Category: Your Money

Indian Healthcare: Rotten to the Core

The Indian healthcare industry was dubbed the “most corrupt service in India” in a 2003 British Medical Journal titled “Health Care Is Among the Most Corrupt Services in India.” While this statement will certainly rile the fragile egos of “patriotic” politicos merely because the statement featured in a British journal, fact is that the truth of this statement is proven time and again.

India is a country where parents dream of their children being doctors or engineers. There’s a dearth of medical seats in colleges, making it the perfect breeding ground for corruption. The bribing process kicks in here. By the way, many of these colleges get their accreditation by paying bribes to the likes of Dr. Ketan Desai, ex-President of the Medical Council of India, so there are no guarantees of the quality of education, faculty and infrastructure that will be provided or the availability of essential equipment and facilities for practical trainings.

A child receives oral polio vaccine during a 2...

Scams are commonplace in Indian healthcare. Remember the $30 billion medical seats scam where students without science backgrounds were awarded MBBS seats for a bribe of ₹12-40 lakhs? What about the ₹10,000 crore National Rural Health Mission (NRHM) procurement scam that involves the former Family Welfare Minister of Uttar Pradesh?

In 2010, aforementioned Dr. Desai accepted a bribe of 2 crore to license a medical college. More recently, the Central Drugs Standard Control Organization (CDSCO) found that doctors from different parts of the country are endorsing drugs (some of which are banned outside) from certain drug manufacturers without performing clinical trials. In 2009, Tata Memorial Hospital (TMH) was involved in a multi-crore scam because of misappropriation of medicines.

Funds for the Healthcare Ministry

India spends less than 1% of its GDP on public healthcare services. Over 65% of the population does not have access to critical medications and public health centers do not have the equipment for many diagnostic tests. Furthermore, a bare handful of these centers are accessible to the rural populace.

The Finance Ministry allocated ₹37,330 crore to the Ministry of Health and Family Welfare in the 2013-14 budget, a small hike of 8.24 percent since last year. While experts argue that healthcare has not been given its due in this year’s budget, is it really the budget that is the problem? There are schemes and schemes but when do the sanctioned free medicines and basic healthcare reach the right people?

The government has included rag pickers, rickshaw pullers, mine workers, etc., in the Rashtriya Swasthya Bima Yojana (RSBY) to provide health services to all. But without strengthening the infrastructure and distribution mechanism, these measures only worsen the deficit seen in public healthcare.

Public or Private – There’s No Value for Life

Public sector doctors are not well-paid so they either shirk work or perform unnecessary surgeries on ignorant patients to make money on the side. A government investigation reveals that over 12% of hysterectomies carried out in a Bihar district were unnecessary. In Rajasthan, 70% women who visited a clinic have had a hysterectomy. Not only are these rural women the targets of medical malpractice but their families are under debt because of the funds they procured for the surgery.

While public sector hospitals chug on, the less regulated private healthcare domain is flourishing … at the cost of patients. These hospitals charge exorbitant rates for the most minor procedures and consultations and despite it all, have many incompetent doctors on roll. Remember the Anuradha Saha case? She came to hospital to get treatment for a skin rash but lost her life because of the negligence of reputed “senior” doctors. Anuradha was prescribed inappropriate doses of steroids that depleted her immune system, making her prey to sepsis.  But she is just one of thousands, if not millions of Indians who die because of medical negligence.

Clearly, the issue with Indian healthcare is not funding but corruption. Healthcare in India is highly unregulated and providers are not made accountable for outcomes. There is no formal patient history management system in India – the root cause of many fatalities. Hospitals continue to run in chaotic states where anyone, and I mean anyone, can play with lives. In a very recent incident, a rickshaw puller (whose job was to transport dead bodies) was allowed to give a life-saving injection to a 7 month old child who ultimately died at an Uttar Pradesh government hospital. A year before, the same hospital was pulled up when a sweeper was found suturing wounds.

While I don’t paint all medical colleges and hospitals with the same brush, the rising incidents of medical negligence and malpractice in India are clear indicators of the abysmal quality of healthcare providers and practitioners that we, the common people, are compelled to trust with our lives and health every day.  The only recourse for patients in India is to go to court. But that’s another story in itself.

The government believes public private partnerships (PPP) will solve the hellish state of Indian healthcare. But will it? It’s not as though private hospitals are doing a great job of delivering quality services. PPP may only lead to the corporatization of healthcare and a wider nexus of corruption. Basic healthcare could become even more inaccessible to low income groups.

Macro Mashup

Note from JP Morgan:

Over the past 18 months, we have cut our 2013 EM growth forecast from 6% to 4½%. We continue to see downside risk with activity data tracking below our Q2 projections and no evidence of policies to reverse this slowdown. A number of EMs have inflation pressures and weaker currencies that require tighter monetary policies while wage pressures have eroded profit margins and thus corporate expansion. This slowdown has momentum. At some point, the EM slowdown could drag DM along.

em gdp growth foecasts

The EM equities have performed the worst:

em performance

And FII’s have been evacuating the bond markets:

fii em bonds

Credit Suisse: In India, foreign investors’ fixed income holdings fell sharply in June and continue to fall in July. We expect selling to subside and buying to resume in 3Q 2013.

Barclays remains bullish on the Rupee: While near-term depreciation risks remain, the INR has fallen significantly since early May, and in this context we expect the currency to appreciate against the USD over the coming year. We believe this will be driven by a narrower current account deficit and policy initiatives that can meaningfully ease funding concerns (ie, NRI bond issuance), as well as RBI rate cuts facilitated by relatively subdued inflation pressures. Despite the limited potential downside to USD/INR near term, the rupee is now 15% undervalued versus the USD, according to our estimates.

usd inr

Investors will do well to remember this titbit: When John Pierpont Morgan was asked what the stock market will do, he said “It will fluctuate.”

Weekly Recap: You Are Not an Artisan

nifty 50

 

The Nifty surged 2.40% this week, driven largely by Infosys and the IT sector in general.

Index Performance

Index performance

 

Top Winners and Losers (CNX 100)

 

MPHASIS +11.53%
RPOWER +13.36%
INFY +14.17%
GSKCONS -16.54%
MARUTI -6.86%
M&M -6.63%
Weakness in the auto sector dragged Maruti and M&M down. INFY was the belle of the ball this week.

ETFs

NIFTYBEES +2.33%
BANKBEES +2.03%
JUNIORBEES +1.70%
GOLDBEES +1.32%
INFRABEES -0.34%
PSUBNKBEES -0.85%
Banks perked up a bit and so did gold. It will be interesting to see if gold continues its uptick in the days to come.

Advancers Decliners (CNX 100)

AD Line

Yield Curve

Did short-term rates actually go up?

yield curve

Sector Performance

IT up, Autos down.

sectorperf.2013-07-05.2013-07-12

Thought for the weekend

If there is schlepping involved, it is more likely to be real work. If there are sexy elements involved, it is more likely to be conspicuous production pretending to be work. Sexy work is easy to enjoy, learn, value and integrate into your identity, primarily because it is downhill psychological work: it is the cognitive equivalent of muscular atrophy. Schlep work is harder to enjoy, learn, value and integrate into your identity, primarily because it is uphill psychological work for a social species.

Source: You Are Not an Artisan

Rise of Micromax: The Stuff of Dreams

The story of Micromax Mobile is akin to the American dream. Who would have thought that the mobile manufacturing company that started small, launching budget phones for the low income market would grow into the 3rd largest mobile manufacturer in India and claim 12th rank globally? The company’s vision to address local needs, innovate under constraints, and deliver value for money has paid off by making it one of the strongest players in budget phones today, giving stiff competition to the likes of Nokia and Samsung.

After mobile handsets, Micromax has ventured into tablets, routers and LED televisions. However, mobile handsets remain the company’s primary product line. The company shipped 4 million handsets worldwide in the second quarter of 2011. It continues to sell over 1.5 million phones every month in most of the countries it operates in.

A Saga of Milestones

Though Micromax as a company came into existence in 1991, it took off at a tremendous pace only after 2008, when Rahul Sharma, co-partner in the company convinced his peers Rajesh Aggarwal, Sumeet Arora and Vikas Jain to move away from being a distributor of hardware and software solutions and jump on the mobile device bandwagon.

The company’s first product, a mobile phone called X1i was focused on addressing local needs that were not understood by larger players. In this case, the goal was to enable mobile connectivity in villages deprived of electricity to charge their handsets. The X1i had a battery backup of 1 month. The phone sold like hot cakes, helping the company capture a 0.59% market share during the first half year of its existence.

The second killer idea was handsets with two GSM SIMs that could be active simultaneously. Micromax was also the first company to launch a phone that could switch between GSM and CDMA networks automatically using gravity sensors.

Micromax’s intense coverage of rural markets helped it establish a strong distribution system that it could leverage when it forayed into the urban market. Here again, Micromax addressed specific user needs – a QWERTY phone for social media enthusiasts that enabled chat, a stylish handset for the urban woman, and so forth.

Next step? Tablets of course, in partnership with Intel. In 2012, the Gurgaon headquartered company captured 18.4% (CyberMedia’s Tablet Market Review for 2Q 2012) of the tablet market in India surpassing veteran players Samsung and Apple.

Research, Reinvent and Market

Micromax’s success can be attributed to its consistent vision and constant reinvention. The vision of the company is: one, address a need; two, aim for “affordable innovation,” and three, price products for mass consumption. The company often prices its products at almost 40% of competing devices.

Another fundamental reason behind Micromax’s success is its aggressive distribution and marketing strategy. Micromax handsets can be found with all retailers, in rural and urban locales. The company ensures shelves are always stocked. It has tie-ups with film celebrities and sponsor partnerships at key events like the IPL to spread brand awareness. Ads are positioned to match features of their low price devices with high-end brands.

Present and Future

Micromax employs over 1400 people today worldwide. It has 23 domestic offices across the country and international offices in Hong Kong, USA and Dubai. On March 31, 2013, the company logged in a record ₹3,168 crore in sales revenues for the financial year 2012-13. And it managed to kick off the fiscal year by raking in ₹50 crore plus on April 1 alone.

The company’s principal leverage in keeping prices down has been its manufacturing partnership with China and a self-owned R&D center that builds prototypes for specific consumer needs. However, with labour costs increasing by 70% from 2005 to 2010, China is becoming unviable. To counter the impact, Micromax is building manufacturing infrastructure in India.

The company has adopted a new strategy that’s working well – get some products manufactured in China and other countries, source components from abroad and manufacture some of the newer lines in India. Through all of that, Micromax continues innovating with motion-sensor phones, 3D handsets and other cutting-edge technology.

What Micromax has triggered in the mobile device market is similar to what Deccan Airlines did for the Indian airline industry. It brought coveted quality to masses at an affordable price. The success of Micromax proves that affordable pricing can become a winning strategy if it addresses an identifiable need, adapts to changing markets, and is supported by aggressive marketing and distribution channels.

 

Time to put a roof on property prices

Despite the Indian economy plunging into a downward spiral with most sectors under stress and asset prices taking a knock, real estate prices have remained rock solid with hardly any signs of slowing down. Defying gravity, prices just keep going up. The Reserve Bank of India (RBI) in its Financial Stability Report for June, has also flagged rising house prices in most metros as a deep concern. This is despite its hawkish monetary policy stance. Also, bank credit to housing, has fallen, but developers are in no mood to relent and cut prices.

house price index

The share of credit to the housing sector fell to 9.5 per cent as at end March 2013 from 13.3 per cent at end April 2007. However, the latest report of Knight Frank India reveals that Mumbai continues to be the most expensive property market in India, with 29% of the city’s total under-construction units priced above Rs 1 crore, compared with 11% in the national capital region (NCR) and 5% in Bangalore.

India is among the few countries where property prices have actually risen after the recession of 2008 while major economies such as the US, UK and even China have seen an absolute reduction in property prices.

BANK LOANS

This explosive growth in housing prices despite the gloomy macro-economic scenario is fuelled by key factors like severe scarcity of low-cost housing and rising disposable income leading to high-income people cornering bulk of the housing supply in upcoming and central locations. Lack of affordable housing and the paucity of innovative financing schemes for housing have also led to profileration of urban slums.

URBAN HOUSING SHORTAGE

In that case, are housing prices beyond fundamentals?

Despite falling sales, leveraged balance sheets and high interest rates, developers have been able to resist price cuts. Deepak Parekh, an industry veteran and someone who knows about housing better than many of our policymakers, believes that home prices are highly inflated in the country, including in smaller cities. He adds that increasing supply is the only way to bring home prices down.

Last year, Finance Minister P Chidambaram had also asked banks to pressurise builders to lower prices of apartments that are ready for possession but not getting sold. Developers are sitting on high inventories despite rising costs.
There is little justification for property prices to be among the world’s highest when infrastructure facilities are pathetic.

As per an estimation of the Task Force on Housing Requirements in Urban Areas during the Twelfth Five Year Plan Period (2012-17), the housing requirement in urban areas is 18.7 million units of which 18.5 million are for the Economically Weaker Section (EWS) and Lower Income Group (LIG) segment. As per a McKinsey Report, the demand for affordable housing will be 38 million by 2030.

Amidst such robust demand, there is a pressing need to put in place a fair and transparent market place. It is for this reason that the Real Estate (Regulation and Development) Bill 2013, approved by the Cabinet that allows for the creation of a regulator in the real estate sector had been keenly awaited.

Rise in Housing Prices

The Bill will ensure that construction is not only completed in a time-bound manner but that the buyer gets the property as per the specifications promised. Developers also need to clearly mention the approvals they have obtained and cannot sell homes unless the necessary approvals are in place. This would ensure greater transparency in project marketing and execution. However, the bill is silent on fixing prices. If price control measures are not introduced, the property market would continue to be at the mercy of speculators and cartels.

The steep housing prices clearly mirrors the country’s wealth imbalance. The centre should step in to address this imbalance by stifling price growth and encourage affordable housing.

While changing urban landscape has also contributed to higher housing prices, the main factor has been the high circulation of black money. The cash component involved in all transactions, up to 30% in some cases, is forcing the emerging middle class from buying a house.

When you have the drug regulator fixing prices of essential medicines to keep it within the reach of the common man and if stock markets can have circuit filters to regulate stock prices, why not have a price control in place for the realty sector that has linkages to more than 250 sub-sectors of the economy?