The Economics Of An Autorickshaw...

Photo Credit: http://photos.ibibo.com/photo/1420483/canon-d-autorickshaw-bangalore-india

Circa - Summer of 2006. We were on our way back from Inox Adlabs, Wadala after disappointedly watching The Da Vinci Code. A little ahead of the theatre, towards the highway, we crossed what was going to be my first work place after my MBA. That got us to discussing the vagaries of my travel to Credit Analysis & Research (CARE) Ltd, which was oddly located on the Eastern Express highway, a little before Chembur. Mayuri (fondly referred to as MJ), in her usual candid manner, poped out with a suggestion: “Teja, why don’t u consider buying an autorickshaw and leasing it? That way you can travel to and fro work for free, and also earn rentals!!” Laughter burst immediately, but little did any one think of the economics of MJ’s idea.

Back to 2011 – around the first rains of the season. There exists an unusual relation between rains, potholes and autorickshaws in Mumbai. Inadvertently, with each passing rain, the number of potholes in Mumbai increases at an exponential rate, no matter how often they are repaired. Similarly, one wild shower can cause most autorickshaws to breakdown, irrespective of its age. Surprisingly, no manufacturer has paid any attention to this crucial detail – maybe in next meeting I’ll point this out to them.

In case you are wondering if I have changed my mind about the blog title from ‘economics of…’ to ‘distress of…’ - not just yet; hang on. The reason I ramble about these issues that, had it been for them, then I would not have yet completely understood the economics of autorickshaws. So, getting back to the story, somewhere around the ascent of this year’s monsoon, I was stranded on my way home in a broken-down autorickshaw. Out of curiosity (an-analytical-mind, afterall!!), I initiated a conversation with the driver as to why these autorickshaws break down. As the downpour gained momentum, our conversation drifted from the problems to the finances, and revelations happened.

Being an analyst, I simply couldn’t resist the temptation of running the numbers on an excel sheet and calculating the IRR (Read more on IRR here).  While my first calculations stunned me, I later realised my folly. Nevertheless, I thought this would be an interesting post, and hence here it is. Lets first start with the assumptions:

Today.....at the cost of tomorrow.....

India has moved from being a long time under-developed country to a developing one. The journey now advances towards the more sought after status of a developed country. Dreams are big - and so they should be. But the biggest of the dreams are fruitful only if they are backed by a determined action plan. Economically speaking, higher spend on infrastructure, higher conversion of savings into investments, promoting education, creating opportunities and an open economy are the actions that will convert India’s dream of development into a reality.

Unfortunately, a major deterring force called politics stands between India’s dreams and reality. There is no denial that the both, the present and the past governments, have given a fillip to the infrastructure development of the country. However, there are various issues that stand as hindrances when it comes to infrastructure development. Those familiar with the news would know that land acquisition is one of the major hurdles that come in the way of development. Various projects approved by the center are stuck because of opposition from locals (who are ofcourse backed by their MPs/MLAs) either on environmental grounds or for higher compensation. Corruption and bribery further deter the quality of the work and whatever development takes place is for a short period. The bureaucrats, just before and election, will polish the roads and prvide water supply, and once the elections are done water can only be seen in the potholes on the road. Take any major highway/road/lane in Mumbai and you can bet your life that there will be more potholes on any given stretch than its length. Someone put it very aptly by saying “yeh mumbai hain…yahan pe kabhi sadak pe gadde milte hain..to kabhi gadde mein sadak”. The financial capital of our country, the Shanghai of India, has some of the worst roads than any of its metros.

Its not just bad roads that the country has to mend, there is another problem of similar scale about which very little could be done. The problem is that of the turmoil in the global financial markets. One news channel says, when the US sneezes, India falls sick. Very True. Just when Indians started leaving behind the memories of the dot-com busts and the various stock market scams, and we saw a higher conversion of savings into investments, the stock markets the world over have crashed. To make things worse, the real estate markets have also crashed in tandem, thus leaving very little scope for investment for the Indian Households. Add to that the various IPO scams and the sentiments are pushed further into the negative territories.

It is said that the Indian investors are not a very educated lot and driven more by sentiments than by logic. True, but not surprising. On the one hand, vote-seekers propagate the need for free education; on the other hand, the cost of education is rising leaps and bounds. Education, today, stands to be one of the very attractive investment avenues; and its takes no rocket-science in relating the attractiveness of a sector for investments to its profitability. Thus the sector has shed its social image and donned a corporate look. So what so the policy-makers do to overcome the problem of low-education? Well, they reserve seats for the SCs/STs up to higher education and push for such reservation in the corporate sector as well. All in the name of giving opportunities to the socially backward classes. Now, is a socially backward student wanted to study and had the ability to do well, he could have done so in his earlier years of education when he had the same reservations. If, inspite of backing his form school to college, he had failed to be competitive, why would you want to push him further into higher education and work-place. Anyways providing employment to educated youths is a problem and we add to it by pushing the non-performers just because they belong to some under-privileged caste. It is evident that all this is done merely for votes and there are no benevolent intentions here.

Most of the solutions to all problems have been short-term – all for the purpose of garnering votes and winning elections. Bureaucracy, corruption and a laid-back attitude have held the economy from growing as well as opening up. Inferior quality of work, delays and regulatory confusion have only added to the problems of the country. Most long term issues have been handled with a short term solution. We have managed to save our today, but at the cost of our tomorrow.

The problem, however, is not just that of an inefficient system, it is also that of an ignorant population.