Dump the wrong cultural models of corporate governance

Culture matters in every sphere of society. Whether politics or corporate administration. Whatever the cultural traits of a particular society is reflected in the functioning of other branches of the society. India is more deep rooted in the traditional culture yet confusedly addicted to the Western culture. Due to this paradox it faces a chain of problems in all arenas of the society. The fungus and virus which are infecting the Indian society needs to be uprooted. The process also need to protect the Indian systems from the evils of Western model of development. Over celebration of the Western system and giving it a clean chit is very myopic and factually negative way of painting the development sector. The Western world is also full of flaws. What is required is a new and clean model of development. Whoever develops it needs to be practiced.

R. Gopalkrishnan writes in The Economic Times on 3 May 2010,

Urban middle class Indians think in English but act in Indian . For example, flexibility and compromise is very Indian. Nee katru, naan maram, yenna sonaalum, thalai aattuven (you are the breeze, I am the tree, my head will sway whichever way you blow), sang Hariharan in the 1998 Tamil film Nilaave Vaa.

Praising to persuade is quite Indian. Hanuman allowed himself to be captured so that he could deliver Rama’s message personally to Ravana. Everyone in the Lanka court wanted Hanuman executed. Only Vibhishana interceded by first praising Ravana and only thereafter suggested a lesser punishment.

Judging through background and appearance is Indian. Urban middle class Indians think that educated Indians (like them) who speak English are likely to be more reliable than their vernacular counterparts. The truth is that unless the raja and leaders are honest, the praja will not be honest.

In the Mahabharata, Duryodhana said, “Contentment and patience, though the virtues of ordinary men, are not virtues in kings.” With that pompous statement, he invited Shakuni to deploy his wiles at his court leading to the battle of Kurukshetra. Why culture matters: Culture matters in many things, including in corporate governance.

The Indian practice need not be completely different from the west, but it must embed cultural influence. The western mind is shaped by the Greek philosophical tradition of analysis, linearity and abhorrence of ambiguity. It believes in a unitary sense of right and wrong and lays great emphasis on meritocracy.

On the other hand, the Indian mindset represents integrative and perambulatory thinking with a great tolerance for ambiguity . Nothing is black or white, everything is shades of grey. Merit is important, but so are age, connections and lineage. These show up in many ways:

Alan Greenspan was Fed Governor in the US till 2006, just before the meltdown. In his book, Greenspan viewed instability analytically and wrote, “Regulation, by its nature, inhibits freedom of market action, and that freedom is what rebalances markets… I fail to see how adding more government action can help.” Dr Y V Reddy was India’s central bank governor.

He viewed the undefined issues of instability intuitively and wrote, “The challenge shifted from managing the successful integration of the Indian economy with the global economy to managing the impact of the global crisis on India.” Very different ways of seeing the same thing.

Indian events are a Grand Spectacle where a few are doers; a few more are lurkers, while many are watchers. For example, think of the doers, lurkers and watchers at our airport security, at a district government office or at an Indian wedding. Even cricket fits the doer-lurker-watcher pattern: four doers, 18 lurkers, and thousands of watchers!

Although the Mughal Empire had long spent its course by 1857, when the soldiers of the Gangetic plains wanted a leader for their movement, they agreed on an illogical choice: the defunct Bahadur Shah Zafar. Dynastic choice was thought to be less unacceptable than a merit-based choice.

Why institutions matter: Politics and government are poor examples of governance. The government is a poor custodian of public assets.

In a recent case at the Panaji bench of the Bombay High Court, the local government lawyer unabashedly stated that “the ants had eaten up 24 kg of charas from the official godown where the government had stored the charas seized from drug traffickers .” The drug racket by local public functionaries is not Goa’s best-kept secret!

Political leaders preach corporate governance , but are silent about political governance . Party accounts are never published, let alone quarterly or being audited by rotating auditors. Parties expect Anglo-American corporate governance but practise Indian political governance.

A few years ago, the government sold a majority shareholding in a PSU through an open process; the concerned minister was unhappy about the buyer and he expressed his unhappiness in several ways. Memorably , he wagged his finger that he would not allow the buyer to implement changes as it was ‘his money’. The 26% owner was warning the 45% owner that he would thwart attempts to change! And he got away with it.

The high-handed behaviour of some government directors on PSU boards and indeed the very functioning of many PSU boards set a poor example to the private sector. The message is right, but the messengers are not credible. How do we live with such contradictions?

It may be because of an awe of rulers. For 25 of the last 30 centuries, citizens’ local issues were sorted out by local panchayats. The ruler or king was a remote person, even thought to be God. Be it the Mysore Dussera Festival or the Nizam of Hyderabad, royalty has always been awesome to common folk.

May be that is why industrial captains are in awe of leaders either or may be for reasons of enlightened self-interest . Exceptions apart, many corporate leaders subconsciously adopt a subservient role in their interaction with ministers.

Politics and business share some things: dynastic leadership, confounding arrangements , one-upmanship and disdain for rules at higher levels. There is a further implicit connection between politics and business. Politicians used to view business as an akshaya patra for funds.

As deregulation denuded the akshaya patra, politicians themselves entered business with benamiidentities — as suggested by the ownership of IPL cricket — the mushrooming higher education colleges and private airlines. Though most politicians avoid garlands of currency notes publicly, they do possess enough currency to make many garlands!

While government pretends to govern, influential citizens pretend to obey them. Highly-connected offenders roam freely with the attitude that they can expose others or that the law is corruptible and inefficient, so nothing can happen to me.

In the US, allegations of the misuse of corporate funds or insider trading, like with Vinod Gupta or Anil Kumar, are brought to speedy conclusions. India cannot emulate this despite adopting the American corporate governance principles.

Like other institutions of democracy, the corporate sector too is flawed. The relationship between shareholder democracy, authoritarian leadership and company growth is not linear and it defies a neat mapping. Some thoughts: I am not sure how, but corporate governance practices need to be tweaked from being precise and prescriptive to being directional and intuitive.

Investors and independent directors should watch behaviour, not only compliance. A structural weakness in India is the poor performance of the institutional shareholders . They need training and encouragement.

They must focus on honesty of purpose and intent rather than just on the rules and regulations. The hard truth is that if the owner, CEO and CFO conspire, no corporate governance system can work. You can arrest the auditor and jail the director, but that will not prevent the next incident where evil intent is present. The Satyam case is the best evidence of this.

The giveaways of bad governance lie in behaviour. Pratip Kar, while at Tata Management Training Centre, showed that one or more of five signals from the C-Suite provide early warning: constantly being applauded by the media as being visionary and daring; displaying excessively risky but exciting ambitions ; showing high connections and lifestyle ; being hubristic and egoistic; being surrounded by ‘non-smelly’ individuals, yet appearing ‘smelly’ .

As former Sebi chief M Damodaran has said, Indian executives regard the boss or the promoter as the karta of the Hindu Undivided Family. The promoter is the ultimate. The top leadership may have managers who kiss up and kick down; who are eager to please the boss. These are telltale signals that need to be considered by intelligent investors.

Review related party transactions with care like a Lakshman Rekha. All related party transactions are not bad or suspicious. But this is the line that is normally breached to achieve differential enrichment . Just as Lakshman drew the line for Sita for her protection, independent directors should regard related party transactions as the watch-line for shareholders and be very alert in an intuitive way.

Independent directors need to be emotionally accountable to minority shareholders. Independent directors represent the interests of minority shareholders. They are elected by the shareholders. The role of the lead director can be strengthened and the lead director should feel accountable for initiating steps to protect minority interests. He can be answerable in writing or in person where necessary.

Focus the rule book on what a board cannot do. There are too many regulators and rules, but too little regulation. Corporate governance rules describe in minute detail how a board is to be composed and all that a board has to do.

In sports, the rule book tells you what you cannot do, and the rules are, therefore, simple. In football, you cannot touch the ball with the hand, you cannot physically push the opposing player and you cannot be ahead of the last opposing player (other than the goalkeeper) before receiving a pass to shoot for the goalpost.

Western intellectuals are reviewing their own model. Sir David Walker, the senior guru of UK’s corporate governance, has wondered whether the western system should be copied by the developing world because the eastern model seems to have advantages.

Magdalene College senior research fellow, Stefan Halper, has wondered in his new book The Beijing Consensus whether the market authoritarianism of the east has some virtue. I wonder whether India needs a modified kind of corporate governance rule book.

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Silly Market Reacts Negatively

bombay_stock_exchangeThe stock market is known for erratic behaviour. After all it is a five sensed dumb operated by six sensed people who are directionless. Despite the good pumping of public funds to boost up the growth in the last budget it nosedived more than 800 points in a single day. But now it is zooming because there is a possibility of disinvestments. Definitely the market analysers don’t have judicial analysis of the budget.

Abheek Barman writes in The Economic Times (21 July 2009)

Despite the crash after Pranab Mukherjee’s big-spending bu-dget earlier this month, India is now the best performing emerging market in the Volatility in the stock markets world. The MSCI India index is up an eye-popping 58% from January. But has anything changed from July 6, when the budget was presented to now, to merit the surge? Practically nothing.

Yes, the government has made noises about disinvestment, a topic that the finance minister skirted in his speech. We’ve been told that at least seven reformist amendments will be brought to Parliament before the session ends. And the finance ministry is trying its best to convince us that the massive Rs 450,000 crore borrowing in the budget won’t all be funded by crisp rupee notes printed by the Reserve Bank of India.

If all these things get done, they’ll help. But remember, disinvestment is a long process. We’ll have to see how much money the government prints and how much fuel that adds to inflation. And the budget session will end on August 7, so the government has two weeks to push reformist legislation through. Clearly investors aren’t responding to reforms or the big macro picture while pumping dollars back into Indian equities.

They’re probably excited by the fact that Indian companies are growing profits faster than anyone expected. So far, about 130-odd companies have announced their first quarter results and the numbers look great: profits are up by a third. But those gains have been squeezed out by cutting costs, not through surging sales. If earnings don’t grow as fast as share prices, the price to earnings (PE) multiple will bloat, setting us up for another crash.

Today the sensex trades a little more than 17 times the earnings of its 30 companies. That’s more than double the multiple of eight that it plunged to in November last year, when the market hit bottom. Today’s PE multiple is not frightening, it’s still lower than the figure of 25 it hit on December 16, 2007, at the peak of the equities mania. But I’m scared at the speed at which the market has run up. Too much, too fast could set us up for another bubble in stocks. And that’s something we simply can’t afford.

Yes, India is one of the great economic stories for the century. Most people agree that it has the potential to grow fast for a very long time, may be for the next 20 years or so. Its population is young and energetic. And there’s no question that India’s appetite for roads, bridges, ports, schools, hospitals and energy will continue until all Indians have a chance to lead a life of dignity.

It’s also true that there are very few countries that offer India’s blend of democracy, courts, diversity and demographics. By sheer chance, India was colonised by the British and not, say, by the Dutch or the Portuguese. That chance happening made sure that many Indians speak and write English, something that’s useful when English has become the dominant language for science, technology and business.

But that’s the long-term story, and we know that financial investors — pressed to show returns every quarter — don’t get in and out of markets for the long term. Ultimately financial investing is all about buying into companies that promise steady revenue and profit growth. Today, we’re seeing faster than expected profit growth, but the topline moves sluggishly. Slow sales growth means only one thing: demand is growing slower than expected.

That’s supported by another piece of evidence: from December 2008, when economies tanked the world over, to May this year, India’s imports have been contracting. Now, imports measure the ability of India to absorb goods and services from all over the world. If that’s in negative territory, then there’s certainly been a slackening of demand in the economy. Sure, commerce minister Anand Sharma says that the rate of decline has slowed, but neither Sharma nor anyone else can predict when demand will bounce back.

Demand is slack in India. Demand is falling in many parts of the world. Meanwhile, there’s a giant wave of cash that’s building up, ready to turn into a tsunami of funds. These funds will flood into any market that looks better than the rest.

For example, China’s printed 28.5% more money from June last year, to June this year. The US has forked out tens of trillions of new dollars to restart its economy. It’s the same in Europe and Japan. And our government has promised to spend a whole lot more to make sure growth doesn’t stop.

So, there’s a lot of money in the system. Right now, this money is going to restore confidence, shore up banks, mend financial systems, and get people to spend. But soon, there’s going to be a very large amount of money chasing too few good assets.

If you look around the world, India looks very attractive: low risk, low exposure to export markets, around 7% growth, and a regulated — but relatively safe — banking system. So, I fear, India is going to be one place where this funds tsunami will head. We’re seeing the first breakers from that wave hit us. That’s probably why we’re seeing markets run up so much, so fast.

That is the most plausible explanation that I can find for a more than-100% jump in the sensex’s PE multiple. What that means, essentially, is that the gap between the price of a share and the profits earned on that share has widened more than twice, from eight to 17. You could argue, quite reasonably, that the lower number was a product of unnatural circumstances — the fallout from the worst crash in living memory. Point taken, but the recent run up has happened at terrifying speed, as the Indian market has raced up within eight months of its recent lowest ebb.

Can policy help? Unlikely — and probably undesirable — as any action by the government to stem the tide of money coming in could cause investors to turn tail. That in turn could create further problems with exchange and interest rates and foreign currency reserves.

But there’s hope. If the tsunami of money breaks up into smaller waves that hit different countries around the world, the impact on India will be less severe. For example, a lot of the money will flow towards China, a lot of it will head our way. But as the US and Europe emerge from their troubles, investors will find value there as well. Everyone loves a healthy, growing market. Recent experience has taught us to be very wary of irrational run-ups.

GST should be put in

There are price variations and duping on the products. Customers are troubled over many golmals by the shopkeepers. Their basic excuse is the tax varies from state to state. The proposed GST will remove this anomaly and increase the national integration of the people and reduce their pain.

Pratik Jain, Executive Director of KPMG writes in The Economic Times (21 July 2009)

When the finance minister reaffirmed implementation of GST from April 2010 in his budget speech, not many were convinced. However, in his
post-budget interactions with industry associations the following day, the minister indicated that the deadline of April 2010 is indeed realistic and the country may adopt a ‘partial’ GST regime in case some of the states do not to come on-board by that time.

Now, this is the first time that the government has talked about partial GST, much like state VAT, when most of the states implemented from April 1, 2005, while few came along the way later. Obviously, this has created a bit of confusion and there are several unanswered questions.

The first obvious issue is what would be the form of partial implementation. Does it imply that while Central GST
would be implemented uniformly in all states, the state GST would only be implemented in select states? The other alternative could be that even Central GST is not implemented in states which are not ready for the big move on 1 April 2010. The first scenario seems more fungible, as partial implementation of Central GST could lead to nightmares. Therefore, it is reasonable to assume that even in a partial GST scenario; the Central GST would be implemented in its entirety.

The issues and anomalies likely to result from piecemeal implementation are numerous. These include seamless flow of state tax credits on inter-state transactions, rate mismatches between GST and non-GST states resulting in diversion of trade, levy of state GST on services, etc.

Though the last major indirect tax reform i.e. VAT was also implemented in phases over a period of 2 years, it may not be prudent to rely merely on success of VAT and presume that phased implementation of GST would also yield similar results. There are fundamental differences between the two levies, with partial GST having much wider ramifications as compared to partial VAT regime.

For instance, VAT is purely a state subject and does not impact transactions involving multiple states. Therefore, transactions between VAT and non-VAT states (such as inter-state sales/ stock transfers) did not warrant any special treatment. Such transactions continued to be governed by the Central Sales Tax (CST) laws, which applied uniformly across all states, and was collected by the state of origin.

However, under GST, since CST is likely to be phased-out and replaced with some sort of destination based tax, a special taxing scheme would need to be devised for transactions between GST and non-GST states. For instance, when goods are sold from the GST to a non-GST state, then how will it be taxed? GST state can not tax it (assuming origin based CST is abolished by then).

Similarly, non-GST state can not tax it as the destination based taxation under the GST regime would not be applicable to them. Then, are we saying that under partial GST, we will continue with CST in some form?
Under GST, the states would also be given the right to levy and collect state GST on select services. While articulating the ‘place of supply rules’ for ascertaining the relevant state that would levy state GST itself would be a difficult task (given the international experience), drafting these rules with exceptions for non-GST states would be even more difficult.

For instance, if a taxable service is consumed in a non-GST state, the state would have no power to levy service tax/state GST on the supply. Will this not give an unfair advantage of the consumers of a non-GST state over the GST state? Or will the Centre perhaps levy Central GST on such transactions at a higher rate in the non-GST state, and then pass on a part of proceeds to the state? If the view is that under partial GST, the states will not be levying tax on services, then would that be a real GST?

Currently, a mean rate of 16% (8% Central GST and 8% state GST) is being talked about. However, in a non-GST state, the rates could be different, as currently on most products standard VAT rate is 12.5%. If these states do not align their rates with the state GST rate in the neighbouring state, then there would definitely be diversion of trade, removal of which is one of the primary objectives of GST.

Then there would be several procedural and administrative issues as well. For instance, the taxpayers with operations spread over GST and non-GST states would need to have two sets of internal processes, IT infrastructure, invoicing mechanism, etc. Fixation of MRP for products sold in different geographies would also be a challenge in light of the variations in tax rates, credit mechanism, etc.

To conclude, it may not be absolutely reasonable to tread the path of a major reform by taking the first step back instead of forward. While such a bold move may be warranted in exceptional circumstances, many would argue that there is nothing egregious about the existing tax regime that would make the 2010 deadline sacrosanct.

After all, we have been operating in this regime for past several decades, and have still managed to be one of the fastest growing economies in the world. Therefore, before taking a final call on the transition date for GST, one would hope that the implementing agencies would have taken into account all ramifications and the alternatives available.income-tax-tom

Hats off to the economic survey

surveyIt is good hear the hopeful news from the economic survey for the year 2009-10. It promises the good health of the Indian economy despite the global shockwaves. If this is going to be realised then we must salute the country’s ruling representatives.

The Economic Survey 2008-09 says India’s economy is in revival mode. But we’re asked to junk complacency. Fiscal measures taken so far to beat the
slowdown could trigger high inflation down the line. That’s why the survey makes a welcome pitch for big-ticket reforms to improve the investment climate. Will the finance minister act? What’s for sure is that, come budget day, he must prove a consummate juggler. He must target growth despite weak private demand. But he must weigh fiscal stimuli against their potential inflationary effects. He will want to boost social spending. But that mandates fund-raising. He may provide tax sops. Yet he must tackle thinning tax collections. And there’s the fiscal deficit. Ergo, populism will pinch.

On taxes, broad-based reform means pushing the goods and services tax (GST). Boosting compliance, GST will fatten public coffers in a way high taxes, leading to tax avoidance, can’t. Aam aadmi and industry expect the FM to read their lips about no new taxes. People face high food prices and, now, more expensive fuel. Businesses face feeble domestic and global demand. Some comfort is expected on personal income tax, whether lower rates, higher exemptions or restored standard deduction. India Inc wants surcharge on corporate tax removed and the tax rate brought in line with global averages. Plus there’s a case for dumping the fringe benefit tax, which penalises employers for incentivising staff or burdens employees when perks morph into taxable pay. Equally, it’s sensible to continue with stimuli like reduced service tax and CENVAT. Finally, the New Pension Scheme should make withdrawal tax-exempt if it is to find takers.

Greater budgetary support is anticipated for social programmes. However, the problems of unmet targets, unutilised funds and leakages must be addressed. Infrastructure needs a big push, with penalties against time and cost overruns. Whether mammoth projects involve food security or housing for urban poor, workability issues are paramount such as identifying the beneficiaries of subsidies and ensuring Centre-state coordination. Alternative mechanisms to PDS ^ direct cash transfers, food coupons ^ can be experimented with. Increased social sector allocations mandate improved delivery systems and, here, the unique ID scheme will be invaluable.

As for financing social schemes, taxing the rich or public borrowing are bad pills given their side effects. We urgently need the reform route to resource mobilisation: disinvestment, subsidy rationalisation, fuel price deregulation, auctioning of spectrum for 3G. Finally, fiscal responsibility and budget management norms need reviving to promote debt servicing and sustain India’s global credit rating. More so, since India needs FDI in sectors like retail, insurance, education and infrastructure. Foreign investors need convincing about the structural strengths and growth potential of Asia’s third largest economy. Let Budget 2009-10 make a persuasive case.

Eradicating Hunger from India

food securityProviding healthy, hygienci and nutrious food for all citizens is the biggest challenge for the government. This can be achieved only by increasing the food production multi-fold and plugging the loopholes in the supply chain. Either the purchasing power of everyone should be increased by providing high income or government should transact cash through nationaliProviding healthy, hygienci and nutrious food for all citizens is the biggest challenge for the government. This can be achieved only by increasing the food production multi-fold and plugging the loopholes in the supply chain. Either the purchasing power of everyone should be increased by providing high income or government should transact cash through nationalised banks for the poorer people. This can be achieved by providing a smart card. The UPA II should expedite this process through UIC and remove hunger from the map of India. Chaitanya Kalbag writes in The Times of India (3 July 2009) I remember standing in long queues at ration shops in Calcutta, Madras and Delhi when i was younger. Lines for food were a part of everyday life. You got substandard rice and dirty, large-grained sugar. The majority of Indians lived on rationed rice, sugar, kerosene, palmolein and even cloth. My children are the first generation to not experience food rationing. It is interesting that you see fewer queues in India today. But don’t think for a moment that we are a land of plenty. You see fewer queues because there are far more ghosts. The Green Revolution did fend off famine, but the definition of famine is very subjective. I was reminded of the fragility of India’s food situation this past week as the clangour about the delayed monsoon began to get deafening. Agriculture minister Sharad Pawar assured the people that there were ample foodgrain stocks. Probably very true and comforting if you are talking to real people, not ghosts. The trouble is that our ration shops (there are half a million of them) supply wheat, rice, sugar and kerosene to a lot of people who don’t exist. The government estimates that there are 65.2 million people below the poverty line (BPL) and so entitled to rations of 20 kg of foodgrains a month at half the “economic cost”. But there are actually more than 80 million ration cards issued to BPL families. That is not all. The government has issued a total of 223 million ration cards against a total estimated 180 million households. In other words, there are at least 43 million ghost cards. Reportedly, prisoners in one US state get only two square meals a day three days a week. “This is inhumane,” a newspaper editorial said. Over here in India, the government says blandly: “A National Sample Survey Exercise points towards the fact that about 5 per cent of the total population in the country sleeps without two square meals a day”. That is 60 million people. The Antyodaya Anna Yojana aims to help the truly destitute by selling them up to 35 kg of foodgrains a month ^ rice at Rs 2 and wheat at Rs 3 a kg. As of April 2008, the government had identified 2,42,755 “poorest of the poor” families. The UPA government has taken power almost exactly midway through the 11th five-year Plan. Next Monday, finance minister Pranab Mukherjee might want to address some of the concerns spelled out in the Plan documents. “There are large errors of exclusion and inclusion and ghost cards are common,” the Planning Commission says, adding that “leakages” are common ^ higher than 75 per cent in Bihar and Punjab. During 2003-04, it estimates that eight million tonnes of foodgrains out of 14 million allotted to BPL families never reached them. “For every 1 kilogram that was delivered to the poor, Government of India had to issue 2.23 kilograms” of foodgrains. These figures have almost certainly worsened over the past year as the economy slowed down. And this is happening at a time when foodgrain prices have been rising steadily, despite misleading data that shows that India’s official measure of inflation, the wholesale price index (WPI), is now slightly negative. Although experts say the WPI is a more reliable, broader measure, the consumer price index, which takes in what the aam aadmi buys everyday, has put inflation at over 10 per cent in the 2008-09 fiscal year. Higher prices hit the poor hardest. Statistics show that in rural India, the poor spend close to half their incomes on food, and higher food prices are deepening malnutrition. Higher prices also mean changes in food habits. Cereal consumption has been falling steadily in rural India ^ from 15.3 kg per capita per month in 1972-73 to 13.4 kg in 1993-94 and 12.12 kg in 2004-05. This would not have been alarming if the poor were consuming more of other foods like milk, meat, vegetables and fruits. Over a 20-year period, the Planning Commission says, per capita consumption of calories and protein has steadily declined in India. The calorie norm for the rural poor was set at 2,400 calories a day, and rural India’s calorie consumption has dropped to 2,047 calories from 2,221. In urban India, cereal consumption has fallen less precipitously, from 11.3 kg in 1973-74 to 10.6 kg in 1993-94 and 9.94 kg in 2004-05. No wonder one-third of India’s adult population in 2005-06 had a body mass index below 18.5, the cut-off for malnutrition, or that India accounts for about half the developing world’s low-body-weight babies, and a very high rate of anaemia among women and girls. The new government has said it will push a Food Security Act. What those 60 million forever-hungry people need is nutritious food, and clean drinking water. Pawar and Mukherjee have their work cut out for them. sed banks for the poorer people. This can be achieved by providing a smart card. The UPA II should expedite this process through UIC and remove hunger from the map of India. Chaitanya Kalbag writes in The Times of India (3 July 2009) I remember standing in long queues at ration shops in Calcutta, Madras and Delhi when i was younger. Lines for food were a part of everyday life. You got substandard rice and dirty, large-grained sugar. The majority of Indians lived on rationed rice, sugar, kerosene, palmolein and even cloth. My children are the first generation to not experience food rationing. It is interesting that you see fewer queues in India today. But don’t think for a moment that we are a land of plenty. You see fewer queues because there are far more ghosts. The Green Revolution did fend off famine, but the definition of famine is very subjective. I was reminded of the fragility of India’s food situation this past week as the clangour about the delayed monsoon began to get deafening. Agriculture minister Sharad Pawar assured the people that there were ample foodgrain stocks. Probably very true and comforting if you are talking to real people, not ghosts. The trouble is that our ration shops (there are half a million of them) supply wheat, rice, sugar and kerosene to a lot of people who don’t exist. The government estimates that there are 65.2 million people below the poverty line (BPL) and so entitled to rations of 20 kg of foodgrains a month at half the “economic cost”. But there are actually more than 80 million ration cards issued to BPL families. That is not all. The government has issued a total of 223 million ration cards against a total estimated 180 million households. In other words, there are at least 43 million ghost cards. Reportedly, prisoners in one US state get only two square meals a day three days a week. “This is inhumane,” a newspaper editorial said. Over here in India, the government says blandly: “A National Sample Survey Exercise points towards the fact that about 5 per cent of the total population in the country sleeps without two square meals a day”. That is 60 million people. The Antyodaya Anna Yojana aims to help the truly destitute by selling them up to 35 kg of foodgrains a month ^ rice at Rs 2 and wheat at Rs 3 a kg. As of April 2008, the government had identified 2,42,755 “poorest of the poor” families. The UPA government has taken power almost exactly midway through the 11th five-year Plan. Next Monday, finance minister Pranab Mukherjee might want to address some of the concerns spelled out in the Plan documents. “There are large errors of exclusion and inclusion and ghost cards are common,” the Planning Commission says, adding that “leakages” are common ^ higher than 75 per cent in Bihar and Punjab. During 2003-04, it estimates that eight million tonnes of foodgrains out of 14 million allotted to BPL families never reached them. “For every 1 kilogram that was delivered to the poor, Government of India had to issue 2.23 kilograms” of foodgrains. These figures have almost certainly worsened over the past year as the economy slowed down. And this is happening at a time when foodgrain prices have been rising steadily, despite misleading data that shows that India’s official measure of inflation, the wholesale price index (WPI), is now slightly negative. Although experts say the WPI is a more reliable, broader measure, the consumer price index, which takes in what the aam aadmi buys everyday, has put inflation at over 10 per cent in the 2008-09 fiscal year. Higher prices hit the poor hardest. Statistics show that in rural India, the poor spend close to half their incomes on food, and higher food prices are deepening malnutrition. Higher prices also mean changes in food habits. Cereal consumption has been falling steadily in rural India ^ from 15.3 kg per capita per month in 1972-73 to 13.4 kg in 1993-94 and 12.12 kg in 2004-05. This would not have been alarming if the poor were consuming more of other foods like milk, meat, vegetables and fruits. Over a 20-year period, the Planning Commission says, per capita consumption of calories and protein has steadily declined in India. The calorie norm for the rural poor was set at 2,400 calories a day, and rural India’s calorie consumption has dropped to 2,047 calories from 2,221. In urban India, cereal consumption has fallen less precipitously, from 11.3 kg in 1973-74 to 10.6 kg in 1993-94 and 9.94 kg in 2004-05. No wonder one-third of India’s adult population in 2005-06 had a body mass index below 18.5, the cut-off for malnutrition, or that India accounts for about half the developing world’s low-body-weight babies, and a very high rate of anaemia among women and girls. The new government has said it will push a Food Security Act. What those 60 million forever-hungry people need is nutritious food, and clean drinking water. Pawar and Mukherjee have their work cut out for them.

Relationships in Recession

relationshipMoney matters in human relationships. Few can be exceptions to this universal practice. The global economic melt down tests the love capacity of people. When the money flow is affected, jobs are cut and purchasing power is down, one can feel the heat in day to day lives. Not only his smile is missing but the real charm of life is gone. The person is pushed to the extreme of frustration. He feels empty without income and enough money to spend. Suddenly all his friends are deserting and girl friend dumped him. Love is boiling in the extreme financial climate. Very few candlelight dinners, spa tours, beach swims and exotic vacations. Romantic relationships are getting dumped and switched for the lack of money.

In another case wife is distancing and children are not taking his words seriously. Is this universal or India specific? In comparison to the western nations, India may be better off in this matter. With the strong support of family and fair saving culture, there is an insulation for men during the time of recession. Women tend to keep safety valves. Beyond these savings and safety valves some people are prone to the break offs. This is due the fragile nature of relationships. Where there is a strong human bondage, no money flow would not affect the relationship much.

When the job was there men did not have time now the reverse is happening. Time spending is not sufficient. Money is required to keep women and time happy. How can time fly without giving money punch to it? In a matter of months there is an upside down of situations. From time short to money short corporate men lives are undergoing massive changes. If the saving and alternative sources of income are there human relationship suffer less.

Anjali Kaur (23) says “Chemistry with my boyfriend topsy turved after the recession news broke. He was fired from his job. I tried analyzing from all angles. There is no point in keeping the relation alive. How far I can go with him without money”.

Aparajita Mukherjee writes in Times of India (7.2.2009, p.10) “And these power women aren’t concerned about society’s opinions on their decisions. They have a very clear idea of what they want from their relationships in the long term, ali points out, “I can’t take a man with no job to my parents and ask them to be proud of my decision, na!” Kanak also agrees, saying “Like I said, it’s important that I lead a good life. I’m making the best decision for my future and even my parents would advise me against continuing a relationship with a man who is unable of giving me the standard of life I’m used to. So I don’t care about the gold-digger tag, really!”

Fast-track relationships have a short shelf-life according to this power-woman. “Life is too short and I want to lead a good life, I have to make sure I have a partner who gives me that,” says Kanak. Charu Parashar, a designer, who’s happily married. In her perspective, “the disposable income in the hands of youngsters these days has increased and they believe in instant gratification. These days, if a woman is suddenly faced with no additional resources at her disposal, which she counts as important for fulfilling of her needs, then she makes a quick exit.”
It is nothing but natural to have such money based relationship when basic social norms were abandoned for instant happiness. Where there is no ethics human relationship are bound to fail. The current recession should bring back human instincts and ensure a strong family bondage and genuine human love. Money is required for living but it should not be a pre condition for any human relationships. There are innumerable incidents where husband and wife struggled to built their relationship and family. Who can wait? is the common question in today’s world. Remember! Relationship can be sustained only through sacrifices.

Fitting Recession Solutions

images2Economists are much sought after during the recession periods. Although they are responsible for both good and bad prescriptions governments keep them close to its time-to-time advices. Like the popular bipolar socio-economic ideologies – capitalism or socialism, recession solutions too are neatly divided. Hayekian or Keynesian solutions dominate the tables. In this age of private sector collapse many governments are compelled to go for Keynesian solution. This model makes the establishment to spent a large amount of its funds in the social sector. The USA administration under George Bush II spent injected $2 trillion to cool down the boiling economy.

 

 A Keynesian recession is a sudden trip down in demand and it can be remedied by pumping in adequate money in the hands of people. Some countries are fancying the idea of airdropping currency notes on the rooftops of rural households. Keynesian solution envisages six months to rescue the bad economy to get back to normalcy after giving enough purchasing power to the people.

 

On the contrary Hayekian model wants long term to correct the imbalances in the economy. The structural adjustments or solutions are advocated to the set the economy straight. Economist of Hayekian order quote the grave crisis during the great oil problem in the seventies and successful rescue operation carried out by its ideologues. The Oil shock of 1973 attracted initially heavy Keynesian solution. But the trade union activism diluted the huge pumping of money into the public services and stopped the intentions of the government and attracted Hayekian method. For nearly three decades this model worked may be due to the absence of various detrimental factors rather than the good effect of Hayekian principles.

 

A careful study into the economy tells that neither of the two in full dose is detrimental. Long term abandoning of social sector by the government and structural adjustments are equally dangerous. While doing the former the latter should not be forgotten.  Swaminathan S Anklesaria Aiyar writes in the Economic Times (28.1.2009, p.16) “The current recession is deeply structural. For decade, the US has run the biggest trade deficits in history, matched by corresponding trade surpluses of China, OPEC and other Asian countries. After the financial crisis of 1997-99, any Asian countries swore to build large forex reserves to avoid another debacle. So they deliberately undervalued their exchange rates, ran large current account surpluses, and so generated large forex reserves. This had to be mirrored in correspondingly large current account deficits in some other countries. The biggest turned out to be the US.”

 

This defied conventional economic logic. Normally, rich countries run trade surpluses and send their excess savings to poor countries with scarce capital that are running trade deficits This normally was turned on its head by Asian countries determined to build large forex reserves after the trauma of 1997-99. These forex reserves went mainly into US gilts.

 

“These bubbles have now burst. A Keynesian stimulus amounts to an attempt to re-inflate those bubbles. That is neither practical nor wise. The US government in 2008 mailed $80 billion to households to stimulate spending, but households spent only $1.2 billion of that and saved the rest they knew, even if politicians did not that the old spending spree had to stop.”

 

Now the governments are in do or die situation. It should follow Keynesian model at the moment and take Hayekian course in the long run. An adequate mix of both is necessary to keep the economy on track. A mere spending on the public programmes is not sufficient. There should be satisfactory outcomes. As the global development depends on the correct prescriptions of the economists and other important knowledge holders, they should constantly strive to advise the governments with suitable policies. Just marshalling out few archaic theories and outdated data is not enough. The world needs visionary thinkers to steer the governments to a right course.

Rich and Poor Mallya

mallayVijay Mallya the colourful corporate honcho wears many hats at a time. He fancies Tipu Sultan’s sword, Ferraris, latest jets and costliest yachts. After UB group unveiled King Fisher airlines Mallya hogged global limelight for his entrepreneurial adventures. He turned off the low cost airlines cultures and tuned in king on the skies style. This was his successful turn around of the industry. He always broke stereotypes and set high standards.

 

In the recession affected economy he chooses to be an ordinary industrialist rather than a smart corporate hero. He got submerged in the global corporate fashion of carrying begging bowl to the government quarters for bailout. A month back he applied for a bailout of his King Fisher. He told government authorities that he is almost broke and no money to sustain his airlines. While giving this dark picture about his financial situation he went on to spend lavishly on his personal fancies.

 

 This contradictory lifestyle of Mallya had got him equated with other corporate fraudsters. In USA this double standards of corporate heads are common. While their companies are reeling under meltdown crisis their salaries and lifestyles are the same. They might have chucked out million workers but they have not scaled down their expenses.

 

In the latest spin off Mallya had stirred public controversy over his buying intention of an island off Monte Carlo. The news report put that Mallya paid between $100 million and $150 million (Rs.500 to Rs.750 crore) for the private island near Monte Carlo. He puffed off the rumour.

 

Mallya own islands in Maldives and Lakshadweep. He also bought 1000 acres of land in Himalayas. This land is going to be used for mountain tourism. The UB group chairman runs Mabula Game Lodge near Johannesburg in South Africa.  This lodge is 12,000 hectares which is one of the largest and finest private game reserves.

 

The Times of India (23.1.2009) p.13 reports “Mallya’s lifestyle – the sheer lavishness of it – leaves most bedazzled. He has houses around the globe; castles in Scotland, town houses in London, Monte Carlo, Manhattan (Trump Towers), Sausalito and innumerable properties in India. While ‘Niladri in Mumbai and ‘Kingfisher Villa’ in Goa are the best known, he has hidden gems like the heritage, colonial bungalow with the best garden in Ooty, besides houses in Delhi and his home town Bangalore.

 

His three yatchs: Idian Empress, Indian Princess and Kalizma, his four private jets, his 240 strong vintage car collection, his Force India Formula 1 tem and thoroughbreds not to mention the Porsches, Bentleys, Maserattis and Ferraris make Mallya the most colourful of Indian businessmen.”

 

One should not complain about Mallay’s lifestyles. As long as he keep his business profit and loss to himself. During profit session he did not help Government with funds nor he gave a good sum for the social cause. But he came to the government to eliminate his loss and asked for waiving off the pending arrears with AAI and oil PSUs. This is totally contradictory and shames him in the eyes of public. Whatever he fancies is tabloid news and it helps others to compete for such a lifestyle. Although it negatively races the consumer culture it can be allowed. One thing which cannot be tolerated is his selective application of rich and poor status of himself according to the situations. If he wants social support and government aid he should help both when his finances are sound.

Corporate contradictions

jet 

Millions of job cuts, mad rush for bail outs and sad declaration of bust outs are common today in the corporate world. In the last one year, United States corporate companies have slashed 24 lakh jobs. Chinese companies are packing off their workers and sending them back to their home villages. Sensing the trouble from laid workers, Chinese government is sending army to the rural hinterlands to closely watch the job lost youth. More than 6 lakh jobs were lost in the textile sector alone in India. Jet Airways came close to sending thousands of its crew members home without giving advance notice. Thanks to the arm-twisting of political parties, the pink slips were withdrawn overnight. Reliance Industries is planning to layoff its 6000 senior executives countrywide.

 

 In the first sign of economic crisis, jobs are taken away. The young, hardworking and aspiring people are first thrown out. They are in the company for few months and proving their worth. Before they gain the total confidence of the top management, recession plays the killer role. Without any concern and consideration, new entrants are sacked. First, they are not exposed enough to seek legal remedy. Second, they have extra patience and no knowledge to revolt against the management. Three, the freshers may not have enough collectivity and resources to refuse the termination orders.

 

An impassionate analysis into the current crisis reveals that there are multiple contradictions in the corporate governance. On the one hand, the corporate companies are running panic to government to bailout from the financial crisis. From American International Group Inc (the insurance giant) to Lehman Brothers to Fraddie Mac to General Motors to India’s King Fisher all the companies still live in lavish lifestyles. The corporate honchos in these companies have not scaled down their living standards. They still saty in the same billion dollar paid villas, fly in the personal jets and throw company money in millions for pure personal pleasure.

 

$150 billion bailed out American International Group Inc has seven planes in its kitty. Citigroup Inc, Wells Fargo & Co, Bank of America Corp JPMorgan Chase & Co and Morgan Stanley received $120 billion as bailout package from the United States government. Yet their executives fly in their corporate jets which suck $20,000 for fuel per month.

 

According to the Associate Press analysis, US banks which were bailed out by the government last year awarded $1.6 billion as salaries, bonuses and perks in the recession affected period.

 

Mukesh Ambani gifted his wife Rs.250 crores worth private jet for her birthday. To outsmart his brother, Anil Ambani gave Rs.450 Italitan made yacht to his wife Tina on her birthday. If these corporate heroes were concerned about their employees welfare the first step they should have taken is prune their expenditure and perks to the top executives rather than showing door to the hardworking young people.

 

There is a silver-lining in this dark corporate cloud. Tatas are different. Keeping up their tradition of employees care, Ratan Tata steps forward and takes care of his employees first. Even he burns his finger and pocket but safeguards his employees. May be that is the reason behind the heavy attachment of Tata employees to their companies. Karamvir Kang, the manager of Hotel Taj Mahal in Mumbai performed his hotel duty despite his wife and children were charred to death. The mental wherewithal of Taj Hotel employees shown during and after the 26/11 firing demonstrates the extraordinary Tata spirit. He had shown the same spirit during the Singur crisis. One of the first demands he put to the Government of West Bengal was employees safety.

 

We need more Tatas for India and the world. The corporate governance should have ethics as the baseline. Any effort to forego business ethics and social responsibility will boomerang on them sooner or later. The much touted CSR – Corporate Social Responsibility should not be a mere publicity stunt. Without delivering employer responsibility they cannot be socially responsible.

Innovative Marketing or Cheating?

Marketing requires all corner thinking. Consumer consequences are one of the vital thoughts each marketing executive should think before venturing into the field. Due to the undue target pressures, marketing personnel adopt hook or crook methods to achieve their sales. Despite consumer courts and non stop awareness creations by the government agencies and NGOs, duping of consumers continue unabated.

 

The cell phone companies are case in point. With the greed to capitalize the wide open Indian market, cell phone companies pumped in huge scale of money. Reliance was one of the first companies to enter the field. They gave life-long validity with handsets and talk time. Its popularity grew at an amazing pace. There was a tough competition for dealership. Virtually competition existed to Reliance monopoly in the late nineties. Then Bharati, Essar, Tatas and others came into the field. With the antagonistic communications minister Dayanidhi Maran at the helm of affairs, Reliance found the going tough since 2004.

 

Till 2004 Reliance used all official connections and strengthened its monopolistic practices. Government, agents and customers were cheated alike. Across the board cheating was common among those who connected with Reliance. For diverting ISD calls as local calls, Reliance created a loss of Rs.500 crores to the Government. Hand in glove with telecommunications authorities Reliance was carrying on with this malpractice for long time till it was exposed in 2005. After failing all compromise formulas and under hand negotiations, Reliance paid Rs.150 crores fine to the communications ministry.

 

 For instance if you dial a number then the call rating starts before the other end picks up the phone. Even if you speak for 59 seconds the phone will take you to 1 minute 1 second. There was no accountability in Reliance. Initially they said SMS is free and local call charges Rs.2 only. Now they are saying that SMS is one rupee and local call charge is fifty paisa. Why this bogus advertisement? Now most of the customers are used to SMSes. By advertising low call rates they can retain the existing customers or expand their customer base. In the final sum, the company is growing and customers are feeling the heat.

 

The sky high popularity of Reliance crashed down suddenly. Airtel topped the list with the quick and reasonable services.  Till it defeated Reliance monopoly, Airtel was sincere. Now they also started cheating their customers. Caller tunes, voice SMS, MMS, selling data bases of the customers and other methods are used to stay in business. Thankfully TRAI (Telecom Regulatory Authority of India) is up on heals to keep tab of these offenders. Without regulation tele customers will be pushed to the brink of financial collapse.

 

This is not the case alone with the telecom companies. Aviation sector, gas agencies, education, milk vendors, cable operators, any and every service provider adopts innovative cheating in the name of marketing. In all these methods the marketing executives and company heads forget one basic formula – cheating the customers will ruin the company in the long run. Already the consumer awareness and accumulated frustrations are strangulating companies. Before it gets too late they should get their act right. Tell the truth and convince the customer. They will be willing to support you rather than getting cheated. One customer said “Cheat me straight. Don’t waste your and my time by taking me for a long ride”. Such a frustration is bred among the consumers by marketing executives to make their living.

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