Anybody who comes on television says ‘there is a huge demand for infrastructure, so invest in infrastructure’ -brilliant argument, completely wrong.

Experts, if you have forgotten your basic Economics, here is the answer:

Demand = Need for a product + Ability to pay+ Willingness to pay.

Let us look at another product: Pensions.

Who needs it? All of us – above or below the poverty line. So invest in a company selling pension funds! Correct? Complete bull. UTI and Templeton have a pension plan – and they cannot sell. All insurance companies have pension plans…and they cannot sell (some people buy, but that is because the commissions are attractive for the sales man)….

So go to the basics. India needs infrastructure. Till we learn to pay for it, and pay a fair price for it, it is only ‘need’.

Look at education. There is ‘need’ and there is willingness (parents, albeit!) to pay for a MBA…so it is a Rs. 40,000 crore industry. So is there need for infra? yes. Is there need that all buildings over the age of 30 are demolished and rebuilt so that our cities look good? Yes. Is there need for more trains? Yes

Is there demand? NO. Not at fair prices (the provider has to make money after paying salaries, rent, interest, …etc.). Same as pensions.

So infra may not be a great investment……and why mutual funds and insurance companies will NOT MAKE MONEY for another 20 years HONESTLY selling pension schemes.

 

Related Articles:

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

  1. small note of dissent. People are paying.Take all the tolls around Mumbai and the expressway. Thats enough to make a decent profit PROVIDED total vehicles are not under declared by fudging so that cash can be siphoned off. So there is demand and an ability to pay REASONABLE cost with a small profit but not SUPER PROFIT to line the pockets of politicians.Same for railways – at least in Mumbai. If we can legislate and make MRVC the sole authority it will not only be profitable but we can also have AC trains for local commute.road, Airport – everywhere.

  2. this is like saying PSU is a good concept if the Babus are honest. LOL. In a country which has engineers who have created toll systems for the whole world, why is MUMBAI and GURGAON struggling with cash? Why not chips that will allow cars to zip through? To fudge. Simple aint it? The Bandra Sea Link can NEVER be profitable – given the cost over runs!

    EVEN if people pay, Infra cannot be profitable for a long period of time…so the shareholder will not make money. Look at the shareholders of GMR, GVK, ETC….it will be a long wait for the promoters..so a super long wait for the shareholders, if at all.

  3. dont know how relevant it is to this particular post, but PSU generically cannot be bad. At least in the segment I deal with, quite often PSUs tend to be far more sensible than private players. So private players use clout with regulators and government and take away PSU strengths leaving them to rot and fold up. Air India is a good example.

    As for Babus being honest here is a practical example. A PSU has entered international arena and from scratch to No.2 has been done in just 4 years. Now the profits are estimated at USD 50 million gross. The CEO is paid approx USD 25,000 annually. Half the performance in a private player would have earned him million dollar bonuses. what should be do? there must be plenty such stories with PSUs in other segments.

    Methinks ownership is not relevant if operations are run at arms’s length like Singapore Airlines.

  4. The problem with PSU’s is they pay lavishly in good times to their employees & they can’t roll back these things in bad times (empoloyees wont allow this). BSNL & AIR India are gud examples for these. BSNL pays half of its revenues as salaries., even the so called high paying IT companies too pay only 40% of revenues as salaries.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes:

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>