Monday 4 February 2008

Nano

Few days back, Tata Sons revealed there ultra low cost B segment car Nano. The name, perhaps, signifies more of it's cost than it's dimensions. Indian roads have been infested with much ugly Maruti 800 which comes for full one lakh more, since quarter of century. Nano comes as a welcome change. It's not only affordable but also quite an asset.

At inception of the idea of the ultra low cost car, the entrepreneur and his enterprise was ridiculed of offering customers with a ramshackle. With Nano standing clear with Euro IV and Bharat III emission norms along with Indian frontal collision norms, all such persecutors are seen hiding faces. On design parameters, the vehicle offers more space vis-a-vis any of its counterpart and is much lighter. Regarding looks, it's quite hip. Yes, the engine is little less powerful. However, one must acknowledge that the enterprise was committed to stick to the one lakh tag. In the luxe model, we can expect even higher capacity engine, while the standards and rest of the fitments retained. Extrapolating from vehicles current ex-showroom price, the luxe model should still cost cheaper to it's ugly rival. Nevertheless, the engine still needs special mention for it has been crafted specially for the car suiting it's design and expected to offer mileage of 20 KMPL in city conditions.

With all these goodies offered, troubles are expected. It's rather disappointing to note the inability to appreciate the feat of an enterprise that delivers a quality product. Chiefs of rival enterprises were heard offering suspicions on on-road performance of the vehicle. A bunch of hypocrites calling themselves as environmentalist declared this miracle of technological wizardry as a nightmare for already deprecating health of environment. Some other silly 'activists' equated the establishment of Nano manufacturing plant to Capitalist imperialism. A few of these ever driveled that the car is being made for rich on the blood of the poor!

Tats Sons have offered yet another indigenous product from its stable. Something, perhaps, none of the auto industry rivals have done or dared to. Moreover, the Bajajs should better have a closer look at their stable before commenting on (the quality of) Nano. The group has always offered third rate machines let it be famed scooters (that assured bumpy ride) or the all-weather-trouble three-wheelers. Maruti can also do a reality check whether their Omni clears the latest frontal crash norms.

Blabbering about environment has become a fad. While applauding the noble prize for Global Warming, hardly anyone realize that per capita energy consumption has shot up exponentially in last two centuries. It has given so many comforts of life, including mobility. Objective should be to compensate for the environment by crusading for scrapping old inefficient and polluting vehicles and not against newer high-tech ones a la Nano, that clear latest - and supposedly, more stringent - norms. Protests should rather be made to remove diesel engines - cars, trucks and railways - which pollute more and much toxic.

The 'activists' are, incidentally, an irate lot that start capering around any proposed developmental site in the name of protection of incumbents' rights. Rehabilitation is undoubtedly an important step in any of economic activity. But perpetrating misinformation to the innocuous uninformed incumbents and hence halt the entire activity is uncalled for. Delays in project doesn't only mean delay in receiving the fruits of the investment but also a plain increase in the total cost of the project. Both, delay and higher cost ultimately affect the poorest the most for whom, ostensibly, the entire farce is enacted by the 'activists'. One should better check up with the resettled and rehabilitated people, over last couple of decades, to witness how well they have been compensated. The problem, as it turns out to be, is not the compensation but the incurable ailment of demanding more than deserved.

On the debate of personal versus public transport, it's surprising to note why government is ultimately looked upon. Government's job, for that matter, is to frame laws and not ply buses. There is no such law that there can't be privately owned public transport for cities, metros or otherwise! Private transport is more of comfort, if not luxury. Public transport, however, can be comfortable too, provided cost is borne by the commuters. Commuting on subsidized fares will eventually result into substandard infrastructure. Besides, privately owners won't run loss making enterprise (for long). What is required, is subsiding the attitude of persecuting achievers to veil self incompetency, and bringing in that of paying rightful credit (and price) to the owner. That's demanding a Mega for a Nano, perhaps.

A Fix

Last two weeks have been quite troublesome for the stock market investors (and traders). A plethora of reasons are being supplied to support equal number of theories explaining the crash. One of them is the lack of liquidity. Interesting as the it is - liquidity - it has, sort of, liquidated the joyous sentiments of the buoyant market. With the FIIs short selling their stake in the bullish emerging markets to cover up the gargantuan losses incurred in West (particularly US), courtesy the mess perpetrated by geniuses of Harvard and Stanford alumni, the market was low on funds. To complicate the matter even further, there was a big ticket IPO from Reliance and a heavily subscribed IPO from the Future Group. These two public offers, along with other smaller, low-visibility ones, had raked in crores of rupees (and dollars too). With the countrywide panic spread post market crash, so much was the credit crunch that many people withdrew their applications for Reliance or ordered stop payments for the cheques, calling for cancellation of the bid cum application form.

Now, one major cause of this bottleneck of funds - liquidity crunch, as it is known - was that the money was stuck in the middle of nowhere. It takes over 2 weeks for the refunds to reach the retail customer from the date of application. Interestingly, this applies to those customers also who opt for electronic payment by subscribing to the offer using online trading sites. To my understanding, the latter bear the brunt of apparent lock-in of funds so as to be kept at par with the former, who apply using the slower channel, viz. cheques.

A better alternative to this process could be to overhaul the payment process. It would call for payment only in the case when the allotment has occurred. This would save the time in processing the cheques of the applicants in the first place and reprocessing of the balance amount to be credited back. The interest loss on the amount can also be saved. Moreover, it can even help to put a check on not-so-encouraged practice of picking loans to apply for IPOs. This process can, however, breed speculation and over subscription, as the applicant is to pay the sum only after allocation. The menace of over subscription is much more visible in the QIB section, where only 10% of the bid amount is required to deposited. This can be prevented by mandating the applicant - retail ones, at least - to keep a stipulated fraction of the applied money available in the account, till the time the allotment process is on. This also calls for a overhaul in the book building process. In fact, market regulator SEBI is planning to put in norms to cut down the book building process time, to circa one week. Now, requiring the applicant to spare a fraction of application money in the account for one week isn't outrageously unreasonable. The purported proposal assumes that the applicant has account in a bank, that has incorporated latest technologies like Core Banking Solution, ECS remittance or RTGS payments. Also, that the bank either itself is a Depositary Participant (DP) or has syndication with an existing DP. This is required to connect the Demat account of the applicant with the funds account.

With two of the topmost banks in the country facilitating its customers with world class online access to their banking accounts, it looks feasible. If not now, then in near future. For Internet savvy public, cheques are already passe, and quite right so. Not only cheques are outdated, slow and tedious but also, unfriendly to the environment. Nowadays, anyway, the Environment is ostensibly perceived to be hotter than the stock markets!

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Addendum 2: Now, SEBI formalises a method under the name of Application Supported by Blocked Amount. The BSE puts it in an even simpler way.

Addendum: RBI came up with a fiat similar to the fix suggested above (http://www.livemint.com/2008/04/07004211/Sebi-will-reduce-IPO-listing-t.html). Also see- http://news.bbc.co.uk/2/hi/business/7417303.stm