Book Reviews
Saving Democracy and Capitalism
Winston Churchill was right when he said that democracy is not a perfect system; but until we find a better one, it is the best we have. The pessimists in all countries, including USA and India (the largest democracies in the world), will keep complaining about the failure of the system. This is the easiest thing to do. Kotler, known as the father of modern marketing, prefers to be an optimist. He advocates that we keep trying to correct the system and make things better for everyone. For that, he goes back to his original training as an economist at the University of Chicago, under Nobel Laureate Milton Friedman, and then, at MIT, under Nobel Laureates Paul Samuelson and Robert Solow.
 
Kotler brings ‘marketing thinking’ to improve the working of capitalism and democracy. Therefore, in this book of only 200 pages, he does not just list the 14 problems/interlocked challenges, but also suggests how we could find solutions for them. Kotler looks at democracy as a product and then analyses the strengths and weaknesses, the competitive systems, why and in which areas it no longer satisfies the needs of the consumer (citizen) and then suggests how we can work towards making the product (democracy) a winner in the marketplace. 
 
Today, less than 60% of eligible voters vote in a presidential election (against a higher percentage in Belgium, Germany, etc).Over 96% of politicians are likely to stay in office. Since politicians desperately need money to run campaigns, many of them get money from the rich—for a price. The result: much of the legislation not only seeks to protect big fortunes but is designed to enlarge them. We have moved rapidly from being a democracy into an oligarchy or a plutocracy. And the weakening of democracy is reducing the capitalist system’s ability to produce benefits for the majority. Democracy is increasingly becoming an instrument to take care of the very rich—1% of the population.
 
Kotler lists 14 shortcomings in democracy such as low voter literacy, turnout and engagement; shortage of qualified visionary candidates; and two-party gridlock, etc. He analyses each of these and proffers solutions. It is a good start to save a system of governance, first initiated by Plato in The Republic—a government of the people, for the people, where only the ‘enlightened could vote or be elected’. This has been experimented in small communities (like in Vermont and New Hampshire in the US) where they met several times a year—and ran a government of - We the people, not We the Corporations! But this has changed everywhere else, because most democracies are ‘representative democracies’, not direct democracies. A very interesting comment on page 29 is: “In 2015, the League of Women Voters in USA cited three problems that are weakening democracy:  
  • Congressional districts are drawn and gerrymandered to benefit self-serving politicians;
  • Access to voting is limited and, sometimes, denied;
  • Dark money is infiltrating elections so voters do not even know who is bankrolling the political messages that we see and hear.”
Does this seem familiar, for India and many other democracies, younger than the US? Kotler suggest some solutions—or at least solutions that can be debated. One example is: Governments, at all levels, must become more businesslike and transparent. Periodically, they should tell us what they have accomplished with the tax money. Another example: reduce election campaign period. UK limits advertising campaigns to 30 days. All candidates would benefit by not needing as much money. 
 
There is much for the thinking Indian to learn from this book. Although Kotler mostly talks about the part failure of democracy in the US, much of what he says is applicable to India. India professes consumer protection, but the consumer courts have no staff—sometimes, not even any physical infrastructure. We want to look after the interests of the citizen but even minor legal cases can take 30 years to conclude because of the poor legal infrastructure. While Plato talked of an enlightened electorate, 60 years after independence, India still has a literacy level of less than 60%. And, yet, in August 2016, India is estimated to have the 7th highest number of richest people in the world. We may need to consciously target for improvement in per capita GDP, rather than total GDP. Just going after the latter can give a sense of complacency, when true change has not taken place at the ground level. 
 
This book is a must-read for all thinking Indians. If it can be buttressed with a reading of the earlier book on capitalism, so much the better. 
 

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Nifty, Sensex buck the weakness, head higher – Weekly closing report
We had mentioned in last week’s closing report that Nifty, Sensex were looking weak. The major indices of the Indian stock exchanges made good gains over the week including hitting their new 52-week highs. The trends of the major indices in the course of the week’s trading are given in the table below:
 
 
Indian equity markets traded flat during the mid-afternoon session on Monday prompted by mixed global cues and lower crude oil prices. Selling pressure was witnessed in information technology (IT), healthcare and banking stocks. The BSE market breadth was tilted in favour of the bears -- with 1,465 declines and 1,216 advances. On the NSE, on Monday, there were 636 advances, 821 declines and 69 unchanged. State-run Rural Electrification Corporation (REC) on Sunday said it will seek the approval of its shareholders on September 21 for raising Rs50,000 crore through non-convertible debentures (NCDs). The company’s shares closed at Rs227.30, down 1.37% on the BSE, on Monday.
 
On Tuesday the markets were buoyed on strong buying support across sectors, coupled with positive global cues during the mid-afternoon session on Tuesday. In fact, almost the entire gain of the week came on Tuesday. Healthy buying was witnessed in automobile, banking and healthcare stocks. The BSE market breadth was skewed in favour of the bulls -- with 1,631 advances and 1,081 declines. On the NSE, on Tuesday, there were 891 advances, 491 declines and 81 unchanged. Pointing to solid growth in household spending and a strengthening job market, Yellen said the US economy is "now nearing" the Fed's statutory goals of maximum employment and price stability. Analysts said it's possible for the Fed to hike interest rates as soon as September.
 
The government in India on Tuesday announced to issue the fifth tranche of Sovereign Gold Bonds, the subscription of which will be open from September 1-9. The Bonds will be issued on September 23.  The Sovereign Gold Bond, a financial asset, was launched by the government last year as an alternative to purchasing the metal gold. Accordingly, four tranches of issuances have been undertaken during 2015-16 and 2016-17 so far.
 
On Wednesday, Nifty and Sensex hit their new 52-week highs again. The benchmark indices initially opened on a flat-to-positive note on Wednesday prompted by mixed cues from Asian and European markets. Market awaited the announcement of the gross domestic product (GDP) data for the first quarter of 2016-17, among others. The indices marginally capped gains due to a sharp up-move in the dollar index and lower crude oil prices and pulled the markets back from their morning peak levels. However, gains in the rupee's value kept the market sentiment buoyed to close with appreciable gains.
 
Following the big ticket announcement by Reliance Industries on Jio commercial launch, key Indian stock market indices were trading flat on Thursday afternoon. Most telecom stocks were trading lower. Selling pressure was seen in telecom, technology, media and entertainment (TECK) and realty sectors, while good buying was observed in auto, metal and fast moving consumer goods (FMCG) sectors. On the NSE, on Thursday, there were 479 advances, 993 declines and 50 unchanged.
 
Taking the tariff war and competition in Indian telecom a new level, Reliance Industries Chairman Mukesh Ambani on Thursday said domestic voice calls on the Jio network will be free forever, and unveiled a four-month introductory offer of free voice and data services. "The era of paying for voice calls is ending," Ambani told the Annual General Meeting of Reliance Industries (RIL) in Mumbai. "No Jio customer will ever have to pay for voice calls again," he added. Bharti Airtel shares closed at Rs310.50, down 6.43% on the BSE. Reliance Industries shares closed at Rs1,029.15, down 2.73% on the BSE.
 
On Friday, the major indices of the Indian stock markets staged a minor rally to close with small gains of around 0.40% over Thursday’s close. With NSE trading volumes on the lower side on Friday, investors were clearly cautious before the week-end and market holiday on Monday. On Friday, there was also a general strike called by the Leftists all over India; but the response to the strike call was at a minimum in most parts of the country. 

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Reliance Jio launch: Ind-Ra cuts outlook on telecom sector
India Ratings and Research (Ind-Ra) has revised its outlook for FY17 the telecommunications services sector to stable-to-negative from stable. The agency expects launch of Reliance Jio Infocomm Ltd (RJio)'s service to intensify competition, which will squeeze the market share, earnings before interest, taxes, depreciation and amortisation (EBITDA) margins and credit metrics of incumbents. Ind-Ra expects voice revenue to moderate in FY17 on stagnant minutes of usage (MoU) and further competition in call realisations.
 
"A stable sector outlook could result from a lower-than-expected moderation in industry profitability after the RJio launch so that the financial profiles remain healthy to sustain capex requirements. Highly competitive biddings to acquire spectrum in upcoming auctions thereby impacting operators’ debt profiles could lead to revising the sector outlook to negative," Ind-Ra says in a research report.
 
The ratings agency says it sees voice realisation moderating and strong competition impacting data average revenue per user (ARPU) for telecom companies post RJio launch. Ind-Ra also expects data revenue to remain stagnant on a 30%-40% decline in data realisations per megabyte (MB) in FY17 driven by RJio’s launch, while support from data consumption growth to data ARPU will be gradual. "The operators’ debt profile will deteriorate in FY17 as we expect them to incur high capex on network expansion and acquisition of additional spectrum through trading largely to compete with RJio," it added.
 
According to Ind-Ra, RJio incurred aggregate pre-launch capex of around $15 billion or Rs98,000 crore signifying the magnitude of its potential reach and capabilities. It also expects RJio to contend for market share out of the existing pie of subscribers, which are being serviced by incumbent operators.
 
In effect, the announcements from Reliance Industries Ltd (RIL) Chairman Mukesh Ambani on Thursday point to a commercial launch from 1 January 2017 even though no specific mention was made in this regard. This was also keenly awaited since Reliance Industries has invested as much as $21 billion on Jio -- its largest ever capital expenditure on a single project.
 
Taking the current tariff war and competition in India's telecom space to a new level, the RIL Chairman announced that domestic voice calls on the Jio network will be free forever. "The era of paying for voice calls is ending," Ambani told the 39th Annual General Meeting of the company, post its listing. "No Jio customer will ever have to pay for voice calls again." he added, devoting around an hour of his 90 minute speech to Jio.
 
The announcements came against the backdrop of a series of discounts and freebies offered by existing layers like Airtel, Vodafone and Idea during the past month, ostensibly to ensure customers stay with them, even after the commercial launch of Jio.
 
 
Ind-Ra says it sees voice revenue to decline in FY17 due to market maturity and competitive pricing. "MoU and voice revenue are flattish as the voice market has matured. Airtel and Idea reduced voice tariffs by 8%-10% over 2015 in order to arrest declining MoU and to counter competition. Voice also faces threat from data cannibalization; however, we expect it to be a credible risk only in the medium term," it added.
 
Data tariffs to see a major correction
Following the launch of RJio, there will be a major correction in data tariff, while the benefits from higher data volumes as well as subscriber growth will be back-ended. 
 
 
During the third quarter of FY16, data realisations per MB for the top two listed entities Bharti Airtel Ltd (Airtel) and Idea Cellular Ltd (Idea) declined by 4.5%-5.5% quarter-on-quarter (qoq). Ind-Ra says it believes this price decline was in anticipation of the RJio launch, and therefore expects a further softening of data tariffs in FY17. "An 8%-10% qoq growth in data volumes consumption shall not be sufficient to support data ARPUs which shall therefore moderate in FY17," it added.
 
Higher Capex to Subdue Credit Metrics
Ind-Ra says it expects the credit metrics of incumbent operators to stretch in FY17. 
 
 
"They are likely to increase investments in FY17 to upgrade, install and augment network capability sensing a long-term opportunity in broadband and threat from RJio. While the operators would upgrade their infrastructure to meet data requirement, they would also be required to install infrastructure to roll out newer technologies. They shall also follow debt-driven acquisitions of further spectrum to augment their holdings," the ratings agency says.
 
Spectrum-Driven Consolidation
According to Ind-Ra, spectrum will drive consolidation in the sector in line with the long-term roll-out plans of these operators. It says, "The recent guidelines allowing spectrum sharing and trading transactions within industry participants is a positive move for the sector as smaller players will be able to monetise their spectrum assets while bigger players enhance their spectrum holdings. A few spectrum trading deals were reported in FY16 which will gain momentum in FY17."
 

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COMMENTS

ramprasath l.a

3 months ago

First I enjoy with gadgets

ramprasath l.a

3 months ago

First I enjoy with gadgets

Nanda Patel

3 months ago

moral of the story..

time to exit from all Telcom stocks if you have not already...

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