent members have repeatedly used their veto for selfish interests – like US did recently on a near unanimous resolution on Israel-Hamas war. China is the biggest obstacle to India’s permanent membership. And Russia can’t even unfreeze $300 billion in its central bank assets. UNSC hasn’t made one bit of difference in halting Ukraine and Gaza wars.


India’s path | World today is far more multi-polar than 80 years ago. And India’s growing importance is acknowledged by platforms such as G20, Indo-Pacific Quad, I2U2 and others. Therefore, permanent UNSC membership may not mean much for New Delhi. Plus, India will in a few years become a $5 trillion economy. When this trajectory takes it to an $8 or $10 trillion economy, it will be un-ignorable.





January 24, 2024

Don’t Suddenly Turn Off the Bourses

If in the big league, play by big league rules


Unanticipated market closure on Monday during a trading week already shortened by Republic Day has raised eyebrows over India’s business-friendly credentials. India’s market capitalisation has overtaken that of Hong Kong, where a slump in valuations is being fed by China’s weak economic prospects. In contrast, India offers global investors steadier and higher growth rates over a longer horizon. Indian equities have run ahead of the economy’s potential, with current market capitalisation at a healthy premium to underlying GDP. This, despite a fair selloff by FPIs this month as banks and consumer goods companies reported muted earnings.


Indian equities still offer safe harbour to global capital roiled by prospects of sticky inflation in the West and a deflating Chinese economy. Central banks in advanced economies face a choice of engineering a soft landing that could keep inflation above target levels for longer. China, on its part, is putting off a decision to stimulate the economy to prop up domestic consumption. Either scenario raises volatility in international financial flows that affects Indian markets despite official estimates that the economy is gaining momentum. Expectations of policy continuity after elections and revival of private investment provide investors cushion against softening consumption. However, short-term volatility is likely to persist till valuations are better anchored.


Trading interruption at short notice is an avoidable eventuality at this juncture, although fundamentals remain unaffected. It affects algo trading in particular, where volumes are climbing. The optics of declaring a trading holiday 48 hours in advance are unfortunate, however extenuating the circumstances. These detract from milestone events key to integrating India’s capital markets with the rest of the world. A wider funnel of global capital improves India’s attractiveness for institutional investors. Economic performance and regulatory harmonisation have pitched Indian bourses into the big league. They should play by the league rules.





January 24, 2024

New Pitch to Make Our UNSC Bid


Earlier this week, UN secretary-general António Guterres asked on X why Africa lacks a single permanent member in the Security Council. To which venture capitalist Michael Eisenberg replied by asking about India. Once Elon Musk followed Eisenberg, saying it is ‘absurd’ that India is still not a permanent UNSC member despite being the most populous country, we realised that what we were seeing was a new crop, this time of supra-national non-state actors — wealth creators — asking the all-too-valid question. And this questioning of India’s outlier status could well be a critical driver that strengthens its claim for the seat.


Over the next decades, India’s rising hunger for energy, material resources, goods and services will shape global demand and influence response to existential challenges. This power — a function, among others, of its large population — will drive India’s UNSC bid. Most developed countries support India’s cause. This will solidify as the world gravitates towards loose bipolarity — Russia-China friendship and US-EU-Japan combine. India’s commitment to the principle and practice of democracy and maintaining open societies should further buttress this support.


But with great power comes great responsibility. And this is where India needs to up its game. The propensity to play up its status as a developing country hasn’t helped, making it difficult for New Delhi to rally the developing world, particularly in the UN, where the G77 and China are key negotiating groups. To gain the UNSC seat, India must take on global responsibility. Its capacity to engage meaningfully and for mutual benefit with G77 as well as G7 is its strength. New Delhi must leverage it with long-term foreign policy goals and strategic vision.




January 24, 2024

Default concerns

Retail credit not a worry, but needs monitoring


Recent Reserve Bank of India data shows Indian households adding financial liabilities at a faster clip than financial assets. The credit-driven spending spree has been propping up private consumption and GDP growth. Indian banks owe their recent profit improvements to the retail credit boom. All this is perhaps why RBI researchers decided to take a deep-dive to analyse if retail credit is over-heating and flowing to the wrong kinds of borrowers, in the latest Bulletin.


The paper, in fact, finds that the expansion in retail loans in recent years is not abnormal. The 16.1 per cent growth in banks’ retail books in the last 12 years is much lower than the scorching 26.4 per cent growth in the previous 12-year block. Banks’ retail books are well-diversified. Home loans now make up less than half of retail credit, while unsecured credit card, durable and other loans make up nearly 35 per cent. A breakdown of trends into pre- and post-Covid periods, shows a distinct spike in personal loans, durable and vehicle loans after the pandemic, even as home loan growth has dipped. But as the increase in unsecured lending has gone hand-in-hand with strict credit scoring and low delinquencies, it concludes that banks are not on a shaky wicket in chasing the retail borrower.


While the paper suggests that all is well with retail credit, there are some loose ends. For one, the shift in retail loans away from home loans towards personal, durable and vehicle loans, suggests that consumers are increasingly willing to borrow not to create assets, but to meet the gap between their current income and lifestyle aspirations. The rise of this consumer credit culture could lead to over-stretched household balance sheets. This needs closer monitoring, but household savings data in India is currently reported with a year’s lag. Two, RBI actions show that it is more concerned about NBFCs’ retail lending than banks’, but it has not attempted a deep dive into the former. If lack of data is the issue, it should perhaps get more granular disclosures from NBFCs and credit scoring agencies, to repeat this analysis for non-banks. The paper makes a passing suggestion that policymakers and lenders need to use technology to come up with more holistic measures — such as debt-service ratio and debt-to-income ratio — to assess retail borrowers.


This is an excellent suggestion as lenders today rely on blunt instruments such as loan-to-value, multiple of annual income and credit scores to make lending decisions. In fact, with the recent advent of account aggregator services which enable consolidation of an individual’s assets and liabilities at the PAN level, both lenders and retail borrowers can be nudged to periodically access personal balance sheets. Lenders must differentially price their retail loans so that individuals who display healthy savings behaviour and positive net worth get loans at better terms than those who don’t.





January 24, 2024

The rural push

Labour market conditions can affect long-term growth


The Indian economy is projected to grow at 7.3 per cent in the current financial year, compared with 7.2 per cent in 2022-23, according to the first advance estimates of the National Statistical Office. The economy has been growing at a stronger pace than anticipated by most analysts, even until a few quarters ago. However, it is likely that this momentum is not benefitting a vast section of society. There has been considerable debate on the nature of the economic recovery after the pandemic. One of the views is that the recovery has benefitted mostly the better-off sections of the population, partly because of formalisation. Nevertheless, even if the debate on the nature of the post-pandemic recovery is set aside, the structure of the Indian labour market deserves increased policy attention.


The majority of the population lives in rural areas, and employment conditions there can have a significant bearing on overall demand. In this context, it is worth noting that data analysed by economist Ashok Gulati and his colleague, and presented in a column in The Indian Express this week, does not paint an encouraging picture. After a dismal performance from 2004-05 to 2008-09, real agriculture and non-agriculture wages in rural areas grew at an annual rate of 8.6 per cent and 6.9 per cent, respectively, between 2009-10 and 2013-14. The growth rate decelerated over the next five years to about 3 per cent. However, over the last five years (2019-20 to 2023-24), the annual rate of growth in real rural wages has been negative for both agriculture and non-agriculture segments. A decline in real wages is bound to affect demand from this section of the population. While this may contribute to the K-shaped recovery, the trend indicates that rural wage growth has significantly underperformed, except for a brief period (2009-10 to 2013-14), which points to broader structural issues.


Far too many people in India depend on agriculture for livelihood. The sustained decline in the agricultural workforce was reversed during the Covid-19 pandemic period. After a minor improvement, 45.8 per cent of the workforce was still engaged in agriculture in 2022-23. Notably, the agriculture sector is expected to contribute a little over 14 per cent to the overall gross value added in the current year. Even with input and output price support, if about 46 per cent of the workforce produces just 14 per cent of the output, there is bound to be pressure on wages and profitability in the sector. The policy priority, therefore, should be to pull out as many people from the agriculture sector as possible. Policy interventions over the years have not yielded the desired results. Further, productivity in the agriculture sector remains low, partly because of small landholdings. Government interventions restricting exports to manage the domestic inflation situation also affect investment and growth in rural areas.

However, from a policy point of view, the rural wage situation only reflects the overall employment condition. Over 18 per cent of the workforce, for example, reported working as helpers at household enterprises in 2022-23. The composition of employment and a decline in real rural wages underscore the long-term challenges for the Indian economy. Sustaining high growth could become difficult if demand from a large section of the population remains weak.





January 24, 2024

Regulating coaching centres

Guidelines are well-meaning but hard to enforce


The government’s latest guidelines for coaching centres is a well-meaning but optimistic attempt to bring some order into an industry that has fallen into some disrepute with a growing number of student suicides and accusations of misleading claims in advertisements. The guidelines are unexceptionable in intent. They set out, in some detail, conditions for registration, infrastructure requirements, timings, and fee structure. Among these guidelines are the requirements that a coaching centre must have more than 50 students with a minimum age limit of 16 years, all teachers must be graduates, the centre must not make false promises, fees from students leaving a course halfway must be refunded, classes must not be held during regular school hours, and they should not exceed five hours a day. The guidelines also require such centres to have periodic sensitisation sessions for students with mental health professionals, and mention, sensibly, that assessment tests should remain confidential. It is telling that the government has also deemed it necessary to specify the provision of such basic requirements as fire and building safety codes, medical treatment facilities and adequate ventilation and lighting in classrooms.


Such minute specifications inadvertently highlight the abysmal standards at many fly-by-night centres where fees, nevertheless, run into lakhs of rupees. Though the guidelines seek to introduce some minimum standards by including penalties for transgressions, these are unlikely to bring about any significant change. For one, sheer numbers will make it challenging to monitor standards with any degree of efficacy. There are over 30,000 tuition and coaching centres in India, and not all of them are conveniently grouped for inspection in a single city like Kota. The redress mechanism for aggrieved students and parents is also sub-optimal. The guidelines refer to a “competent authority” without specifying the nature of this body or a committee established for the purpose by the government concerned. The regulation of education at the 10+2 level falls within the jurisdiction of states and Union Territories. Monitoring standards, therefore, could vary widely according to the inclination and capabilities of local governments. The penalties stipulated in the guidelines are unlikely to act as a deterrent — at Rs 25,000 for the first offence and Rs 1 lakh for the second, and registration revocation for any subsequent breach. The guidelines also do not appear to cover the vast universe of online classes, where violation of standards could be more rampant.


The Ministry of Education has responded to a growing crisis, but its guidelines are unlikely to be able to address the underlying problems that contribute to it. One is that a lack of quality engineering, management and medical institutes intensifies competition for a limited number of seats at the Indian Institutes of Technology (IITs), Indian Institutes of Management (IIMs) and top-rung medical colleges. For example, each year, some 800,000 students take the entrance examinations for just 50,000 seats available at the IITs, National Institutes of Technology and Indian Institutes of Information Technology. This rush for scarce quality education is influenced by a long-term structural deficiency of the job market. The low availability of employment, especially one that offers perks and benefits, induces students to qualify themselves optimally to make the cut even for lower-level jobs. Altering this dynamic will require a deeper economic reform to meaningfully expand the job market so that coaching centres gradually become redundant.




January 24, 2024

From fire to energy

Disputes over places of worship must be buried and the focus now should be on reconciliation and development


Amidst the euphoria over the Ayodhya temple, the political class—especially the ruling dispensation—and the people of India must pay heed to Rashtriya Swayamsevak Sangh (RSS) chief Mohan Bhagwat’s message of reconciliation and rapprochement. At the consecration of the temple, Bhagwat called for josh (excitement) to be tempered with hosh (reason). Bhagwat called for working towards societal harmony, and said others may have different beliefs and even when we are correct, we should maintain sanyam (restraint). The message couldn’t be clearer: Disputes over places of worship need to be buried after Ayodhya.


The clamour for ‘reclaiming’ lost temples has been growing, with the ruling party’s aggressive championing of the so-called Hindu cause providing impetus. Litigants claiming to represent the Hindu cause have already set targets on the Shahi Idgah mosque in Mathura and the Gyanvapi mosque in Varanasi. But the ruling party ideologues and functionaries can serve the Ram rajya ideal better if they keep in mind the deepening of communal divides in the Babri aftermath and discourage such endeavours. The first step towards this would be to uphold the sanctity of the Places of Worship Act 1991. The Act preserves the religious nature and affiliation of a place of worship as it existed on August 15, 1947. Section 3 bars its conversion —no one is allowed to convert any place of worship that belonged to a religion or its sect on August 15, 1947, into the place of worship of another religion. Per Section 2(b), “conversion” includes “alteration or change of whatever nature.”


In a diverse society, with a history of communities jostling for power over centuries, the Act is crucial to move forward by taking everyone along, something that Bhagwat sought to underscore in his speech at Ayodhya. However, the constitutionality of the law has been challenged before the Supreme Court by, among others, BJP Delhi unit affiliate and advocate Ashwini Upadhyay. His petition claims that the Act violates the right to life and the right to religious freedom of the Hindus, Sikhs, Jains and Buddhists in its choice of cut-off date—as, since 1192, Muslim invaders and colonists destroyed many places of worship belonging to the former. Another petition, by BJP’s Subramanian Swamy, seeks an exception for the Mathura and Kashi temples—quite like what was provided for in the Babri case in the original Act. Swamy plans to seek an urgent hearing of the same by the apex court.


Even as Ayodhya represents a victory for the majority community—won through both force and the judicial route—the ruling dispensation and the adherents of its ideology need to be magnanimous now. Triumphalism and grievance must give way to reconciliation and harmony; and fear must yield to hope. The Ram rajya ideal can’t just be about restitution for past wrongs, real or imagined, and majoritarian muscle flexing. The goal of becoming one of the top three economies in the world can’t be realised if communal tensions simmer under the surface, forever threatening stability and security. The government must be allowed to focus its energies on improving the lot of the common citizenry—from giving rural wages a much needed boost to improving the employment and skilling scenario. Speaking after the consecration of the temple, Prime Minister Narendra Modi said the temple was not a force that “evoked fear”, but “urja” (energy) that needed to be harnessed. The leader and the followers need to walk that talk.




January 24, 2024

BlackRock’s pricey infra deal will beget more M&A


It’s a seller’s market for infrastructure asset managers. Conventional and alternative investment firms are falling over themselves to expand in this lucrative area, and M&A is the easiest way for them to leapfrog the competition. Don’t expect high deal prices to act as a break. Consolidation into scale players just creates more pressure on smaller infrastructure managers to bulk up.


BlackRock Inc.’s agreement to buy Global Infrastructure Partners (GIP) for $12.5 billion earlier this month is the latest and most eye-catching transaction in the sector and follows recent smaller deals by CVC Capital Partners and others.


Infrastructure isn’t a new asset class by any means but it’s the flavour of the month. The business accesses private capital to support core needs like roads, airports, data centers, powergrids and telecoms networks. Governments save money while investors gain exposure to predictable, long-term cash flows which—to varying degrees—rise with inflation. That makes infrastructure a good match for pension liabilities.


You can see the attraction for investment management firms sitting in the middle of the money flows. Infrastructure offers a fee stream that’s durable, growing and nicely profitable. For regular firms like BlackRock, the business is more rewarding than active and passive fund management and makes you look a bit more like the alternative investment firms that enjoy high stock-market valuations. For private equity, infrastructure offers diversification from leveraged buyouts — a needed strategic shift now that the cheap debt that fuelled past returns is history.


Of course, BlackRock’s deal is easily digestible for an investment behemoth with a $120 billion market value. Only around one-quarter of the purchase price is cash, and that’s being borrowed. The rest will be delivered in BlackRock shares, and a chunk of these are subject to GIP performance targets.


Still, the economics of the BlackRock deal show the market power of those with quality infrastructure businesses to sell. The price is some 13% of the $100 billion Bloomberg managed assets being taken on. OK, that’s a crude measure. But the valuation is still generous relative to where the alternative investment managers trade. A multiple of around 30 times this year’s estimated after-tax fee-related earnings (a measure of management-fee income) is higher than the listed alternative investment peers bar Blackstone and Ares Management Corp., says Goldman Sachs Group Inc. research.


What does BlackRock get for the outlay?


First, status and clout. Its infrastructure business trebles in size, catapulting the company to be one of the industry’s leaders. The deal is also even bigger than it looks: GIP is on the road raising a fund that analysts reckon could close at $2 5 billion.


Second, a new income stream, whose margins BlackRock says are at least 50%. As things stand, only $ 60 billion of GIP’s assets are generating fees (the bulk of the rest is waiting to be put to work). GIP generated $760 million of management-fee revenue in 2 02 3 .Analysts reckon that could rise to around $1 billion this year. The Goldman researchers then look to 2025 and estimate fee-paying managed assets could hit as much as $96 billion in an upside scenario, generating management fees of nearly $1.2 billion. Apply those tasty margins and lob off tax, and fee-related earnings would be $481 million. As an initial return on the total acquisition price here, that’s still pretty modest


The real payback will have to come further out. On a 10-year view, analysts at TD Cowen see strong growth in fee income — and performance fees from year five — delivering a 14% internal rate of return. That’s a bit shy of BlackRock’s own estimates. But shareholders would doubtless be pleased if that materializes.


All this will encourage more deals. As Morgan Stanley analysts point out, scale in this business means your funds can participate in auctions for even bigger infrastructure assets. That puts your firm at a competitive advantage. With BlackRock creating a more formidable player in the market, rivals will want to bulk up too. Deals often beget deals, and that surely applies here. If you have an infrastructure manager to sell right now, you shouldn’t find it hard to get an auction going.



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