Mom & Pop vs Supermarkets

I visited my friendly neighborhood panwaala, Ashok, after a long time today. I was just getting pally with him. He inquired about my absence, "Long time no see bhaiya", I told him that I had been living on my stock for sometime. I observed that:

He knows the choice of his customers and the moment they come, he digs out their brand in a flash.
He is an enterprising person and always greet me with a smile.
He is benevolent enough to give me loose change whenever I need them.
He is open from 6 AM to 11 PM.
He is diversifying, he stocks up groceries, water cans, ready to eat, phone booth and other sundry things.
He gives credit to lots of his customers.
He knows most of his customers by name and address.

That made me ponder over the onslaught of supermarkets and hypermarkets on these Mom and Pop stores (hereafter referred as M&P) that dot the Indian landscape. No doubt the ripple effects are being felt by these small unbranded grocery and retail outlets, but these M&P stores might just have an ace up their sleeves.

M&P have few advantages over the multi million square feet retail chains. M&P know their clientèle and their preferences. M&P know their terrain and have deep penetration. M&P can improvise upon and provide customized service (for example door to door delivery) to their clients. I remember having a chat with a senior client member, he pointed out that his wife still likes to buy fresh vegetables from the sabziwala who comes every morning. He reasoned out, that his sabziwala knows how much quantity is consumed and which vegetables are preferred by his family. That sums up the advantage that M&P might be having.

In India unorganized retail still accounts for over 90 percent of the retail market, but M&P are facing a constant and increased threat from organized retail chains. These retail chains bank on the seamless supply chain that they have built and also on the economies of scale. Till now Organized retail has appealed premium and high end customers. But it wont be long before no-frills retails chains on the lines of Subhiksha and others give M&P a tough fight for the turf.

But Ashok is unfazed, he knows that market is big enough for everybody to survive and innovation will be the key to the survival of M&P in the times to come.

The 65,000 crore write off

There was always an expectation that the current budget will definitely look into the issue of farmer loans. Too often have we heard about failed crops and suicides. As Mr Chidambaram said during his budget speech that the country has a deep gratitude towards its farmers. Actually this is true. Do we ever wonder where the sack of potato or onions or chillies are coming from. We just go into the market & expect fresh batches of vegetables/fruits/cereals all the time.

But coming back to the point. Though this was expected to a great deal what was probably not expected was the magnitude of this offer. Rs. 65,000 crores is at any point of time a massive amount of money.

In the short term, there will be a drain on the financial system. As pointed out, it will have an effect on the profitability of all PSU banks particularly in the 4th qtr results of FY 07-08. We have to understand the fact that these loans are assets in the books of the banks against corresponding liabilities which are basically savings & current accounts i.e. our money. Now if the assets vanish ovenight the banks might be under severe liquidity problems. Good thing is that the Government proposes that these right-offs would be compensated by issue of bonds, securities etc. so that the entire effect is not passed on to the Banking system.

Another effect this will have is a dearth of investible money in the hands of the banks. Till the time the bonds are floated the Banks will have less of cash to disburse as loans. This may lead to a demand-supply gap in the short term and the interest rates will probably continue to be high. This will be actually contrary to the expectation of a softening interest regime and may actually contribute to an increase in inflation.

Further, the scheme talks of farmers with a certain cap of land holding. This I believe is the biggest pitfall. The biggest question here is who is going to monitor this aspect. The farmers would probably be at the mercy of local authorities to freeze their holding and there might be a scenario of immense kickbacks in this regard. Also, who is going to stop the big farmers from dissecting their landholding to less than the ceiling limit in the name of family members. In India, unfortunately, money can buy anything. I believe that the administration will be the most challenging aspect of the scheme.

Another point which has not been explored is the loans taken by the farmers from local moneylenders. These are the loans, with exorbitant interest rates, that drive people to take their lives. It's a reality that only a small percentage of farmers take loans from Banks. For most, it's the local moneylender who demand huge interest and heavy collateral from which there is no escape. This segment has not been addressed at all.

Probably from a macro perspective, it would have made more sense that this money be spent on infrastructure - better irrigation, better crop & cultivation technologies, cold freezers etc. This would have resulted in a lasting effect. Because, till the time these things are not in place, the next round of crops would also potentially be at risk of failure and the fresh loans disbursed to the farmers will also be at risk. This will give rise to a vicious cycle. Having said that, the elections are actually not far away and that probably is the biggest reason towards any kind of budget announcement. The infrastructure development may have taken 5-10 years to put in place but by that time there may be a new government who will walk away with the credit. On the other hand, this measure has an immediate impact and will certainly help once elections come around. This I believe is the only negative thing about this entire scheme.

Having said all this, apart from the doubts as expressed above, I am totally for this scheme. I believe any amount of money is worthwhile provided it saves a life. We do owe deep gratitude to our farmers and in a socialist set-up we have to do everything to alleviate their position. There are certain things, we in the city, take for granted. The reality in the villages is very different. "Equitable distribution of wealth" is a word we have been hearing for a long time. This scheme, if administered properly, may go a long way to do that.

Aamchi Mumbai - not any more ???

Allow me to move away from the heavy dose of economics to realpolitik.

The trigger was an article on CNN IBN which said that strong regional undercurrent is taking shape in Bangalore too. Well if events during the past few weeks in Mumbai are an indicator, I am sure that something similar is waiting to happen in Bangalore, Chennai, Delhi and other metros of the country.

I have never stayed in Mumbai for a long period, I have mostly been in and out of Mumbai (erstwhile Bombay). But I have definitely read about the character of the city, the resilience it has shown time and again. Be it the serial blasts in 1993 or 2007, Mumbaikars (residents of Mumbai) have always risen to the occasion without batting an eyelid. But the regional/ linguistic comments by some self proclaimed leaders and the disturbances that followed, have forced many people to think. The fact that such blatantly regional rhetorics went uncensored by other political parties (for initial few days) is more appalling. What followed was a national shame. Whats even worse is that the state administration allowed it to spill over. The nonchalance and immaturity of the administration doesn't even deserve a mention. Our forefathers had dared to dream about a unified nation, they had dreamt about the country INDIA and not the states. Whenever I will sing the National Anthem I will always remember that there is something that has gone wrong.

Punjab Sindh Gujarat Maratha
Dravida Utkala Banga
Vindhya Himachal Yamuna Ganga
Ucchala Jaladhi Tiranga

Maybe but Not anymore.

But being an analytical person, I tried to go into the reasoning behind the sudden regional rhetoric that are finding favor with the politicians. Not long ago, Delhi CM Sheila Dixit had remarked that "everyday 668 new people come to Delhi". The sums up the problem which Big Cities in our country are facing. The infrastructure has been stretched to the extreme, the culture of the city is getting affected, crime is increasing and many more ill effects of huge migrant population. But that calls for some brainstorming and not slogan shouting. Given the myopic politicians that we have been blessed with, it doesn't require an IQ of 150 to foresee the aftereffects of the regional rhetorics of Raj Thackeray. Politicians in other states are going to adopt similar stance and play on the insecurity of the ignorant and vulnerable minds.

Lets just hope that the ever abstruse "better sense" prevails over our politicians and their audience.

Resurgent India ... Confident Indians

Tata's have done it again. They have bought yet another crown jewel of the British Empire. Tata Motors has emerged as the preferred bidder for Jaguar and Land Rover, icons of British motor industry. Earlier Tata Steel had bought Corus (erstwhile British Steel). Tata Tea had also bought out Tetley, yet another brand from colonial era. Pessimists might downplay it as a flash in the pan. But these are signs of things to come. China and India are marching, and nobody can stop them. US might have succeeded in thwarting CNOOC attempts to buy Unocal, but they cant hold them for long. Nobody can deny India its deserved place in the sun.

Coming to confident Indians. I have a personal experience to substantiate this. I will be joining ISB in the coming April. The cost of the MBA course works out to be approx 18 Lakhs (only if the North Block does not levy Service Tax on tuition fees). 18 Lakhs is no small sum by any means. But I don't think anybody who will be joining will be worrying about 18 Lakhs at the moment. Everybody is confident that they will get a handsome return on investment on this. This is the sign of confident Indians (directly proportional to booming indian economy). People of earlier generations would have baulked at this figure, but at least I was not not even bothered by it for a second. I just hope that my confidence is vindicated, when i pass out in April 2009 :D