Acrysil got noticed by HDFC

I am truly flattered. Some of the text from my previous post on Acrysil has been verbatim quoted by HDFC Securities in their research report and the report borrows heavily from my article's contents.Notice, for example,the section on Decent margins and return ratios and compare it Point No.1 in my post. Overall, a good report. The stock price has meanwhile moved from123 then to 152 now. Hopefully, it will see many such highs backed by strong performance from the Company.

Why is Acrysil an Excellent Investment: Qualitative reasons

This is my take on Acrysil, a one of its kind company in India, in response to a discussion with a fellow value investor on growth potential for this company:

Negatives
The promoters have allotted themselves warrants at super cheap valuations(although those were at market prices but discriminatory). They have hired the chairman as a consultant at steep salary, probably justified.Another conflict of interest is that promoters have invested in the company's new steel products subsidiary at unspecified valuation. The main risk for micro cap companies such as this is corporate governance. This is mitigated to an extent by their German partner Schock & Gmbh hodling about 10% equity.

Positives

1. They are the only company in Asia producing these sinks and only 1 among 5 globally at Indian costs. Check prices at alibaba.com, their prices are most competitive, quality probably is not.Now, one cannot really get costs lower than Bhavnagar.One can be concerned about recent margin decline, but on check their cost composition, one reason for declining margins can be inventory buildup and operational cost increase due to new products being introduced and larger scale of operations.Couple that with economic slowdown which is more pronounced in the real estate sector.Given all this, performance is commendable.Add to that recent rupee depreciation. That will take care of the margins.
2. Instead of directly investing in new products, they are first doing marketing of these products and will probably later start manufacturing.There is a lot of competition but where? In Import-trading-marketing or manufacturing?Where is the meat? How many of these competitors have attained manufacturing excellence? Even TTK Prestige is selling Chinese wares with quality complaints. Hawkins has not moved beyond Cookers and the market is immense.Why would an immensely successful paints company like Asian paints enter this segment.
3. They are still a small company, so they cannot probably address mass market right now. Targeting niche luxury segment might help them build capital and later move into mass market.
4. Notice the mention of investing in design and aesthetics in their latest annual report. These are lifestyle products. How many companies in India invest in this.Godrej comes to mind and probably Asian paints next. But they are big. That is both an advantage and a disadvantage.With their scale, they are bound to target only mass market.
5. The owner managers are passionate about what they are doing and taking it to the next level. This guy Chirag Parekh has promoted a Polo team in  Bhavnagar. Some people at TED thought that it must be the trait of a lazy and laid back person.What i see is a person with sportsman spirit intent on building something glorious
6. Kitchen appliance business is hugely fragmented in India. One of the pet themes of Sameer Arora is shift of business growth from unorganized to organized and government to private. I would add from locally competitive to globally competitive to that.This is an example of that.
7. Notice that they have tied up with some other German and Swiss companies for new products.They are selling to some big retail chains in USA and Europe. This will assure quality and revenues.
8. Potential for growth: This is just a small company ~50crore while sector leader is about ~4000 crore market cap. The sector itself is growing. Despite the clutter, there is no brand recall except in cookers. Sky is the limit except that management will have to prove itself beyond a certain size.
9. Competition: It does not exist. Even though there are a large number of Indian and multi national companies operating in this space, there are no established brands in these products: Kitchen sinks, Chimneys, Vents, Hobs & Cooktops and Food waste dispensers; maybe Faucets and Oven yes. Most of these lifestyle products are imported from China and relabeled by local companies as 'brands'. Building scale, distinctiveness and cost competitiveness in these high cost niche products will be even more difficult for companies whose main focus is marketing and occupying consumer mind-space.

Competition

Here is how the competition looks like:
TTK Prestige: more than half of their sales comprise of traded goods.More than half of these are traded. Of total sales, about 20% are imported.Of its total own sales, Kitchen electrical appliances consist of Rs 72 crore and gas stove Rs 2.6 crore, rest is Cookers and cookware.Conclusion, sector leader is not a competitor in Acrysil's  product space.
Hawkins: non cooker and non cookware sales are Rs 15 crore out of total sales of Rs 450 crore.
Bajaj Electricals: Kitchen appliances clock in Rs 500 crore out of a total revenue of 3500 crore. Of the total sales, Rs 2500 crore is traded goods.Consumer durables accounted for sales of about 1800 crores and profit of Rs 170 crores. Of this, 1300 crores are traded goods.

Havells: Primarily focused on electricals.Its consumer durable appliances business sells about Rs 540 crores. This consists of a wide product variety and the traded part of this comprises about 200 crores.

Besides the above, there are some small companies owned by Private equity or single product companies like Sunflame. Reliance capital invested in Gandhimati appliance sometime back.Orient and Khaitan have also started following the same formula. There are some MNCs who are currently importing products and selling under their own brand. They eventually hope to acquire some scale and start their own manufacturing facilities here.Buoyed by the high RoE in the sector, successful companies from other sectors like Asian paints are also entering the fray.Bottomline is, there is huge scope for the bottomline of specialist companies like Acrysil.

Acrysil was an auto parts company and started the kitchen sink business in last economic downturn around 2002-03.This is all what they are known for today. Performance so far is commendable. Let's see what's in store now.The species that survives is not that is fittest. It's the one that adapts best.

Some observations on Kashmir

The politics and strategic aspects of Kashmir get a disproportionately higher attention in popular discourse than the Economic and development aspects.I have always wondered why people are only worried about political rights and not their economic well being? If you are poor and marginalized you will be trampled over. If you are powerful, the world will listen to you. The times when revolution came out of a barrel of gun are long gone.
I recently had a conversation on twitter in this respect. Here is brief elaboration and some more on the points I made in that conversation:

1. Jammu and Kashmir has very limited fiscal resources of its own. Of its GSDP of Rs 54000 crore last year, government spending constituted 50% of this amount and of that amount, central assistance constituted 50%. To put the above figure in perspective, India's largest software company has more revenues than the entire state of J&K. It employs less people than are born in J&K every year.
2. The budget stresses a lot on Subsidies and tax exemptions. This only increases corruption and reduces revenue collection. At the same time, there is toll on entry into any district. This only increases traffic congestion and the roads are not even properly maintained. This only increases the disgust of people with government and restricts economic activity.
3. The School Education scenario is similar to rest of the country as per DISE data whereas professional education is way behind. A significant number of students are taking private tuition. Empirical data on street does not tally with DISE data. Why not devolve Primary Education to Local communities?
4. There are only a handful engineering and medical colleges and no Institute of national repute in higher learning.Perhaps J&K would be the most backward state in terms of Professional education.Instead of lobbying for sparing the lives of terrorists, government should spend political capital in bringing Institutes of excellence to state.Their presence has a disproportionate impact compared to investment involved.
5. There has been little investment in physical infrastructure in recent years and vital connectivity projects have been running decades behind. Even after so many year of  being 'integral part of India', economy of J&K is not integrated with rest of the country.
6. Like most of the other states, Hydro power is severly underutilised. While delay in other states can be somewhat understood, in a resource deficient and insurgency hit state like J&K bordering Pakistan , it is downright criminal.
7. Though the state government has privatised the ticket collection for tourist places in Srinagar, there is no upkeep of these places. Heaps of muck can be seen in Shalimar and Nisat and architecture has been disfigured with Lovers Letters.
8. There are some high potential tourist spots in the state which can be developed with minimal expenditure. e.g. just cleaning up the Manasbal lake will create a new tourist hotspot more popular than Dal. Not every tourist can afford the private taxis. A tourist bus service will tremendously boost affordability thereby increasing tourist flow. The existing buses are too crowded and operate to limited areas without any proper signages. 
9. A lot people in India passionately believe that abolishing Sector 370 will fix the Kashmir issue. The main thrust of this article is that non domicile people cannot by land in the state. This is true of many states and areas of India e.g. Uttaranchal and tribal areas. That has not stopped those areas from developing though as even if the land cannot be bought, it can be taken on long lease of , say, 99 years. Despite article 370, some Indian companies have setup call centers and Pharmaceutical industries in the state.What prevents the outside investment is, the long term unpredictability of returns because of the political risk. If even the original inhabitants of Kashmir, the Kashimiri Pandits, are afraid of returning, how can others be expected to settle down in Kashmir.

Value Investment Climate in India

The future of an economy is determined by how efficiently it uses the limited available capital. Value Investors take a long term view and reward enterprises that are efficient users of the capital by investing in them. With a national Savings rate of 30% plus (which is likely to sustain for a long time despite the recent hiccups), one would expect a much more vibrant investment climate for equities in the country.This leads us to ask the following question:

What is holding back Value investments in India?

1. Real estate: Because of the heterogeneity, it is very difficult to make a general statement about real estate in India. But some parts like National Capital Region and Mumbai are well known to be expensive compared to their global peers.There has never been a well known bubble burst in the real estate in India. A large segment of the population thinks that in the long term, real estate, particularly land, is the most productive asset class and does not diversify away from it.

2.Gold: Indians have had a fascination with Gold from time immemorial which has its own merits. Gold can at best be an insurance against hard times when family Gold can be sold to start afresh.But the magnitude of Gold currently held by us is a bit much and tremendous Indian wealth will be lost if gold loses its glitter.To put into perspective, the current value of Gold held by Indians exceed the total market capitalization of BSE. If this capital was invested in similar enterprises, the size of our economy will double. The world's most successful investor is not very fond of Gold

3.Underdeveloped Mutual Funds Market: The market for Mutual Fund is highly underdeveloped in India and most of it is limited to large cities with 85% of the flows coming from top 15 cities. It might be due to the relatively short history that Indian Asset Management sector has had but there has not been any spectacular or iconic Fund Manager like a John Templeton or a Peter Lynch. Nothing sells like success. Yes, there have been some smart Managers like Madhusudan Kela who shone for some time before the great recession eclipsed them but the fact remains that there has not been a single Mutual Fund in India whom investors can trust with unflinching faith. We are yet to get a Magellan Fund.

4.Weak Regulatory environment: Far too many crooked promoters have gone unpunished for investors to have faith in the Indian regulatory environment. Scams and bankruptcies happen almost everywhere but probably only China can rival India in the number of people going unpunished. Even in case of China, the punishment meted out are severe and ruthless. The recent IPO scams where investors lost upto 90% of their wealth immediately after listing and recent Deccan Chronicle drama where 3 fellows looted 30+ Banks and NBFCs making a mockery of all regulations and continue to walk free are but some examples.

5.Small surplus capital: At at an aggregate level, our savings are very high as a percentage of GDP, but in absolute terms they are rather small. The complexity involved in capital allocation are quite different at different ticket sizes. At a smaller scale, return on capital is higher if a person invests in his own enterprise and returns generated by methodical asset management are comparatively less attractive. Also, for professional Asset Management to bloom, the surplus capital needs to be large enough to be deployed for long periods of time without having to be redeemed for meeting short term exigencies.

6.No Giant Value Investors: Though Warren Buffet and Ben Graham are known worldwide for their investment acumen, very limited number of people outside US can relate with them. We do have had some successful investors in India but there has not been a single investor who believes in buying and owning a  business wholly forever. The power of such people goes much beyond the economic value they add directly. Warren Buffet is like the head priest of a church whose membership keeps on increasing. We do have some tribes in India that follow value investment principles similar to Buffet but not an established church yet.

What are the future prospects?

1.Real Estate: Like all overvalued assets get corrected in time, real estate in India is also bound to get corrected and valued as per its true economic value. Real estate prices are high primarily because low supply of quality real estate. A major cause of the overvalued real estate is inadequate infrastructure. Investment in infrastructure,Roads e.g., has a disproportionate impact on real estate prices by hugely increasing supply. If India were to achieve the target of constructing 20km new roads every day, supposing the road affects 100sq m area in its vicinity, 2sq m of develop-able area will be made available for every Indian every day. If that were to happen, both sides of these new roads would be lined up with houses end-to-end and every Indian would have a 700sq m home on a highway.The upcoming correction in Real estate, whenever it happens will first jolt the economy, then release substantial surplus capital to be either consumed or productively invested.

2.Gold: Gold demand is a function of human psychology as well as availability of, and risk return considerations in other alternative asset classes.While the former cannot change overnight, later is bound to e negative for Gold as an asset class. Historically, Gold has kept pace with inflation. When the world comes out of the recession and the uncertainty subsides, risk premium on Gold will subside, making doubly unattractive. The relative share of Gold as an asset class will eventually decline but the absolute demand might not because of increased affluence. Because of the harmful effects to the Indian economy, policymakers will make an effort to dissuade people away from Gold as an investment.

3.Mutual Funds: Though policymakers and industry participants are trying to increase the penetration, these efforts will pay off only when investors see consistently superior performance. The eventual end of current recession may structurally and presence of large number of schemes may statistically aid this but the consistent superior returns is a serendipitous phenomenon and cannot be predicted.

4.Regulatory Environment is a function of the intelligence of the personnel manning these bodies as also the integrity of the government of the day. From the current state of affairs, it does not seem like things can get any worse than what they are.So, they can only get better. Having a good regulatory environment is also in the interest of the financial industry participants. The increased international competition with international Stock exchanges like Singapore and domestic ones like MCX might accelerate the evolution of regulatory environment.

5.Surplus Capital: By all indications, Indian economy is likely to grow at a relatively high rate for a long period of time to come.The stock of investible surplus capital will keep growing with the resultant increase in per capita income.

6.Giant Value Investors: We might not see a Warren Buffet in India any time soon but we might see some highly successful Value Investors of Indian origin. Prew Watsa's Fairfax financial has recently bought Thomas Cook by taking a controlling stake in this company. If Watsa continues his track record and acquires more Indian companies and make a success out of them, he might get a cult following in India. Even otherwise, there are a lot of individuals who have been following value investing principles and have succeeded in a small way. Some of them might snowball into legends ten, twenty or thirty years later.

To sum up the prospects of Value investing are cautiously optimistic in India. There are online forums and blogs that are vibrant with activities and are actively promoting Value investment. Some of them that I find interesting and helpful are listed below:

Indian
http://www.theequitydesk.com
http://www.valuepickr.com/forum
http://fundooprofessor.wordpress.com/
http://neerajmarathe.blogspot.com/
http://valueinvestorindia.blogspot.com/
http://perfectresearch.blogspot.com/
http://dalal-street.in/
http://www.screener.in/
http://kiraninvestsandlearns.wordpress.com/
http://www.indiavalueinvest.in/
http://valueinvestinginindia.wordpress.com/
http://investingvalues.blogspot.com/


Global
http://brontecapital.blogspot.com/
http://cornerofberkshireandfairfax.ca/
http://www.cornerofberkshireandfairfax.ca/forum/index.php
http://www.valueinvestingworld.com/
http://brontecapital.blogspot.in/
http://www.grahamanddoddsville.net/
http://grahamdoddsville.wordpress.com/
http://shamgad.blogspot.in/
http://www.schloss-value-investing.com/

Medical Education in India: A Synopsis

This is a compilation of the most up to date data on Medical education in India:

1. Medical Education(Doctors) Summary:This document contains the number of seats available in each Indian State in all systems of medicine: Allopathy (MBBS and BDS) and AYUSH(Ayurveda, Unani, Siddha and Homepathy).

2.Pharmacy Education Summary: This document contains the number of seats available per State in colleges that award Degrees and Diploma in Pharmacy as also those that only conduct the courses that lead to a Degree or Diploma.

3. Nursing Education Summary: This document contains the number of seats in BSc Nursing and Post Basic Nursing programs per State.

4. Medical Education Summary: This document contains the summary of the above data along with references.

The data has been collected from respective governing bodies homepages and appropriate references are provided. Related and similar data is available on Ministry of Health and Family Welfare but that is not complete from the point of view of available educational opportunities in Medical Sector. The references in document point to complete List of respective colleges along-with their contacts and addresses.

Some Observations:

1. There is huge inequality in availability of opportunities for Students across States as exhibited by following graphs:

The first image shows the number of Seats in Medical Stream per thousand students in Standard 1 presently. This captures, the inequality with respect to overall population of a State irrespective of the learning environment and outcomes that make a Student eligible to lay claim to these opportunities.

The second image shows the number of Seats available per thousand Students passing out of 12th Class. This can be a reflection on better opportunities available in some states as also poor Graduation Candidate Ratio in other states. In Karnataka both are extreme and hence disproportionately higher number of opportunities available for Karnataka Students. If we contrast the two images, we get an idea that increasing retention at the Secondary level puts pressure on the availability of higher education opportunities even in Backward States like Madhya Pradesh, Odisha and Rajasthan.

These extreme inequalities also indicate that their is no such concept called India as far as Medical Education is concerned with some big states like Assam, Bihar, Jharkhand, Uttar Pradesh and West Bengal along-with North Eastern States barely visible on the first graph. Just 4 States: Andhra Pradesh, Karnataka, Maharashtra and Tamil Nadu constituting just about 20% of India's population account for about 1.3 lakh out of about 2.4 lakh Seats across India.

2. The educational opportunities in Medical sector (predictably) has a high correlation with health infrastructure as well. In absence of adequate data on number of beds or doctors or Clinical establishment per State, we can probably use Blood banks as a proxy. The 5 States of Andhra, Kerala, Karnataka, Maharashtra and Tamil Nadu have 1085 out of total 2347 Blood banks in the country. If we look at Eye Banks, these 5 States again come up trumps with 306 of the 586 Eye Banks in the country present in these States.

3. Looking at Mental health, the top states again dominate with 1364 out of 2294 psychiatrists. Contrast this with just 12 in Madhya Pradesh, 15 in Chattisgarh, 19 in Odisha and 28 in Bihar. True, in most states,including top 5, number of psychiatrists available is less than half required in case of most of the rest it is not even 10%. The number of Psychiatrists, Clinical Psychologists and Psychiatric Social workers that we need are 10261, 14057 and 20194 respectively while the availability is 2294, 355 and 294 respectively.

4. Though it is Kerala which is famous for its Kerala Ayurveda, number of Seats in Ayurveda for Kerala is just 896 which is less than a third of those in neighboring Karnataka and less than a fourth of those in Maharashtra.However Kerala if famous for good reason, notwithstanding number of students admitted, Kerala leads with 124 Ayurvedic Hospitals and 740 dispensaries in contrast to Karnataka's 130+561 and Maharashtra's 55+469 Hospitals+Dispensaries.

5. Bihar accompanies Madhya Pradesh as the only States where number of Seats in Homeopathy is more than those in MBBS. The former is 830 and 1755 respectively while latter number is 660 for Bihar and 1070 for MP. It is Maharashtra though which has the highest number of Homeopathy colleges(49) admitting 3596 students which is close to its 41 MBBS colleges admitting 4570 students.

6.Just 3 States: Andhra, Karnataka and Maharashtra account for half of the Diploma/Degree Seats in Pharmacy i.e. 38680 out of 77195.

7. Karnataka churns out 1/4th of all Indian nurses with 18958 seats out of all India 74356. In contrast, the 19 States from bottom have less than half that number of total Seats.

8.Uttar Pradesh tops the number of Seats in the Unani System of medicine with 220 out of 620 Seats across India.

School Education in India:An Integrated picture

Despite the well recognized challenge and payoffs of Human Development and education attainment, it is hard to find a single report or data source that gives an overall picture of educational attainment for India. If at all, the data is available with a time lag of 3 years by which time Indian economy might grow 30% rendering it obsolete. This blog had earlier looked at state level data about Engineering education. Continuing further, this article and the associated document describes the overall Statewise education scenario for India from enrollments in Class 1 upto statistics about number of students passing out of Class 12th. The data source is primarily DISE and the newspaper reports about the results of different State and Central Examination boards. The document also contain the enrollment and qualification data by gender by using the

Gender based Exam results publications. The latest available enrollment data for upper primary is for Year 2007-08 and hence compatible and comparable with the Matriculation results of current year 2009-10. But the data for Intermediate classes cannot be strictly compared to that for matriculation due to 2 year lag and hence can only be indicative of broad picture.

Here are some interesting observations:

1. Karnataka, home state of the knowledge capital of India, Bangalore has a GCR(Graduation Candidature ratio) of 17.83 just marginally less worse than the most backward state Madhya Pradesh in this regard which has a GCR of 17.96. This means only 1 out of 10 students in his age group attains the eligibility to apply for admission to a college. Delhi is the best state on this count with a GCR of 64.4 with Tamil Nadu a distant 2nd at 55.79 and Himachal 3rd with GCR of 48.26
2. Gujarat,an otherwise economically advanced state has a shockingly low GER of 54% at upper primary level resulting in a poor GCR of 23.30%. Only States that have a worst Upper primary GER than Gujarat are UP and Bihar. In terms of GCR, Gujarat is 6th worst among all States.
3. At all India level there were 1.64 Crore students in upper primary and surprisingly 1.66Crore students in Matric level.This partly indicates inaccuracy in DISE numbers and partly a high number of repeaters and overaged students.Noteable high ratio of Upper Primary to matric are UP-1.61 and Jharkhand-1.24. This means that for every 10 matric students, there were 6 students in 8th Class in UP and 8 students in Jharkhand. Given that both of these states have passing rate of about 70%, even if we accept all 30% who failed are repeating where are the extra 30% in UP coming from?Certainly,UP did not experience any population boom induced by some astrologically auspicious phenomenon or any immigration shock.
4. There were total 96.6 lakh students in 12th Class out of which 77.5 lakhs passed.Since there are about 8.6 Lakh engineering seats,every 9th Graduation candidate can opt for engineering.
5. The overall pass percentage hides the poor pass percentage in constiuent disciplines in some States. For example, in case of Jharkhand, Science pass percentage was is 30.33 though overall pass percentage is 50.39.
6. The matriculation pass percentage of Jharkhand has dropped from 87% in 2008 to 74.3% in 2010. Jharkhand is probably the only state to witness so much deterioration in Education attainment while most of the States have improved theirs. Chief Minister Shibu Soren was perhaps the only Chief Minister to personally release the result.
7. Similar to Gujarat, West Bengal has a low ratio of students reaching potential graduation stage at 22.51 inconsistent with its image of an intellectuals' state.
8. The national capital seems to have the best educational infrastructure what with 64.44% students attaining graduation candidature but this is tempered by the fact that there is only 1 engineering seat per 30 students passing out of 12th class as against the national average of 1:9
9. Kerala is at the top in terms of gender parity with 72% of 12th students being girls whereas the ratio is almost inverted for the state on the other end of spectrum Rajasthan with 35% of students being girls.
10. In Punjab,a state with a very low sex ratio, 56% of the students in 10th class are girls whereas the last state on this count is Gujrat with only 37% girl students in 10th class.
11. Leadership of Tamilnadu in education is exhibited by 115% GER in upper primary, 80% of them transitioning to matric, pass percentage of both 10th and 12th standard being in 80s and 2nd highest number of Engineering seats among all States.
12. Some of the north eastern states like Tripura and Manipur have a greater number of graduation candidates than better known Goa.
13. The number of children in 8th standard is only about half of the number in 1st standard despite an upper primary GER of 75% for All India.
14. In case of Jharkhand there are 5 students in 1st standard for every student in Class 8th and Jharkhand only has a GER of 57 for upper primary.
15. A happy thing to note is that there are at least 9 states where number of students in 1st standard is lesser than those currently in 8th and there are 3 others where this gap is less than 10%. Hence,the next generation in these States is likely to get better educational facilities. BIMARU states are still not out of the woods and need to invest more in primary education going forward given the high ratio of number of students currently entering the School system to those in upper primary.

Total Engineering Seats in India & some conjectures about IT

This document contains the total number of engineering seats in each of the major states of India. Some of the southern states have a huge number of seats relative to the demand and hence some seats are going vacant. This 'some' is about 50000 seats in case of Tamil Nadu. Recently, this has been observed in Northern States like Haryana as well. An interesting thing to note here is that the number of Engineering seats in the city of Pune is greater than the combined total of 7 States. Overall, there are 7.3 lakh engineering seats in India.

These numbers partly explain why IT companies are setting up shop in Bhubneshwar, Jaipur, Indore,Ahmedabad and Lucknow but not in Patna, Jamshedpur, Ranchi, Shimla, Guwahati and Panaji.Neither are they likely to do so despite the fact that some of these states do send students to other states in large numbers and despite the fact that quality of life in some of the latter group of cities is comparable to the former and might be better in some. When the new private engineering colleges come up, their students are below employable standards for some years. These students are employed for low wages by small IT companies mostly focused on domestic IT market. Here, they polish their skills or learn the new ones in 2 to 3 years and move into bigger and more professionally managed companies. Due to this continuous poaching, the smaller companies would vanish if there was no availability of large number of fresh Engineers willing to work for them. Gradually, quality of newly setup Engineering colleges and hence the quality of students improves thus boosting the supply of good local talent. Also ,some of the small IT companies may grow bigger and better and start attracting talented people who left their home state/region to join bigger companies. Due to this competition for talent, apart from a desire to lower operational costs, the big companies might set up shop in the small city thus improving the Eco-system further. This is not possible in States who only have a couple of thousand Engineering seats.

The economics of an autorickshaw in Delhi

Happened to talk to an auto rickshawallah in Delhi recently. Some interesting insights though not verified. Since they are coming directly from the horse's mouth,should be generally true:
1.There are 90k auto rickshaw permits in Delhi and new ones are not being issued.
2.One auto rickshaw driver who owns the auto-rickshaw,earns on an average Rs25k per month.
3. Some auto rickshaw drivers rent out theirs for night shift @250 per night + 50%of cost of maintenance.
4.An auto rickshaw from outside Delhi is fined Rs 5k as soon as he enters Delhi. Vice versa is not true.
5. The permit can be sold for upwards of Rs 3lakhs which together with the cost of vehicle at about Rs 1.25 lakh results in on road price of about Rs 4.25 lakhs.
6. The permit regime for Cars is liberal making it practically cheaper to have a Car on road than rickshaw.
7. The per km fare of rickshaw is Rs 4.5 and the auto rickshaw unions will shortly stage a strike to demand an increase. An average Car gives a mileage of 12km per liter and a liter of Petrol costs about Rs 50. So running cost per km are about Rs 4. But Car can accommodate 4-5 people, hence at maximum utilisation auto rickshaw is about 50% more expensive.
8. Due to the latest fare policy, per which public transport costs Rs 1-2 per Km, some people are reverting to use of auto rickshaws when travelling in groups. These people might eventually shift to personal vehicles. The expanded network of Delhi Metro may reverse some of that but cannot decisively arrest this trend.

Blessed thus by Delhi government, Cabs services in Delhi are going to grow a lot. After all ,Delhi has to become a 'global' city. Tata Nano, the new Rs 1 lakh car can only make the matters more interesting. Tatas were once asked to take over Delhi transport corporation. This might as well be the route they agreed to.

RBI gives 'Freedom' to open Branches

RBI recently gave Freedom to Banks to open branches in Centers with population less than 50,000 as per the report of a group constituted by it. This blog had earlier tried to analyse RBI's branch 'expansion' policy.

• The Branch 'Expansion' policy was originally a branch restriction policy to regulate indiscriminate growth of branches witnessed during 2nd World War.The relevant Act was named Banking Companies (Restriction of Branches) Act, 1946. The policy has been successful in restricting the number of branches in urban areas and thus preventing financial deepening,ensuring lack of competition and fat NIMs(Net Interest Margins) that are one of the highest in the world.

• RBI has become progressively aggressive in restricting the branch expansions in urban areas.One would presume,prior to 1946 there was no restriction on opening branches. In 1962, Banks were allowed to open 2 branches in an area of their choice for every branch opened in an nonviable/unprofitable area. This ratio became 1:1 in 1968. In 1970 this ratio was made 1:2 for Banks with 60% branches in rural or semi urban areas and 1:3 for rest. In 1977 this was changed to 1:4 plus 1 branch in a metro.

• In 1990, RBI considered the then prevailing 60000 branches to be adequate to meet Banking requirements. 1 Branch per 15-20 villages or average population per Branch(APPB) of 17000 was also considered adequate then. In 1990 RBI decided to leave it to the judgement of the individual banks to assess the need for additional branches taking into account factors such as business potential and financial viability.

• Despite this decision and 'achievements',for some strange reasons(inertia might be one) policy remained unchanged till 2005 when RBI bettered 1962 with a ratio of 3:1 by mandating 25% of the new branches to be in rural areas.

• Importantly,agriculture's share in GDP declined from 58% in 1950 to 38% in 1980 and about 18% currently.So as RBI became more and more adamant on rural branches,their relative attractiveness kept on declining.

• Apart from the existing category of underbanked districts,the group has created a new category of financially excluded districts numbering 256. A financially excluded district is one in which average population per branch is 19272 and has a credit gap of more than 95%. One may wonder what is special about 19272.This is our national APPB.There are two implications,1)since about half of the districts will always be below average,the policy can continue in perpetuity. 2)Despite the success of Branch 'expansion' policy, our APPB has actually declined from the time RBI declared success in 1990.

• The financially excluded include state capitals and industrial cities such as these: Ahmedabad, Patna, Jaipur, Raipur, Hisar, Panipat, Ranchi, Kolhapur, Allahbad, Gautam Buddha Nagar ,Lucknow, Meerut.This list might make some bankers happy but a clause governing underbanked districts is likely to apply to financially excluded districts as well.The clause states that centers falling within municipal limits of State Capital, a Metropolitan Centre or a District Headquarters or 100kms from 4 metro cities will be excluded from the relaxation.

• A category of underbanked states has been created which is also defined as those with APPB below national average. Since some states will always be below average, this list too shall also exist in perpetuity and consists of undivided Bimaru states(except Uttaranchal)+NE+Orissa and West Bengal.

• The group states that most of the emerging economies require licensing for Bank branches but does not spell out how liberal these countries are in allowing new branches and what are the criterion used. The group also notes that none of the developed countries require licensing for new branches.Should we follow emerging economies or developed?

• The recommendations do not apply to Foreign banks.

Besides some obvious benefits of scrapping the policy, the group does offer some rationale for continuing with the policy:

• The present Policy allows RBI to exercise its judgement or (opaque discretion).
• The present Policy allows RBI to meet with CEOs of the banks and discuss with them critical regulatory matters.In absence of the policy, the CEOs might not want to meet RBI.Brilliant.
• There can be systemic implications of having too many branches as exhibited by current crisis and the policy is a good substitute for enforcing prudential norms though other means. what are the systemic implications implied?How does the current crisis exhibit that?Did the current crisis come about because there are just too many bank branches in cities like New York and London?

Some counter-factual questions: Could we have had our own Rabo bank if our regulators did not have such good intentions?
Could we have had 100% financial inclusion in urban areas similar to 100% teledensity that we achieved recently in Metros if RBI did not insist of Branch expansion as per its directions?
Will more competition in urban areas force banks to mediate larger number of financial instruments like Mutual Funds,Insurance and Pension?

Economic return of investing in Excellence in Education

ISB Hyderabad's first class started on July 1, 2001 and it was established at a budget of Rs 200 crores and a new campus is being setup at Mohali with a budget of Rs 300 crores. ISB is scheduled to enhance its intake to 600 for the academic year 2010.Even in the current difficult economic environment, ISB had a good placement record adding an average of Rs8lakh to the existing CTC per student. Given that this was about 25% lower than the previous year owing to the recession,one can safely assume that ISB will continue to add Rs 10lakh to the existing CTC per student in perpetuity.By their very nature, the capabilities of a knowledge institution only improve with time and hence would likely add more value per student going forward.

Thus,ISB is contributing a minimum economic value of Rs 60crore(600 X 10lakh) per year.If we assume a life of 100 years(though good Institutions are known to last many centuries) for this Institution, a fixed investment of Rs 200 crore gave a return of Rs 6000 crore,an astounding 300 times. Can any venture capital fund gives this much assured return? Government of India, although did not contribute in this endeavour, by way of financing, will get Rs2000 crore as Income Tax only.What other asset class gives this much assured return?
And these are just monetary returns.The value added like executive education, manament development programs, research, conferences and incubation of startups cannot be quantified. The returns that society get from the intellectual capital added and the leadership role these invididuals will play are immeasurable.Is there any better public service other than promoting excellence in education?
ISB, here, is just a template and can be replaced with any institute of excellence be it IISc for Science, IITs for technology or AIIMS for Medicine.Despite the benefits that excellence in education entails,such endeavours continue to face delays such as this.

A related link describes GoIs intended investment in Institutes of Excellence. But this is not enough. Private sector needs to pitch in a big way. What we should have at the very least is to give 100% Income Tax exemption to any contribution to any Institute that meets the crietrion of excellence.

Bonus Shares:Whiten money,lighten tax bag

A little more details further to the previous post.As is clear from the previous post, the bonus shares do create capital loss for the purpose of tax calculation while no actual capital loss may have occur ed.This must not have been a big issue when our capital markets were small and ratio of Market Cap to GDP was low.Due to the fact that Reliance is the biggest publicly listed company in India,the government can potentially lose out on more than Rs20k crore of taxes due to the artificial capital losses generated by this bonus issue.To put things in perspective,this amount is about 20% of the total personal income tax receipts last year. If all the 30 sensex companies were to undertake the same exercise with their current free float market cap at 12 lakh crore rupees,this would create fake capital losses of 6lakh crore rupees which will be about twice the total direct tax collections made last year.Its bewildering to understand how Indian money in Swiss accounts gets so much attention while such big loopholes stare us. Ironically, the bonus issue is being greeted with great joy and welcomed as a gift and token of value creation.

That said,lets return to the alchemical world of converting black into white.Apart from the capital gains that are legitimate being set off against fake capital gains,one can create fake capital gains and set off them against fake capital losses. Some examples:

1. Ram's friend Teja has accounted income in form of say salaries but unaccounted expenditure for example on foreign trips,luxury,art etc. Ram can transfer the black money in cash to Teja and Teja can buy Ram's land at inflated price thus creating fake capital gains.
2. Ram can transfer the money abroad via Hawala or other routes which Teja can borrow, say through FIIs, to buy Ram's land.Also an NRI can also buy Ram's land through the transferred money.
3. Ram's money need not be in India in the first place. It might already be resting in some Swiss account.A foreign entity can buy Ram's land using this money.

The possibilities are too many and time is ripe. In a reset world, returns on investment on white money are much more than black. The Noose is tightening on Swiss banks. Very many politicians/bureaucrats and other benign souls would be thanking Mr ambani for this opportunity.

Some friends have asked how can there be short terms gains taxed at 15%. Wont they get squared against the short term losses. The answer is that the bonus exercise may get stretched upto December.One can book the short term capital losses in this financial year,hedge for remaining months of this financial year and book short term capital gains in next financial year. Yes, there will be additional transaction costs besides those mentioned previously including stamp duty on land which is about 5% and brokerage costs involved in hedging which are relatively miniscule.

One does not know when and why this loophole arose in our taxation strucure but the earlier we get rid of this, the better.

PS: A related article in Business Standard by Kanu Doshi,a CA , explains that law was amended to plug this hole for mutual funds and not for stocks. The law in that case requires the units be either purchased 3 months prior to record date or be held for 9 months after the record date. Why cant law be amended to treat bonus shares at par with stock split for capital gains purposes?

Bonus shares:Vehicle for whitening black money

RIL has recently announced a bonus share in the ratio of 1:1. RIL has a market cap of about 3 lakh crore rupees with 47% being held by promoters. On issue of the bonus shares, the shares will trade at about half their current price ex bonus.This Business Standard article from april 2004 explains in detail how Bonus shares can be used to create short term capital loss which can be set off against any capital gains.A relevant excerept from article from Income Tax Office,Banglore:

Loss from transfer of a short term Capital Asset can be set off against gain from transfer of any other capital asset(Long Term or Short Term) in the same year. Loss from transfer of a Long term Capital Asset can be set off against gain from transfer of any other long term Capital Asset in the same year.

If there is a net loss under the head “Capital Gains” for an assessment year, the same cannot be set off against any other head of income viz., Salaries, House Property, Business/Profession or Other Sources. It has to be separated into Short term Capital Loss(STCL) and Long Term Capital Loss (LTCL) and carried forward to next assessment year. In the next year, the STCL can be set off against any gains from transfer of any capital asset (Long term or Short term) and LTCL can be set off against gains from transfer of long term capital asset only. Any unabsorbed loss after such set off can be further carried forward to next assessment year.

Capital loss computed in an assessment year can be carried forward for eight assessment years and set off as above.

So lets say Mr Raju buys the RIL share before bonus and sell the original shares immediately after shares go ex-bonus to book short term capital loss. The bonus shares have a NIL cost of acquisition. Now, Raju can either sell the bonus shares and pay a short term capital gains tax @15% or he can hold the bonus shares for a year. He can hedge his risk by selling the RIL shares in forward market and keep on rolling for a year but there too there is cost of capital involved.Assuming he has to pay 25% as the margin money and cost of capital is 15%, the total cost will be 3.75%. Both of these options are much more attractive than standard 30% STCG for non equity capital assets held for less than 3 years.

Since the non promoter holding in RIL is worth about Rs 1.5 lakh crore rupees,there can be about Rs75,000 crore rupees of capital loss available for the taking.Since bulk of the money in country is in form of land,this is a very attractive option for bringing that on the books at its real price.And this is all perfectly legal. This loophole has existed for a long time but RIL being the largest Indian company in terms of Market capitalisation and the ratio of 1:1 probably makes it ptentially the biggest tax amnesty scheme so far.

Finances of States owned PSEs: Power Sector

The consolidated excel sheet has been updated after cleaning and correcting the data in some places.The summary stats for Power sector are here.This post will focus on Power sector.(All numbers are approximate with less significant digits omitted)

Aggregate Data

1. This sector has a turnover of 1.9 lakh crores and employs 7.7 lakh persons. The total accumulated losses for the sector are Rs 32k crores.The turnover per employee is hence Rs 22 lakh. There is a wide variation around this figure with Orissa at the top with Rs 55lakhs in contrast to Rs 6.8 lakhs for Bihar.
2. The two industrial states of Gujarat and Maharashtra have the highest revenue at about Rs 27k crores and 20k crores respectively. Maharashtra has double the number of employees(1.16lakh) of Gujarat(56k).This is clearly reflected in their profitability with Gujarat having a profit of 628 crores(2nd highest in the country) in contrast to Maharshtra's 117 crores.
3. UP comes third with a turnover of Rs 20k crores whose manpower is not completely reported, followed by AP at Rs 18k crores.UP has the distinction of having highest losses and highest accumulated losses at about 2.6k crores and 11k crores respectively.
4. Karntaka and TamilNadu come next with revenue of about 14k crores each.While Karnatka employs 42 thousand; TamilNadu employs almost twice that(78k) .No wonder, Karnatka is making a profit of Rs 462 crores while TN is making a loss of Rs 1328 crores.
5. Further down the list, Haryana has a revenue of 13k crores with an employee base of 33k while next door Punjab earns about half that(Rs 7k crores) with more than double the number of employees (73k ). Punjab's revenue per employee of Rs 9.5 lakhs is only beaten by Bihar(Rs 6.8 lakhs) and Himachal Pradesh (Rs8.6 lakh) . But even than, their percentage losses at 8% and 1% are much less than Punjab's 23%.Hence,Electricity reforms in Punjab are inevitable; despite this.
6. The two mineral rich states of Orissa and Chhatisgarh have the highest profit margins of 19% and 10% respectively with Kerala coming a distant third at 5%.However,there is considerable scope for the latter two states to cut the flab having Revenue per employee of only Rs 17 lakhs and Rs 24 lakhs respectively in contrast to Orissa's Rs55lakhs.
   

Company level data
There are total 93 companies in power sector 14 of which have not reported any accounts.

Turnover

1. There are 46 companies with revenues of more than Rs 1kcrore aggregating to 1.77lakh crores
2. There are 32 companies with revenues of more than 2kcrore aggregating to 1.56lakh crores
3. There are 14 companies with revenues of more than 4kcrores aggregating to 1.05lakh crores
4. There are 4 companies with revenues of more than 10kcrores aggregating to 50kcrores

Profit
There are total 41 companies that are profitable earning a total of 5128crore rupees. Of these:

1. 14 companies earn more than 100crores totalling 4516crores
2. 8 companies earn more than 200crores totalling 3616crores
3. 3 companies earn more than 500crores totalling 2317crores

Losses
There are total 33 loss making companies making total losses of Rs 8044 crore.UP alone accounts for 1/3rd of these losses with Punjab and TamilNadu accounting for another 1/3rd.

1. 19 companies are making losses of more than Rs 50 crores totalling 7707 crores
2. 16 companies are making losses of more than Rs 200 crores totalling 7397 crores
3. 10 companies are making losses of more than Rs300 crores totalling 5934 crores
4. 3 companies are making losses of more than Rs3546 crores totalling 3546 crores

This short summary clearly demonstrates that some states have just too many employees and they are a serious roadblock to reforms of this sector.The 6th pay commission is only going to aggravate the situation.Just to put things in perspective,revenue per employee of private sector Tata Power Company at more than Rs1.5 crores is more than triple that of best performer of state owned Power companies. For worst performers like Punjab,Bihar and Himachal this figure is ranges from 15 to 25 times. This, simply, is not sustainable.

Finances of State owned PSEs

This excel sheet contains the last available summary financial data of each of the state owned PSE as reported by CAG of India. This is compiled are released in public intrest for wider awareness of the finances of State government owned enterprises and facilitating a cross country comparison.

Here are some interesting facts from this compilation:

• Andhra Pradesh has the highest turnover for companies owned by it at Rs 36k crores as also the highest number of employees at 2.6 lakhs.
• Gujarat has almost the same revenue as Andhra Pradesh at 33k crores but with less than half the number of employees at 1.15 lakhs.
• Maximum revenue per employee is by Gujarat but Profit per employee is highest for Orissa at Rs 3.4 lakh.Profit margin for Oriya PSE is highest at 17% probably driven mainly by Mining and its Power companies.Remember that Orissa was the first state to introduce Electricity reforms.
  
• Power companies have the highest turnover with TNEB(Tamilandu) at top with Revenues of 14.5k crores.Beverage (read liquor) sector comes 2nd led by Beverage corporations of Andhra Pradesh and Karnatka at 6.7k crore and 6.38 crore respectively. Civil supply or PDS sector comes third with Tamilnadu at 4k crores and Punjab at 3.5 crores.
• Among individual companies, maximum number of employees are employed by MSEB(Maharashtra) at 1.16 lakhs which is much higher than 77k employedby TNEB with similar revenues. Remember that distribution of power is privatised in its largest city, Mumbai.Tthe process for privatisng in some other cities is going on.
• PSEB(Punjab) is the highest loss making company with losses of 1.6k crores rupees.17 of the top 18 highest loss making companies are in Power sector with next 5 from Transport sector.
• Ironically, the top 3 profit making companies are also from Power sector with MPSEB(MP) at 1.2k crores at the top followed by ~Rs 570 crores Gridco(Orissa) and GSECL(Gujarat) ~Rs 500 crores
  
• In transport sector, most of the states are making huge losses relative to revenues and few are just breaking even not surprisingly since the total turnover of the transport sector is only Rs 16k crores. Regional integration of transport sector is urgently called for but this is unlikel to happen since Transport sector is one of the biggest employers employing about 4.7 lakh people.Considering the vital role of public transport and the number of citizens it touches directly, overhaul of the sector is urgently called for. If we assume an average ticke price per trip per person of Rs 20, an average Indian must be making at least 8 trips per year by state transport buses alone.

Just how many Millionaires are there in India?

Its better to be roughly right than precisely wrong
Since the compilation of any list of Millionaires is bound to be imprecise for a variety of reasons, chief among them being secrecy and the fluctuating valution of asset classes, i would only use rough estimates here.
We often come across new studies by esteemed sources like Forbes who claim there are 1 Lakh millionaires in India where a millionaire is defined to be one having liquid wealth of at least 1 Million dollars.As soon as these reports are published in media, commentators jump up and say there would be these many millionaires in 1 geography alone: say South Mumbai or South Delhi.
Here I have attempted to answer this question from a different angle: compiling the total liquid wealth in India.
As i understand following are the different liquid asset classes:

1. Cash:As per latest RBI figures total cash in circulation is about Rs 6 lakh crores.
2. Bank Deposits:As per RBI again, total bank deposits are about Rs 35 lakh crores.
3. Equity: As per this report in Times of India, the breakup of ownership of top 500 companies is: -23%,Government-22%,Promoters-29%,Corporates-4%,Rest-22%).These companies constitute 93% of stock market cap of India as per the same report. Since the number of promoters would be few thousands and is not a signifcant number compared to upwards of 1 lakh Millionaires, the total equity wealth avaiable to potential millionaires is about Rs 10 lakh crores
4. Bonds:As per a recent ADB report, Bonds are about 40% of GDP of which more than 50% is owned by Banks and RBI and rest by MFs,LIC,PDs etc. So a maximum 10 lakh crores is available to potential millionaires from this avenue.
5. Gold:This is by far the most democratic asset class as far as India is concerned since Indians own about 14,000 tonnes of it(source) which includes jewlery.Some people have even wilder estimates at 25,000 tonnest e.g. Taking a price of Rs 13 lakhs per kg, Gold accounts for about Rs 18 lakh crores of wealth.

The window for overseas asset ownership has recently opened and must be having modest assets. i hope no significant liquid asset class is missing here. So the potential millionaires have a total liquid wealth of about 80 lakh crores available to them. If one attributes this entire wealth equally distributed among millionaires we can have 16 lakh millionaires in India.But that would leave about 120 crore Indians penniless.Randomly assuming an average wealth of 2 million dollars for all millionaires and attributing half of the nation's significant liquid wealth to them (randomly again) gives us a more plausible maximum number of 5 lakh millionaires in India.

Judges Conference: Review of important developments in Indian Legal framework

Here are some important developments in Indian Legal framework taken from background reading to Chief Justices'conference.Thanks to Nick for posting this.

• New Civil cases in High Courts have increased from 2.5 million in 2002 to 3 million in 2009 despite a disposal rate of 1 million per year.Criminal cases have increased from 5.3 lakhs to 7.7 lakhs with disposal rate of 4.9 lakhs.Of the total cases, 0.9 million are pending with High Court of UP.


• In subordinate courts,civil cases increased from 7.2 million to 7.5 million with a disposal rate of 3.8 million per year while criminal cases increased from 15.1 million to 18.8 million with a disposal rate of 11.5 million. Of the total cases,5 million are pending with UP courts.


• Indications are that number of cases filed will only increase with time.
If we are to remove the pendency we need to boost the output of our legal framework by 100%. Filling existing vacancies alone will boost the disposal by 50% at High court level and 25% at subordinate court level.

• In India more than half the amount spent on judiciary is raised from judiciary and the total expenditure on judiciary is hardly 0.2%, whereas it is 1.2% in Singapore, 1.4% in USA and 4.3% in UK.

The document has following suggestions:

• Of entire litigation,50-60% is due to central acts.There are 340 central laws that are adjudicated in subordinate courts.The state governments have to spend money for implementing laws formulated by Centre.Further, Article 247 allows Central government to setup additional courts for better administration of Central laws.
  While Central government may use lack of resources as an excuse it surely can simplify the Central laws and reduce filing of fresh cases.


• Whenver a new legislation is enacted that is likely to increase the workload of Courts,High courts should ask State governments to accordingly increase the strength of Judges.


• Adequate infrastructure should be provided for subordinate court buildings.Such basic facilities as regular water and electric supply are not available.Also new court complexes should be developed with proper planning.This is one recommendation that all Governments will be too happy to comply with.


• Technology: Courts should communicate with advocates/litigants through email. Already, one can file a case through internet now at nominal charges.The court documents should be scanned.Video conferencing has been a success in states that have amended CrPC to allow it.Curious to know which states have not amended it and why and why state government?Why not a constitutional amendment?


• All states should try to make optimal use of infrastrcture and setup Morning or Evening Courts. The ‘Morning Courts’ have started functioning in the State of Andhra Pradesh and they function from 7.30 A.M. to 10.30 A.M. five days a week. ‘Evening Courts’ are functional in the States of Gujarat, Delhi and TamilNadu also.


• Setting up and strengthening of vigilance cells is suggested. What is not mentioned is if any vigilance cell has found anything or action has been taken by a High court upon the cell's report.


• Alternate Dispute Resolution should be strengthened in a big way.
  In U.S.A. there are private mediation firms which employ full time mediators and possess infrastructural facilities to hold a large number of mediations. More people go to such firms rather than wait in Courts. Also, there are Court Annexed Mediation Centres, running on funds made available by the Government. There are thousands of lawyers practising exclusively as mediators. Retired Judges also act as mediators.
  There are mediators who specialize in various branches such as intellectual property, accident, commercial cases etc. and more than 90% of the cases do not go to trial
  
  Its noted that the reason ADR mechanism is virtually absent in India due to lack of human resources trained in ADRs and people who can train others in ADR.Further, its noted that Government being the biggest litigant should take the lead in promoting ADR. There are total only 147 mediation centers in India.This is a business opportunity waiting to be tapped!!Wondering what prevents this from happening.

PS: PIB Press Release, PM's speech during Joint Conference of Chief Ministers and Chief Justices, Law Minister Moily's comprehensive update on GoI's action agenda.

RBI's Branch 'Expansion' policy.

What is RBI's branch expansion policy?
As per this policy,RBI uses a list of underbanked districts (last compiled in 2001) to try and force banks to open branches in areas which apparently they are reluctant to serve.

• Even today, 378 out of 603 districts are classified as underbanked despite the fact that Indian economy has more than doubled and its structure changed significantly since the list was last prepared.As an inspector of Banking, granting licenses, RBI should be aware of the current status of Banking penetration and base its policy on that.


• Among other things,RBI defines an administrative office and controlling office as a branch and hence required to be requiring its license.


• Since demand for Banking services is huge and supply perpetually low, number of branches is the golden key to profits. Instead of relying on explicit regulatory mechanism RBI uses Branches as chocolates to be distributed among well behaved kids. One major crierion for award of branches is:
  services provided by banks to common persons, particularly in underbanked areas (districts), actual credit flow to the priority sector, pricing of products and overall efforts for promoting financial inclusion, including introduction of appropriate new products and the enhanced use of technology for delivery of banking services.
  Branch license is probably a kill all solution and instead of explicit actions RBI seems to be saying do whatever you like, I ll see you at the end of year when you come to me for getting license. Only charitable comment about this can be that RBI is plain lazy.


• RBI,busy as it is, only accepts the applications for branch licenses only once a year and owing to its benevolence,applications for underbanked districts are selected throughout the year.


• Since agriculture now constitutes 25% of our GDP, probably thats why, 25% of the branches are to be setup in rural or semi-urban areas.Even in 2001, Punjab though rural has only 1 district that is underbanked,while Maharashtra has more than half of its districts underbanked(26). So branches are proportional to economic activity; why this hang up with rural/urban?As a result, while demand for banking services increases in one segment of society, RBI is adamant not to let market cater to it.


• In case of mergers,the licence (if separate licence has been issued) ) of the merged branch (transferor branch) should be surrendered to the Regional Office concerned of RBI.Maybe RBI can learn something from TRAI here and vice versa.


• As a matter of policy, closure of even loss making branches at rural centres having a single commercial bank branch (excluding Regional Rural Bank branch) is not permitted, as closure would render the centre unbanked.
  
  Banks are permitted to close any branch in metropolitan, urban and semi-urban (not assigned responsibility under Government sponsored programme) centres without seeking prior approval from RBI.
  RBI street is one way only-->underbanked/unprofitable districts.
  

The latest policy is here. A related column on Bank Nationalisation.

How can BJP prove it is better?

The BJP came up with a wonderful IT vision which was a result of the hard work of few professionals at the eleventh hour. They also issued an infrastructure vision and a manifesto which was much better than Congress.
In retrospect, very few people took these seriously including,perhaps, BJP leadership. If BJP seriously believed in any such visions it would have worked harder on it and started mobilising public opinion on these issues much earlier and not dumped them as soon as the election got over which seems to be the case at present.
When the BJP states that 85 paise out of 1 Rupee disappear due to corruption,it is blaming itself as well because its not widely recognised that almost all central government schemes are implemented with the active cooperation of state governments.
The judiciary, Police,Education,Health and power sector come under the preview of states as well.But state governments are not considered worthy of critique by most of the commentators and let off to easily.

• When it comes to disinvestment, why does not best chief minister of India Narendra Modi let go of his state PSUs so well endorsed by his colleague Arun Shourie?
  
• why do not BJP ruled state privatise or at least corporatise transport corporations taking a cue from Banglore Transport corporation?
  
• I guess Electricity and Transport utility are chief among the loss making enterprises.Why not privatise the state electiricty generation/transmission and distribution and take the process initiated by BJP to its logical conclusion?
  
• What prevents BJP ruled states from reining in absentee school teachers and doctors?
  
• Why cant other BJP ruled states take a cue from Gujarat and start evening courts to reduce backlog of cases?
  
• Can any of the BJP ruled states claim that their Police departments are entirely professional and free from political interfernce?The recent initative of Shivraj Singh chauhan of organising Jan Sunvai with Police officers is a good initiative.
  
• Are the borders of BJP ruled states free from rent seeking behavior by Inspectors, why cant they follow the example of Gujarat of computerising the weighing of trucks?
  
• The BJP led state governments can still follow up on the promise of digitisation of government documents promised in their IT vision.
  

There seems to be an impression that only government is central government and public intellectuals have a task at hand here.

RBI's select economic indicators and Emp exchange data

Summary of select economic indicators is here Look at the employment exchange statistics:
Number of Registrations 6.5 million
Placed in employment: 2.65 lakhs
On live register: 34.6 million

Conclusion:
Options(multiple choice)
a)RBI should stop collecting this vital economic data and start using more contemporary
indices like job portals and number of jobs advertised in newspapers
ball employment exchanges should be shutdown.
c)GoI should pretend to be doing something about it by appointing a commission.
d)Management of Employment exchanges should be handed over to private sector.
e)Job portals should start their physical presence to cater to non netizens which is a big market(>94% of whole labour force of India).
f)Employment exchanges should be made digital.

Thanks to ankush for correcting the mistakes in first draft and sharing Assocham study on efficacy of Employment exchanges and the exampleset by Gujarat. One caveat is that the low unemployment rates mentioned here are misleading since it includes sub subsistence employment as employed (@ <$1 a day) as elaborated by Bibek Deb Roy