3M India Reluctant to Return Money to Public Shareholders

I came across 3M India while looking for good stock picks. They seem to be financially quite solid and yet their stock price is very near levels they already achieved by April 2016. This led to me look into the reasons for this and I found a few interesting points.

3M is a well-known brand globally across several consumer and industrial spheres. They operate in India with a listed subsidiary in which 3M USA holds 75%. Foreign Portfolio Investors hold close to 10% and the rest is held by domestic institutions and the public. The financials of this company are strong and growing significantly each year.

They don’t pay dividends. None at all.

The noteable thing is they don’t pay dividends. This is not a one-off. As far as I could analyze, they have never paid dividends in any year. Quoting from their 2016-17 Annual Report:

A healthy cash position in a high interest economy is seen as prudent and necessary to fund growth. The Company remains bullish on investments and growth expectations in India, and anticipates substantial manpower, CAPEX and promotional investments required to support growth aspirations. The Company is focused on its growth plan with a long term objective and is in the process of implementing a number of initiatives and projects. As a result, it has been decided to conserve and retain the earnings and, therefore, not propose dividend or transfer any amounts to reserves.

Their net income (profit) in the Financial Year ending 31st March was INR 2,383 Million (approximately USD 36 Million).

Question 1: Do they actually need to retain all this money?

3M India has no outstanding long or short term debt with a small working capital component of INR 46 Million. They had a cash and cash equivalents balance of INR 3,708 Million as on 31st March 2016. This has swelled to INR 7,442 Million as on 31st March 2017. No less than INR 5,900 Million is now held in deposit accounts as on 31st March 2017 which is more than double the previous year balance of INR 2,860 Million. Through the year, the company earned INR 259 Million in interest.

If we make a rough calculation that the average deposit balance in the year was an average of the balance as on end of FY 2016 vs end of FY 2017, the return is merely 5.9%.

During the year, the investments made by 3M India seems to be only INR 141 Million under the head – “purchase of property, plant and equipment and intangible assets” – which is much lower than the hit taken due to depreciation and amortisation which was INR 467 Million. Further, they clearly mention that capital investments during the year were at INR 138 Million (INR 106 Million in 2015-16).

So in summary, their entire capital investment needs for two full financial years could be covered by just the interest they earned from cash deposits in this year.

The operational expenses on manpower and “other expenses” which probably include promotions grew by INR 749 Million year-over-year but this was amply covered for by growth in revenue (their margins have been steady) and hence cannot be a reason to hold back a lot of cash.

So no, they don’t need the money.

Question 2: How do the promoters get a return on their investment?

So you might be thinking, what does 3M USA get out of all this since there are no dividends. So we start examining whether 3M India has made payments to 3M USA. Here is a summary:

3M India was to receive from 3M USA a sum of INR 1,085 Million by performing contract research, sale of goods and re-charge of expenses.

3M USA was to receive from 3M India a sum of INR 9,769 Million out of which INR 8,150 Million was due to purchase of materials. This leaves a sum INR 390 Million in royalties and INR 1,167 Million as “Corporate Management Fee” that 3M India paid 3M USA. These two heads are together equivalent to a full 65% of 3M India’s reported net profits.

Without these items, the “presumed” profit grows to INR 3,940 Million. So this indicates that the royalty is computed as a full 10% of this figure. This is somewhat justifiable given the product research done by 3M USA that 3M India would be leveraging but seems on the higher side.

The “Corporate Management Fee” on the other hand, seems to be the equivalent of a promoter dividend since 3M India has a well-qualified management team and it is unclear what value 3M USA adds here. The fee takes away another 30% of the “presumed” profit of INR 3,940 Million!

Upon closer reading a few of these items like leveraging corporate processes and IT systems from 3M USA do make sense but others do not. Also the quantum of this payout seems absurdly high!

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So 3M USA has basically taken out 40% of the profits under these 2 heads!

Given they have more than enough cash stowed away and they pay out 40% of the presumed net profit to the promoters it is unjustified for common shareholders to swallow their commentary on why they need to retain all their earnings.

Question 3: Why do minority shareholders keep quiet?

It looks like 3M India addressed 57 shareholders complaints in 2016-17. This is not a low number. I doubt investors are keeping quiet. However the biggest minority block are FPIs for whom the 6% interest earnings on cash deposit is not bad compared to returns across the globe.

It is unlikely that 3M India will hear these voices given the degree of management control they have. There is also no scope of a buy-back given the promoter holding of 75%.

What would an investor like them to do?

With a presumed profit of INR 3,940 Million:

  • they could continue paying the 10% royalty (although a decrease could be called for)
  • completely remove the “Corporate Management Fee”
  • pay a special dividend to bring out money from bank deposits
  • pay a post tax dividend of INR 1,556 Million which would compensate 3M USA for the loss of the above fee but also reward common shareholders

What should an investor do?

  • Raise a complaint with them
  • Attend their AGMs and vote against the current royalty and fee structure.
  • Complain to SEBI

Note 1: All numbers are quoted from the Annual Report for 2016-17 published on their website. I am happy to correct any numbers that are incorrect.

Note 2: Updated with breakup of corporate management fee on 20th Oct 2017.

Disclaimer: I don’t know if 3M India is the norm (likely) or the exception. I have not checked if other listed subsidiaries of MNCs in India also do this. But other companies doing this should not be a reason for 3M to do the same.

Financial Literacy: Or a Guide to Escape “Millennial-style Poverty”

Buzzfeed did what they are good at and used some random anecdotes and created click-baiting content around millennials and “urban poverty” that has generated lot of outrage. This post is not yet another sarcastic take on that. If you set aside the extreme examples used by Buzzfeed and just look around, you will find that financial literacy is a rare commodity. The outrage against Buzzfeed for simply pointing this out seems a bit rich.

I am no less guilty. It was not until I was almost 30 that I probably looked at this as a serious thing in my life. Putting your money to work is powerful. It can help you retire early, sleep peacefully, resist financial shocks, create jobs and even change society. Raghuram Rajan spoke recently about money and what it enables:

“In a free market, all it takes to buy what you want is money. You do not need a pedigree, a great family history, the right table manners, or the right fashionable clothing or looks… It is because money has no odour, because it is the great equaliser, that so many people across history have been able to acquire resources and invested them to make the world we live in.”

Many of the top jobs in the world are all related to efficient capital allocation. Warren Buffet and Charlie Munger at Berkshire Hathaway are a prime example. Google co-founders’ new structure with Alphabet/Google is to enable them to allocate capital more effectively. Cyrus Mistry with the Tata Group has top Managers for every group company while his main focus is strategy and capital allocation. Actually every CEO/Board is supposed to have this as a primary task. If they cannot do better than their shareholders in managing capital then it is in the shareholders’ interest that the company pay dividends with all their profits.

So companies invest in new projects or products in search of wealth creation and financial security. Are these not the same primary reasons why individuals work their whole life? So take charge and be the CEO of your finances. The first step is getting your finances from the red to the black. So you must save.

How much should you save?

It depends on one’s earnings on one side and goals, responsibilities, lifestyle etc. on the other. Do you want to do an MBA? Raise a family? Couple of holidays a year? Build a corpus for a startup? Repay loans? Make a list! Build a career that helps you grow earnings over time. Have a lifestyle that doesn’t break your bank account while indulging yourself.

Improving your lifestyle with increasing salary is fine but try to expand your margin (percentage of savings) while doing so. Don’t grow costs as fast as income. When calculating costs include large one-time expenses like a phone, furniture, a car or a wedding.

Consider this. Let us say your income grows at 10% a year but costs at 5% with an initial savings %age of only 12% of income. You will find that annual income doubles in 8.5 years; costs only in 15 years and absolute savings double in 3 years! I know this seems unrealistic but even a 1% difference in the growth rates gives your long term savings a good boost due to the compounding effect. Conversely, if costs grow faster than income even slightly then you will be bankrupt in a few years. Work out the numbers. In the below charts, the axis on the left represents income and expenses and the other axis shows the %age of savings.

Psychologically, saving is basically about discipline. Build it.

Is it enough just to save? 

The simple answer is no. Money loses value with time. Even if you don’t lock it up in your safe at home, savings typically lie around in savings accounts or fixed term deposits that pay you some interest. This interest rate even if it seems high does not beat inflation (or not significantly enough). Raghuram Rajan explained this with his dosanomics but anyone who buys milk or eats at restaurants would know this. In a low inflation environment it is possible to squeeze out a bit more from these avenues but inflation is a cyclical beast. You cannot trust Governments to have policies that control inflation very effectively.

The second beast you need to fight is taxation. Let us say you saved 100,000 rupees and invested somewhere and earned 10% (10,000 rupees) on it. Depending on the type of investment you may have to pay taxes on the interest earned. This reduces your effective return to 7% if you are in the highest tax slab!

So your tax-adjusted return has to beat inflation over the long run if you want to create wealth.

How do you do this? 

Invest. In India, for all our faults we have fairly well-regulated banking and financial markets. Yes, there are crony capitalists who run down banks and corrupt promoters who loot companies but we are still better off in this regard than even China where bad debts are mounting and the stock and real estate markets have reached crazy bubble situations. If you don’t know enough about stocks then invest in a simple diversified mutual fund. Mutual funds invest in both stocks as well as bonds. In my opinion corporate bonds are no more safer than the stocks so you might as well stick to equity.

Most people cannot pick stocks that beat the market in the long run? Why? Because the market is simply the superset of all people and random factors play a significant role. There are bound to be a number of people who do worse than the market. Also, investment returns are highly variable because of the huge differences in risk appetite and staying power between investors. Even fund managers are not immune to this. You are also not immune to this. So if you don’t know how to do this, stick to equity mutual funds.

To learn more about investing directly in stocks, read up. Building skills like the ability to understand balance sheets, income statements, cash flow accounts and annual reports all come in handy. Every public company is supposed to publish these on their website. But there are some services that compile and share details that you need: Screener and Craytheon (subscription required) are examples of financial data providers in India. There are equity research reports you can get your hands on here: Morning Star India (login required). If you want to know about all the pitfalls of stock and bond markets, read the age-old book by Benjamin Graham, The Intelligent Investor. The author is Warren Buffet’s guru and started teaching investing right around the time of the Great Depression.

But aren’t stocks risky? 

Psychologically, investing in stocks is about patience and keeping faith in your judgment even if there is panic around you. Have you heard about the relative who bought a stock after he saw in the news that it grew by 40% and then saw it tank? Have you heard about a friend who panicked and sold shares at a 20% loss because the markets were in a seemingly bottomless downtrend? Let us borrow the Mr. Market allegory that Benjamin Graham created and show why this is poor judgement.

Mr. Market comes to you every day at a fixed time and either offers to sell you a kilo of onions or buy the same from you. He sets the offer price each day but you have the freedom to accept or reject the transaction. Let us assume that the supply and quality of onions are steady and that over the last year the cost of growing and transporting onions to markets was 20 rupees a kilo and you know all this. If he comes to you and offers to sell onions at 40 rupees today, will you buy it? What about at 10 rupees? What if he offers to buy your onions at 10? Will you sell them? What about at 50 rupees? The decisions seem quite obvious! Assuming the quality is the same, you buy when prices are low and sell when they are high.

Yet, in the stock markets the behaviour is completely opposite. Note that companies declare results only every 3 months. Minor news does come up every now and then but that doesn’t justify the daily price changes of the markets. The markets are volatile (different from risky!) because of various factors like staying power and leverage of the participants.

In the onion example, what if you had borrowed money and purchased onions at 20 rupees. You have to return the loan in 2 days. Mr. Market was offering 25 a week ago, 19 yesterday and only 17 today. Will you sell now or wait? Don’t borrow to invest! That way you can improve staying power. You should be the one who buys the onions at 17 rupees from this guy who is forced to sell!

The other factor that influences staying power is using the stock market to make a quick buck in a short time for an upcoming expense. If you need to pay the down-payment on a house in 6 months, don’t invest your currently saved corpus in stocks. When the market falls, you will sell at a loss.

All this assumes that fundamentally the stock is good, so do your analysis. As opposed to market volatility,  risk comes from the fundamentals of the business and industry of the company. Stocks don’t offer a guaranteed return and any business has its risks. Diversifying is one option to mitigate against risk if you don’t get too much time to do research. But studying companies and the market conditions well is a better option based on my personal experience.

The key questions are: Is this business doing well? Is it available for less than what it is worth? Is the management team qualified and ethical? What is their track record? Do they have loans under control? How are they doing when compared to competition? Yes, it’s a lot of work. You will have to sacrifice a couple of weekends every now and then to do this right! If you cannot do this, then invest in mutual funds.

Buying more without panicking when the markets are down lowers your acquisition costs and can boost future returns. You can take advantage of volatility while being cognizant of business performance and challenges. If you invest 10,000 rupees a month when the stock trades at 100 you get 100 shares. When the stock trades at 50 you get 200 shares for the same amount. Your average cost is not 75 but 67! When the price gets back to 100 you make a cool 50% return.

So market irrationality can increase a sensible person’s returns!

The best market for someone who is going to invest every month for a long time is actually a prolonged slump when stocks are cheap and an eventual rise. But stocks are cyclical beasts just like inflation. Disciplined regular investing still beats trying to guess when the market will be low.

I said earlier that fund managers are not immune to irrational behaviour. Why? If you can enter and exit funds at any time and a fund is composed of irrational investors then people redeem when markets fall and buy when it is high. The fund manager has no option but to follow this inflow and outflow of money. Exit loads are used to control this behaviour but I doubt they are effective. Funds are still better than speculation or bank deposits. Some funds also control entry/exit with some rules.

The other reason why stocks make sense is that we don’t have any taxes on long-term capital gains on stocks in India (at least for now). Plus “long-term” for stocks is just 1 year compared to real estate which is 3 years.

What about real estate?

Buy a house if you want the psychological comfort of your own home or to retire in when you are not earning any more. But remember that it may not be good enough as a pure investment. Everyone knows people who multiplied their money in real estate. But it is not for everyone. Property titles and guarding them is a risk. Luck and location play a large role. Built-up property depreciates no different than a car some times. Plus if you move for work you need to manage tenants remotely.

Home loans to buy property makes it an even more doubtful investment as the tax-adjusted return needs to now beat your tax-adjusted loan interest. Transaction costs are high especially if you need brokers to manage it.

Long-term capital gains taxes are also applicable beyond 3 years. A lot of real estate transactions also happen in black in India to avoid registration fees and taxes or simply to hide ill-gotten money. So be careful!

What about trading?

My belief is that you should not speculate unless you can afford to gamble. Every day-trader boasts in public only about the wins. No one wants to admit how they washed all their money down the toilet betting daily in the markets. Plus there are some trading strategies (using certain types of futures and options) that have limited upside consistently which look like regular income but unlimited downside when rare events happen that can wipe out a whole lifetime of upsides. Be doubly careful!

When an online broker offers you a loan to trade, be very skeptical! If money could be made by trading this way, they would be trading with their money and not lending it to you. You would be better off investing your savings and spending your work day building your career thereby increasing your future savings!

If you made great money while trading, congratulations! You don’t know how lucky you are. The rest of us need to find other ways.

What if markets fall and fall hard like the recent recession? 

If you have staying power of a few years and don’t need the money immediately you can weather the storm. You can do this if you have protected yourself against shocks (see below) especially if you haven’t got fired. If you still have your job, you can buy stocks at a hugely cheaper rate to lower your costs and gain when the rise happens. You can also sell when markets are irrationally high because usually this means a hard landing is coming up. Markets usually bubble up when there is cheap credit in the market. Why would someone pay 40 rupees for something worth 20 rupees? May be because they saw it rising and were offered a loan to participate in the boom. When this free money dries up there is a hard landing as there is a race to sell and recoup money. So normally hard landings are preceded by booms.

In the onion example, you can sell your entire stock when you are being offered 40 for something that is worth 20. You do this either because you want to book gains (if your job security is low) or don’t have staying power when the hard landing comes. If not, stay put!

What about my own business?

Sure. If you are passionate and know your stuff, go for it. You are the job creators Rajan spoke about!

Think of it as investing in your one single company instead of investing in many others. I don’t have any personal experience here so I wouldn’t claim to know anything about this. From what I have seen and heard though, keep tight financial control and monitor your company performance the same way you would judge a stock you are evaluating. Don’t rely on your accountant to understand your company’s performance and money-making (or burn-rate!) model. Build adequate protection against personal financial shocks.

How do you deal with unpredictable financial shocks?

Keep some liquid cash in savings or deposit accounts. “How much?” depends on your needs. If you are an employable bachelor who has no dependents may be a couple of months salary might do. With a family you might need more. With loans, even more.

Also if you have a large expense coming in a few months (say a wedding), it is probably not a good idea to park money in stocks to pay for this because your staying power is low if the market drops. Try to plan well in advance (18 months or more) or alternately park the money in more liquid assets with guaranteed returns.

Get insured! Insurance is a way of protecting you and your family from shocks that you cannot afford. Get life insurance and disability benefits to more than cover your loans and the needs of your dependents. Get medical insurance for dependents or work at a company that covers this. Insurance is cheaper earlier in life. So do this sooner rather than later.

Insurance is not like another expense. It is basically downside protection for your investments against an improbable negative event. If you need 1,000,000 rupees for a medical emergency, it can wipe out several years worth of savings.

Insurance is not an investment either! ULIPs and other fancy products neither give you enough insurance coverage nor enough investment returns. Also insurance companies are not necessarily good money managers. Buy term insurance so that you pay only for the risk and not to inflate the insurers bottom-line.

Can it all still fall apart financially?

Statistically in a planet of 7 billion people, there are going to be some who did everything right and then got screwed anyway. So invest in yourself and your family: health, skills and relationships. A gym subscription, learning how to code or cook, teaching life skills to your kids early are all intangible investments that can be invaluable during hard times. A come-back will be made. 

Hero Worship

I could summarize this post pretty well with just this one name: Lance Armstrong. But please allow me to indulge you further. Most of us have our sporting heroes. Many summers ago I was asked to stay put at home for a month due to a health issue and this coincided with the Tour de France. This was the first time I watched the physically grueling cycling tour that had 21 stages each up to 200 km spread across a month. Just completing this would require almost superhuman effort. Lance, the cancer survivor, was pulling away from the others easily and it was natural to idolize him. He could do no wrong! We all know how that ended.

Not all sports careers end in dishonour like this but ups and downs are part of the story. People watching Sachin bat in his last two years yearned for the Sachin of old. Federer hasn’t won a Grand Slam in years now but even in his glorious peak he struggled at the French. Obviously one of the “downs” comes at the end of one’s career unless like Sangakkara one retires at one’s best. But no one is completely infallible and failings are exposed at various stages. In fact, failings show what it takes to reach, perform and stay at that level – years and years of training with extreme physical and mental conditioning combined with a good dose of luck.

Even knowing all this, rational people still expect their sporting heroes to be infallible and are hugely disappointed with their failures. Sports is not the only place where it is common. Vijay Mallya was the toast of the town in the mid-2000s for his flamboyant lifestyle to the same guys who are panning him now. Everyone aspired to live like that! Narendra Modi, Jayalalithaa and Arvind Kejriwal are all recent politico-social examples in India who are the subject of hero worship by some or other group of people.

What is hero worship? The folks at Merriam-Webster define it as “foolish or excessive admiration of someone”. Let’s try and understand this further. Why is “foolish” more or less equated with “excessive” admiration. There is some mathematics at work here – “Regression”. Regression always needs a context: regress (or return) to what? In the mathematical sense, the complete definition is “regression to the mean“.

The mean represents an expected or average or natural state. When something very positive happens you are above the mean and conversely you can go below. The concept of regression says that you need to return toward the mean in any random process such as life. Daniel Kahnemann in his book – Thinking, Fast and Slow – gave an example of pilots who were scored during their training sessions. The pilots who got extremely high scores in one session and were lauded for that almost always performed more poorly in the next session. There was a lot of analysis to see what was going on – were the praises leading to nervousness next time, were they overconfident? But in the end it was down to the concept of regression. Each pilot simply regresses toward their own long term mean score.

What does this have to do with hero worship? Normally when someone gets famous or infamous in the media they are either on a sharp uptrend or downtrend from their mean. Usually the ones on an uptrend are eulogized and turned into heroes. So we observe someone at their very best (well above their mean probably) and turn them into our hero. What Social Media does very well is make this trend viral so that more and more people do this and now you have a critical mass of people who think this person is a hero. People also judge that if the person could do X very well (which is what brought them hero status), they will also do Y very well. We know from sports that this is unlikely but we still believe this when it comes to business, religious or political leaders! When regression happens this excessive admiration looks foolish!

Here are some examples:

  • Lord Ram is praised as the embodiment of ideal human behaviour due to his obedience to his father’s promise and his rescue of his wife. Regression happened when he exiled his pregnant wife. Which woman would accept this today? Note that it is very likely that the Uttara Kanda that details this episode was a later addition to the Ramayana but my point is that the people who worship him consider this Kanda as canonical.
  • Prime Minister Narendra Modi is the unquestioned leader of the BJP and is highly motivated to lead the country. Among the positives we hear how bureaucrats are more accountable and interest groups are kept at arms length to avoid “big corruption”. More pro-activeness in foreign relations and removal of obstacles in infrastructure projects can be seen. Does this mean he is infallible? Nepal getting closer to China due to India’s blockade; promotion of regressive ideas at the Indian Science Congress; rooting for “Make in India” while cutting research funding; and his general silence when it comes to contentious issues involving marginalized sections of society are all signs that he is fallible in some areas.
  • Delhi Chief Minister Arvind Kejriwal won an election on a platform of ending corruption and focusing on public services. He has delivered in several areas. But his unchallenged majority means he diluted his own Lokpal Bill proposal and expelled alternate voices from his party. Regression at work again.
  • Spiritual leader Mr. Ravi Shankar of Art of Living who is known as a philanthropist talking about how they only “leveled” the Yamuna floodplain and didn’t cut any trees betraying a clear lack of understanding of river habitats. I wrote more about this here. Modi and Kejriwal first permitting and then attending this doesn’t do them any credit either.

What should we read from all of this? All these are examples of people just being people with all their good and bad. Even from each of our personal experiences we know each of us have our own pluses and minuses. But knowing all this does not convince hero worshippers to take a step back! Hero worshippers tend to justify each action of their hero whether good or bad.

Does this somewhat blind worship make any difference to the heroes? A degree of hero worship is necessary to get people to vote you into power especially when a large part of the voting population does not see how good policy can help them. After a while the heroes (for example, Indira Gandhi) start believing in their own infallibility and this results in disaster. Such heroes fail to see the need for surrounding themselves with people who complement their own skills and instead rely on sycophants. The BJP currently praising the great “Modifier” and imposition of President’s Rule without due process in Arunachal Pradesh and Uttarakhand show increasing signs of such behaviour.

People are some times capable of great things but at other times are fallible. Our heroes are also normal people who just got famous during their high point. They can inspire us to do great things as well as wrong things. They can lead a country into war or destroy the economy with wrong policies. When there is mass hero worship we allow ourselves to be led down this path while all along we say this is for the best. Erdogan in Turkey is proving to be a good current example of how a popular leader can transform into an autocrat.

An individual can benefit from good role-models (from Merriam-Webster: “a person whose behavior in a particular role is imitated by others”). We can look at someone and say he is a good role model as a father and I will learn parenting from him. This person might be not so great at their work as a financial advisor and can be criticized for that. We can look at a political leader and say this person builds consensus well and I will learn that from her. But when she enters into a deal with a conflict of interest I can critique her. One need not worry about justifying actions of their role models! A strong person can withstand some criticism and may be even improve themselves.

Having role models allows us to derive inspiration from certain roles or actions of another person while leaving space to critique their other actions. This keeps things realistic and our political or other leaders grounded. It avoids false overconfidence in our leaders in matters they are not strong on and encourages them to augment their own weaknesses by building a team around them. For example, Modi can benefit from better Ministers in the Health and HRD departments.

Even criticizing reasonably good policy is good for the country because it encourages policy makers to communicate why the policy was created and how it will benefit us. A robust policy can survive criticism and can become even stronger.

We all like a bit of hero worship because a heroic narrative inspires us and motivates us. But we should probably restrict it to the sports arenas where it can do less harm!

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Degrading the Environment, Indian Style

In my first post on this blog, I tipped my hat to The Ugly Indian. Let’s face it. India is ugly and it’s because of us, the people. Dirtying takes almost zero effort and a cleanup takes a few orders of magnitude more effort. Think about your room. It probably takes a minute to mess it up and an hour to clean it. As a tax-payer, I disagree when people dirty everything and ask the Government to clean up. Tax payer money should be invested in processes like sewerage lines and treatment plants etc. With the right processes it should not be necessary to use tax-payer money to clean lakes and rivers if people took some real responsibility. An unapproved layout next to a lake, dumping sewage in storm water drains, refusing to segregate garbage and similar crimes are the real problem. Let us see how disaggregate (micro-level) behaviour and thinking adds up and affects us at an aggregate (large-scale) level.

Here is one of the most sacred parts of the Bhoganandeeswara temple (near the Nandi Hills), which is over a thousand years old, on the day after the Maha Shivaratri festival. Plastic is floating around in the tank. I did not take any other pictures of the temple grounds that day because it was disgusting to see garbage everywhere. This was the least ugly place if you discount the sanctum sanctorum! An employee of the temple had just started the cleanup which would have probably taken several days.

IMG_0858

Here is a picture of how it looks otherwise:

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There’s even some wildlife here:

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I know I am generalizing but an average Indian just doesn’t care about the environment and our actions show this. It looks like the same attitude seeps into our panels and authorities who assess environmental impact of large-scale projects because after all they are people drawn from the same pool. But they have the capacity to do large-scale damage that costs lives.

Here is an example. This is a satellite photo of Chennai Airport in 2000. The airport is pretty much in the flood plains of the Adyar river and the smaller runway is almost touching the river.

ChennaiAirport-2000

In 2015, this is how the airport looks like. The smaller runway has been expanded and extended over the river! It is practically a dam because going by the typical Indian construction standards there would probably be debris under the bridge!

ChennaiAirport-2015

In case you think the river flow is low and cannot do damage, see the below picture which is more zoomed out compared to before. You can see the huge Chembarambakkam lake (upstream and on the left of the picture) from where excess water was released and drowned Chennai Airport (downstream and on the right) along with a lot of low-lying areas last year. Obstructions like this on the Adyar river and its floodplains amplified the flood damage immensely and cost several lives.

Lake and Airport

A similar lack of logic was used to approve the World Cultural Festival (organized by Mr. Ravi Shankar’s Art of Living Foundation) to destroy the Yamuna flood plains which are already under attack in Delhi. The event is being organized in one of the widest areas of flood-plains within the city limits. People who can influence the public need to be more responsible and informed before they speak on any topic and this article quoting Mr. Ravi Shankar shows why. There simple references here and here that you can go through to understand why floodplains are important and should not be encroached.  His statements betray a lack of understanding of this.

There is another side that says Mr. Ravi Shankar has the best of intentions and has a track record of cleaning rivers. I have not verified this. But whatever the case may be, the floodplains should be left as is. Even if Art of Living conducts this with zero impact to the environment, it sets a bad precedent. What if a super-rich guy wants to do a mega-wedding here tomorrow? Why not a rock concert?

I am sure a better place can be found for the event. Why not conduct it in a stadium and telecast it on TV? 3.5 million footfalls in 3 days in one place is a safety and security nightmare anyway!

The latest developments cannot be seen on the satellite images but you can observe how the flood plains are eaten away and streams are blocked over the last decade or so.

Yamuna floodplains 2004:

Yamuna-2004

The same in 2015, before the additional developments to host the event, show how the urbanization is catching up: new bridges, roads, construction on the western bank, old streams are now clogged or blocked and so on. I have approximately labeled the affected zone with a red rectangle based on what I read in news reports.

Yamuna-2015

The floodplains in the eastern bank next to the Mayur Vihar metro station where the World Cultural Festival is organized is about 450 hectares in area. The western bank is about 200+ hectares. From news reports, we hear that 50-60 hectares have been leveled and debris has been dumped and a pontoon bridge has been built across the river for this. Although this is 10% of the area, it will affect the larger ecosystem. Delhiites may be able to point out which areas on this picture are actually affected now. Please comment below if you know.

Floodplains are naturally marshy, have grassy vegetation and open gravelly/sandy surfaces to to absorb excess flow when required. Aquifers are also recharged with this type of geology. Planting trees in such areas doesn’t make sense because they are naturally not part of the floodplain ecosystem. Not so long ago, during the 2013 North India floods the Yamuna had completely engulfed its floodplains in Delhi.

Since there are no free images, here is a screenshot of this from The Hindu:

Delhi2013

We are taught in Universities to plan for 100-year floods. Now the memory doesn’t even extend 2 years! The National Green Tribunal (NGT) has been given some teeth to deal with all these macro problems and I hope these are not of the milk teeth variety.

Another area where we see major issues closer to my home is solid waste management. A space-constrained India that organizes events on floodplains doesn’t have the places to dump garbage. This picture below shows Mandur evolving from a sleepy farming village in the outskirts to being the favourite garbage dump for Bangalore. The images are from 2005 and 2014 respectively. Note that this is now one of many such landfills.

Mandur-2005Mandur-2014

Food waste, plastic and metals are not items that should end up in a landfill but they do. The villagers here are sick of this “deal with the devil” and now want out. The real problem is that waste segregation by people is not universal and processes to take this segregated waste are not robust enough. The latter is BBMP‘s responsibility but the former is all about the people: you and me. A court decision cannot solve this unless people become more responsible.

This is what happens to segregated waste:

  • Wet waste is all the food waste and this can be composted at home or at larger composting plants. The output is manure and can be used for organic vegetable gardens at home.
  • The dry waste is mostly paper, plastics, metals etc. and these can be recycled at automated plants. Recycling plants sometimes pay people money for this waste!
  • Sanitary waste goes to a landfill

Today, most houses in Bangalore mix and send all of the above straight to the landfill therefore multiplying by several times what each one can handle. It is immensely hard to separate the mixed waste into components for composting or recycling. There are also process failures from the BBMP because in some areas people segregate the waste but it mixed when collected.

There are, of course, some encouraging signs. I’ve seen experiments at our apartment that kids can be taught and are also good at enforcing their parents to be more sensitive. It helps if every house has one person with an environmental OCD. Be that person! The segregation initiative in our apartment building works pretty well and the ladies and kids go door to door to explain this to new folks who join the community. If we did segregation properly we wouldn’t have the Mandur problem. Only sanitary and hazardous waste would go to landfills. As I write this, I also hear that plastic is to be banned in Karnataka and I sincerely hope it is implemented. We need to ensure those who depend on the plastics for their livelihood have viable alternatives and that people are sensitized and trained. Otherwise this is a token initiative that will be destined to fail.

I am not starting a blame game here or pointing a finger at one group. I am equally culpable when I order takeout food and send plastic containers to the landfill. Is there a better way? This thinking is needed at every level, whether individuals or Governments. Japan needs to think about better design to prevent radiation leaks at nuclear plants built on a tsunami-prone coast or the US about oil spills in the Gulf of Mexico. The purpose of this post is to encourage us to question what we do today and do better next time.

I was discussing this post with a friend who pointed out that George Carlin once said:

The planet has been through a lot worse than us. Been through earthquakes, volcanoes, plate tectonics, continental drift, solar flares, sun spots, magnetic storms, the magnetic reversal of the poles … hundreds of thousands of years of bombardment by comets and asteroids and meteors, worldwide floods, tidal waves, worldwide fires, erosion, cosmic rays, recurring ice ages … And we think some plastic bags and some aluminum cans are going to make a difference? The planet isn’t going anywhere. WE are!

We’re going away. Pack your shit, folks. We’re going away. And we won’t leave much of a trace, either. Maybe a little Styrofoam … The planet’ll be here and we’ll be long gone. Just another failed mutation. Just another closed-end biological mistake. An evolutionary cul-de-sac. The planet’ll shake us off like a bad case of fleas.

This is not about Planet Earth which, given time, can probably evolve intelligent life that eats plastic. This is about the survival and well-being of the species that call this planet their home today.

Countries, Borders and Regime Changes

Control over limited natural resources and trade routes along with the associated ego boosts have ensured that map-making is a near permanent occupation. The current nationalism debate in India reminded me of reading Return of a King by William Dalrymple (a thoughtful birthday gift from my dear friends!). This is a history of the first Anglo-Afghan war which raises interesting points on the accidents that create a country; whether it can sustain itself as one and what compromises are needed. So let us use the Afghan example to understand these points.

Living in India, the best way to think about Afghanistan is like a buffer zone which prevented continuous migration but every now and then “pumped” people through down the high mountain passes. Many stayed back in the Indian Subcontinent and helped create the amalgamation of humanity we see today and some plundered and managed to return home. The plunderers were normally based in today’s Afghanistan or a few in Uzbekistan. Why is this a “pump”? Now and then people were pushed into Afghanistan due to various reasons (war or famine in their homeland or a sense of adventure or a disinherited prince with an army etc.). Afghanistan by design cannot support a large population (especially a surge) due to its aridity and difficult terrain. So whenever an unsustainable number of people accumulated in Afghanistan they had 2 choices – go back home or ride through the passes to the comparatively awesome Indian subcontinent.

We first take a quick look at the map (source):

corridoio_del_vacan

It does look Victorian like the side profile of a lady wearing a fancy hat with a feather to boot! The feather marked in blue, otherwise known as the Wakhan Corridor is a “geographic cul-de-sac” (quoting Wikipedia) created by the forces that made modern-day Afghanistan. We will come back to this later.

Another look at wider view with more topographic and political details (source).

afghanistan_physical_en

When you look at the map the country doesn’t make any geographic sense:

  • The Hindu Kush mountains cover a good part of the middle of the country cutting the country into several pieces that don’t connect logically.
  • The many rivers that start in the mountains of Afghanistan, flow in half a dozen different directions with most not reaching the sea: The Swat river empties east into the Indus but some like the Helmand, Harut and Harirud end in the Sistan basin Iran/Afghanistan and others like Murghab and Amu in Turkmenistan.
  • The region south of Kandahar is a logical continuum of Balochistan which is now part of Pakistan and is a sandy desert called guess what – Registan
  • The region east of the road from Kandahar to Ghazni is a sort of dry desert between the Hindu Kush and the FATA highlands in the Af-Pak border beyond which lies Quetta
  • There is a small valley (Jalalabad) between the Hindu Kush and Safed Koh ranges. The Khyber pass is on the Safed Koh range on the road from Jalalabad to Peshawar (in the plains beyond the Safed Koh in Pakistan)
  • Surrounding the Hindu Kush are a short expanse of plains or plateau before you hit the Uzbek, Turkmen or Iranian border. Given the superiority you have when occupying the highlands you can radiate a bit of control over the surrounding plains/plateaus but you cannot occupy an Iran or Uzbekistan! Conversely an Iran or Uzbekistan cannot radiate control into the Hindu Kush mountains. In other words, a geographic stalemate.
  • When they tell you that you could reach the Indian Subcontinent in historic times by climbing either the Khyber or the Bolan pass it is only a half truth.
  • To go from Kabul to Jalalabad (the modern highway is still dangerous) you have to first cross the Khord Kabul pass, the Tezin pass and the Jagdalak pass. Then and only then you may cross the Khyber to reach the Subcontinent proper (Peshawar).
  • The Bolan route is no easier. From Kandahar you cross the Khojak pass through to Quetta after which you may attempt the Bolan pass. If you decide to avoid all the mountain passes then you just trek through the registan!
  • Winter is extremely cold and summer fairly hot along with frequent earthquakes on the Hindu Kush. The elements truly hate you here!
  • To control a mountain pass you need to have strong supply lines. If party A controls Peshawar and party B controls Jalalabad then the Khyber is truly no man’s land in between. This is today’s situation. In historic times Peshawar has been controlled by the Afghans but it was difficult to maintain supply lines from across the Khyber and this was not sustainable always. There are some smaller mountains between Islamabad and Peshawar but this is not an insurmountable difficulty in modern times.
  • Quetta lies between 2 passes and has changed hands historically several times between rulers of Kandahar and of the subcontinent.
  • It is extremely challenging for an attacker from beyond Afghanistan to reach the Subcontinent because reaching Kabul itself from Bukhara or Samarkand means crossing another two or three mountain passes!
  • The Hindu Kush and the Registan are key in truly defining an “Indian Subcontinent” because without these it would be a free pass for all!
  • Therefore, a short trip from one city in Afghanistan to another means crossing a couple of high mountain passes or passing through deserts etc. etc. In historic times this mean every valley and mountain pass had its own tribe whose easiest economic activity was to terrorize any caravans that made the mistake of passing through. To make a trip across these roads you had to pay a “treacherous geography tax“. If you didn’t pay up a horde would ride up on horses and slaughter an already tired caravan. These tribes have made money this way since very ancient times (think pre-silk road) and they still do
  • However, no one tribe could take over the country because of all the above geographic challenges. An uneasy equilibrium was maintained. Tribes had reputations to maintain with huge egos. If one tribe defeated another and took control of a pass or valley, no one forgot. There was always a fight-back even if it came two generations later. They just fought each other until an external force (like the British) appeared and they united momentarily against them. Even the Taliban had to fight the Northern Alliance (ethnic Tajik, Uzbek and others) during its rule.
  • Ranjit Singh of Punjab (undivided) is kind of responsible for the disturbance in the equilibrium when he conquered Peshawar (Khyber Pakhtunwa) and the FATA. The British (and later Pakistan) inherited this. It is hard to say where the equilibrium is but these areas are definitely within the influence of the Pakhtun/Afghani tribes and therefore a big problem for present-day Pakistan. The Durand Line cutting through Pakhtun areas was defined after this disturbance in the equilibrium by a momentarily more powerful British. Afghanistan never really recognized this line, signatures be damned! The Durand Line intrudes a bit too much into the mountains that are not very amenable to control by subcontinental powers.

In light of the above, creating a country here with a strong central power just doesn’t make common sense. So when you read reports of Warlord A (probably Uzbek) controlling Mazar-i-Sharif or Warlord B (probably a tribal from near Quetta) controlling Kandahar, don’t be surprised anymore. Central powers have always had to give local tribes and group broad autonomy to survive even for brief periods and therein lies a possible solution to this problem. Anglo-Afghan wars (there have been four of them since the 1830s), typically start because someone behind a British (or American) desk did not understand these ground realities. The script then follows: dislodge the regime in a matter of days, install a puppet ruler, put soldiers on the ground, struggle to keep supply lines going, take casualties from insurgents, retreat. And repeat! Dalrymple just replaces a handful of names in the first Anglo-Afghan War history and voila you have the current Afghan situation already documented. 

The British tried controlling Afghanistan (grossly overestimating that the Russians could overcome the above geographic challenges and reach India!) and had to retreat with heavy losses. Time and again the central power (Taliban is the latest) in Afghanistan was easily removed but were able to prevent any stability by savaging supply lines passing through difficult deserts and mountain passes and continue an insurgency.

As promised we will also tackle the question of the Wakhan Corridor raised earlier. This is an extreme rugged and high altitude landscape even for Afghanistan but it was on the main trade route from Badakhshan (northern Afghanistan) to Yarkand in the Pamirs and China beyond. This was one of the routes of the Silk Road and ancient celebrities like Marco Polo are said to have crossed this. The northern border was defined as the edge of the Russian empire (as it is along the Pamir river) in an Anglo-Russian Treaty and the southern border was defined by the Durand line. China lies beyond this corridor and now refuses to open it for trade. So the Wakhan Corridor was just to ensure that no part of Russian territory touched British India.

Is there a solution?

  • Unite the historic tribes either by drawing a new line or by making the line irrelevant. This means Peshawar comes under some question and so do the northern regions in Pakistan like Swat. Pakistan will obviously disagree but it might help their security. Even Balochistan will need some rethink on similar lines to improve the current situation.
  • Define smaller geographic units using geography and ethnicity and not lines drawn on maps by bureaucrats sitting in their offices. Provide heavy regional autonomy with only foreign affairs and military (not police) centrally controlled. Try to include the Pakhtun territories currently part of Pakistan in this framework and make nationality irrelevant?
  • Have a Presidency that rotates between tribes but with elected executives to run the Government?
  • Tax trade routes (old formula) and devolve most of it to the tribes (officially regions). Even current tribal borders sometimes are not at equilibrium! This needs to be addressed.

Is this a general problem?

  • Yes, Iraq is an example where borders were drawn by artists in Europe and small ethnic groups were split 2 or 3 ways. Equilibrium will be restored and until then we will see fake equilibriums (Saddam) or real chaos (now).
  • Sudan already split
  • The Balkans after the break of the Austro-Hungarian empire
  • In all of these places regime changes don’t help because of the underlying weird borders.
  • A geographically well-defined country can sustain itself for long periods. Island countries truly demonstrate this! But rivers and mountains that naturally separate ethnic groups should be given primacy over temporary disturbances when defining borders in a civilized world. In this sense, the Indian Subcontinent is a fairly well-defined geographic unit. If only …
  • Then again does a truly civilized world need borders? The answer is no. But not all countries, ethnic and religious groups are ready for such a world for it would demand compromise and compassion from all. Something we sorely lack in these times.

Disclaimer:

I might have got stuff wrong here because I don’t do this for a living. I read Dalrymple’s book about an year ago and have also read up extensively on articles and write-ups on the Afghan situation. I don’t have any direct experience though so don’t quote as original research please!

 

 

 

Infrastructure Islands

This my first post and it is not a pretty one. There is the real Silicon Valley and there is the Bangalore of 2014. The Bangalore where shoddy planning has resulted in lakes filled with sewage; pothole-ridden, vehicle-clogged roads; and believe it or not, traffic jams on the 3g airwaves. Take the Whitefield area as an example. Incomes are high, villas and apartments are coming up but the quality of life is poor. The erstwhile industrial zone is connected to the city via two arterial roads about 6 km apart. During rush-hour it takes 60 minutes to navigate from either of these gateways to the heart of the IT zone for a distance of only 7 or 8 km. Other than more frequent buses, there are no improvements in connectivity in the last 10 years. On a weekday it is impossible to connect to leading mobile networks to make or take calls during office hours. It can take up to 2.5 hours to reach a city pub on Friday evenings. Short of water surrounding Whitefield, it can truely be described as an island – an infrastructure island. The property prices in Whitefield are high partly because of this – closeness to offices be damned!

A city that can expand in all directions can sometimes do so haphazardly and resources are stretched too thin to accommodate this. An initial boom in infrastructure was cut short by State Governments that were keen not to be seen as developing Bangalore – a city far from the Kannada heartland and politically difficult to explain. The city government was quick to adopt IT to help citizens manage public services but infrastructure was never on the table. The metro (a relatively expensive public service) is designed to fail because it does not connect the major IT zones in the much delayed first phase.

The impact is not insignificant even if this study gets the numbers wrong by a factor of 10! Working from home is not a great option because of power cuts and difficulty in accessing high-speed (10 MBPS or higher) broadband speeds.

Since constructive criticism is better than ranting, here are some ideas:

  • Concrete trucks and office traffic do not mix well! Pollution and residential populations do not either! Shift industries from today’s de facto IT and residential zones that are de jure industrial areas. Use that land to build up infrastructure – metro and shuttle bus stations, parking lots, replanned and wider roads and what not.
  • Do the same for cantonment areas. Convert them to green parks traversed by fenced off arterial roads and metro lines.
  • Better zoning: A simple example, convert a couple of airfields in the city’s outskirts into academic zones where existing institutions can move to or new ones can be setup.
  • Roads: Build the next ring road and start planning for the one after that! (Think Beijing). Build redundancy into the road networks.
  • Re-prioritize and redo metro plans pragmatically. Offer large campuses (office or otherwise) access to metro stations if they provide land.
  • Garbage is a huge problem. Garbage segregation works and kids can teach their parents. Teach the kids how to segregate!
  • Building sewage treatment plants and connected systems accompanied by rejuvenation of lakes over a 10-year time-frame
  • Fibre-optic backbones need better penetration. Since digging roads is a favourite hobby in Bangalore, some common sense and coordination would ensure this since every road in Bangalore is dug every few months. Provide incentives to older lay-outs and apartments to ensure last mile connectivity.
  • Power: Honestly the situation isn’t too bad where I live in Bangalore but millions of Indians don’t have it good. The Central (Federal) Government needs to act on it. Solar power can help and is definitely under-used.
  • Cellular networks: Get Defence spectrum reallocated at decent prices. The towers and networks will take care of themselves! Except for the diesel generators that power these towers! So we have to address the previous point about power.

Finally, a tribute to those who did the opposite of what I did – The Ugly Indian. Their motto is simple – stop talking, start working. Something that works very well for keeping a city clean. Getting the government to fix infrastructure needs more supporting voices though and my small note is another drop in the ocean. Hope all this improves because a lot of talent sits in Bangalore each day and gets burnt out. A move to greener pastures is an option that the cream will take very easily. This will be followed slowly by the cream of the technology companies and India could ill-afford this with its burgeoning population of aspirational job-seekers who cannot get off the islands!