Monday, February 28, 2011

Pranab makes bold moves. Gets 8/10 from me!

Here’s the best part of the budget. If all goes to plan on the revenue side (basically if we grow 9%), we will be a $2 trillion economy next year! We’ll be breathing down the necks of UK and France. In just 4 short years, we would have doubled our GDP in $ terms! The world order is surely changing! No wonder the world is taking note of India.

There is a lot that you must have ready already in the papers about the budget. I don’t intend to get into the details here. I only want to highlight a few very bold moves and a few very exciting possibilities emerging in India in this post of mine:

1)      Growth oriented budget: By not rolling back the excise cuts that he announced in 2008, Pranab Mukherjee surprised all and won the wholesome support of all in industryl. India Inc’s CEOs are raving about the budget because the message is very clear. The government is not going to let go of the growth momentum. Lower excise duties will keep inflation in check in addition to boosting industrial growth. Further, even Service Tax has not been increased from the present 10%. Additionally, by reducing effective corporate tax rate by nearly 1%, the corporate sector should make more margins leading to higher investments. Clearly, this is the path that Pranab wants to follow since it removes many ills at the same time. It controls inflation; lowers fiscal deficit numbers; boosts job creation and raises income levels!
2)      Government is serious about cutting spends: This is what you rarely see in government and that’s why I call it a bold move. Expenditure is budgeted to rise by only 3.4%. That’s lower than even the inflation estimate of 5% and has caused many to think that it’s unachievable. It appears to me that this tightening represents a serious effort at improving execution efficiency. Departments that perform well will get more resources down the year. So NREGA hasn’t got an increase in the budget, but there is a commitment to increase if funds are used well. Likewise, by transferring funds directly into the hands of people, the corruption that exists in the Public Distribution System (PDS) will be cut drastically; thus improving government finances.
3)      Unique Identity Card: This is a game changer. Essentially here’s what happens as a result of this. Suppose you are a BPL (Below Poverty Line) family and the government has given you a ration card which entitles you to get some quantity of kerosene at cheap rates. Now, what happens in reality is that the ration shop refuses to give you the kerosene and diverts the fuel into the open market and makes illegal profit. Or maybe you don’t even go to the ration shop to claim your entitlement. You can’t do much because you are anyways a pretty dis-empowered citizen. So the government pays but you don’t get the benefit. Now, the government will simply transfer cash into your hands....which no one can take away from you. The ration shop’s corruption is cut. And here’s the best part. To take care of all the people, the government still spends less. This is a huge change. If all citizens in India could have a UIC, benefits could flow directly to the intended people and corruption could be weeded out. It’s said that by Oct 2011, we will be able to issue 10 lac UIC a day. Wow! This had to be championed by a private sector doyen.....Nandan one in government could have done this!
4)      Cutting fiscal deficit: By keeping a tight control on costs, and on the back of higher tax revenues on account of the 9% growth, Pranab Mukherjee has been able to set a relatively low number of 4.6% of GDP as the target for fiscal deficit for the year. This is a huge move.....and has been received very well by the stock markets.....a lower fiscal deficit means that the government will borrow at the same level as last year (while bank credit would increase by 20% or so as it does every year)....thus making more monies available to the corporate sector. If the fiscal deficit was higher, the government would crowd out private players in the credit market. This should provide some relief to interest rates; helping the corporate sector.
5)      Funds flow: By doubling the limit for foreign debt funds to invest in India, the government is making sure that financial resources are available in ample supply. Likewise, foreign individuals can invest directly into Indian mutual funds (in the past, they had to route it thru FIIs which would invest in several countries). Now Indian MF funds can raise monies directly abroad. Pranab has suggested that he will expand the FDI limit in insurance to 49% though he didnt announce it in this budget. Also, the withholding tax (a kind of Tax Deduction at Source) on foreign funds has been reduced to just 5% from the earlier 20%. Also, profits on foreign infrastructure funds have been made tax free. These are all bold moves to make sure the economy gets all the money it requires to grow.
6)      Focus on social sector: Some of the moves here are really bold. The tax concession given to rural borrowers has been increased to 3% from 2%. This means that agriculural loans will be given at just 4% - provided the borrower returns the money on time. This should help build a culture of paying back what you borrow! Further, the total credit provided will be increased by Rs 1 lac crore (from Rs 3.75 lac crores to Rs 4.75 lac crores). More credit at cheaper rates should encourage investments in agriculture (machinery, better seeds, fertilizers), thus increasing farm productivity. Further, there is a substantial change in the loans given for housing. Loans up to Rs 15 lacs (for a house property up to Rs 25 lacs) will be given a concessional rates. This should boost rural housing. Further, there are significant increases in the education budget, health-care budget and others. All in all, there is a big thrust to the rural economy. This is the “aam aadmi” part of the budget that many have missed.

The reason I am deducting 2 points from this budget is that Pranab should have announced FDI in retail and insurance in this budget itself. This is a political issue and his excuse has been that while the Congress supports the cause, other political parties dont do so. I also feel that the disinvestment target of Rs 40,000 crores could have been set higher. Also, I would have liked to see a higher exemption limit for individuals. I don’t think it would cost much, but it would have boosted the sentiments a lot more.

The real truth, as I mentioned in yesterday’s post, is that budget making has become easier for the FM, given India’s high GDP growth rate. Many who have not understood this truth find Pranab’s budget to be a bit of a magic trick! It’s not. It’s just easier to manage the finances better if the economy is growing at 9%. It’s been a very good budget. No wonder the stock markets have given it a clear thumbs up!

Sunday, February 27, 2011

My expectations from the budget today.....

The Indian budget will be presented today. I am confident Pranab Mukherjee will live up to his credentials of being a savvy FM. My own expectations from the budget are simple. Rather than focus on the specifics, I would like to define the broad areas:

1)      Infrastructure: Surely, this is the one bottleneck that India has to overcome if it wants to achieve its rightful place in the world. Specific focus is needed on:
a.       Power: Almost all states in India suffer from massive power cuts. Today, India produces just about 1.5 lac MW of power.....China produces about 9 lac MWs. If we have to grow at 10% per annum for the next 20 years, we will also have to scale up power production to somewhere around 9 lac MW. As I argued in an earlier post, the way to do this is to set up more nuclear power plants. Pranab Mukherjee must make sure that that happens. Through fiscal incentives and through other means.
b.      Roads and ports: I’m not talking about urban roads which are anyways in a bad shape. I am talking about inter-state roads which directly lead to poor logistics, a bottleneck for industrial growth. Also, with India’s trade likely to double to $ 1 trillion in the next 4-5 years (exports $400 billion; imports $600 billion), its critical we upgrade our existing ports and set up quite a few modern ones quickly.
c.       Irrigation: I am including this under infrastructure and not agriculture; I feel that it will get more attention if considered as infrastructure. Somehow our agriculture policies tend to be muddled most of the times.
d.      Internet: This is a strange one to include under infrastructure, but the world today is connected more via the internet than by airlines and ships. Remember, we got our first success internationally because of the telecom boom (BPOs etc).....the next one will surely depend on the internet boom. The government must set goals for overall internet penetration....and more specifically broadband connectivity.
e.       Education: While we are getting good results with basic education (literacy levels), there is a serious worry with respect to the quality of education. It’s not enough to produce the highest number of engineers and scientists; I think its more important to produce the highest number of well-trained factory workers and service industry workers. Today, most university pass-outs are not ready for the world ahead.

2)      Investments: While we are blessed to have a high saving rate (35% of GDP), we need even more to stimulate the GDP. Remember if the returns on the investment are 10%, the 35% savings rate would lead to just 3.5% increase in GDP. We need more in the form of FDI. Any steps the government can take to increase FDI from $25 billion at present to $100 billion a year should be welcomed. Remember, if FDI hits $100 billion, its nearly 6-7% of GDP and that would take investment rate up to nearly 42% or so (35% savings + 7% FDI). FDI policies with respect to insurance and retail specifically need to be liberalized. Frankly, there is no reason left now to have FDI limits in these sectors. I would look for incentives to increase investments in infrastructure, agriculture and also in R&D – a critical focus area if we have to make industry globally competitive in the future.

3)      Inflation management: Everyone knows this, but the government needs to cut back on fiscal deficit. Fiscal deficit, in simple terms, is the gap between the government’s earnings (taxes etc) and expenditure (salary costs, interest on loans taken, defense largely). To cover the gap, the government borrows even more (thus raising market interest rates and making less credit available for the private sector to use) and in some cases simply “prints” money (by issuing bonds which the banks have to subscribe to). A certain level of fisc deficit is a healthy requirement as it helps to pump prime up the economy.

To cut the fisc deficit, the government must focus on the following:
a.       Cut government expenditure: Cut head-count before the 7th Pay commission gives a further pay hike. No new recruitments for the next 20 years. Further, the government must aim to reduce its role over the next 20 years by removing licenses and approvals required in more areas; This will have a beneficial impact on reducing corruption as well.
b.      Disinvestment: Over the next 20 years, the government must get out of business. It must stay focused on providing the right environment and infrastructure for private enterprise to prosper. It must start by setting a Rs 1 lac crore disinvestment target for FY12.
c.       Raise tax collections: Even today, the total quantum of Direct Taxes (corporate taxes and Income taxes mainly) is just about 6% of GDP. Out of this 6%, Income tax must be about 2% or so. There are only about 35 million tax payers in the country. Any efforts taken in increasing the tax coverage without increasing tax rates should be welcomed. In fact, there may be a case for a small reduction in the tax rates if it helps increase tax compliance. The Direct Tax code will aid in this objective. Further, there is an urgent need to reform the indirect taxes as well and to do that, the new GST regime must be brought in quickly.
d.   Lastly, focus on increasing agricultural productivity. We need to embrace Genetically Modified crops; we need more investments in irrigation; setting up a cold chain; modernizing the distribution system; improving roads; making more credit available to farmers and of course increasing power supply.
4)      Protecting the poor: It’s rather strange that I would recommend more socialist schemes, but honestly, because we, the rich, do not share our wealth easily, it’s important that the government devises easier ways to achieve social equity. The Food Security Act is a terrific step because it will make sure that no one stays hungry.....even if food prices rise further. Likewise, the NREGA must be expanded to cover all districts in the country and for more number of months in a year. And lastly, there is need to first improve and then expand the Public Distribution system.....maybe with valuable contributions from the Unique Identification Code project that Nandan Nilekani is championing. Maybe, there is a case of direct transfer of funds rather than selling goods to the PDS, but this is a matter of detail really.

The real truth is that the job of the Finance Minister is easier than it was 20 years back. We are an economy on the move. As GDP grows, it becomes increasingly easier to manage the issues raised in this post. Fisc deficit will contract simply because the GDP will grow at 18-19% in nominal terms (real growth of 9% plus inflation of 9-10%). It’s like a family becoming richer year by year......and more able to manage its various requirments. It’s the same with the country!

Food inflation perhaps not as bad as we think it is.....

All of us are concerned with the high inflation numbers. Overall inflation is upwards of 8% and is only expected to moderate to 7%. More concerning is the food inflation which touched as much as 18-19% some time back and even now is hovering around 12-13%. Typically, we think of this as a ghastly thing that harms the poor and the rural folks the most. Think again.

It is indeed true that food inflation is hurting people. Most of all, urban folks like us. So veggie prices have gone thru the roof and fruits are almost unaffordable. But since no one would really care too much about us “well-off” types, the story is projected as hurting the poor. Now we must distinguish between the urban and the rural poor. So let’s take a closer look at the inflation numbers.

It appears that rural folks – especially those who are really poor and landless – usually mostly limit their meals to cereals of different types. Even those who are the poorest of the poor – and covered under the NREGA scheme and have got at least a little bit of money in their hands – stick to cereals. Here’s the surprising news. Cereal prices are under check. In fact, as an expert mentioned on TV recently, inflation in cereals is lower than normal. So that’s good news. On the one hand, the poor have NREGA as an income source, and on the other, the inflation is in check. The really poor rural are managing just fine! Now let’s look at the farmers in the rural areas. Those who own land and are employed in agriculture. The fact is that they are the ones who have been continuous beneficiaries of the government’s policy of raising Minimum Support Prices (MSP) every year. MSP is the price the government pays to pick up agricultural produce. So with annual increases in MSP, the farmers are doing just fine. Over the last 6 years, as mentioned in President Patil’s speech recently, the MSP for wheat and rice has nearly doubled. All this is money in the hands of the farmer.

So why is it that us urban folks are feeling the heat. The fact is that as the farmers are making more, so are the distributors in between and eventually the retail fruit and veggie vendor who you buy from. Every time we end up paying more, the entire “food chain” benefits. The vendor, the distributor and the farmer. Agreed, the distributor and the vendor benefit more than the farmer and that’s where most media criticism of government inaction has been directed. But make no mistake....the farmer is a beneficiary too. Is it possible to change the distribution of this inflation led earnings growth? Sure it is. That’s the argument for allowing big organized retail to get into agricultural products as well. Cut the distributors out to the extent possible and pass on more to the farmers. Organized retail would set up the cold chain that would also prevent crops from rotting. But does anyone really support this politically. No chance! No one really wants to understand the issue.

Coming back to us urban folks, we are the ones who end up paying more. But then shouldn’t we? On average, our salaries have risen by 15-20% every year for the last 20 years since economic liberalization was started in 1991. It’s a fact – and we know it better than anyone else – that we are earning ever more salaries every year. Do we do anything to share this with the poorer sections at all? Usually not. Except for the taxes which most of us grudgingly pay (We pay....but we complain....and we justify our complaints by saying that we don’t get to see the benefits). Inflation is a way by which we are forced to part with a small part of our monies!

The ones to get really hurt are the urban poor. They have no NREGA benefits and they get no salary increases. Inflation squeezes them really hard....they are forced to cut back on nutrition and lower their health. It leads them to crime in a way to make ends meet. They are the ones who are the real victims.

The real truth is that us urban folks who are well off shouldn’t complain about inflation. Each one of us who earns a decent salary (and don’t smirk and say you don’t!) should try and take care of 2-3 people who work in our sphere of influence. I do so with my drivers and maids. I pay one driver’s kid’s education bills and whenever there is a medical emergency in anyone’s family, I pay for the medical bills. I’ve learnt to do this. I have been inspired by others who I have met. I would urge each one of you to willingly part with money. If not time. After all, we can’t be a proud country if we cannot bridge the economic disparity that we see all around us.

Friday, February 25, 2011

The Railways budget: Looks like a comedy show but is really the biggest scam?!

No one really understands this. Half the time, it appears to be a comedy show on TV. At other times, it appears to be the biggest scam going around. It sure looks like a scam. It’s the one occasion that promises can be made and fully broken. Where financial prudence is not even expected. Where blatant politics is allowed with no questions asked. And where the mixing of business and socialism is freely permitted! This is the mother of all scams....or is it the biggest one really knows!

The Railways budget points out many things that in the corporate world would have caused a massive earthquake:

1)      The operating ratio is some 91%. This means that only about 9% is left over to be counted as operating margin (the equivalent of EBITDA I suppose). It’s not adequately explained; but I suppose all finance (interest payments) and amortization and depreciation charges come below the operating margin. So at PBT (Profit before tax) level, the Railways must be making a loss. This is 64 years after independence. Can you think of one private sector company like this?!
2)      Staff cost is 42% of total expenditure. Now this would be understandable in a few services like banking and consultancies.....which are heavily people dependent....but in a hardcore old-economy business like the Railways, staff costs should be in the region of 10-12% of expenditure. Since there is no private railway company, I’ve looked at the data of an airline company. For Jet Airways, the staff cost is indeed 11% of expenditure!
3)      To understand staff costs better, let’s look at head-count. The Railways has a turnover of Rs 90,000 crores and it employs 14 lac people or so. The Tata group in comparison has a turnover of Rs 1,50,000 crores and it has a total of  only about 1.8 lac people! Take also the example of another industrial conglomerate. Reliance Industries Ltd has a turnover of Rs 1,50,000 crores and has only 12500 people on its roll (staff cost surprising low at 3% of expenditure)! See the difference!
4)      As if this was not high enough, the Railways plan to fill up 1.75 lac more jobs this year. Wow! Further.....there is a guaranteed job for the son/daughter of any railway employee who is above 50 in age and ill. Now do you see the scam?!
5)      Very routinely (almost appreciatively), the Railway minister is allowed to favor his or her home state. So Laloo did everything with Bihar in focus and Mamta with WB. If this rule were to apply to me, a poor private sector CEO, I should be allowed to splurge money into Gujarat! No such luck though!
6)      Since the Railways does not make enough monies (9% of revenues at an operating level), it needs financial support to make investments. So the citizens of India (through the Union budget) provide the Railways Rs 20000 crores this year. Clean money with no questions asked and no accountability! Further, an additional Rs 20000 crores is borrowed from the market but since no one would lend to the Railways, the government gives the Railway bonds a “tax-free” status. So people invest not to get the returns, but to get the tax savings! Only a small portion of the investment plan is supported by internal accruals. Think of any private sector company that enjoys such privileges?!

I could go on and on but I want to make a different point here. Why am I calling it a scam? Because the Railways is a 100% government owned corporation and so it belongs to each one of us. There is a financial rape going on and we need to stop it. If the Railways were to focus on giving better service to the citizens......and not to its own employees.....then we would see better facilities being provided; better trains; better railway stations; more safety. Instead, the Railways prefers to don the socialist mask and mix up issues: Is it a corporation which runs a business or is it an extended arm of the government? Let the government make the populist schemes....the Railways must run as a corporation.

I cannot end without repeating my earlier demand. That the Railways must be privatized in the long run. If the Indian Railway Corporation cannot be privatized least private players must be allowed to enter the space. They could provide private train services at a higher cost to passengers.....and use the infrastructure of the Indian Railways by paying fees. Just like in the Airlines sector. This way, the Railways would earn more fees; and it would be able to focus on its social sector obligations.

The real truth is that the Railways is the biggest scam that India has seen since independence. No one cares for efficiency; for financial returns; for service standards; or even a modicum of intellectual honesty. In spite of being the biggest scam, it hardly gets anyone’s attention. It’s almost like a humor capsule on TV which you are supposed to see and forget!

Thursday, February 24, 2011

Long live Gaddafi....why India needs Gaddafi to continue in Libya

Every time crude prices climb, we get reminded of our vulnerabilities with respect to fuel. The long term solution is to go in for an aggressive nuclear power programme. In the short run, we must pray that Gaddafi re-establishes control of his country. It doesn’t matter than Libyans will have to live without democracy for a few more decades.....!

One little crisis in one little part of the world can send the oil rates soaring. At $120 a barrel, crude prices have increased by more than 50% in just three months. Libya is only a small supplier of crude.....accounting for less than 5% of total production in the world. It’s only the 18th largest producer of crude in the world. However, in the business of commodities, the balance between supply and demand is very fine and fragile. A little change in one of the two can impact prices to a very large extent. In this case, disruption in supplies in Libya has spooked the prices. Of course, there is the very real fear that the revolution in Egypt, Tunisia and Libya could also spread to other Gulf autocracies....if that were to happen, Nomura’s view that oil could touch $220 a barrel would indeed come true.

Frankly, there is zero control that India has in this matter. This is one subject on which we simply cannot blame the government! India simply does not have enough oil. We still import nearly 70% of our oil requirements. If we cannot find a substitute for oil quickly, we will remain vulnerable to the developments around the world. If crude does touch $220, the Indian government would have no option but to increase petrol prices to some Rs 125 a liter, diesel nearly the same......and also consider significant price increases to kerosene and cooking gas. Imagine what will happen to inflation and growth then. This is no longer a distant worry.....its nearer than we are think it is. While the government cannot be blamed for unavailability of crude in India, it will be blamed if it does not act smartly and quickly to develop alternatives.

The only way out for India is to develop alternate fuels. And for us to change the way we live our lives. The biggest consumption of crude is in power production and transport. We have to look at ways of cutting consumption in both these sectors. With respect to power plants, we just have to switch to nuclear power plants. With respect to transport, we simply have to go towards “mass transport” systems like trains that work on electric power (and not oil).....generated by nuclear power plants.

The one readily available fuel is nuclear fuel. There are ample supplies of nuclear “raw materials” like Uranium and Thorium around the world and also to some measure in India. India has a fair degree of expertise in nuclear technology on its own. Besides, the doors of the world’s biggest nuclear technology companies have recently been opened for India. If now, Indian politics prevents India from exploiting this opportunity, then it will be a terrible tragedy for India. Sooner or later, the country will understand the vision of Manmohan Singh.....and his strategy of striking the nuclear power deal with the US and other countries.

So where is the politics in all this?

Firstly, whenever land has to be taken for a nuclear power plant, villagers from neighboring areas create a problem. They have a fear of a nuclear disaster. The fact is that nuclear power plants are amongst the safest amongst all types of power plants. The fear is akin to the fear that one has with respect to air travel.....though in reality, air travel is far far safer than railways or roadways. People fear that nuclear radiation could harm them and lead to genetic deformations. These fears are fuelled by the political maneuverings of opposition parties who would not like to see the ruling government function smoothly. Everyone forgets that a country like France generates almost 90% of its energy from nuclear power plants located right inside its own borders. A combination of political evil and societal ignorance takes over and everything gets delayed.

Just look at the debate around Jaitapur. We have a plan to put up 10,000 MW of nuclear power reactors there. We have a vendor ready to work on the project. The government has allotted funds to the project. Environmental clearances have been obtained. Why should anyone have a problem? But using safety and environmental concerns (impact on coastal waters and sea life) as an excuse, people have stalled work. The fact is that nuclear power is environmentally the cleanest power. No emissions of “burnt” fuels.....hence much lesser levels of Carbon Monoxide, Carbon Dioxide, Sulphur stuff etc. Now the project will be delayed for several years.....

Admittedly, nuclear power plants are more expensive than thermal and hydro power plants. But coal is also going to run out in the next 200 years and water resources are becoming increasingly difficult to harvest. Non-conventional sources of energy are still in a preliminary stage of development.....and are expensive as well.

I am suggesting that we set an aggressive goal for nuclear power in the next 20 years. We must have more than 25% of our power generation from nuclear power. In the next 20 years, our power generation capacity would have increased to about 8-9 lac MW (from the present 1.5 lac MW). Let’s plan to generate 2-2.5 lac MW from nuclear power. Let’s factor in environmental issues.....lets take care of safety worries. But like Sachin Tendulkar says: Let’s “Go get it”!

The real truth is that we really have no options to nuclear power. Costly or cheap....nuclear power it has to be. If we have to realize our dream of becoming #1, we have to stop having doubts or playing politics. Some issues should be left purely to the economic and technology experts. But can we do it? I am confident we will......but with the regular     one-step-forward-half-step-backward style that we have patented as being our own!

Wednesday, February 23, 2011

Shun the negativity. Rejoice that India will soon be the #1 economy in the world!

Forget what the newspapers prefer to put on their front pages (Bhanot’s and Verma’s arrests and all kinds of sensational subjects).....focus instead on Citigroup’s report on India’s surging economy (tucked away somewhere deep inside the papers). Focus also on the government’s aim to double exports to $450 billion in the next 4 years (inside pages again). Begin your day with confidence; and enjoy the sunshine!

Let me give some initial numbers so that the context of this post becomes clear. India is today about a $1.3 trillion economy. This figure is obtained by dividing our GDP measured in INR by the exchange rate (say Rs 45 per $). This is the most commonly used method for measuring the relative sizes of economies worldwide. On this basis, India is presently ranked somewhere around the 10th position. China’s economy is about $5.3 trillion and has just gone past Japan which is around $5 trillion. The US is the #1 economy at $15 trillion; Germany is around $3 trillion; France and the UK around $2.5 trillion and Spain, Italy, Russia and Brazil somewhere around us.

However, there is a major flaw in measuring the economy in this manner. The flaw is in the exchange rate used. The exchange rate is ok for trading purposes, but is dependent on several factors that can skew its value. Consider what happened in India 2-3 years back when the exchange rate shot up to Rs 40 to a $. This happened not because India became a stronger economy per se....but because suddenly there was a surfeit of dollars flowing into India. As a result, the dollar’s value fell. There were so many dollars available; they could be bought cheap. But why did the dollar inflow increase? Because foreigners were investing larger sums of monies into India. This would give an impression that the Indian economy had already become much bigger (than it really was); in reality.....this high dollar inflow only meant that the investments in the Indian economy had become much bigger; growth would hopefully follow a few years down the line. As a result of this change in exchange rate, the Indian GDP as measured in exchange rate $ terms suddenly entered into the trillion dollar club. Because the $ can vary so much, economists prefer to use a different measure to gauge the real size of an economy and its growth.

The measure economists prefer is the PPP. PPP stands for Purchasing Power Parity. Basically, rather than focusing on the exchange rate, this measure focus on purchasing power that the people in a country enjoy. After all, living standards of people are all about what they can afford to consume and save. A McDonald’s burger costs $2.5 in the US; but it costs just Rs 45 in India. A burger feeds both people equally. So really speaking, the exchange rate should be something like Rs 20 to a $. Likewise, a bottle of coke costs $1 in the US, but only Rs 12 in India. For this product therefore, the real exchange rate should be around Rs 12 to a $. When such an exercise is carried out over many many products and services, the real exchange rate for the entire economy is derived. For India, as a whole, the real exchange rate is somewhere around Rs 12-15 to a $. If we were to measure the Indian GDP in PPP terms, it would be $3.9 trillion in 2009. The PPP measure improves the rankings of developing countries while keeping the developed world at nearly the same place. So the US is a $15 trillion economy and Japan a $5  trillion economy by either of the two measures.

At $3.9 trillion, India is already the 4th largest economy in the world. What Citibank’s report says is that in PPP terms, India will become the world’s 3rd largest economy (go past Japan) by 2015 and then the 2nd largest in 2040 (go past the US) and finally become the #1 economy in the world by 2050 (go past China). The question in many people’s mind would be that all this is fine....but when will we start seeing signs of prosperity all around us just like we do when we go to the developed world?

It’s a good question. When we talk of “prosperity”, we normally talk about the way our cities look (roads, buildings, infrastructure, transport systems, cleanliness, pollution etc).....this is what hits us first when we go to a developed country. The next thing to hit us is how well off even the poorest of the poor are.....well tracked by a measure called the Per Capita Income.....simply the GDP (in PPP terms) divided by the population (There is also the Gini coefficient which measures economic disparity, but we can leave it aside for now). My bet is that in the next 10 years, the first parameter will be satisfied to a large extent. Our cities will start looking like how cities in Malaysia or Thailand look today. In terms of per capita income, I think, we will remain behind the developed world for a much longer time. By 2050, even when we become #1, our per-capita will still remain about one-fourth of the US’s at that time.

What we should aim for is to become #1 in per capita terms. To do that, our economy will have to become 4 times the that’s going to take a much longer time! Our real goal should be to become #1 in per capita terms. Becoming #1 in GDP terms is only an interim milestone.

The real truth is that this is well within our grasp. As long as we stay motivated and focused on our goals. As long as we don’t let a few small hiccups affect our resolve. As long as the regular processes of democracy allow for us to vent our feelings and an Egypt-like situation never develops. As long as our media stays alert.....but does not become a cribbing, demoralizing, sensationalizing and harmful force. And most importantly, as long as we remain believers in our inherent strengths. Its a day I hope to see in my lifetime!

Tuesday, February 22, 2011

9 years of jail without conviction in Godhra - will Narendra Modi or the Indian judiciary now apologize?

The Godhra report highlights the sorry state of affairs of undertrials in India. Frankly, given the scale of denial of justice (in fact the perpetration of injustice) to 62 people, it is hardly a happy feeling one gets about the verdict.

This begs the question: how were these people arrested in the first place? As most of us know, the Indian cops are a highly un-trained, un-civilized and un-couth bunch of people. Plus, they are politically polarized. Their inefficiencies have charred their reputations. In Godhra additionally, there was the political motivation that the BJP government had. With the backing of the BJP government, the cops went all out to arrest whoever they could find. Prejudices came to the fore as the cops arrested even those against whom they had no shred of evidence. Needless to say, all of them were Muslims.

I've lived in Gujarat for a very long time. I know exactly how the average Gujarati feels about Muslims. The Muslims also have themselves to blame for this sense of distrust. I have personally witnessed Muslims celebrating when Pakistan won a cricket match against India. Personally. I happen to have a house that is "on the border" with the muslims. So I understand a deep sense of resentment that the Hindus in Gujarat feel. Its all pervasive. This is why the maximum number of riots have happened in Gujarat. I understand all this. But what I cannot understand is how the government can take such a polarized view of things. How can a government charged with the responsibility of defending the constitution and protecting the people behave with the same prejudice that ordinary people may have? A class monitor cannot be indisciplined because he is charged with the responsibility of bringing discipline to the class. Likewise, a government cannot be prejudiced as it is specfically charged with the responsibility of not letting prejudices come in the way of justice.

The point is not whether there was a conspiracy or not. My personal view is that there was a clear conspiracy hatched by the muslims against the kar sewaks. Muslims have been incensed since the time the Babri Masjid was demolished. Frankly, I dont care that the victims were kar sewaks. As far as I am concerned, they were Indians. This was a kind of a terrorist attack. My issue is with the way the matter was handled by the cops and the government of Gujarat.

So the cops go out and arrest people randomly. Then they charge them under the draconian POTA (Prevention of Terrorism Act) which the BJP government had hatched in 2002. They abuse the powers of POTA and keep the arrested people in detention for months before chargesheeting them. Then the usual delays that the Indian judicial system is infamous for happen. It takes 9 years for the first verdict to be delivered. And for all these 9 years, all those people who are assumed guilty without any conviction stay behind bars. What kind of a justice system is this? What powers does the judiciary have to complain about politicans when it itself is guilty of inefficiency, corruption and injustice. Think about it: anyone could have been arrested that day. Imagine, just being arrested and being put behind bars for NINE whole years. Its criminal.

Whose fault is it that these people were denied 9 years of their life? That they had to live the life of being branded criminals without even being tried? Will the government of Narendra Modi now apologize to them? Pay them compensation? Will the judiciary apologize to them for its inefficiency? How come the media does not complain about this and demand a new law that would oblige the government to compensate people if they have been wrongly jailed? How come the judiciary is allowed to remain an accomplice in this criminal injustice without anyone hauling its ass?

POTA was a disastrous act. It had prejudice written all over it. It was a political tool the BJP created to win the support of Hindus petrified after the 9/11 attacks in the US. All terrorists in India are assumed to be muslims. Do you know that in Gujarat, all those arrested under POTA, except one, are muslims? Do you think this is even possible? Would any of the Hindus who broke down the Babri Masjid be arrested under POTA, if POTA had been around at that time? Highly unlikely.

The real truth is that the Godhra verdict is a huge verdict against the BJP. By acquitting the main accused as well as 2/3rd of those charged, the verdict has proven beyond doubt the prejudice with which the BJP government functions in Gujarat. Here's the tragedy.....every time anyone accuses or proves anything against the BJP's bias in Gujarat, they gain even more in that state. This is a shame on Gujarat. And until it emerges from this, no matter how prosperous it becomes, it will never enjoy the love and appreciation of the rest of India.

Monday, February 21, 2011

The difference between the two Ambanis

I have written two posts on Anil Ambani in the last month or so. This one is again on the Ambanis, but this time to highlight the difference between the two brothers.

Today's story in the papers should make the difference between the two brothers stark. On the one hand, you have Anil Ambani struggling to get his empire running.....his flagship Reliance Communications plummetting to new lows in the stock market virtually on a daily basis.....he being personally interviewed by the CBI for his company's alleged involvement in the 2G issue.....all his stocks taking a beating.....and in general, people talking about him (in whispers of course) in a very negative....almost humiliating way. And on the other hand, you have Mukesh Ambani.....the guy who's hardly in the news.....the silent operator....the guy who builds a billion dollar home in Bombay almost without attracting any who is clear of all political parties, though involved with all.....not involved in any scam either.....and now the one who strikes one of the biggest FDI deals in India. The contrast is stark.

Elder brother Mukesh has clearly shown that even when the two brothers were together, it was Mukesh who was driving the growth of the combined group. Like his father, he continues to demonstrate his larger than life vision for his group. He aims big; and executes his plans well. One hasnt heard about him facing trouble with financial closures for his one does about his younger brother. There is no doubt that Mukesh is as savvy and as involved in managing the government (a key requirement even today in India).....the key difference is that he does it smoothly and smartly. He dives in....gets his work done....and gets out. Makes no splash at all!

Sometimes we lose sight of the numbers in the hurly burly of daily routine. But just look at where the two brothers' companies stand in the stock markets. The four major companies of Anil Ambani (Reliance Power, Infra, Capital and Communications) have a total market cap of just about Rs 80000 crores. In contrast, Mukesh's RIL has a market cap of Rs 3.1 lac crores. See the difference? So Mukesh's empire is now 4 times Anil's empire. I would assume the two started at nearly the same point about 6 years back when they split.

What's the reason for this big difference between the two brothers? My own view is that Anil is confused. He is highly ambitious, but he has let his ambition lead him in multiple directions. One would argue about why a business of his size and stature would want to get into small spaces like media and entertainment. Anyone who's been in M&E knows that its a sector which is made up of many small companies. The biggest media group (my group, BCCL) hardly has a turnover of Rs 5000 crores (as reported in some newspapers). The next biggest (Zee or Star) probably has about Rs 3000 crores and the one after that drops to less than Rs 1500 crores. Why would an Ambani be interested in such a small business. In contrast, just one power plant that Reliance Infra puts up costs Rs 10-15000 crores. Every infrastructure project he picks up needs investments of the same size. This is what Anil should focus on. But Anil has let his personal ambitions get in the way of his group's growth. And that's why his shareholders are hurting.

Is it too late for Anil to recover? I dont think so. He's a very smart man.....for starters he needs to surround himself with some smart advisors. People who have his confidence and who he can listen to. Then he needs to discard small businesses that he has started or acquired. Any company which has a turnover of less than Rs 2000 crores....or a market cap of less than Rs 5000 crores should be either hived off or simply shut down. He cannot waste time on such small businesses. Then, he should realize (like Mukesh has) that consumer-facing businesses are not his forte. He should focus on businesses which require a) lots of money b) strong execution skill-sets and c) governmental approvals. So infra, power, capital.....all are fine. But telecom, media, banking (I heard he's considering this) are not OK. If he were to just bring this focus to his group, he would re-emerge as one of India's biggest industrialists. He has to understand that his group can be like L&T (infrastructure largely) but not like the Tatas (industrial + consumer facing).

The real truth is that most of Anil's shareholders are hoping and praying that Mukesh acquires his companies. That the two brothers patch up. Not because they care for the two to patch up.....but only to protect their own investments. They have been badly let down. I have personally lost loads on ADAG's companies. They look up to Mukesh for a rescue!

Sunday, February 20, 2011

The real truth: The JPC must discuss 2G policy.....not petty opera...

The real truth: The JPC must discuss 2G policy.....not petty opera...: "The setting up of the JPC on the 2G 'scam' has been a bit of a anti-climax really. Now that its been set up, the fizz is off; no one actuall..."

The JPC must discuss 2G policy.....not petty operational procedures

The setting up of the JPC on the 2G "scam" has been a bit of a anti-climax really. Now that its been set up, the fizz is off; no one actually knows what's going to change and what to expect. Yes, Parliament will start to function again, but what should one expect on the 2G matter (I refuse to call it a scam) itself?

I think the JPC should focus on only two things:

1) Is the Government right in its assertion that all policies are not about maximizing revenues? That policies can have other objectives. Does the 2G policy qualify to be one of those where "other objectives" should be rated higher than revenue maximization.
2) Secondly, it must look at this peculiar pattern in Indian politics.....of questioning past policies based on the knowledge that we have in the present. So many people feel that 2G spectrum was given away cheap. They say this because they have seen 3G spectrum go for a far higher amount. But is it likely that 10 years later, when maybe 4G spectrum is auctioned and the government realizes 10 times more value....the 3G auction itself may be called a scam? Would that be fair? Maybe the JPC should investigate this and suggest ways of preventing this.

Let me come to the first objective I have suggested above. In my mind, 2G policy could and should never have been about maximizing revenues. Today, after we have seen the telecom revolution first hand, we can say comfortably that telecom is a "basic need" of people. Its as basic as the need for education, food and freedom of speech. I am not talking only about affluent people like you and me; actually I am talking mostly about the dis-empowered lot. Those who have used mobile phones to gain a modicum of economic strength. Take the example of the neighbourhood "mochi" or plumber or electrician or a locksmith or countless other such people.....none of them could afford to have a pucca "dukan" where we could go to seek their services. Today, they dont need one. A mobile number suffices. Or think of the farmers who are now well informed about crop pricing; so that they dont sell their produce to the nearest mandi. The mobile revolution has brought economic gain to so many would you sacrifice all this and suggest instead that the government should have instead chosen to take in much higher license fees.....something that would have raised telecom prices dramatically and prevented its roll-out the way it did?

There is a fundamental difference between 2G and 3G. 2G is a "plain vanilla" service. Its a basic service. The purpose of government is to provide basic services to people without first thinking of its own interests. It was right in not maximizing revenues on 2G......and it was right in maximizing on 3G.....because of the huge differences between the two. Let me elaborate on this with an example. Suppose there is an highway built from Delhi to Jaipur. And suppose this is the ONLY road between the two cities. It then becomes a basic service. It's the government's job to give this road to the public. Can the government charge Rs 1000 for every trip made between the two cities? After all, if it auctioned off the rights to build the highway and charged a stiff upfront fee, the highway operator would have to charge that much. The government would maximize its revenues this way. What about the damange done to the economy overall? Suppose however that the government built another expressway.....much wider with much lesser traffic; hence much faster.....maybe with other premium services as well......this road was clearly a "premium" service and "optional" for those users who wanted more and were willing to pay for it. Suppose the government charged Rs 1000 toll for this. Would this be OK? I think it would be because the government has first met the needs of the common folks and then has launched a premium service for which its charging a premium.

Take another example. The government charges premium pricing for petrol; less for diesel and actually subsidizes kerosene and cooking gas. Now isnt this policy of the exact same nature as the 2G-3G one? Why should the government charge so less for kerosene and cooking gas? Isnt this also a scam? No, because they are both "basic needs" of people; its great policy to make them available cheap to the masses in their own interest. In fact, even asking the government to maximize revenues on kerosene and cooking gas appears criminal. But the government can surely charge premium prices for petrol. Nothing wrong with that. Those who consume petrol are the well-off. They can pay more. The excess revenues collected would cross-subsidize the subsidies on kerosene and cooking gas. There is just one flaw in premium petrol prices. And that is that the government has not provided a viable alternative to people who dont want to pay premium prices for petrol. They havent built the "basic road" between Delhi and Jaipur when it comes to city transport. Once they provide an efficient metro service, or a BRTS, then the government can surely lift the lid on petrol pricing.

The JPC should discuss such issues. Actually Parliament should. But given the raucous nature of our Parliament, I think the JPC may be a better forum to discuss this. I am convinced the government's policy on 2G was right. What was wrong was the corruption that Raja brought in. By advancing dates and by favoring a few, he made his cuts. Haul his ass into the jail for this. No problem with that. But that's really not what the JPC should focus on. Let the CBI and others do that. I suspect however that the JPC will want to focus more on "attention grabbing headlines" which the grilling of Raja would provide; rather than on policy matters.

The other point was about retrospective criticism of government policies. Its well known that in hindsight, vision is 20:20. There must a rule introduced in Parliament that policies which are more than 5 years old.....cannot be re-opened unless there are exceptional circumstances. A similar rule already exists in the legal system. A case becomes "time bound" after a few years. I think this is a correct policy. We need that with respect to government policies as well. We need this rule so that we focus on the future and not on the past. Within the first 5 years....any policy can be debated openly in Parliament and in media. If any legal or political action needs to be taken against a policy by anyone, it should be done within the first five years. Once this period lapses, it shouldnt be permitted.

The real truth is that the JPC will not discuss the points I have raised. It's merely a political exercise. The BJP has no concern of the country in its mind; only its own. It wants to make sure that it can prevent its own record under Shourie and co from coming out. It wants a leverage on the Congress for the 2014 elections. With this in mind, the BJP will aim to have the JPC submit its report only around 2013 December or so. Mark this date. Because that's when it will be able to use the JPC findings (if any) to good political advantage in 2014. The biggest regret of the BJP currently surely is that the next elections are only in May 2014. How they wished the elections were happening now!

Saturday, February 19, 2011

Cricket, capitalism and efficiency in Governance

Just watching Sehwag and Kohli perform yesterday made me think yet again about the superlative wonders of capitalism. Both these cricketers looked driven....motivated well beyond what any boss or leader could ever make them. It was sheer capitalism that was driving them.

Compare their performance with that of government officials. IAS officers are very intelligent and competent.....but their performance leaves so much to be desired. In fact, the most common descriptions of babus are that they are inefficient, corrupt and slow. This is what you get with Socialism; which in some ways is the opposite of capitalism. What a contrast our babus are to our cricketers! What a contrast Socialism is to capitalism.

The reasons for the differences between the two are not difficult to find. In a capitalistic model, the rewards for performance are very high. The CEO of a successful Americal company could make $25-50 million in just salary. Top it up with grant of shares and the annual income could cross $100 million. This is an extremely high amount of motivation for talented people and it pushes them the way nothing else can. Because of the very high monetary incentives, any job or industry that practices capitalism attracts the very best talent. Look at investment bankers, or private equity fund managers, even brokers at an Indian or global brokerage or management consultants.....some of the finest managers from the best B-schools will be found working in these sectors. I am not sure if its the work that pulls them there.....even if it is, surely the money plays a big role. I am not saying that money is everything; but it surely is at least 90% of everything!

Capitalism punishes the inefficient; inefficient people are thrown out in the cold. It is said that nearly 40% of the CEOs of the Top-500 companies in the US lose their job within 2 years. That's how demanding capitalism is. Its the same with our cricketers. There are only 15-20 cricketers who make the moolah. They make the money as long as they perform. If they dont perform, they are out. There is no social security sympathies for losers. Its the same with film stars and film directors. A few good performances and their rates go up meteorically. A few bad performances and they are soon forgotten! Akshay Kumar is a prime example. He was reportedly charging Rs 75 crores a film after Singh is he's happy to get just 25 (I dont mind either number though really!).

In contrast, Socialism appears to have much higher tolerance for poor performance. It rewards loyalty. It distributes poverty equally and fairly. The question is: if everything is so bad about Socialism, then why is it still a popular form of economic model. Frankly, I dont know, but I guess its because it is seen as being more "egalitarian". There are'nt too many ultra-rich people in a socialistic society. A lot of the people are poor, but they dont feel that way about being poor because they are surrounded by many others like them. Economic poverty exists, but economic disparity does not. And since in any developing country, the number of have-nots is always larger than the number of haves, a socialistic model is more acceptable to them.

So what system should a country adopt for business and governance? Capitalism, which leads to efficiency and results, but is exclusivist, demanding and punishing? Or Socialism, marked by inefficiency and poor results, but which is seen as being more socially acceptable? My own feeling is that a country has to evolve from one to the other. Early in the growth cycle of a nation, its better for it to be socialistic. After all, you need peace in society and the people to believe in the rulers. However, once a country passes a certain critical stage, it needs to switch to capitalism. Capitalism is like that booster rocket on a satellite provides that extra fillip that an economy needs once its crossed the threshold. Failing to switch could cause major problems as people become more demanding and want better governance. Failing to switch is one major reason for Tunisia and Egypt to go the way they have.

India has crossed that threshold. It's economy is nearly $1.5 trillion; its exports more than $200 billion. It's made deep inroads in several sectors around the world.....outsourcing, IT and software, engineering design, precision manufacturing, pharmaceuticals, banking and many other similar industries. The world believes in India's capabilities. It now needs a booster dose. We need to attract the best talent from all over the world. We need a lot more talent in governance. Paying right is the starting point. A Nandan Nilekani who is personally rich and has achieved a lot professionally may not need monetary motivation to join the government. But that's not the case with most professionals. They need the money. I think India should move gradually but surely towards capitalism. It must start by increasing the salaries of babus and politicians. Salaries cannot rise to market levels immediately, but it must start at say....20-25% of market levels. It must reach about 60-70% in the next 20 years. It has to be gradual to avoid societal wrath. But it must be steady and continuous. Higher salaries must however be accompanied by other changes.....sacking for underperformance should be the rule. Head-count must be reduced so that overall salaries are somewhat containable. Technology must be upgraded so that the best tools are available to the managers. And training is critical. Training that keeps a manager up to speed with the best practices around the world. In short, we need to make the government work like the private sector.

So where does India stand on this right now? Well, we have adopted capitalism as an economic model in business but we have not done so in Governance. A top level IAS officer earns less than 1% of what his  comparable private sector CEO earns. But he controls far higher budgets that the private sector CEO does. This is the starting point of corruption as well. After all, who doesnt want the high life. Media also plays a silly role in this. Recently, when the babus got a small lift in their salaries (from some Rs 25K a month to some Rs 45K), media went hammer and tongs after the babus. Media mixed up issues. It said the babus did not deserve the money because they were inefficient and corrupt. Media missed the point. Its the other way around. To attract and motivate the best, the pay hike is a must. Media should have supported it. Media could have demanded that many perks were free air travel to family members, unlimited phone and electricity budgets etc. But media should have supported the salary increase.

The real truth is that no one in our political system has the guts to bring capitalism to governance. And no one in media.....or the public at large....the sense to support this. This is a real challenge for India. If it does not overcome it, its babus will function like the Indian cricket team of yore. Plodding along somewhere at the bottom of the pile. And if it does, it will become #1 or #2 in any worldwide ranking that you can think of......which model do you support now?

Friday, February 18, 2011

Advani apologizes....and gets ready to be sacked

So Advani apologized to Sonia Gandhi for accusing her and her family of having money stashed abroad. What a fall for a party and for a man who have made it their singular agenda to harass and hound SG. It also tells us many things about politics in general and the BJP in particular:

1) That to accuse someone is so easy in politics. You dont need any evidence. In this case, it appears that the accusation was made on the basis of a report of a "task force" set up by the BJP. So much for task forces! It also appears that the task force had relied on a couple of non-descript newspapers in Switzerland and Russian. So much for the way task forces pick up evidences. So much also for the way the BJP works. Who know if they didnt get these stories published themselves?

2) Even while apologizing, Advani says "I am happy that you have denied the reports relating to you and your family alluded to in the task force’s report on black money. If these had been denied earlier, the task force would have taken into account your denial (emphasis is mine). Even so, I deeply regret the distress caused to you". Wow. So the BJP can accuse at will. And then its the job of the accused to deny the charges. Awesome. Now you know how politics works!

3) Advani's apology put his party in a terrible fix. Imagine the plight of Ravi Shankar Prasad....poor man did not know what to say and merely repeated what Advani stated. No apology from his side. No expression of remorse on his face. Such a poor loser!

4) Advani's apology also put Arnab and othe TV personalities in a terrible fix. Imagine Arnab having to say (even though indirectly) a few good things about SG and a few bad things about the BJP! To be fair to him, he was brave enough to suggest (not admit) that media had fallen into a trap on this. He was brave enough to put the story up ahead in his show. He showed he had guts.....Ravi Shankar Prasad did not.

5) And what's with Advani? So late in the day, is he trying to build a "statesman" like image for himself? First the Jinnah controversy which scalded him and cost his job as BJP President. Now this. At this rate, the BJP will positively throw him out and deny him even primary membership. Is Advani trying to show that in reality, he is an upright, sincere and liberal man? Attributes not associated with the BJP really. Is he, like Vajpayee, trying to projectc himself as another liberal man caught in the wrong party? Wow.

6) The BJP task force which had accused SG included Mahesh Jethmalani, S Gurumurthy, ex-IG chief Ajit Doval and one R Vaidyanathan. I know at least the first three. They have always taken a self-righteous and aggressive approach towards the Congress and SG. Now will they publicly apologize too? Or are they hiding their faces right now?

7) And finally, will we see media also apologizing to the public and covering the apology for several days? Unlikely. When accusations are made, even if they are un-proven, media gives it prime time and front pages for many days....even weeks. They put up panels and raise the pitch further. That givest them higher TRPs. Now I want to see how many days media devotes to this apology. Or has media just decided to move on. I suspect it has. After all, there are no TRPs to be gained in an apology!

But at least, Advani had the graciousness to apologize. In Indian politics, apologies are rarer than the tigers at Kanha! And if his behavior inspires others in other political parties in even a smallway, then Advani would have contributed enormously to the country. He would have elevated him in the eyes of many, including mine. He would have somewhat earned himself the tag of "Loh Purush" that the BJP tried to stick to him many times and failed in doing so.

The real truth is that Advani will be sacked for his apology. His political career is now well and truly over. Maybe Advani knew his time was up and wanted to retire anyways. Maybe he wanted to be remembered for his gracefulness rather than his meanness and hence chose this as his exit strategy. Whatever his reasons, but his apology will make sure that he is forced to retire. His party is unlikely to spare him. I can already imagine all those orthodox fogies sitting in the RSS headquarters in Nagpur, speaking in ultra-Sanskritized Hindi, plotting his exit. And by doing that, making sure that no other politician ever attempts to make the mistake again. That unfortunately is the way politics works in our country. 

Thursday, February 17, 2011

Cricket, Bombay and the politics of a paper tiger called Shiv Sena

Its sad to read in the papers today that "the Shiv Sena is still to decide" whether to allow Pakistan to play in Bombay or not. Now this is a topic very close to my heart and it evokes very strong and angry emotions from deep within as I am sure in does in your mind and heart:

1) Are we saying that decisions on who can play in India and who cannot, are taken by a local political party which incidentally is out of power? Who has given them the authority to take such calls? Surely not the people; because if the people supported them, they should'nt have been out of power.

2) Is Bombay outside India? Does one rule apply for India and a totally different one for Bombay? So Pakistan is allowed to play in India, but not in Bombay?

3) Why are the central and state governments not setting the tone of this discussion? Why is the Shiv Sena making the rules here? Why is there not one warning given to the Shiv Sena to stop their rhetoric or face action? Are the two governments so weak that they cant act against a local political party? This is where we should all grill the Congress and call it weak and ineffective; yet we never ask them these questions.

4) Is this the way a powerful nation responds to a weak, crumbling neighbour? Why do we give so much importance to Pakistan? Agreed, Pakistan is a pain in the butt for India and is a country that wants to harm India. But is this the way to handle the issue? In the past, after the Bombay attacks, we stopped the dialogue process with Pakistan - this is akin to the sulking of a child. Why cant we give a reply the right way? Why couldnt we warn them one last time not to interfere in our affairs? Why cant we show Pakistan its rightful place.....not by disallowing them from playing in our country; but by giving them the royal ignore?

5) What is the Shiv Sena's own agenda? Clearly, they are against North Indians (in the past they were against the South Indians).....and the Muslims (actually all non-Hindus). This is it? This is the sole basis of their existence? Do people really care about these issues? Is this why the people of Maharashtra have voted the Shiv Sena to power only once? Does the Shiv Sena not realize that even its partner, the BJP has made only limited gains when it adopted a strident anti-muslim stance?

It's not difficult to understand the compulsions that drive the Shiv Sena. Politically, it does not attract the following of the educated, modern intellengtia. Its constituency is made up mostly of locals, but not all locals. The educated Maharashtria that one meets in the professional world has no sympathies for the Shiv Sena. Its only the Maharashtrian migrants in Bombay; those who have been attracted to the city because of the job opportunties it provided; those who have seen these opportunites snatched away by more hard working and capable outsiders; who support the Shiv Sena. Shiv Sena cannot intellectually engage policy makers on economic issues. They may not even understand the macro and micro economic challenges that India faces; forget having a point of view on them. They may not even appreciate the way the world works.....that there are treaties that we need to honor; that maturity in handling global relations often requires us to under-play our anger and sentiments that we may feel towards our neighbours.

I can understand why they play the anti-muslim card - its the same reason that the BJP plays it - pandering to the very basic insecurities and emotions that Hindus have about Muslims. I can also understand why the Shiv Sena plays to the galleries when it comes to attacking the Biharis and UP-ites. Frankly, they use this card only in cosmopolitan Bombay. Its only in cosmopolitan Bombay that this issue has any relevance in the first place. Because Bombay has always attracted Indians from all over the country, the population of Bombay is very heterogeneous. Less than half of the population (actually only 39% in the last census) of Bombay has Marathi as its mother tongue. As much as 16% of the population is made up of Gujaratis; 10-12% are Hindi speaking and the remaining 20-25% is a motley mix of all that makes India. Bombay is the only city that has such a mix. In Delhi, 90% of the population has Hindi or Punjabi as its mother tongue. In Bangalore, Kannadigas make 62% of the population and the rest is outsiders - mostly South Indians; As a result, Bangalore suffers a similar fate at the hands of various parochial Kannadiga outfits. The day Delhi has a more mixed population (and that will be soon), some party will start playing similar games in Delhi.

But while this is understandable, is it something we can allow to continue? Is this the image of a modern India that we want to project to the world? That the main city of India has been held hostage by the whims of a local political outfit and has not yet decided whether it wants to allow Pakistan to play? What if Pakistan enters the finals? Will Bombay then not host the finals?

The real truth is that Shiv Sena is only paper tiger. The real tigers are in Kanha and Bandhavgarh! The real tiger is secure and walks past us humans with style and elegance and confidence and with its head held high. The roar of a tiger is strong....unlike the whimper of the Shiv Sena. The real truth also is that the Congress has been weak and ineffective in containing the Shiv Sena. It appears to be playing politics of its own. In the language of brands, the Congress is a different brand from the Shiv sena - an old-yet-modern, inclusive brand which focuses on economic development and social upliftment; but its trying to copy the Shiv Sena - a totally different brand whose entire existence is based on old fashioned, exclusivist, parochial concepts. Marketing gurus would advise the Congress to "focus" on its own positioning; rather than try to "widen" its brand appeal (called "falling between two stools" in brand marketing). Obviously, the Congress is harming itself by following this strategy. Its also harming the nation in the process.

Wednesday, February 16, 2011

Do we need electoral reforms to eliminate coalition politics?

The PM in an interaction with media yesterday stated something to the effect that coalition politics forced him and his government to make compromises. That Raja, and before him Dayanidhi Maran, was the choice of the DMK leadership and that he (the PM) had no choice in the matter......nor definitive proof against Raja when Cabinet was formed in May 2009. As could be expected, given the present mood of the country, this statement has been received with a high degree of cynicism and disappointment. How can the PM of a country accept so openly that his government was forced to make compromises? Isnt this proof that he is a weak PM?

But honestly, what the PM has said is the truth. Coalition politics is bad for any country. It makes the process of decision making subjugate to political compulsions. Policy decisions are taken not on merits, but on the wishes (actually "demands") of coalition partners. By definition, coalition partners (especially those who come together after fighting an election against each other) have differences on many subjects. For political parties trying to find common ground in forming an alliance, compromising on pricincples is a basic requirement. Everyone knows that coalition partners put stiff pre-conditions before joining an alliance. Coalitions are the best thing that happened to small (read non-Congress and non-BJP parties) parties. Small parties look at coalitions opportunistically - as a way to blood their weak parties. To that extent, public dis-enchantment starts the day the coalition government is formed. But what is the alternative to coalitions? Another round of elections? Would that throw up a different result? If there is no alternative, why is it difficult to accept that a coalition government will involve compromises? Why do we behave so naively when the PM makes a clean breast of it?

Coalition politics adds to the usual pulls and pushes that exist in a democracy in any case. Lets take the nuclear deal as an example. The Congress believed that the deal was good for India. After all, it was an emphatic assertion of its strength as a country since we were getting the deal at our own terms.  The nuclear club that had been formed largely against India was effectively welcoming it with open arms. Under normal circumstances, the BJP would be expected to support the deal. When they were in power, they had expressed a similar desire to make a deal. That they opposed the deal is understandable and indicative of the usual political need to oppose. But when the Left alliance partner of the UPA..... opposed the nuclear deal, it created a messy conflict. In fact, it brought to the fore the very concept of the Left aligning with the Congress given their stark differences on the US and other western countries.

Most issues that have recently dogged the Congress have been created by it's alliance partners. The 2G scam caused by the DMK has proved to be a huge bug-bear. Had it not been for the compulsions of coalition politics, the Congress would have dumped the DMK long back. A lot of the problems of inflation and poor management of agriculture can be attributed to the NCP.....whose head appears to be too old, inept and un-interested in doing his job. Sharad Pawar also appears to be involved in several other scams in the real estate sector in Bombay. Everyone knows that he is the biggest and wealthiest land owner in the state....perhaps in the country. The Congress's own scams - CWG for instance - are minor in contrast. They are cases of "routine corruption". 10-15% of the contract money was siphoned off by Kalmadi in the CWG.....whether it went to him or to the Congress is a matter of detail. They were blown out of proportion by media largely in its own selfish quest for eyeballs. The real damage to the UPA was done by the DMK and the NCP. And yet the public blames the Congress. This is in the very nature of coalitions.....the lead party takes the flak for its partners. It's not like the Congress has been singled out.....the BJP also suffered when the NDA government was ensnared by many controversies caused by its own alliance partners. People expect the lead party to rule strongly.....and like to forget that it simply cannot, given the poll arithmetic.

If we as a nation should be angry, it should be about our election system. A ruling party needs a minimum 50% of the seats. This rule was ok at the time the constitution was drafted. At that time, no one imagined that there would be so many regional parties ruling in the states. Maybe we need to reform that system now.  Mayybe we need a system that allows a party that wins the most seats (even if not more than 50%) to rule. Maybe we should have a rule that the ruling party cannot be thrown out before it completes its 5 years.  Maybe we should not allow post-poll alliances at all. Only pre-poll alliances which fight under a common banner should be permitted......and they should then be compelled to stick together for 5 years if they win. Of course, any new system will have its own problems. The point is this. Do we as a nation have the maturity to understand that any system will have its own problems. Can we behave more maturely?

The real truth is that coalition politics is bad for any country. All of us know about the problems caused by coalitons. The BJP led NDA had its own problems. How can anyone forget the mess caused by George Fernandes in the Tehelka scam? Or in Coffingate? Yet we appear shocked when these things happen. We dont want to accept that some the DMK, AIADMK, BSP and SP.....have made a business out of coalitions. They switch loyalties to whoever gives them the best deal. If we are angry with these problems, lets start by demanding election reforms. Lets debate the pros and cons of a new system. And lets then react maturely to the issues that emerge. Blaming the PM for the current system is not a solution.

Saturday, February 12, 2011

Any research conducted by media is a and enjoy but dont believe

Conducting fraudulent research to prove a point is a scam practiced routinely by media. Take the story in today's paper. A research done across the eight major markets in India shows how angry people are with the government. They blame the government for the inflation and believe that corruption is at its highest ever. Since the research is done by a professional agency, an impression is sought to be made that the findings are fair and unbiased. But the reality? It's a scam!

The title of the story is "India angry....blames government for corruption, inflation". The focus of the title clearly is on scoring a political point. An impression is made that people racked their brains for the reasons for the inflation and that they all concurred that it was the government's fault. However, the reality is totally different. In reality, respondents are never asked what they think about a question. They are always presented a set of options and are asked to choose one of them. By tweaking the options, the desired result can be obtained! Let me prove this with a simple example. Suppose, the question is: Who do you blame for the inflation? And the options presented are 1) The government 2) external factors. Chances are that most people will blame the government. But suppose the options presented were 1) More money in the hands of people and 2) Disruption in supplies of important no matter what you vote for, you dont blame the government! The second set of options is what should be presented.....but the results would hardly be interesting! Anyone who has done research in his life knows that framing the questions correctly is critical to getting the right results......results that would aid decision making. But here, the objective of the research is to prove a point.....adding a little mirch-masala to the content. It's a scam!

Now consider the findings themselves. Who do you blame for inflation? One of the options is Government. Now can you think of any situation where the responsdent wont blame the government. For so long now, the media has been blaming the government for inflation. Now it asks a question on the same subject. What answer do you expect to get? Its like a school teacher telling the students  every day for a full year that the Principal of the school is corrupt (without proving it). And then at the end of the year she asks who is corrupt.....what answer do you think you would get?! Just because the answer is "Principal" does not prove that the Principal is indeed corrupt. It only proves that the teacher is out to get the this case, media is out to get the government!

Even if this wasnt the agenda of media, honestly think.....who would you blame for ANYTHING in the country? If the roads have pot holes, surely you wont blame your local dentist! Since independence, we have been conditioned to blame the government for EVERYTHING. So no big deal really in the findings of this research.

Here's another common trick. Questions which help filter the respondents views better are intentionally not asked. Or if asked, the results are not shown. For eg., if you were asked a question: Why did you buy an AC this year? Chances are that a majority of the people will say because it was very hot this summer. Now there is nothing wrong with this answer. But an astute researcher will then probe a little further: But wasnt it equally hot last year? Why didnt you buy the AC last year? Then the respondent may give the real reason.....he/she may say that actually, this year I got a bonus and I thought I will buy an AC. See how probing helps in getting the real answer?! But in the research on inflation.....the subsequent question that should have been asked was not asked: Do you think that the BJP government could have controlled inflation better? After all, if the context of the research was political, the question should have been asked. If it had been asked, my bet is that the results would have been a mixed bag! It would be a split verdict. In fact, I suspect the results would pretty much reflect the political views of the respondent and hence reflect the relative support levels of the two parties. If you were a BJP supporter, you would say: Yes the BJP would have controlled inflation better. But if you were a Congress supporter, you would say No. I am accusing media of intentionally not probing further if it does not suit their objective: in this case, that of docking the government.

One last point.....have we as a country EVER believed that corruption was not at the highest level???? So what does this research prove. Nothing!

The real truth is that such researches are all scams. They are conducted with the intention of adding masala to newspaper and TV content. The results should be read and enjoyed but never believed or taken seriously. If a similar research had been conducted in 2009, similar results may have come out. And yet, the Congress went ahead and won the elections held that year! People decide on who to vote for by looking at how their own life has improved in the last five years. So people may agree that there is inflation, but they may also feel (and they will never admit this in any research) that they have more money in their hands. And they may vote again for the ruling party.

Using research to prove a point is an old media scam. Almost as old as corruption itself!

Friday, February 11, 2011

Shame again for Anil Ambani

I had commented on Anil Ambani in one of my earlier posts. He's been an iconic personality for me for several years and I think somewhere deep inside me, I still carry this feeling for him. It’s out of anguish that I had written the first piece "Time for Anil Ambani to pause and think” (Jan 14th). It’s out of anguish again that I write this piece as well.

Anyone remotely connected with the stock markets knows what I am talking about. ADAG group stocks plummeted earlier this week by as much as 10-15% on a single day. This is extremely un-usual and reflects the very strong current of investor dis-enchantment with this towering industry leader. Because of the very personalized nature of the identity of the ADAG group, this pounding of the stock reflects personal distrust of Anil Ambani. It’s a commentary on what investors think of corporate governance in the ADAG group, its business practices, it’s penchant for taking short cuts and playing around with the political system, and its complete incompetence in keeping all of this out of public glare.

It all started off with a 2nd complaint filed by the audit firm “Parakh & Co” that the Reliance group was threatening them and not allowing them to do their work. Parakh & Co had been tasked by the DOT in 2009 to look into the books of accounts of all the telecom companies in the ADAG group. A six member DOT team had framed the terms of reference for the probe. Based on their findings, it appears that there has been under-payment of license fees due to the government. RCom filed complaints against the auditors at the Institute of Chartered Accountants of India (ICAI), Registrar of Companies (RoC) and even the anti-extortion cell of the crime branch of Mumbai Police – alleging I guess (given the complaint at the anti-extortion cell) that the auditors were extorting money on the back of what they found. This means that they found something. The auditors saw this as harassment and have now complained a second time to the DOT in less than 6 months.

The point is not whether RCom is right or the auditors. The point is that this has been so badly mishandled. How can such accusations be made against such a big group? How can RCom not handle the PR around the issue better? After all, they are very good in handling the government. There is this concept about allegations…..they stick to some and they don’t stick to others. These charges appear to be sticking to RCoM. People at large and Investors in particular seem to be believing that these charges are right.

As a result, the stock price of RCoM has plummeted below Rs 100. Its market capitalization is down to Rs 20K crores (Airtel 1.2 lac crores; Idea 21K crores. Voda and Tata Docomo are unlisted and surely their market caps are way higher than RCoM’s). Investors have lost crores of rupees in the process.

It’s the same story in all the other group companies of ADAG as investors believe that similar accounts fudging must be happening in all cos. Overall, the entire ADAG group has suffered terribly financially and more importantly, in terms of its reputation.

The real truth is that Anil Ambani is handling the situation very poorly. He should handle it much better. There is no point in taking the auditors to court or filing criminal charges against them. He must cut his losses. He must make a statement assuring his investors that he will personally look into the charges and make sure they are not repeated. Maybe he should sack a few senior people (this is the sad part of a professional’s life….he is often sacrificed for unfair reasons!). He must promise investors a better style of corporate governance. And adopt a style based on tapping market opportunities rather than taking the short cut to profitability. Investors will surely give him a second chance. If only he has the humility to ask for it