Education in India at the crossroads

The debate

Roughly one decade ago, there was a strong debate in India about how we should tackle the problem of education. There were two

On one side were those who felt that nothing was fundamentally wrong; all that was needed was more money. So we should just continue building more government schools and hiring more civil servants to act as school teachers, and we’ll be fine.
On the other side were the reformers, who argued that the basic incentives in Indian education were wrong. Putting more money down a dysfunctional system was pointless.

The Intensifiers won this debate. An informal coalition of educationists (i.e. the incumbent education system) and leftists came
together, supported by the World Bank, which pushed for mere enlargement of Indian education, without questioning the foundations.

All of us are involved in this story at many levels. At the simplest, we are the customers of the education establishment. We pay income tax and VAT and a few other taxes. On top of this, we pay the 2% education cess. In return for this, we get certain educational
services. These influence our kids, and they influence all the young people that we encounter in this young country. Trillions of rupees have been spent, and more than a decade has gone by. It is time to assess the performance of this strategy.

Three blocks of evidence are now visible, which tell us that the Intensifiers were wrong. The old strategy, which was invigorated by a
vast rise in spending, was the wrong one.

Evidence #1: OECD PISA results for India

This story is well told in a recent blog post by Lant Pritchett. Bottom line: The first internationally comparable measurement of what children learn has been done. The sample correctly includes urban and rural children; it correctly includes children going to private or public schools; there are no first order mistakes in what was done. It tells us that Indian education policy has failed miserably: the results have come out at the bottom of the world.

Evidence #2: ASER 2011 results

Pratham has been running surveys which measure characteristics of children and schools in rural India (only). Their latest survey results, for 2011 show the following facts.First, rural kids learn less at public school. Here’s a simple example of what the evidence shows. Surveyors ask kids in class III to recognise numbers upto 100. Here are the numbers, for the proportion of kids in class III who cannot recognise numbers upto 100:

In 2008, the failure rate with private schools was roughly 17 per cent. Government schools were much worse at over 30 per cent. A short three years later, conditions had deteriorated sharply in government schools. The failure rate had gone up to 40 per cent. Private schools had also worsened slightly, to a failure rate of 20 per cent. By 2011, a big gap had opened up between the two: private schools are failing to teach 20 per cent of the kids while government schools are failing with a full 40 per cent of their kids.

Parents in India face the choice between sending their children to a government school, which is free and serves a mid-day meal, versus sending them to a private school where they pay fees. Yet, an increasing fraction of parents choose to send their children to a private school, paying tuition fees from their own pockets, while government schools are free. The relationship between a parent and a private school is a transaction between consenting adults. The relationship between a parent and a government school involves all of us, because we are paying for it.

Given the low income of parents in India, their use of private schools is a striking indictment of what the Intensifiers have wrought:

At class II, the fraction of rural children in private school went up from 19 per cent (2007) to 23 per cent (2011). At class VII, this
rose more slowly to levels slightly above 20 per cent.

Evidence #3: CMIE household survey

CMIE has data for the year ended March 2011 about the behaviour of 169,492 households, about their expenditure on school/college fees and tuition fees. Here’s the picture for the quarter ended September 2011; all values as percent of overall expenditure:

Income class School/college fees Private tuition fees
Rich – I 4.79 0.66
Rich – II 3.79 0.51
High Middle Income – I 3.54 0.63
High Middle Income – II 3.12 0.65
High Middle Income – III 2.44 0.68
Middle Income – I 1.93 0.59
Middle Income – II 1.62 0.45
Lower Middle Income – I 1.38 0.49
Lower Middle Income – II 1.05 0.60
Poor – I 0.76 0.58
Poor – II 1.13 0.28
Overall 2.10 0.57

If parents chose to stay within public sector schools, their expenditure on fees would have been zero. The table shows that across
all income groups of India, there is movement towards private provision of education, both by paying fees at schools and by paying
for private tuition classes. These two elements add up to 2.67 per cent of overall expenses of households. (The CMIE household survey separately measures expenses on books, journals, stationary, additional professional education, education overseas, hobby classes and other education expenses. This helps us gain confidence in the extent to which the two fields in the table above narrowly pin down the feature of interest).

These decisions of well intentioned parents are the strongest indictment of education policy in India. The product being given out
by the Intensifiers is such a terrible one, the parents of India are walking away from it even though it is free and the alternative is
not and the parents are poor.


For more than a decade, the Intensifiers have controlled Indian education policy. They have said: Leave education to the education
establishment, do nothing radical, just give us more money, we will deliver results
. Now we know that they were wrong. They took the money, but failed to deliver the results.

Kapil Sibal has said that his ministry should not be held responsible for the stream of bad news that is coming out. This seems to me to be dodging accountability. His ministry is responsible for Sarva Shiksha Abhiyaan, for the Right To Education Act, for blocking OECD PISA from being done in India, etc. The bureaucratic consensus of his ministry represents the education establishment.

This brings us to accountability. If a contractor took money from you, and failed to deliver on building your house, you would sack
him. (You would also take him to court, to recover the money that was paid to him, for services not delivered). In similar fashion,
education is too important to be left to the educationists. We need to start over.

What is to be done

  • We need to start over in the field of education, with a fresh management team, one that is not a part of the status quo, one that is rooted in the worlds of incentives, public policy and public administration.
  • The flow of public money into the status quo needs to go down sharply. There is no reason to put money into something that fails to deliver the goods. First we must prove that a mechanism delivers results, and only after that should we put money into
    it. This is the common sense that a housewife would apply. She would not spent gigabucks on promises from people who have failed to deliver.
  • OECD PISA measurement needs to take place every year at every district.
  • The education cess was always a mistake and needs to go. Public expenditures on education should always have come out of general tax revenues; there is no need to have a cess.
  • Civil servant teachers, who have tenured (permanent) have no incentive to teach well, regardless of their qualifications or high income. We can’t sack them, but what we need to do on a massive scale is to stop recruiting them. The existing stock can be reallocated to other civil servant functions where staff is in short supply. Through this, it would become possible to whittle away at the accumulated stock over the coming 20 years.

'Mania' in Junior Mining Stocks Predicted: Fayyaz Alimohamed

Fayyaz  Alimohamed Fayyaz Alimohamed, CEO of Altair Ventures Inc. and publisher of the Acamar Journal, offers historical perspective and predictions on the global economic crisis. In this exclusive Gold Report interview, he foresees a “mania” in junior mining stocks and recommends holding physical gold outside the banking system as a safety net.

The Gold Report: Fayyaz, in June 2008, using readily available economic data, you wrote that the global economy was on the verge of financial collapse. What do those sources tell you about where the global economy is headed today?

Fayyaz Alimohamed: In November 2006, I predicted that the U.S. was headed into a recession. Seven months later, the Bear Stearns funds cracked, beginning the crisis. By June 2008 it was obvious to me that the crisis would escalate into a crash.

Today, the U.S. cannot meet its gargantuan future unfunded liabilities. Europe and Japan face debt levels that ensure eventual sovereign debt defaults and declining standards of living. There is potential for all of this unwinding to seriously affect an entire generation.

These economies cannot grow their way out of their problems and the cuts needed to balance budgets would create massive social turmoil because the cuts themselves would lead to sharp drops in gross domestic product, creating vicious negative spirals. The current solution being utilized is more debt and quantitative easing. That can only keep things afloat until it can’t anymore. I would say that we will have the next major crisis within the next two years.

TGR: I would like to flesh that out a bit. What do you believe will trigger the next crisis?

FA: Genuine reform has not been implemented. This crisis was caused by unprecedented levels of consumer and corporate debt and Wall Street greed. When the crisis happened, government rescued distressed debt by massively increasing its own debt. For example, the Federal Reserve and the European Central Bank are using their balance sheets at about a 30:1 leverage. This is the same sort of leverage that Wall Street banks had recklessly indulged in. When government debt was substituted for corporate and consumer debt, the whole system rolled over into a much more dangerous phase.

TGR: Do you think the European debt crisis will remain the dominant theme in 2012 or will other themes take center stage?

FA: The European crisis is simply a proxy for a global debt crisis. It happens to be focused on Europe because Germany has not been as eager as the Federal Reserve to print money. Germany remembers the hyperinflation of 1924, when unbridled money creation led to prices doubling every two days.

Today, governments have a preponderant influence on the economy, while large corporations, through lobbying, have inordinate influence over the government, to the detriment of other stakeholders. As the danger of a deflationary depression increases, governments are attempting to reinflate the economy; they may well overreach and create hyperinflation.

Thus, the broadest theme by far is debt and the reaction to debt. We just saw France’s debt downgraded and a negative watch put on the European Financial Stability Facility. This negative spiral will continue. Even though the U.S. has tepid signs of economic growth, it is at the cost of enormous amounts of stimulus being put into the economy.

Given that the U.S. and Europe are its two largest export markets, China also is headed for a hard landing unless it can increase internal consumption substantially.

TGR: Much of the discussion of the European crisis has centered on Greece. But a recent auction of six-month Italian bonds was priced at an interest rate of 6.5%—the highest rate of a bond auction since Italy joined the Eurozone 13 years ago. What do you make of that?

FA: In literature, readers are invited to enter into a “suspension of disbelief” to go along with the story, even if implausible. Before the 2008 crisis, that was the mindset of investors. Now they want to believe that governments can solve these problems.

Greece was not the primary cause of the European crisis. It was caused by German, French and U.S. banks. These banks are all insolvent if they were to mark their assets to market and not to theoretical models. But, we are suspending disbelief because we all have skin in the game and need things to work out.

The drive for austerity ensures that Portugal, Ireland, Italy, Greece and Spain (PIIGS) will continue to see their economies shrink, leading to lower tax revenues and the continued inability to meet budget targets, which will require larger debt relief. It is a vicious downward spiral that will lead to declining standards of living.

Greece, Portugal and Ireland would be much better off leaving the EU, defaulting on their debts and devaluing their currencies. That is a time-honored tradition. After some pain things will work out, as they did in Argentina and Russia in the 1990s.

Investors want to believe that heavily indebted countries can solve the problems of other heavily indebted countries; that an insolvent banking system can be rescued by governments through more debt issuance and debt monetization.

TGR: The European Central Bank has floated the idea of euro bonds, backed by all 17 members of the Eurozone, as a solution to this problem. But Germany does not want to go down that path unless the indebted countries adopt more severe austerity measures. Do you think we’ll ever see euro bonds?

FA: We are really into the realm of absurdity. For example, the European Financial Stability Facility is a private company authorized to borrow €450 billion (B) from the private sector backed by a guarantee from all the EU members who are already heavily in debt and being downgraded periodically. One proposal I saw was that it would use the €440B of debt as collateral to borrow another €1–2 trillion of debt to lend to the PIIGS!

Can this type of thinking ever end well?

As Europe enters a recession, the problems will only get worse. Euro bonds issued by indebted countries just mean France and Germany are putting their own balance sheets at risk. It may provide time, but it does not solve the problem. The question is, should they bailout the PIIGS or take the same money and bailout their own banks? There are no good solutions.

A final thought on yields: when I studied economics we were taught that U.S. Treasuries were the risk-free asset to be used as an absolute benchmark. Given the recent downgrade and outlook, perhaps the economics profession should start looking for another risk-free benchmark, just as the U.S. dollar replaced the pound sterling.

TGR: Given all of this, how are you protecting yourself?

FA: One of the primary measures of protection is a healthy cash balance. You have to be in a position where you are able to ride out any crisis and also to take advantage of valuations in case of a crisis. If the crisis is as bad as I think it will be, you will be able to find and acquire assets at generationally low prices.

The other way to protect yourself is to invest in precious metals. I believe precious metals will do well whether we continue to stagnate or actually see another crisis. I think silver and gold equities will do very well in the long run.

TGR: Investors have been seeking greater security for at least seven months. How long do you think that risk-off sentiment will last?

FA: Brian, U.S. domestic stock funds have seen net redemptions for five straight years. Due to negative real interest rates, equities are undervalued in historical terms. This is tempered by the dangerous, rising systematic risk. Fund managers are paid to perform or else they face redemptions. So, the bias is for stocks to rally as we are seeing now, unless the second phase of the crisis clearly emerges, which in my opinion is inevitable.

Ironically, in another crisis, governments will likely turn to quantitative easing with a vengeance, which means that, despite a crisis in sovereign debt, we will see a substantial rally in commodities, particularly gold and equities, as substantial sums of newly created money finds its way into the system and money leaves the bond markets. You may find prices rising while the economy is being undermined.

TGR: Fayyaz, your background is in insurance and finance, how did you find your way into the gold and silver space?

FA: From 2001 onward, I realized that the U.S. seemed to lack the political will to deal with its increasing levels of budget and trade deficits. In fact, the Fed was creating asset bubbles that were bound to end badly. At the same time, I knew from history that fiat money generally ends badly, starting with Kublai Khan. I came to anticipate the decline of the U.S. dollar and the rise of gold. I believe that the price of gold will be much higher in the coming years and that gold will become part of the monetary system in some capacity.

Gold is interesting in another way. Throughout history booms have been localized geographically. As an example, the average Canadian investor is unlikely to invest in, say, Argentinian real estate or in its stock market even if they are booming. The Internet bubble was the first time that a global audience became aware of an asset category that was rising dramatically, ironically thanks to the Internet itself. But you could not participate unless you had a U.S. brokerage account. Gold is the first truly global asset boom that investors at all levels can participate in. Today investors are more savvy and more heavily invested across markets and categories but gold is fundamentally money and all investors and savers can buy it. Local yet global.

TGR: Investors also have different tools.

FA: That’s right. They can do a lot of research. They have a lot more liquidity. The potential impact on the market for gold as an asset class is phenomenal. It appeals to all levels of investors. Someone buying a few grams of gold in China creates demand that directly helps the value of your gold holdings. I mean, how many people sleep with a barrel of oil tucked under their mattress?

TGR: Not if you could help it.

FA: Historically, gold and silver equities leveraged the returns on gold. In 2011, mining companies were producing gold at an average cash cost just under $600/ounce (oz) and were getting about $1,600/oz in revenue. Cash flows are very impressive and price earnings are healthy. Mining companies continue to buy juniors with good assets, especially at these low share-price values. I moved into the sector to take advantage of this bull market in gold. And, I believe we will see a mania in junior mining stocks before this is over.

TGR: And, when will that be?

FA: I think we will see this happen within the next two years as people begin to realize that solutions to the global economic situation are not forthcoming. There will be more and more nervousness and gold will find a larger and larger audience.

We now have a situation where central banks, which were net sellers of gold for 20 years, became net buyers in 2009 and are accelerating their buying programs. We are seeing tremendous support for gold from central banks, institutional and retail investors across the world.

TGR: Do you have positions in any gold and silver juniors?

FA: Yes, one is Colombia Crest Gold Corp. (CLB:TSX.V; EAT:FSE). This company has a huge land package in a prolific gold belt, surrounded by several large deposits including Sunward Resources Ltd.’s (SWD:TSX.V) 8 Moz Titiribi project. IAMGOLD Corp (IMG:TSX: IAG:NYSE) took a 19.9% stake in October 2011, which validates Colombia Crest’s exploration program. With many large, prolific gold targets, the company will commence a 5,000m drill program next month. It also has a high-grade gold resource in Bolivia, a $25 million (M) market cap and $6M in cash. There is good upside potential as the company gets decent drill results.

TGR: Is there one project that will attract notice to Colombia Crest Gold?

FA: It has two projects in Colombia called Venecia and Fredonia.

TGR: And are they underground mine systems or bulk tonnage targets?

FA: I think Colombia Crest has a number of prolific targets. Some will be potential heap leachable targets and others are underground and, therefore, higher grade. So, the company has a dual approach in the Antioquia Province.

TGR: As far as management goes, are there people onboard that you are confident in?

FA: I mostly talk to Hans Rasmussen, the president and CEO. He strikes me as being very focused. He is a geologist and geophysicist and has worked with a number of senior companies. He was brought in by a group of investors to sort out various issues and he created the opportunity in Colombia. Rasmussen is the kind of person that you can have confidence in.

TGR: Do you have another junior name?

FA: I would also mention Coral Gold Resources Ltd. (CLH:TSX.V) with a 3.4 million ounce (Moz) Inferred resource. Its Robertson property in Nevada sits adjacent to Barrick Gold Corp.’s (ABX:TSX; ABX:NYSE) 14 Moz Cortez Pipeline mine, which produces gold at a cash cost of $312/oz. The preliminary economic assessment just came out, showing a net present value at a 5% discount at $1,500/oz gold of $147M for just three of its multiple zones. Its market cap is about $15M. Coral is a natural takeover target. I believe there is good value here for a patient investor.

TGR: Coral has not put out any news since February 2011. The lack of news for almost a year has done nothing but erode shareholder confidence. What is the problem?

FA: From what I understand, unlike nearby exploration companies, Coral has had its mine for a couple of decades and is a past producer. The company was given some very rigorous regulatory environmental conditions to meet regarding migratory patterns of birds and insects and such. Coral had to study these for a given period of time, which delayed its drilling permit. I think that situation is now on the verge of being resolved.

If that happens, Coral has the cash and is ready to drill. You should see movement in terms of activity and, potentially, share price appreciation.

TGR: Let’s move to silver. Great Panther Silver Ltd. (GPR:TSX; GPL:NYSE.A) is led by Bob Archer, a real veteran. The company is producing from its Guanajuato mine in Mexico. In 2012, the company plans to produce 1.72 Moz silver, up from 1.5 Moz last year. It also expects to produce 10–11 thousand ounces (Koz) gold, up from 7.8 Koz in 2011. That news, although good, was not met with much enthusiasm from the market. What are your thoughts?

FA: I think a 20% year-over-year increase is very healthy for any producer. The company’s profit margins are excellent. It has a 30% net margin for the year to date. So, it should generate very decent cash flows going forward. Great Panther has $40M in the bank. It is growing the resource at the San Ignacio project, is looking for acquisitions and it is mining a recently discovered high-grade zone in Cata.

Overall, the junior sector has stagnated over the last few months and I think Great Panther has just been part of that process.

TGR: What are your thoughts on what Bob Archer has done there?

FA: I think Bob has delivered tremendous value for shareholders. He is very competent and is a man of integrity. I think his share price is closely linked to the price of silver, which is generally true for most silver producers. Guanajuato has a rich history. It was mined by the Spaniards and has been in production for 400 years. It was once considered the richest silver mine in the world. Bob has taken it from when silver was down to $4/oz, resurrected it, capitalized it, built out infrastructure and delivered tremendous value.

TGR: In your time in this space, what have you learned that the average retail investor ought to know?

FA: This is a very volatile sector, subject to investors jumping in when there is a bullish trend and a lot of enthusiasm, and those same investors not wanting any part of equities when there’s a pullback in prices.

Given the overall increase in volatility in the markets, investors really should take a look at gold and silver. If they are bullish, any pullbacks in the commodity prices or in the associated equities should be seen as buying opportunities. When there is a lot of enthusiasm, it should be seen as creating selling opportunities.

You also have to have physical gold and silver in your possession. We learned a lesson with MF Global. We saw $1B of segregated funds in clients’ accounts vanish. My understanding is that some of those funds were comingled and used to settle MF Global’s liabilities to other financial institutions. There is this whole issue of counter-party risk, which gold does not have. That should be a cautionary reminder to people. You need to have physical cash balances. You need to have physical gold and silver outside of the banking system as a safety net because, as Warren Buffet said, we are in uncharted waters now.

TGR: You grew up in Pakistan, where gold is part of the culture, given as gifts at weddings and such. Do you think you would have that same opinion about physical gold as a personal asset if you had grown up somewhere else?

FA: Not in my case. I had no involvement or affinity with gold. I was a finance professional. My involvement with the gold sector is purely intellectually driven, from looking at trends within the macro economy and realizing that gold and silver really are hedges against turmoil and currency debasement.

But that is a very good question and it points up the importance of watching out for biases in the commentaries that you read. People have vested interests and they do tend to have agendas, both in the mainstream media and elsewhere. For your own protection, you need to be sensitive to those influences and to study track records at key inflection points before relying on other people’s judgment.

TGR: Fayyaz, thank you for your time and your insights.

Fayyaz Alimohamed is president, CEO and director of Altair Ventures Inc. and publisher of the Acamar Journal. He has over 20 years of experience in investment management, finance and consultancy. He previously worked at the Aga Khan University Hospital, Financial and Management Services Ltd. (a management consultancy set up by Morgan Grenfell & Co. Ltd. and Booz Allen Hamilton Inc.) and as the chief financial officer of the Key Capital Group before becoming director of investments for the Cupola Group, a large operating and investment conglomerate based in Dubai. He holds a Bachelor of Science (Honors) degree in economics from the London School of Economics, University of London, and is a Certified General Accountant (CGA).


It’s like the county is giving me programming homework.

OK.  All ‘new’ assessment values for City of Pittsburgh commerical parcels are in a comma delimited file online here. Just two fields, Block and lot number (one field) and the 2012 assessment.  Scraped with this program if you are interested.

So the top 10 new commercial vauations in the city that I come up with are….

500 Grant St. $242 million
Rivers Casino $242 million
1 PPG Place $238 million
600 Grant St. (aka Steel Tower) $233 Million
301 Grant St. $167 million
1001 Liberty $149 million
500 Ross St. $102 million
210 6th St. $98 million
401 Liberty $93 million
625 Liberty $92 million

So yes, I am sure they will all appeal and some may be overassessed.  But it begs some questions on others.  Look at the Steel Building (or Steel Tower or 600 Grant St. or whatever its moniker is these days).  $233 million dollar assessment, but it is reported to have sold for $250 million last year all while it paid no real estate transfer tax on the deal.  In past years the City of School District might have appealed against the assessment, but I suspect the political climate precludes that happening this year.   This is speculation, but that steel building sale may be setting the market in the valuations.

Likewise the casino valuation will be appealed (again?), but realize that since it’s base year assessment value set all sort of things have happened.  The law changed allowing them to engage in the much more profitable table games was enacted and in a sense that would impact what the property is worth.  For an establishment reportedly set up with $800 million in investment, you think it might be worth a third of that in the assessment valuation?

I have an idea..  they would need to change some laws for this to happen, but for anyone really balking at their assessment valuation then the fallback could be to use replacement cost.

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Economic Events on January 26, 2012

At 8:30 AM Eastern time, the U.S. government will release its weekly Jobless Claims report. The consensus is that there were 370,000 new jobless claims last week, which would would be 18,000 more than the previous week.

At 8:30 AM Eastern time, the Durable Goods Orders report for December will be released. The consensus is that there was an increase of 2.2% from the previous month.

At 9:45 AM Eastern time, the weekly Bloomberg Consumer Comfort Index will be released, providing an update on Americans’ views of the U.S. economy, their personal finances and the buying climate.

At 10:00 AM Eastern time, the New Home Sales report for January will be released. The consensus is that 320,000 new homes were sold last month, which would be 5,000 more than the prior month.

Also at 10:00 AM Eastern time, the Leading Indicators for December will be released, and the consensus is that there was an increase of 0.7% from the previous month.

At 10:30 AM Eastern time, the weekly Energy Information Administration Natural Gas Report will be released, giving an update on natural gas inventories in the United States.

At 4:30 PM Eastern time, the Federal Reserve will release its Money Supply report, showing the amount of liquidity available in the U.S. economy.

Also at 4:30 PM Eastern time, the Federal Reserve will release its Balance Sheet report, showing the amount of liquidity the Fed has injected into the economy by adding or removing reserves.