Migrant Labor

Two recent conversations a few weeks apart got me thinking about the impact of immigrants on the development , economic and cultural  of the recipient region .

The first one was at a friends son's wedding. One of the guests  a Sikh who has large farm holdings in  Punjab was bemoaning the fact that the economic prosperity in India and the governments policy of providing guaranteed employment for a certain number of days to the majority of the population ,was making it difficult to find workers on his farm. Previously migrant labor from Bihar and other states would come to the prosperous states such as Punjab and Haryana during certain times of the year to find employment and it would be a "buyers market "for  the farmers.Also some of these immigrant labor would settle in Punjab and in some cases even convert to Sikhism.

Things have now changed. With the governments minimum employment programme, some of the migrant would prefer to stay at home even if they get paid slightly less. This  has caused problems in the farming states, as it  has now become a "sellers market " from the  job seekers point of view. The farmers representative now wait at the railway station and offer not just higher wages , but offer other incentives such as mobile phones, days off etc. to get the best workers. This particular  gentleman said that he had instructed his foremen to offer  twenty percent  above the market straight off,  so he was able to get the workers he needed. With one of the major input  now going up, together with the gradual removal of subsidies for other inputs such as  fertilizers, gasoline, diesel, electricity, are you surprised that the costs of your vegetables and grain are on a upward trend ? This is just the start. This will ultimately force the farmers to use more automation.

This is ironical because the youths in Punjab from the working class , and in some cases to the middle class all dream of going abroad - illegally if  necessary , and  where they are quite content to do manual labor in inhospitable climes. This  has been going on since the sixties but one would have thought that with the increasing prosperity and opportunities  at home, they would prefer to stay home, but that is not the case.

On the other hand the recent prosperity and the boom in land prices is enabling the harder working farmers to sell their land and with the same amount of money buy perhaps ten times or more farmland in places such as Canada and settle down there.The more adventurous have been  taking long term leases on farms in places such as Madagascar !!

This brings me  to the second conversation which I had over a dinner with a diplomat from Canada. We were talking about Japan and how the graying of the population in that country was the cause of the gradual decline of the second largest economy in the world. He said that during his posting he tried at various forums to convince the Japanese to open immigration but to no avail. According to him Canada allows in on an average two hundred and fifty thousand immigrants into the country and this enables them to grow. The United States , the United Kingdom and to a slightly lesser extent Europe have rejuvenated - if I may use the term , by opening their doors to immigrants from Asia, Africa , South America and now recently from Eastern Europe. They are willing to work at the bottom of the ladder. Over the decades this has caused problems in terms of the need of the immigrants to adhere to their own religions and their own cultures. Also the longer term impact is that with a higher birth rates they will change the character of the countries. I have written about it previously.

Unfortunately , as it happens during every economic downturn, the politicians make the immigrants the whipping boys and accuse them of  stealing jobs, which they were not interested in doing in the first place.In Arizona where the state police is now authorized to stop and search any person whom they suspect of being an illegal or in the United States  or Europe or the United Kingdom where you see random acts of " Paki bashing" or Indians getting shot or killed, purely for being who they are, which is very unfortunate.Fortunately in the long run they  will be overruled and the there will be integration whether they like it or not and they will find them selves in the minority.

What we all forget , if anthropologists are to be believed , is that we ultimately all came from one place - Africa and none of us are different.  Every country goes through a cycle of prosperity and decay depending on whom we select as a ruler. To think that there is a certain privileged class , as the Nazi did because of their race, is deluding yourselves.

Why Financing India's Infrastructure Is Not A Problem ?

Almost every week there is an article or some minister or a senior bureaucrat saying how we will need trillions of Rupees over the next decade to finance India's infrastructure ( used in a broad sense including power, toll roads, bridges, rail roads )  and  how difficult it is to obtain the funding.

Having seen the Asian economies grow in the eighties and nineties and being involved directly or indirectly in the financing of  some these projects I feel that the persons making these statements do not really know what they are talking about. The issue is not obtaining the money. The world is flush with liquidity.

At this stage however let me digress a little at this stage and take you back over a hundred years when American railroads where being built. At that time, Europe and particularly the United Kingdom  was the center of the world. Banks and investors in Europe financed the construction of the rail road systems. I also have bonds issued by the Kingdom of Siam and China during the late eighteen hundreds. I have no idea whether all of them were repaid or not. With the world now more linked together and with liquidity pools in the United States, Europe, the Middle East and now Asia and with  markets being more open,  funding is not the issue. The issue is transparency.

For any project financing , whether it is infrastructure or offshore production facilities or a real estate project, you have to recognize that they are capital intensive and that they are long tailed. The basic risk factors you have to take into considerations are as follows :

1. The reputation and financial standing  of the sponsors of the project
2. The reputation and financial standing  of the contractor
3. The political , regulatory and environmental issues
4. The reputation and financial standing  of the off taker or the end user market
5. The technology used and the reputation of the firm providing it

If you are able to tick off all of the above , you will have no shortage of funding.

I read a lot about how capital markets, particularly the bond markets, should be developed to finance infrastructure projects. While this attempt has been moderately successful in a small way, keep in mind that bond issues have to be rated. How do you rate a greenfield project, particularly in  emerging market countries including India,  when you know that the odds are very much in favour of the project not being completed on time, or it being over budget or running into political turmoil. In Asia the only country which seems to have had some success in financing project financing through the bond market  is Malaysia. I take my hats off to the local rating agencies there in their ability to rate these projects.However if you look globally in terms of infrastructure projects financed through the bond markets, you will  see that the number is extremely modest.

For the bond markets to be involved in the financing of infrastructure projects it will probably be in the form of a take out financing when the project has been completed and it starts generating cash. If you do want to go to the bond market right from the beginning the banks or the government agencies have to provide some sort of interim financing or provide a guarantee or a put which allows the investors to put the bonds in case the projects are not completed in the period agreed on with a allowed grace period. Also the initial proceeds of the bonds will have to be placed in a escrow account and released gradually. This will of course add to the cost of financing as the borrower will have to start paying financing from day one.

Obtaining   financing from banks is probably a better approach since banks have the  experience in project financing and the borrower has to pay only a commitment fee rather than full interest on borrowings. Banks  are better able to deal with restructurings then bond investors in case the project runs into genuine difficulties.

If the government wants to obtain overseas bank or institutional  financing for infrastructure it needs to set up a legal entity  which provides guarantees until the project is completed . The legal entity needs to have a very transparent set of guidelines and a strict list of  approved consultants, contractors, and water tight contracts which imposes penalties on  firms if deadlines are not met. It also needs to ensure that there is single window for all government approvals ( including environmental and other regulatory approvals) which are binding even if the state government changes, to avoid a project being stopped mid-way. It needs to ensure that the Equator guidelines are followed.

Finally the bank financing can be supplemented  with financing from the multilateral agencies and the export credit financing agencies if substantial equipment is imported from a particular agency.

With the above in place there should be no problem with obtaining financing for projects in India.

India's Noisy Silent Democracy

Prior to Prime Minister Wen Jiabao's visit to India,  the Chinese  ambassador made some comments about the fragile nature of the India - China relationship being affected by comments appearing in the India media.India's Foreign Secretary  Nirupama Rao's pushed  back saying our “Chinese friends” should get used to dealing with the “vibrant…noisy, nature of our democracy " . The New York Times in an article  dated January 19th,  on Manmohan Singh commented on India's " white noise of India’s raucous democracy". Sadly however the noise associated with our vibrant democracy exists only in the minds of the media or the mandarins of the Foreign Office.

The reality is that the voice of the population which represents the true voice of democracy is silent, as can been seen in the daily scandals in both the ruling party and the opposition ruled states with offenders going unpunished, and the average man or the aam admi on the street finding it increasingly difficult to deal with it on a day to day basis. The bureaucrats, the politicians, the enforcers, all participate in the smothering of the democracy.  The government also plays down the frequent intrusions by our increasingly belligerent neighbors in the interest of maintaining long term relationships and which are generally perceived as a sign of weakness.

The media of late has been making more of an effort to highlight the misdeeds of the corrupt bureaucrats, politicians and business men. However its credibility has been hurt by the leak of the Radia tapes where taped conversations between a  lobbyist and certain prominent media personalities have highlighted the nexus between politicians, media  and  business houses.

Also it appears that the media tends to  focus more on urban crimes where the misdeeds are against the middle class or upper middle class. Massacres, killings, rapes, mistreatment  of the rural poor are generally buried in small columns in the inside pages. In my opinion the media appears to have a short memory and feels that its job is done, once an investigation is started .The media needs to continue  pursuing  on the front page , major scandals and highlighting it if the perpetrators are let off, or where the various investigations fall asleep on their job or whitewash the results as is often the case.

 The television debates trot out the same cast of characters including party hacks, retired bureaucrats, and others who are "specialists "in numerous fields . They argue vociferously and then having played their roles probably go out and have a drink together. Looking at the media's role you are reminded of the lines from Macbeth that  their role  appears to be  that of " a poor player that struts and frets his hour upon the stage and then is heard no more " . It is " full of sound and fury signifying nothing " until the next scandal appears.

In the meantime the populace suffers in silence.