Friday, October 10, 2008

Nano – Who Is Funding the Car?

I always believe in the fact that there is always something more than what meets your eye. And this has been proved right for me on every occasion.

Take case of Nano – the cheapest car from India’s Tata group. Tatas promise to deliver the car at INR 100,000 (i.e. little more than $ 2000). Mind well – this is a promise, so the car will carry the INR 1 lac tag notwithstanding any external factor.

nano

Initially Nano was to be produced in the eastern Indian state of West Bengal which is ruled by communist party for decades. Surprisingly, the opposition to the Nano project came from not the communists but their opposition – Trinmool Congress leader Mamata Banerjee. She agitated so strongly against take-over of land by Tatas that Tatas had to pull put from the current location – some 50 km away from Kolkata.

The utility of Nano is beyond doubt. A 1 lac car puts mobility within reach for thousands of small-town Indians thereby giving a strong impetus to economy. Forceful agitation by Mamata Banerjee (her supporters sealed the Nano plant area, making normal production impossible) created a roadblock for Nano which by now has become a point of pride for Indians. This act generated widespread anger against the tactics of Mamata and her actions were said to be politically inspired. Incidentally, Tats had to pull out from W. Bengal and they have now opted for Gujarat for setting up the Nano plant. Read these media reports here, here, and here.

Though I am fully for the Nano and believe that political sabotage of any project is worse rather than good, I always felt that there must something more than what meets the eye. For example, no media report was talking @ Tats’s deal with W. Bengal government. No facts were being presented anywhere.

Today, I came across what I was searching for many days – some facts from other side of fence. I am not drawing any conclusions here; I just want to point out some facts presented in an article. Here is an excerpt (read original article here) -

                The cash starved WB government has given a Rs.200 crore loan to Tata Motors at – yes – at 1% interest. The first installment will be repaid in the 21st year of the project. Does a group that paid Rs 35,000 crore or so to acquire the British steel company Corus need a Rs.200 crore loan at 1% interest? Forget that. By the time the first installment is due, Tata Motors would have earned close to Rs.2,000 crore in interest income by investing that money in a fixed deposit.
               Tata Motors will pay a lease of Rs.1 crore per year on 647 odd acres of land for the first 30 years of the 90 year old lease. That is less than Rs.1,300 per acre in commercial land, less than 50 kilometers from Kolkata. Even poor middle class souls like you and me pay a lease of Rs.1,80,000 per year for a 1,000 square feet house far from the heart of the city.
               The Nano project will get power at Rs.3 per KwH; the current rate in Bengal is Rs.4.15. If rates go up by more than 25 paise per Kwh in five years, the government will refund Tata Motors. You and me are already paying close to Rs.6 per unit for electricity. For every Nano sold in Bengal, the state will de facto refund the VAT and sales tax collected on each sale of Nano.

If these facts are to be taken as an indicator to the kind of deals state governments are entering into, then it is the state’s taxpayer who is going to bear the burden of car’s cost-price difference.

A 1 lac car, then really is not so attractive an idea that it is without such facts.

Thursday, October 9, 2008

Read @ Financial Crisis

Graph

Financial Crisis As Explained to My 14 Year Old Sister - Kevin Nguyen

Kevin: I’m getting to that. Let’s say that the Charizard is worth $50, so in case you decide to not return my money, at least I’ll have something that’s worth what I loaned out.

Olivia: Okay.

Kevin: But one day, people realize that Pok√©mon is stupid and everyone decides that the cards are overvalued. That’s right—everybody turned twelve on the same day! Now your Charizard is only worth, say, $25.

Four Stages of Global Financial Crisis – Ajay Shah

The first place to focus on was US housing construction. US housing was clearly in stratospheric territory. Once the US Fed started raising rates, and Mortgage Equity Withdrawal became less important, trouble was going to come about in US home construction. In this period, I watched the DJ US Home Construction Index.

Can a US Style Financial Crunch Happen In India? – Prof. Jayant Varma

Another way of looking at the Indian situation comes from reading Ellis’ paper “The housing meltdown: Why did it happen in the United States?”, BIS Working Paper 259. Many of the factors mentioned by Ellis are equally applicable to India:

  • The supply elasticity of real estate construction has been very high in the current boom (compared to the past) and this supply overhang has the potential to deepen the correction that is required.

Rationality of Panic – Steve Coll in New Yorker

People don’t generally panic in the sunshine. They panic in the dark. And we are in the dark about what assets and liabilities are truly held in what has been properly labeled the “shadow banking system”

Monday, October 6, 2008

A Good Web App

Today I cam across this amazing web app. The concept is really cool. The app lets you create a slideshow of webpages. The slideshow displays pages not aas images but as live pages. Further, you can also share/embed the slideshow.
Incidentally, it is created by Paras Chopra and Ravi Pathak.
See here an example of slideshow of webpages of Reality Is a Farce.
Amazing thing is that Paras created this app just for $ 8.75 [INR 350], in six days! Read his candid post @ this development here.

Good work Paras!

[Also read this Techcrunch post to create a web app in 4 days for $ 10,000.]