Wednesday, February 22, 2012

Why no Bio-fuel in India yet?

Background
India is an economy that is in its ascendant phase and with the expansion of the financial base, the nation is seeing never before prosperity levels. During our parents’ generation, owning a house was the primary investment goal, and the car was relegated to a poor fifth or sixth on the priority list, to only appear after house, children’s education, children’s marriage, Television, 2-Wheeler and for the obscenely rich minority, a car. Now, the trend has been reversed and arguably the car and one’s lifestyle figure on the top of the list. This has resulted in Indians owning some 40 Million Cars and about 3.7 Million units being added to the streets each year (2010 figures). This has resulted in an explosion of the demand for lubricants and fuel which are mostly imported and subsidized and has also contributed to enormous pollution concerns in all our towns and cities. Thus, the need of the hour is to tackle the issue of rising oil prices, high cost of subsidy to the Government and to address the problem of growing vehicular emissions polluting the environment.

Concerns
It is of serious concern that the Indian Government seems to have no specific long-term policy to address the issue of our dependence on fossil fuels. We continue to import ever larger quantities of fuels spending billions of dollars in precious foreign exchange each year, and the well-entrenched Oil Industry propagated idea that ‘fossil fuel is cheap and near limitless’ has not even been challenged. This problem is only expected to spiral upwards as the population is seeing increasing affluence and aspirations towards a higher, more western style of living and consumption patterns. Due to the legacy of socialist policy making, the Government has been subsidizing or controlling the price of Diesel fuel as this is the fuel of choice for the transport industry and thus, in the current set up, any increase in the fuel cost (diesel) would invariably lead to a rise in the prices of essential commodities. The subsidy burden is increasing each year due to higher oil prices and the increasing vehicular population, and will continue to do so in the perceivable future until the whole artificially propped set up collapses.

In my view, this subsidy is being funded from money that should be ideally spent on other, more important sectors like health, education or infrastructure, and such an enormous subsidy spending (India's fuel subsidies might cost it as much as $17.5 billion this year, according to Lombard Street Research, a British firm of economists) is unfair to the vast majority of the population, as they depend on the Government to spend on the more critical sectors, to improve their lot, rather than on fuel subsidy that touches only a small section of the needy population.

Even in the issue of encouragement of adopting more fuel efficient cars and thus bring down the fuel consumption per capita, the Government seems to have its eyes crossed. While the world is quickly moving towards and aggressively encouraging the use of EV’s or Electric Vehicles and Hybrid cars that run on fossil fuel initially, but switch over to electric power stored in batteries resulting in dramatically lower tailpipe emissions and lower fossil fuel consumption, the Indian Government does not seem to recognize this class of vehicle as a ‘special product’ and it makes one sad to mention that an imported Hybrid Prius is taxed in exactly the same manner as an obnoxiously fuel guzzling SUV such as the Hummer, @ of some 300%!

Suggestions
Critical and immediate
§  The Government should urgently implement a system of ‘Post Utilization Fuel Subsidy’, wherein only specific sectors that genuinely require the subsidy are targeted and provided the subsidy if needed. Perhaps they can introduce a Pre-paid Registered Transporters Card which will provide subsidized Diesel only to transporters of food and infrastructure goods and the farming sector, etc. This will prevent expensive SUV’s and other elitist toys running on subsidized diesel, while the struggling lower income Motorcycle owner pays a higher price for Petrol because there is an atrocious cross-subsidy component between the two fuels.
§  The Government should immediately request all members of the public who can manage without the fuel subsidy, perhaps the passenger car owners or individuals having incomes above INR 10 Lakh per annum to switch to branded fuels of public sector oil companies or private fuel companies like Reliance, Shell etc. This move will largely have to be voluntary of course, and the Government will need to appeal to the general public to comply, in the larger interest of society.
§  The Government, in addition to the above initiatives, should enact or modify the tax laws that would result in the encouragement of the production, sale and ownership of EV’s and Hybrid Vehicles by making them virtually tax-free so that large numbers of people will be encouraged to switch over to these vehicles, which will go a long way in making our country more self-reliant and environment friendly.
Desirable in the short to medium term
§  The government should strictly implement its already existing rule (The Gazette of India: Extraordinary [Part I- Sec. I] Ministry of Petroleum & Natural Gas Resolution, New Delhi, 3rd September, 2002 No. P-45018/28/2000-C.C.) concerning the blending of fossil-bio fuels mixtures with immediate effect.
§  Bio Diesel from Jatropha seeds should be aggressively promoted and should be mixed with fossil diesel at the maximum permissible ratio which will not require any engine modifications.
§  Methanol or Ethanol blended petrol at the maximum permissible ratio which will not require any engine modifications should also be made compulsory.
§  Suitable additives can be included in the mixture to ensure that the burn will be clean and complete, as well as maintain the current anti-knocking properties of the fuels.
§  All diesels available in the country should be compulsorily made into ‘Ultra Low Sulphur’ grade to reduce SOX emissions.

Benefit to Agriculture, farmers and the environment
§  We have large tracts of fallow lands in the northern districts of Karnataka (and similar lands in backward semi-arid and arid districts across the country) which can be converted into large scale Jatropha growing areas. I understand that these plants can be grown using very poor quality of water, including municipal waste water, which will yield us the benefit of using marginal lands for main stream agriculture, recycle large quantities of municipal waste water, increase green cover and provide much needed income to the subsistence farmers in these districts. Of course, suitable precautions need to be put in place to prevent food growing lands being diverted for bio fuel crops.
§  Intensive research needs to be carried out to identify a suitable grain that can be grown for preparation of ethanol that will be more efficient that cane sugar, which is a water intensive crop and is also quite burdensome to the environment. As ethanol can be misused, it will have to be made unfit for human consumption.
§  I feel that we can achieve a high success rate in the Bio Fuels initiatives and also reduce problems of leakage, corruption and other issues by making the oil companies themselves responsible for acquiring their requirements of the raw materials for the manufacture of the two bio-fuels, and the production of the Fuels, their processing, the blending with fossil fuel and additives etc. can be fully under the control of the oil companies.

Other Benefits
§  It is quite evident that the benefits of implementation of the above measures will result in the saving of about 20% on the fuel import account, as the mixing of bio-fuels in Petrol and Diesel is possible to the extent of E10 / M10 for Petrol and B20 for Diesel, without any infrastructure changes to the oil transport, storage, dispensing mechanisms in place or modifications to the engines running them.
§  Bringing traditionally non-farming lands into agriculture, even for cash crop agriculture, the benefits to the environment and to the farmers can be expected to be dramatic. A clear policy that mandates some safety measures to counter mono-cropping and soil / water table degradation can be put in place, but it is obvious that the benefits far outweigh the possible concerns.
§  Post Utilization Subsidy and the promotion of customers switching to Private Fuel Retailing Companies or Branded Fuels of the Public Sector Oil Companies will result in a massive saving on the Fuel Subsidy Account and leave precious funds for spending on the social sector.
§  The above initiatives, together with the encouragement of the production, sale and ownership of Hybrid Vehicles by making them virtually tax-free so that large numbers of people will be encouraged to switch over will go a long way in making our country more self-reliant and environment friendly.

Update posted on 6th June 2021.

Fully after almost a decade of passing up the opportunity to save billions of dollars in oil purchases, the government has finally mandated E20 blended Petrol. 

Sunday, February 19, 2012

Should the Filament Bulb be banned?

First published in the Stylus Magazine of Reliance Retail, December 2007

I recently came across a campaign by Greenpeace to get the light bulb banned in India, on account of it being the most inefficient light source possible. Apparently, a majority of the energy consumed by the ubiquitous light bulb (GLS or General Lighting Series Lamps) is lost as waste heat, and by switching to alternatives like Fluorescent tubes and CFL's (Compact Fluorescent Lamps), India could apparently save millions of tons of Carbon Dioxide emissions. Such emissions have been identified as the possible culprit in the altering global weather patterns, these past few years.

While I sincerely believe that the developed nations or the first world nations have to shoulder a major part of the blame for the degradation of the environment and consequently take the front line in the shouldering of responsibility towards the cutting back of carbon in the atmosphere, and India has the onerous responsibility of first providing a decent standard of living to all its citizens before worrying about such lofty ideals as the environment, in the current globalized scenario, I feel that it is perhaps prudent that we ought to be trying to achieve that by adopting technologies that will not gas the world into oblivion, even while improving the lot of our people. Towards this goal, the developed nations should ideally be providing investments and infrastructure at affordable costs to large nations like India and China to ensure that we do not follow in their polluting footsteps.

Indeed, the Per Capita Carbon generated by India is a minuscule fraction of that generated in the US or UAE, the total quantum of carbon generated by India adds up to a serious sum, and as we are all aware of the need to cut back ones' carbon footprint, India needs to undertake some measures. One such measure is the adoption of energy efficient lighting solutions and hence there is much merit in supporting this ban; however the flip side of the coin that one needs to consider are the following:

§  India has still a long way to go before the dream of power and lighting being made available to every citizen of our country. By banning the bulb which is very inexpensive to buy may put a spoke in the efforts of the government (when it puts in such an effort) to make the above dream come true. However, if the bulb is indeed banned, then more people will buy CFL's (which is the best alternative to GLS bulbs) bringing to effect economies of scale in their manufacture and perhaps, bring the costs down considerably.

§  We have many very small scale factories and cottage industries that are dependant on the manufacture of the light bulb for the livelihood of many thousands of people. By banning the bulb, will we perhaps be taking away their only source of income? A very sobering thought, as we face a minor social problem that will require the intervention of the government to provide alternate means of livelihood for these people. I suppose we also need to consider the fact that global warming and adverse weather will kill more people every year worldwide and hence, perhaps should justifiably be treated as the greater evil!

§  Lastly and perhaps most importantly, CFL's are very dangerous and can be a real challenge to recycle / dispose safely because the coating they contain is made using mercury. It would be a disaster if we just threw away our millions of CFL's every year, as the mercury would find its way into the ground and surface water sources and kill millions of birds, fishes and other wildlife, and in turn humans who consume them. For sure, we will require a legislation that will make it mandatory for manufacturers to collect back fused CFL's while selling replacements, and to recycle them suitably.

The moot question here is, Will our government have the vision and the sagacity to promulgate such a law? Your guess is as good as mine, (I guess!!). Maybe some day it is bound to happen?? (One hopes and prays).

Thus, all things considered, I decided to support the petition as I felt that we had no real choice - just look at the summer weather in Europe and the floods in India during the monsoon! I thought it was a good idea to seek your support for the movement to ban the bulb, and I have advocated the same to all my friends and contacts.


Hemanth Sharma

Thursday, February 16, 2012

Permit FDI in Non-Food Retail in India

An open letter - sent previously by email.

To Shri. Anand Sharma,
Commerce Minister,
Government of India.

Dear Respected Minister,

I write this to bring to your attention the stagnation and confusion the Retail industry is facing due to the highly charged political debate on the pros and cons of permitting FDI in retail.

While at an industry level, all Retail businesses are seen to be in the same space, I'm sure you are aware that the main arms of retail, i.e. Food Retail and Non-Food Retail are as different from each other as chalk and cheese. Thus, all the political opposition to FDI on the plank that it would hurt the small kirana's and also adversely affect food security and pricing should ideally be confined to Food Retail, as all the tussles for and against the issue is resulting in much collateral damage to Non-Food retailing.

I request you to kindly consider the suggestion that Non-Food Retailing should ideally be treated as a separate entity and laws governing them should be configured differently.

I am a retail professional who has seen the industry develop since 1996 in both India and abroad, and I sincerely feel that our country has much to learn from international retailers and hence creating a more conducive environment will only help us as a nation to improve the general customer experience of a shopper in India.

However, as you are facing much strident opposition to your enlightened moves, it may be prudent if you can completely separate the Food and Non-Food retail verticals and perhaps the opposition to reforms in the non-food or Lifestyle retail would be less shrill as the audience for this segment is not the poor sections of society that the opponents are trying to protect. I do hope you will not view this request unkindly and permit me to make the following submission.

I humbly request you to relook at the issue of permitting FDI in Retail from the perspective of separating Food and Non-Food Retail, and perhaps agree to recast the rules for Non-Food Retail which will help bring in the much needed churn in the retail industry in India. Most retailers in this vertical would welcome infusion of both foreign funds as well as international expertise which may help them turn the corner.

Also of particular concern is the 30% local sourcing rule, which may please be put into a time-frame of say, 5 or 10 year horizon instead of from day 1, which is very difficult for a multi-national retailer of an established brand to achieve. If they are given time to develop the local vendor base and train them, in time, the 30% requirement would not be a concern.

Further perhaps, leaving the battle of Food Retail FDI for some time in the future may be for the best. I do sincerely hope you will be able bring in the change that this country desperately needs.

Yours Sincerely,

Hemanth Sharma

Wednesday, February 15, 2012

Why Grain Elevators are needed in India

Background

On December 26th 2003, Iran suffered a devastating earthquake in Bam. An entire ancient settlement was flattened to the ground and the causality count was in the region of 43,000 dead, 30,000 injured and over 70,000 rendered homeless. Iran, normally a very insular nation, appealed to the world for assistance, seeking food, medicines and emergency shelter aid. India decided to send two ship loads of Indian wheat from the FCI Godowns. What transpired later was one of the most embarrassing moments for India in recent history. Iran, even in that desperate situation, was forced to reject the wheat aid on account of the ‘non biological’ content being higher than WHO norms.



The reasons for this situation


Even though India has achieved the Green Revolution in some of the irrigated areas in the nation, and we manage to grow sufficient grain to feed our burgeoning population, there seems to be some short comings too. While the planting and the fertilization processes are managed using modern methods and a high degree of mechanization can be seen, the fault-lines lie largely in the post growing phase.


Typically, the grain is harvested manually and stored in bushels on the field during the scything process, and at the end of day, all these are transferred onto a collection yard and stored in large mounds. Even if the grain is harvested mechanically, the ultimate storage of the stalks would typically be on the ground, with minimal protection. The stalks are allowed to dry here and are subject to rodent, cattle and pest attacks. Once dry, the threshing, winnowing and bagging of the grain are carried out using either manual or mechanical means, but the grain is always in contact with the ground, which sometimes is not even paved. Thus, it is in this post growing phase that our grain collects all the negative parameters leading to their categorization as ‘poor quality’


Subsequent to this stage, the grain is transported in open trucks and unloaded on the floors of open-air markets, walked upon by hundreds of buyers, sellers and laborers and finally end up in poorly designed and abysmally constructed godowns of the government agencies, or those of private merchants. Recent news reports have shockingly exposed that thousands of tons of grain have fallen prey to humidity damage, rodent attack and general degradation. It is little wonder that grain that is drawn from such storage will fail the most basic of tests – the one that certifies it to be ‘fit for human consumption’. While the grain that is grown with such care (Indian farmers are among the most dedicated and hard-working) should ideally be fit for the definition ‘prime grain’. However we face this sorry and somewhat agitating situation.



The possible solution that needs to be explored


Every growing district in the country needs to have investment in the setting up of Grain Elevators / Processors which would be large stainless steel structures that are designed according to the complexity of the crops grown. Typical storage requirements would include first-in-first-out storage, storage of grains of different vintage separately; multiple storage compartments to ensure that grains of different grades are not mixed, and in the most advanced stage, grains grown by different farmers can be stored and accessed separately. Typical Technical requirements would require this to be 100% humidity proof, rodent and insect proof, completely mechanized input and output, so that there is no human contact, and finally, the entire elevator shall be climate controlled (using solar power if feasible, considering the poor power supply situation in the nation), in order that the temperature and the humidity inside the elevator is controlled such that the best quality parameters can be achieved upon the grain drying and becoming ready for withdrawal.



This needs to reach out to the farmers directly


One possible scenario is to have farmers who are members or users of the grain elevator who would request the operators to come and harvest their crop once it is ready. The harvesting shall be carried out using 100% mechanical means, and in large holdings, combine harvesters that cut, thresh and winnow the grain and collect them in a truck for transport can be used, or more appropriately, for the small sized Indian farm holdings, a pedestrian operated solution needs to be developed. In either of the means, the grain shall never be permitted to have any contact with the soil or the ground, and shall be weighed and lifted into the grain elevator using conveyor belt methods. Once the grain is inside the grain elevator, it would be totally safe until it is ready / dry enough to be sold.



Benefits of this facility to the farmer


The benefits to the farmer are apparently limitless. All the concerns that are faced by them today will be completely negated if such a facility is provided. They will be able to achieve almost 100% harvest efficiency and also get the best prices for their grain as it would now qualify for higher grade parameters. The farmer will also have the ability to hedge his crop and depending on the market price, decide to hold or sell at a particular time, even permitting him to decide if he wants to clear all his stock or do so only partially.



Revenue Model for the investor


In the event that the investor is the Government, then the benefits are enormous. They can acquire grain directly from the growers and also store the same in safe and sound manner leading to a dramatic improvement in the food security situation in the nation.


If the investor is a farmers cooperative or an NGO, then the cooperative can charge its members, service charges for the activities rendered, while also taking a percentage of the selling price when a member off loads his stock. The idea of course, would be based on the ‘no profit – no loss’ philosophy.


If the investor is a private enterprise with food manufacturing or exporting interests, this will be the best way to get access to the finest grain at the most appropriate price. Stocks can be built up to cover requirements of the subsequent buying year and hence insulate the company against a shortage situation arising out of monsoon failure, etc. If the investor has no forward integration interests, then too, he will have the opportunity of playing the role of the cooperative and / or the government and still see healthy returns in the medium term.



Other additional features that can be added on to increase the revenue stream


•  Provision of Cold Storage facilities in the same premises. 


• Dairy / Milk collection and storage facility can be incorporated. Conversely, spare land of suitably located Dairy Collection Centers can be used to create this facility.

• Stocking and sale of Fertilizers, Insecticides, Farm Implements, and other similar product lines.


• Micro Banking facilities / ATM’s to provide farmers the ability to take loans and also draw (monetize) in cash on their stock held in the grain elevator, for a fee.


• Offering of farm consultation services on cropping, sowing, crop care and others. Availability of expertise will not be a contsraint.


• Creation of a pool of modern farming and harvesting tools and mechanical implements that can be hired by farmers or collective. This ensure access to contemporary equipment at low involvement level for the farmer.

• Small retail facilities where the basic needs can be purchased, something along the lines of a Convenience Store, but can be enlarged to carry Apparel, Electronics and Consumer Durable's if the market so develops.


• Offer a place of meeting or social gatherings to conduct small family gatherings etc.


• The other opportunities are seemingly limitless and need to be explored. Farmers themselves would have ideas on what services they would like.



Others / General


A detailed study of the cropping patterns and the storage complexities need to be instituted. Grain value increases with age and hence this factor needs to clearly addressed, so that best prices can be achieved. Further, grains of different variety are grown on the same land during the different growing seasons, so such complexities need also be factored in. Finally, and perhaps most the challenging, one needs to size the grain elevator right. Too small and it will be overwhelmed in a couple of seasons, and too large will result in longer break-evens.


A team of agricultural scientists, engineers, merchants, farmers and business teams needs to be formed and detailed feasibility studies need to be undertaken. One dreams of the day when each district in each state has at least one grain elevator, a dream that has the possibility of contributing enormously toward poverty alleviation and abatement of hunger in this nation.


Needless to say, efforts need to be made to attract the best talent to manage and operate this facility. Thus, comfortable living quarters, medical facilities and remunerative salaries to the Agricultural Graduates and Engineers required to maintain this facility will be essential.


Additional reading:


India wastes about Rs 13,300 crore worth fruits, vegetables in a year: report


http://www.ndtv.com/article/india/india-wastes-about-rs-13-300-crore-worth-fruits-vegetables-in-a-year-report-452230


Storage insects and their management


Insect damage to farm-stored grain



F.D.A. Finds 12% of U.S. Spice Imports Contaminated - NYTimes.com. India has been named as one of the supplier markets where this problem is prevalent.