Sunday, July 27, 2014

Asset quality remains a concern for state-run banks in Q1

State-run banks that declared their first-quarter earnings on Friday—Punjab National Bank (PNB), Indian Bank, UCO Bank and Allahabad Bank—reported mixed results in terms of profitability, but pressure on asset quality continued to be a general concern. New Delhi-based lender PNB reported a 10.2% rise in net profit to Rs.1,405 crore in the June quarter, from Rs.1,275 crore a year earlier, aided by a rise in net interest income. Net interest income rose 12.1% to Rs.4,380 crore, from Rs.3,908 crore. Other income, however, contracted 8% to Rs.1,236 crore, from Rs.1,342 crore, mainly due to lower trading profits. Net interest margin (NIM), a key measure of profitability, fell to 3.42% from 3.52%. In an indication of the worsening asset quality, non-performing assets (NPA) ratios worsened both on a year-on-year basis and sequentially. Gross NPAs rose to 5.48% in the quarter from 4.85% last year and 5.25% from the previous quarter. Net NPAs also rose to 3.02% from 2.98% last year and 2.85% as of March end. Total provisions rose 1.3% to Rs.1,720 crore. But provisions for bad debts almost doubled to Rs.1,336 crore, from Rs.675 crore. The bank’s restructured book stood at Rs.3,4012 crore as of June end. More than 40% of the restructured accounts were in the infrastructure space, especially power, reflecting the problems faced by the power sector in acquiring coal. In the quarter, the bank restructured 40 accounts, amounting to Rs.1,452 crore. K.R. Kamath, chairman and managing director of the bank, said the bank is hopeful that the NPA situation will improve in the coming quarters. “With an improvement in the economy, the pressure on asset quality should ease. Meanwhile, we will continue to focus on better recovery and upgradation of bad debts,” he said. The bank will be prepared to meet the credit demands of an economy where optimism is picking up, he said. “We hope to go back to our normal trend of credit growth but without compromising on the quality.” While advances grew 13.9% to Rs.3.47 trillion, deposit growth was at 12.1% at Rs.4.44 trillion. Saday Sinha, banking analyst at Kotak Securities Ltd, said in a note that PNB’s stressed asset book is 13% of its loan book, much higher than the industry average. Meanwhile, Chennai-based Indian Bank reported a fall of 53% in net profit for the June quarter to Rs.207.15 crore, compared with Rs.317.39 crore a year ago. The bank’s net interest income was Rs.1,072 crore, a 2% decline year-on-year. NIM was lower by 9 basis points to 2.46% quarter-on-quarter. One basis point is one hundredth of a percentage point. Total bad debts were up 4% sequentially. The bank saw its gross NPA ratio build up to 4.01% in the quarter compared with 3.41% a year ago. The net NPA moved up to 2.48% from 2.31% a year ago. NIM moved up slightly to 2.44 % for the first quarter from 2.31% a year ago. Kolkata-based lender UCO Bank’s net profit was up marginally by 2% to Rs.521 crore, from Rs.511 crore a year ago. Asset quality, however, improved sharply with gross and net NPAs falling to 4.31% and 2.33%, respectively, from 5.58% and 3.15%. Another Kolkata-based lender, Allahabad Bank, saw its net profit plummeting 73% to Rs.113 crore from Rs.413 crore in the year-ago period, as provisions almost doubled to Rs.852 crore from Rs.445 crore. While gross NPAs rose to 5.48% from 4.78%, net NPAs were up to 3.88% from 3.87%.
(Source: LiveMint)

Saturday, July 26, 2014

Microsoft: Cloud lifting

NO ONE could mistake Satya Nadella for Steve Ballmer, his predecessor as Microsoft’s boss. The burly Mr Ballmer brought high-decibel bumptiousness; the svelte Mr Nadella (pictured) speaks in measured tones and quotes Eliot, Nietzsche and Rilke in his news conferences and memos. The new style may in time grate as much as the old, but so far investors like what they see. Since Mr Nadella took over in February, the technology giant’s share price has climbed by 23%, to nearly $45—the highest since April 2000, shortly after Mr Ballmer’s tenure began.
On his first day in the job Mr Nadella said he planned to make Microsoft fit for a “mobile-first and cloud-first world”. Microsoft, the king of the desktop age, has been dethroned by the smartphone revolution. But Mr Nadella thinks the ubiquity of its software, in both homes and businesses, still lends it power. On July 22nd he gave his first proper progress report, in the shape of Microsoft’s fourth-quarter results.
Those numbers showed that the cloud part of Mr Nadella’s plan is starting to lift Microsoft up, but that the mobile side is weighing it down. The purchase of Nokia’s mobile-phone division, agreed upon last year but completed only in April, has worsened the drag. Two months’ worth of the formerly Finnish phonemaker’s figures added $2 billion to revenue but subtracted $692m from operating profit. Total revenue in the three months to June, at $23.4 billion, beat analysts’ forecasts; but thanks to Nokia, net income, at $4.6 billion, fell short—and was less than it was a year before.
Mr Nadella already has plans for the ex-Nokians. On July 17th he said that Microsoft would shed 18,000 of its 127,000 staff, and that 12,500 would go from their ranks. Microsoft will focus more on cheaper smartphones, the fastest-growing bit of the market, and exclusively on Windows Phone, its own operating system—which lags far behind Apple’s iOS and Google’s Android. An inexpensive range running on Android, which Nokia unveiled only in February, will be switched to Windows. An internal e-mail leaked to tech websites implied that Nokia’s more basic mobile phones would be phased out.
On the cloud side, Mr Nadella had cheerier news. Companies and consumers are buying more software and services by online subscription; businesses are doing more computing in Microsoft’s data centres (or in their own with Microsoft’s help). Companies’ spending on cloud services in the quarter was 147% more than a year before and is running at an annual rate of $4.4 billion. Some other things have also gone Mr Nadella’s way. Demand for personal computers (PCs) has bottomed out, as companies at last replace old machines.
Looking ahead, Mr Nadella is placing a good deal of faith in what he calls “dual users”: people who use technology both at work and in their private lives. He believes that Microsoft can give them the software they need for both, and has reorganised some engineers at the company, previously split between consumer and business-to-business units, into single teams.
It matters less to Microsoft than it did whether that software runs on Windows, the operating system on which it grew rich and fat. To be sure, the firm is still pushing Windows hard, and not only in PCs and its own phones. It has scrapped royalties for devices with screens of less than nine inches, to lure other manufacturers. Its executives purr about the Surface Pro 3, the latest version of its hitherto unsuccessful Windows tablet. But Mr Nadella’s first public act as boss, in March, was to release its Office software suite for Apple’s iPad. Microsoft can no longer afford to be fussy.
Although Mr Nadella promises a leaner Microsoft (layers of management will go, as well as those ex-Nokians), he is not promising a narrower one. He is sticking with Xbox, its home-entertainment system, although he says it is not “core”. In fact, having added phones, Microsoft is doing more rather than less. Some think that unwise. But the shareholders are happy—including, presumably, Mr Ballmer, who owns more shares than anyone else.
(Source: The Economist)

Siemens: Fixing the German dynamo

LONG-LIVED companies can change radically over time. Nokia, for example, began in 1865 as a pulp mill; recently it sold its mobile-phone business to Microsoft (see article) and now it mainly makes networking equipment. By contrast, Siemens has been quite consistent. The Economist first wrote about the company in 1868, when it joined a consortium to build a telegraph cable from Britain to Russia and India. In an 1882 article about another tech boom—the spread of electric lighting after the perfecting of the dynamo—we noted that Siemens was hedging its bets by making both alternating- and direct-current ones. To this day, when asked to sum up his firm’s business in a word, Joe Kaeser, its chief executive, says, “electrification”.
Mr Kaeser is nonetheless hoping to remake Siemens, at least partly. After electrification, he likes to add two more words: automation and digitisation. The engineering giant is to focus on doing these three things profitably. Businesses that do not fit these criteria will be fixed or sold.
Mr Kaeser’s predecessor, Peter Löscher, was brought in from outside in 2007 to clean up after a bribery scandal. He strove to hit a target of increasing annual revenues by around half, to €100 billion ($135 billion). Siemens began taking orders it could not complete on time and on budget, and missing profit targets. Last July the supervisory board showed Mr Löscher the door and put Mr Kaeser—who had been involved in many of the big decisions as chief financial officer—in his job.The reconfiguration of Siemens is a big project. The company employs 360,000 people in dozens of countries, and its position at the heart of Germany’s industrial economy makes change at home sensitive. It manufactures everything from hearing aids to gas turbines, from trains to software. Analysts wonder if it is in too many businesses. It is not doing so badly—analysts reckon that its operating margin is about 11%. But it suffers from comparison with its American archrival, GE, whose industrial side had an operating margin in the most recent quarter of 15.5%.
Mr Kaeser is liked by analysts, and unlike Mr Löscher he is a longtime Siemensianer, having joined in 1980. He faces three tasks: to slim the company’s bureaucracy, fine-tune its portfolio and execute projects better. He has made a big start on the first and some progress on the second. The third will take the most time.
At times Siemens conforms to a German stereotype of valuing process at the expense of results. So, in May, Mr Kaeser began a reorganisation. Under his predecessor there were six layers of bureaucracy between the managing board and the project leader on a billion-dollar contract. Mr Kaeser is simplifying things by merging the group’s 16 divisions into nine, and removing an intermediate layer in which the divisions were grouped into four sectors. This will affect 11,600 jobs, though Mr Kaeser was annoyed when he announced this only for it to be reported that they would all be cut. He hopes to redeploy many of the workers concerned, though some will have to go—the reorganisation is part of a billion-dollar savings plan—and Mr Kaeser has yet to satisfy either nervous staff or impatient analysts by being more precise.
Siemens’s health-care business, which makes body scanners and other hospital equipment, will gain a special, mostly independent status. It is the most profitable of the four former sectors, but has the fewest synergies with the electrification-automation-digitisation chain. Mr Kaeser has raised the possibility of listing it separately. Andreas Willi of JPMorgan, a bank, thinks this a canny move, relieving Siemens of part of the “conglomerate discount” that markets impose on sprawling companies, but letting the company wait for the most profitable time to list it.
Train departures
Elsewhere in the portfolio, Mr Kaeser says frankly that almost €15 billion of Siemens’s revenues, about 18% of the total, come from businesses making no profits. The electricity-transmission side is struggling, but cannot be sold if Siemens is to be present in the whole electrification chain. The train rolling-stock business has also been under pressure; it seems more dispensable. Some strong businesses will go, too: airport logistics, parcel handling and hearing aids are doing well, but do not fit the vision.
In June Siemens (alongside Mitsubishi Heavy Industries of Japan) lost a contest with GE to buy parts of Alstom, a French rival in turbines and rail. Some analysts saw the offer as defensive, improvised and complex. But one says that Mr Kaeser assured him privately, “I know what I’m doing,” hinting that he did not necessarily want to win the deal. Partly because the Siemens-led alternative was on the table, GE had to make concessions, and ended up in a complex set of joint ventures, in some cases with the meddling French state as a partner. Asked about his motives, Mr Kaeser says: “At any given point in time in the process I was always focused on doing the best for Siemens—whatever that means,” allowing himself a grin.
Still, Siemens lost an opportunity to bulk up its turbines business by absorbing part of Alstom’s. So, how else might it now seek to grow? Mr Kaeser concedes that the company slept through the revolution in shale oil and gas. But a trimmer Siemens will have capital to spend on developing things like pumps for oil exploration and gas-liquefaction terminals. Mr Kaeser says that more gas turbines will be sold next year in North America than in the next ten years in Europe. So, surprising observers, he has hired an experienced but relatively little-known American, Lisa Davis, from Shell to run the revamped energy division, and has based her in Houston.
Trimming and adding are all well and good, but Siemens must also improve its operations. Here another German stereotype, of efficient execution, does not apply. The company is innovative (spending 5.7% of revenues on research and development, a figure GE’s industrial side has been striving to catch up with) but its poor execution of projects has been a millstone dragging down profitability. Whether in trains or offshore wind, expensive and embarrassingly public problems have resulted in a series of special charges, one of which was a €287m hit for failures in a transmission-grid project in Canada earlier this year. According to Ben Uglow of Morgan Stanley, another bank, Siemens’s contract losses, writedowns, restructuring and other charges have totalled $34.5 billion since 2001, knocking huge dents in profits (see chart).
Those familiar with the firm say that when problems have surfaced, engineers have been afraid to report them to the higher-ups, instead continuing to throw time and money at them. Some analysts believe the earlier bribery scandal made a once-entrepreneurial company more inclined to nervous, process-oriented box-ticking. Mr Kaeser says that he wants to turn that around, giving managers “ownership”, rewarding them for reporting problems early while punishing them for letting things get out of control. A fancy new database by SAP, another German technology firm, will give Siemens executives an instant look into almost any project the company is working on. Such transparency is necessary—but not sufficient.
Cultural change is needed if Mr Kaeser’s reorganisation and portfolio improvements are to do Siemens any good. The company is not in crisis, as he rightly said when he took over. But it could clearly do better. The problem is that what it most needs to do is the hardest for the boss to decree. The markets gave Mr Kaeser a nine-month honeymoon in the form of a rising share price after he became boss, but that is over. Now they are waiting to see whether he can make the company run as efficiently as the machines it makes.
(Source: The Economist)

China and Asia: Winners and losers in the great Chinese rebalancing

NEAR the centre of Sumatra, an Indonesian island once blanketed by forest, a gash in the ground reveals the wealth that lies just beneath its surface. Large yellow diggers prise out coal and tip it into 60-tonne lorries that huff their way to the top of the open-cast mine in Pauh subdistrict. Five years of constant traffic, propelled by China’s hunger for fuel, has formed deep ruts in the dirt road. Recently, however, the lorries have stopped moving at midday. China’s appetite for coal has plateaued, the coal price has sagged and Minemex, the firm that operates the mine, has given workers longer lunch breaks, without pay. “We have no choice. We must endure,” sighs Demak, a sun-weathered 38-year-old.
Enduring might seem an apt word for Asian economies that had come to rely on ever-stronger exports to China. After averaging 10% annual growth for 30 years, the Chinese economy has managed only 7.5% over the past two years—enviable for most countries but a clear downshift for China. The lull has rippled through the region. Taiwanese machine-tool makers have seen exports to China fall by more than 20% since 2012. Australian iron ore for delivery to China recently hit its lowest price in 21 months. Jewellery sales in Hong Kong have fallen by 40% this year, in part due to China’s crackdown on corruption.
These contrasting fortunes stem from profound, if gradual, changes to Chinese growth. Consumption is at last edging out investment as the economy’s main engine. Household consumption has been inching up of late as a proportion of GDP, rising from 34.9% in 2010 to 36.2% last year, according to official data. Some economists think the true share could be ten percentage points higher. This year even with the government’s “mini-stimulus”—a burst of spending on railways and public housing unveiled in April—consumption has still accounted for over half of Chinese growth.But enduring is not the right word for all those doing business with China. Analysts refer to milk as New Zealand’s “white gold”, such is China’s thirst for it. The number of Chinese visitors to Sri Lanka more than doubled in the first half of the year. Chinese women in their 30s are now the biggest group of foreign buyers on the website of Lotte, a big South Korean retailer, snapping up cosmetics.
Limited though it has been, this rebalancing is beginning to make itself felt beyond China’s borders. First, there is the question of what China buys. With $1.95 trillion in imports in 2013, it is the world’s second-biggest importing nation, behind only America (although almost half of those imports are parts that are assembled and re-exported). Taiwan is more exposed to China’s appetites than any other Asian economy, with sales to China constituting about 6% of its GDP (see chart). But many of its exports, such as mobile phones, are geared towards consumption rather than investment. These are still faring well: Taiwan’s export orders to China were up by 15% in June from a year earlier.
More at risk are those that mainly export commodities and capital goods such as heavy machinery to China. The most exposed is Australia, which could lose about 0.8 percentage points of growth if Chinese investment slows to a crawl, according to Capital Economics, a consulting firm. That has not yet happened, but the fading of Australia’s mining boom has sent unemployment to a decade-high of 6%, hinting at its vulnerability.
Even those countries that do not export much to China will feel the effects of its rebalancing via commodity markets. More tepid Chinese demand means lower prices for many raw materials: witness the nearly 50% fall in Indonesian coal prices since 2011. Compounding the impact of China’s slowdown are government measures to steer power companies away from the cheapest, most-polluting coal, like that found in Pauh. “You can’t make money mining that coal anymore unless you’re located next to the coastline where you can bring it to ships,” says Gatut Adisoma of the Indonesian Coal Mining Association.
But it is not all gloom for commodities. Metals that are used mainly in consumer goods, such as zinc, much of which goes into cars, are outpacing those tied to China’s old growth model such as iron ore, the precursor to all the steel in China’s vast housing developments. And the pain of commodity producers spells relief for their customers. Most Asian economies from South Korea to Thailand are big importers of metals and energy. If Narendra Modi, India’s prime minister, is to kick-start spending on infrastructure, weaker investment in China forms a propitious backdrop.
Across the Strait of Malacca from the coalmines of Pauh, Karex, a Malaysian firm that is the world’s biggest producer of condoms, has been boosted both by the shifting composition of China’s imports and by the resulting movement in commodity prices. Condom use tends to track consumption more broadly, growing along with urbanisation, income and education, as well as leisure time. Chinese condom imports almost tripled from 2007 to 2013, to 3.4m kg. Meanwhile, the price of their main ingredient, rubber, has nearly halved since 2011 thanks to plunging demand for supersized tyres from the mining and construction industries. As whirring glass tubes dip into latex baths, Goh Miah Kiat, Karex’s CEO, expresses optimism about China, currently just a tenth or so of its sales. “There’s a perception that imports are better than local products,” he says. From condoms to milk and cars, it is a bias that augurs well for countries that make what Chinese shoppers want to buy.
(Source: The Economist)

Chinese Internet: Unplugged and unproductive

AT FIRST glance it would appear that China has gone online, and gone digital, with great gusto. The spectacular rise of internet stars such as Alibaba, Tencent and JD would certainly suggest so. The country now has more smartphone users and households with internet access than any other. Its e-commerce industry, which turned over $300 billion last year, is the world’s biggest. The forthcoming stockmarket flotation of Alibaba may be the largest yet seen.
So it is perhaps surprising to hear it argued that much of Chinese business has still not plugged in to the internet and to related trends such as cloud computing and “big data” analysis; and therefore that these technologies’ biggest impact on the country’s economy is still to come. That is the conclusion of a report published on July 24th by the McKinsey Global Institute (MGI), a think-tank run by the eponymous consulting firm. It finds that only one-fifth of Chinese firms are using cloud-based data storage and processing power, for example, compared with three-fifths of American ones. Chinese businesses spend only 2% of their revenues on information technology, half the global average. Even the biggest, most prestigious state enterprises, such as Sinopec and PetroChina, two oil giants, are skimping on IT. Much of the benefit that the internet can bring in such areas as marketing, managing supply chains and collaborative research is passing such firms by, the people from McKinsey conclude.

The country’s labour productivity has increased by a quarter since 2010, but that was largely due to heavy capital spending that resulted from an unsustainable fiscal stimulus. In fact much of Chinese industry (save exporters, which by their nature must compete with efficient foreign rivals) is still inefficient, for a variety of reasons—not least bureaucracy, official meddling and the coddling of favoured firms with subsidies. The MGI report argues that a failure to get online and go digital is another big factor.
Although millions of Chinese businesses sell their products on Taobao, an online marketplace owned by Alibaba, vast numbers remain offline: only 20-25% of small firms in China are internet-connected, compared with 75% in America. This helps explain why the labour productivity of local small businesses is roughly two-thirds of the average for all firms in the country; the comparable figure in Britain is 90% and in Brazil it is 95%.
However, the upside to all this is that as Chinese firms of all sizes get themselves plugged in, as they are belatedly doing, there should be a burst of productivity gains, providing a sustained boost to GDP growth. The dwindling supply of cheap labour will be less of a worry for China, and its economy will be driven more by innovation and consumption. As the internet injects competition and price transparency, dominant firms will suffer an erosion of profit margins, forcing them to look to new technologies to restore their fortunes. In all, MGI predicts that “a great wave of disruption has just begun.”
In each part of Chinese industry there are marked differences between the most and least connected firms. Among carmakers, for example, some are using real-time data feeds to optimise their supply chains and transport, helping them turn over their stocks five times as quickly as the laggards. With 10m searches each day by potential car buyers on Baidu (a local equivalent to Google), there is much scope for cutting marketing and sales costs. Foreign carmakers such as Volkswagen are already selling cars directly to Chinese motorists on their websites and on Tmall, an e-commerce site. Building internet connectivity into the cars themselves, as GM has done with its OnStar service, means dealers can check faults remotely and send maintenance alerts to drivers, cutting costs and satisfying customers.
The digital revolution can help in several ways. Because publicly owned banks have directed credit to favoured state firms, bamboo capitalists have long been starved of capital. Now, though, Alibaba and Tencent are disrupting the market by offering microloans to businesses online. Their payment systems let even tiny firms become multinationals. Yougang Chen, one of the authors of the MGI report, predicts that the web will also help millions of small entrepreneurs across the country collaborate, producing a powerful network effect that boosts productivity.
The staid state
Could the internet also work wonders in the state-owned sector? China’s publicly owned businesses are typically its least efficient; the gap between their returns on assets and those of private firms has been widening. Recognising this, the government this month launched a modest reform effort, involving partial privatisation and minor corporate-governance reforms. CITIC, a rambling state conglomerate, recently injected the parent company’s Chinese businesses into a division listed in Hong Kong, hoping that by putting them under closer scrutiny by investors it will force them to shape up.
Such moves could prompt state firms to speed up their entry into the digital age. That said, many such half-hearted reforms have flopped over the past two decades, so scepticism is in order. And there is only so much that technology can do to enhance a firm’s efficiency if its management is dysfunctional. A study by EY, another consulting firm, asked managers in China what were the main obstacles to increasing productivity. The most common answers were not about a lack of technology, but were related to cultural barriers and incentives, such as “unclear accountability” and “overly centralised control from headquarters”. Nowhere are these problems more apparent than at publicly owned companies. For all Chinese business stands to gain from the internet, digitisation, cloud computing and big data, the state firms’ problems will not be fixed without bolder reforms.
(Source: The Economist)

Sanitation in India: The final frontier

CHEER any Indian leader who takes on the taboo of public hygiene, one of the country’s great problems. Narendra Modi, India’s prime minister, says building toilets is a priority over temples. His finance minister, Arun Jaitley, used this month’s budget to set a goal of ending defecating in the open by 2019. That will be 150 years since the birth of Mohandas Gandhi, who said good sanitation was more important than independence.
Ending open defecation would bring immense benefits. Some 130m households lack toilets. More than 72% of rural people relieve themselves behind bushes, in fields or by roadsides. The share is barely shrinking. Of the 1 billion people in the world who have no toilet, India accounts for nearly 600m.

A broader matter is public health. Open defecation is disastrous when practised by groups in close contact with each other. Because India’s population is huge, growing rapidly and densely settled, it is impossible even in rural areas to keep human faeces from crops, wells, food and children’s hands. Ingested bacteria and worms spread diseases, especially of the intestine. They cause enteropathy, a chronic illness that prevents the body from absorbing calories and nutrients. That helps to explain why, in spite of rising incomes and better diets, rates of child malnourishment in India do not improve faster. Unicef, the UN’s agency for children, estimates that nearly one-half of Indian children remain malnourished.The costs are high. Public safety is one underappreciated problem, as young women have to leave their rural homes after dark. In May two teenage girls in Uttar Pradesh visiting a field used as a communal toilet were raped, murdered and strung up from a tree. That case won notoriety for its extreme barbarity, but similar attacks are distressingly common.

Hundreds of thousands of them die from preventable conditions each year, especially in the north, which has most of the open defecation (see map). Faeces in groundwater spread diseases such as encephalitis, an annual post-monsoon scourge in eastern Uttar Pradesh. Diarrhoea leaves Indians’ bodies smaller on average than those of people in poorer countries where people eat fewer calories, notably in Africa. Underweight mothers produce stunted babies prone to sickness who may fail to develop to their full cognitive potential. Dean Spears, a Delhi-based economist, says the costs of all this, in incomes and taxes forfeited, are far greater than the price of fixing it.
How to do so? India fares worse on sanitation than a host of poorer places including Afghanistan, Burundi and Congo, partly because too many of its leaders are too squeamish to face up to the issue. Thankfully, that appears now to be changing. The government, gung-ho for infrastructure, has just said it will build 5.2m toilets by September, or one every second.
Pouring concrete will not in itself solve India’s problems. Leaders need also to confront the cultural reasons for bad sanitation. Hindu tradition, seen for example in the “Laws of Manu”, a Hindu text some 2,000 years old, encourages defecation in the open, far from home, to avoid ritual impurity. Caste division is another factor, as by tradition it was only the lowliest in society, “untouchables” (now Dalits), who cleared human waste. Many people, notably in the Hindu-dominated Gangetic plains, today still show a preference for going in the open—even if they have latrines at home.
Evidence is growing that India must urgently correct its cultural practices, though it is sensitive to say so. Studies of India’s population show how since at least the 1960s child mortality rates have consistently been higher in Hindu families than Muslim ones—though Muslims typically are poorer, less educated and have less access to clean water. Today, out of every 100 children, 1.7 more Muslim than Hindu ones survive to five years, a big gap.
Mr Spears and his colleagues argue that this can be explained only by differences in sanitation habits. A 2005 government survey, the most recent national one, found that 67% of all Hindu households, rural and urban, practised open defecation, compared with just 42% of Muslim ones. (In rare places where there is more open defecation among Muslims than Hindus, the mortality gap is reversed.)
A new household survey of nearly 23,000 north Indians offers more evidence, especially from Hindu households. Led by Diane Coffey, an economist at Princeton, it found that even among households with a working latrine, more than 40% reported that at least one family member preferred to defecate in the open. Those with a government-built toilet were especially likely to choose a bush instead.
In an unpublished parallel survey of Hindu-dominated villages in north India and Nepal, respondents lauded open defecation as wholesome, healthy and social. By contrast, latrines were seen as potentially impure, especially if near the home. Men often described them as for use only by women, the infirm and the elderly. In short, demand for latrines is constrained.
This suggests that the mere availability of government-built latrines will not end open defecation for decades yet. What is needed instead are public campaigns, in schools and in the media, to explain the health and economic benefits of using toilets and of better hygiene. Researchers found that only a quarter of rural householders understood that washing hands helps prevent diarrhoea.
Such campaigns not only mean government-built latrines have a better chance of being used; they would also encourage households to build them for themselves. Precisely how to raise awareness about a touchy subject is not clear, but some at least are trying. A catchy animated music video put out by Unicef urges Indians to “take the poo to the loo”. The intention is right, even if the dancing turds will not immediately be to everyone’s taste.
(Source: The Economist)

The American economy: America’s lost oomph

BACK in the mid-1990s, America’s economic prospects suddenly brightened. Productivity soared. Immigrants and foreign capital flocked to take advantage of what was quickly dubbed the “New Economy”. The jobless rate fell to 4%, yet inflation remained low. All this led economists to conclude that America’s potential rate of growth—the speed at which the economy can expand while keeping unemployment steady and inflation stable—had risen sharply from its decades-long average of 3%, to 3.5% or even higher.
Sadly, the New Economy is no more. The recovery from the recession of 2008-09 has been the weakest of the post-war era, and evidence is mounting that America’s potential growth rate has plummeted. Its two big determinants, the supply of workers and the rise in their productivity, have both fallen short. Performance in the past year has been particularly feeble: America’s labour force has not grown at all and output per hour worked has fallen. The IMF recently cut its estimate of the country’s potential rate of growth to 2%. Other economists put it as low as 1.75% (see article).

So far, the slide in potential has had little practical impact. Because the recession was so deep and the recovery so weak, the economy is still operating below its capacity. But in the long term a halving of the economic speed limit would have grim consequences. Living standards would rise more slowly, tax revenues would be lower and the burden of paying today’s debts heavier.
Solving the short-term problem means boosting demand, so the Federal Reserve should keep interest rates low. But to pep up long-term growth, America also needs to address the supply side. In particular, it needs more workers and faster increases in productivity.
The not-so-mysterious case of the disappearing worker
The number of working-age Americans rose by an average of 1.2% a year in the 1990s, and by a mere 0.4% in 2013. The proportion of them actually in the workforce has fallen from over 67% to less than 63%. The recession is partly to blame, because after years of joblessness some people have given up looking for work. That is one reason why boosting the recovery is important. The ageing of the baby-boomers is another reason. The number of people in their late 50s (when participation in the workforce starts to drop) and older is rising fast.
Both these vulnerabilities are exacerbated by a self-inflicted problem: policies that depress the supply of workers. Most damaging is America’s broken immigration system. Getting into the country has become much more difficult. The number of visas issued today for highly skilled people is a fraction of what it was in the 1990s, even as the number of unfilled vacancies for skilled workers soars. Deportations have surged and the southern border has become far harder to cross.
Obamacare, though good in other respects, tends to shrink the labour force because it helps people get health care without working. There is less to be said for the outdated social safety net, which manages both to be stingy and to discourage work. America spends a smaller proportion of its GDP than other rich countries on retraining the jobless and helping them find work. It has not raised the retirement age and it has allowed its disability-insurance system to become an ersatz welfare scheme. The number of workers on disability, hardly any of whom will work again, has doubled since 1997 to 9m. For once, Europe could teach America some labour-market lessons: thanks to welfare reforms, the proportion of Europeans in the workforce is now rising.
The mystery of the slump in productivity
In the long run, the most powerful way to boost growth is for workers to become more productive, as they did in the 1990s. But raising productivity is hard, and the recent slump puzzling. Innovation drives productivity growth, and a dizzying array of new developments, from “big data” to the “internet of things”, suggests that innovation is speeding up. Yet the growth in the average worker’s output per hour was slowing before the 2007 crisis and has fallen further since.
That may change, because it takes a while for firms to react to disruptive technologies. Computers started to spread in the 1980s but their impact did not show up in the data for more than a decade. The latest surge in innovation will also take a few years to translate into higher output per hour. The slow recovery from the recession may have lengthened this delay, by deterring many firms from investing in information technology. But here, too, politicians have made matters worse.
There is much America’s government could do to boost investment. It could, for instance, increase public spending on infrastructure. It could reduce the sky-high corporate tax rate which encourages firms—such as AbbVie, which is proposing to shift its base to Britain by buying Shire (see article)—to move abroad rather than invest at home. And it could start cutting the endless sprawl of job-destroying regulations that companies say is a worse problem even than taxes. It is doing none of these things.
The impact of a supply-side revolution, with immigration reform, an overhaul of disability and training schemes, infrastructure investment, deregulation and corporate-tax reform all high on the agenda would be gradual. But even the prospect would strengthen the recovery, by encouraging investment and deterring the Fed from raising interest rates too soon.
Thoughtful politicians have produced schemes for radical change in almost all of these areas, but their plans—like so much else—have fallen victim to America’s polarised politics. The Republicans stand in the way of loosening immigration rules, while Democrats fear that supply-side reforms are a plot to hurt the average Joe. Both sides hoover up cash from special interests keen to keep anticompetitive regulations in place. Barack Obama, the least business-friendly president for decades, has devoted far too little attention to the problem. So the odds rise that America’s economy will continue to lumber along at an underwhelming pace, and Americans will have no one to blame but their leaders.
(Source: The Economist)