Does Chandigarh need high rise buildings?

Sum evaluates the strong oppositon to vertical construction in Chandigarh ....

Strong opposition to Tata Housing’s proposed high rise residential project near Sukhna Lake reminds me of the yester year’s debate of whether girls be allowed to wear skirts (and miniskirts) in colleges. A lot of colleges went ahead and imposed a ban, some even banned jeans and other western outfits crediting themselves with moral high ground. But as we evolved as a society, these trivial issues became non issues. The question remains who decides moral high grounds and set standards for what is right for the society?

Chandigarh, no doubt earns its title of being “The City Beautiful”, and I applaud the high quality civil and social amenities that its citizens enjoy relative to any other city in India. Needless to say planning and administration played a big part so did the futuristic vision of the legendary Le Corbusier in making this a world class city.

Any threat to the heritage or original set up of Chandigarh is indeed a concern that needs to be addressed including projects and developments that come up in its vicinity and periphery. Evaluating objections to Tata ‘s Camelot from a relative standpoint, the concerns seem to be narrowing down to an issue “whether Chandigarh needs to grow vertically, particularly in light of its heritage status?”.

The biggest strength of Chandigarh is its planned development and architectural brilliance from a city’s layout perspective. The civic and social amenities and fast implementation of projects adds value to the physical infrastructure. But the success of a city is measured not only in terms of its physical infrastructure and service delivery mechanism but also in terms of it being able to self finances its expenditure and generates funds for its growth. Equal opportunities for growth, environment consciousness and safe and secure environment are other parameters on which a city can be rated.

Let’s take up the issue of equal opportunities first; every citizen has a right to self growth and development and move up the ladder of socio economic status. There is a strong linkage between who are opposing this project and what strata of the society they are representing. MLA’s sold their society land to a private builder who is going to build a high rise close to an affluent area with green and natural surroundings much to the dismay of high profile settlers of northern sectors of Chandigarh. They are commanding and setting up their base in these sectors and are not ready to share even the minutest of this privilege with the growing and upcoming middle class. A high rise approved as per the norms within the framework of all legal approvals will provide avenues and opportunities to middle class people to dream a home in the north of Chandigarh. Is it a sin to conceptualize and bring about a project that provides such opportunities?

Another issue which concerns me is that the way the investigation was carried out and how it is biased and shares concerns of only a certain section of the society. The six part investigation fails to recognize the views of the villagers who are likely to share neighborhood with this project, the views of builders and brokers were never aired, the views of middle and upper middle class were nowhere to be seen. Is Chandigarh and in particular the northern sectors only the prerogative of the rich and affluent section of the society?

The matter is already sub judice and forming a public opinion based on lop sided facts and views will influence the action and thought process of regulatory agencies and civil bodies. We need a planned but equitable growth of a city like Chandigarh and provide opportunities for all classes of people to dream and own a house in Chandigarh. The feudal settlers of Chandigarh are lobbying against this project to protect their monopoly over the priciest assets in Chandigarh and no leaf is unturned by the ill informed media in helping them in their cause. Chandigarh needs high rise and residential projects (particularly high rise) near water bodies and natural surroundings are not uncommon in all major and planned cities of the world. There is a tradeoff between beauty and equitable growth in this case; and the choice will depend on the level of hierarchy the person belongs to in the society.



QE 2 : Whats the big deal about it ?

QE2: What is it and what’s the big deal about it?

QE2 or quantitative easing is printing of currency by the Fed (central bank of US) to buy treasuries (long term government bonds). So let’s see what the exact fact of the matter is as per an international weekly - “The Fed said it will buy $600 billion of treasuries between now and next June at about $ 75 billion a month”. In recessionary times or when the economy slows down from its long term growth trend the central bank intervenes to boost demand and growth by providing liquidity in the markets through an expansionary monetary and fiscal policy. Monetary policy can stimulate demand by cutting interest rates and / or reducing the statutory reserve requirements of the banking system. The rate most likely targeted by the central bank in the monetary policy is the repo/ reverse repo rate which are the overnight rates at which the central bank lends/ borrows from the banking system. In extreme and extraordinary circumstances (much like the present form in the western world) when nominal rates are near zero and real rates are negative there is no more scope with the central bank to make any further cut in rates and stimulate the economy. It instead is left with extreme measures like currency devaluation (by printing currency and increasing money supply) or by directly buying real assets.

What US is doing with QE2 is experimenting with printing currency to buy long term treasuries. Printing currency will increase money supply in the economy which will keep interest rates low and provide liquidity in the system to stimulate demand. Increasing money supply is followed by high inflation but that is not too much of a concern in an economy with a lagging demand. US is currently focusing on stimulating demand and kick staring the economy towards its trend growth rate of around 3.5-4 %. In fact at this stage a though of increasing inflation will signal increase in demand, which Fed can control by raising rates in the medium term.

Emerging and growing economies like BRICs and to a lesser extend Germany are skeptical of QE2 and crying horse over this loose character policy of the Fed. When Fed introduces liquidity in the system by printing currency, investors will look for assets with high yields. With interest rates on treasuries ultra low, investors turn to risky assets like alternative investments, real estate and emerging economies (emerging economy is an asset class in common parlance). A flood of money chases high interest rates and high yields in emerging economies which propels asset bubbles in these economies (I know of a few bubbles already – Brazil’s currency bubble, China’s real estate bubble and India’s stock market bubble). What this also leads to is that the demand for dollar decreases and the demand for foreign currency increases, thus putting downward pressure on dollar and appreciating pressure on the foreign currency. No surprise dollar is on a downward trajectory relative to Real, Rupee and Euro. China with its elephant footed currency peg has prevented Yuan’s appreciation by buying dollar assets and thus amassing huge foreign exchange reserves. Indian and Japanese central banks too have intervened in the currency markets to keep their respective currencies on a crawling peg and not let them rise astronomically.

There’s another more inherent risk with this dreadful depreciation of dollars. Greenback is regarded as the reserve currency of the world and countries around the world are accumulating Dollar reserves to insulate themselves from a sovereign default. Imagine this situation; China has around $ 2 trillion of reserves, now when Fed move make dollar depreciate by 15-20% in the short run, reserve are going to depreciate straight away. Scary, isn’t it?

I can go on and on and on with the explanations and counter explanations in explaining how this complex situation is unfolding and what are the implications for all the counterparties involved. To make it straight and plain, Dollar is going to depreciate which will make dollar exports competitive, foreign currencies will appreciate and the dollar reserves of countries will dwindle.

My solution to this is rather radical and very quick (my wife is frowning as I write this ‘boring’ bit of article on a Sunday evening). First, emerging economies should pressure for a value weighted SDR as the reserve currency of the world; with the currencies of all G20 economies getting weights proportionate to the size of their economies in the SDR. Second countries keeping their exchange rates artificially low (China) and even at some stage US, should be penalized. Third, India in particular, should start accumulating Chinese Yuan as the reserve currency as China is India’s biggest trade partner outside of US and the trade is going to get bigger with both the economies growing in size and scope. Dollar will dwindle and Yuan will appreciate finally, there is no risk whatsoever (though I acknowledge political risk) in accumulating Yuan as a reserve currency, central banks must pay heed to the mind of a radical investment analyst.

Explaining Dip in IIP Numbers (Sep 2010 - India)

Explaining Dip in IIP Numbers

“Industrial growth continued to decelerate slowing to a 16 month low of 4.4% in September on account of sluggishness in key sectors” – Business Standard.

IIP or Indices of Industrial Growth numbers are one of the key short term leading indicators of economic health and help form expectation of GDP growth growing forward. It is important to know that reported IIP numbers are calculated as percentage growth over last year.

Current deceleration of IIP number is India to a 16 month low can be accounted to two factors. One is a statistical effect and other one is a structural and strategic effect. The statistical effect could be that current deceleration in on account of high base of last year. Last year increase in IIP was very robust and the base for last year (2009) was the slowdown period of 2008 during which industrial production and other key indicators were exceptionally skewed downwards. So, robust growth of 2009 was on account of low base effect of 2008 and 2010 deceleration is on account of high base effect of 2009. Not much to be read into this statistical effect if this indeed is what is happening.

But there is another and somewhat worrying side to this deceleration. The deceleration in growth could be on account of slowdown in the inventory cycle. Businesses typically like to maintain appropriate inventory levels based on their expectations of future growth and level of demand. Thus the current production numbers are based on future expectation of demand. If businesses are getting pessimistic on future growth in demand, they may like to lower their inventory levels and slow down the production. Lower production means lower IIP numbers and may signal a slowdown in GDP growth going forward. Indian economy is closely integrated to the world economy and expectations formed in the global economy get reflected in domestic indicators although with a lag. If industry is indeed in the process of slowing the inventory cycle, global expectation may have played a part too.

There’s a third angle to this story too, inflation and rate increases may have played a part in slowing down the industrial production too. Inflation is positively correlated to industrial production only if the businesses are able to pass on the inflation to its consumers. There is no empirical evidence on a full pass through of inflation by businesses on a macro level and the level of inflation which is not passed through drags industrial production (as input costs increases and margins become lower). Rate increases by the central bank in the midst of high inflation lets industry to form expectation of further rate increases and thus a slowdown or moderation of growth and thus low demand. It’s a complex and a very tight balancing act for RBI indeed.

The great subsidy debate.....

Tuesday, November 9, 2010The great subsidy debate....

Subsidy to Farmers: Replace subsidies with greater market access for farmers including allowing export of agricultural produce. Farmers will get more for their produce in global markets and Global prices will become the floor for setting domestic MSP. Government agencies can assisit farmers by providing integrated marketing and distribution services for a global reach. Deadweight loss of subsidies will be coverted into producer surplus. Free market leads to better price discovery and competetion, international prices will serve as a benchmark for domestic pricing of agricultutral produce by the state government.