Monday, September 28, 2015

Flexible Chinese

One significant reason for rapid growth of the Chinese economy has been the flexibility of the Chinese and their systems. Popular perception that they are hidebound is far from true. They are pragmatic enough to do what the economy needs rather than wear ideological blinkers.

Two developments in the recent past illustrate this. Asian Infrastructure Investment Bank promoted by China and supported by many countries including Australia, Britain and South Korea has openly stated that its goal is not poverty reduction but development of infrastructure. There is no mincing of words here.

Realising the need for quickening the disposal of court cases, the government has decided to streamline the judiciary, keep politicians away and enhance the emoluments of judges. Ideology has no place in this.

Contrast these from what generally happens in India. All our financial institutions must first pay lip service to eradication of poverty. A new commercial bank was opened to promote women's welfare exclusively. Now, the government appears to have realised the inanity of this political idea and action is afoot to merge the bank with possibly SBI. Judiciary and the government are repeatedly lamenting delay in judicial processes, but nobody bells the cat.

Sunday, September 27, 2015

An ethical dilemma

Is  Ethics  teachable as a subject ? Assuming it is, the follow-up question is 'Is Ethics worth teaching?'

While harbouring this pesky thought, I chanced upon the pragmatic views of Jeffrey Pfeffer, the author of 'Leadership BS: Fixing Workplaces and Careers One Truth at a Time'. Says he:

"An almost infinite number of recent books, blogs and seminars on leadership equate being efficient with being virtuous, arguing that traits like authenticity, modesty and concern for others are paramount. Meanwhile, Donald Trump leads the race for the Republican nomination, and the world’s most lauded business leaders include Jeff Bezos, Steve Jobs, Elon Musk and many others who display few, if any, of these prescribed qualities. What gives?
In essence, we’re confusing good stories with good advice. The most cited example comes by way of Jim Collins, whose 2001 book Good to Great included a study of so-called Level 5 leaders–successful executives who were both driven and demure. But while these tactics may have worked for the small group of leaders Collins studied, they’re exceptions, not rules. The vast majority of research shows that narcissism, rather than modesty, predicts being selected for and surviving in leadership roles.
Of course, this won’t come as a surprise to anyone who’s read Machiavelli’s The Prince–or the New York Times piece published on its 500th anniversary, “Why Machiavelli Still Matters,” which draws from centuries of history to conclude that “following virtue often leads to … ruin … whereas pursuing what appears to be vice results in security and well-being.” Sometimes, the best bosses have to lie and manipulate to save money and jobs. Often, they have to disregard concern for others. These truths may not be as inspiring as the latest wave of leadership fables, but they’re backed by social science and knowledge of contemporary organizations–and they’re likelier to help people lead."
A responsible teacher aims at enhancing the prospects of his / her students. If being ethical is a proven handicap in the workplace, the teacher is bound to doubt the relevance of ethics in the curriculum. It is now easy to understand why educational institutions do not get into this ethical quicksand. Like individuals, institutions also prefer to avoid cognitive dissonance.

Thursday, September 24, 2015

Lessons from Volkswagen

Volkswagen has had the audacity to cheat en-masse on fuel norms. About 11 million vehicles were surreptitiously fitted with a software that would recognise when a quality test was on and automatically switch to lower, acceptable emissions.

It beats one's comprehension how a 'reputable' manufacturer would take such a blatant risk. For a long time it was thought that corporate shenanigans were the preserve of accountants. Now, engineers have proved they are no less fraudulent.

Ferdinand Piech must be one of the happiest persons now. Recently (but before the fraud came to light), he resigned from Chairmanship of Volkswagen after he was outsmarted by the company's CEO, Martin Winterkorn in what appeared to be a corporate power struggle. Now, Winterkorn is left holding the bag. He has chosen to resign accepting moral responsibility. Thus within a short interval of time, a glorious organisation has lost both its Chairman and CEO.

Why did Volkswagen commit this suicidal blunder? Is it some invidious Thanatos in action?

It is suggested that the company was obsessed to overtake Toyota as the largest manufacturer of cars. At present, Volkswagen's market share in the U S is only about 3.5% After the debacle, it is bound to go further south. There are 5 famous brands with the group, Volkswagen, Audi, Porsche, Skoda and Seat. Of these, Porsche generates maximum profitability.

Corporate envy leads to greed and recklessness. Volkswagen's reputation is now in tatters. If at all the company did have Risk Managers, they must have been fast asleep.

Rahul Gandhi, the anti-God

God is supposed to be omni-present. Therefore, anti-God must be omni-absent. Rahul Gandhi satisfies the latter condition.

He is not in India now. According to Congress party spokespersons, he is in Aspen, US for the Charlie Rose Weekend Conference. Some reports say there is no such event now and anyway Rahul Gandhi is not reported to be in Aspen, a small town.

Nobody knows in which flight he went to America, assuming he has gone there. However, this anti-God shares one property with God. He goes invisible !

Wednesday, September 23, 2015

"Sustainable Dividend" theory

Companies which are conservative in declaration of dividends justify their tightfistedness towards shareholders on the ground that they aim at sustainability of dividend rate over the long run.

In the AGM held on 23rd of September, Chairman of Manali Petrochemicals asserted that the Board recommends only 10% as rate of dividend to ensure sustainability in the long term. Stinginess of dividend became an issue especially in view of remuneration to Managing Director alone being more than 12% of total quantum of dividends (Rs.110 lakh vs Rs.860 lakh).

Sustainability argument ought to apply to MD's remuneration also. Chairman, A.C.Muthiah also claimed that enhanced salary levels are required to get the services of effective managers. Thus the argument is that the shareholders are captive whereas management has overriding bargaining power.

Sustainability argument for dividends is specious in the light of provisions contained in Companies (Declaration and Payment of Dividend) Rules, 2014 which are restrictive. A company can declare dividends out of profits earned in earlier years only if following conditions are satisfied: (These become relevant when the company incurs loss during any year. Losses are not totally avoidable to any company and more so to the company under reference.)

"(1) The rate of dividend declared shall not exceed the average of the rates at which
dividend was declared by it in the three years immediately preceding that year:
 Provided that this sub-rule shall not apply to a company, which has not declared
any dividend in each of the three preceding financial year.

(2) The total amount to be drawn from such accumulated profits shall not exceed
one-tenth of the sum of its paid-up share capital and free reserves as appearing in
the latest audited financial statement.

(3) The amount so drawn shall first be utilised to set off the losses incurred in
the financial year in which dividend is declared before any dividend in respect of
equity shares is declared.

(4) The balance of reserves after such withdrawal shall not fall below fifteen per
cent of its paid up share capital as appearing in the latest audited financial

(5) No company shall declare dividend unless carried over previous losses and
depreciation not provided in previous year are set off against profit of the company
of the current year the loss or depreciation, whichever is less, in previous years is
set off against the profit of the company for the year for which dividend is declared
or paid. "

Because of these stringent provisions, if and when the company incurs loss despite the acumen of MD and others, shareholders are sure to be denied any dividend. Therefore, really sustainable dividend percentage is only 0% Hence, companies should look for some pretext other than sustainability to justify conservative dividend policy.

Sunday, September 20, 2015

Satyam and Subhiksha

It appears that principled names mask unprincipled dealings. Satyam Computers which blew up in 2009 was untruthful (asathya) in presentation of its accounts. Ramalinga Raju could easily dupe shareholders, auditors and everybody else by disclosing non-existing bank deposits of huge amounts.

Subhiksha means prosperity or abundance. Its employees were reduced to penury because of non-payment of salary for many years. Its suppliers, bankers and investors including Azim Premji faced a raw deal. Its promoter, R.Subramanian is an alumnus of IIT, Madras and IIM, Ahmedabad. Subhiksha was started in 1997 and it closed its shutters in 2009. Subramanian had earlier worked for just a fortnight in Citibank and then joined Enfield India. He then started Viswapriya Financial Services and subsequently Subhiksha Retail. The latter was supposed to become India's Wal-Mart Stores!

The jury is still out on why Subhiksha failed. Was it because of faulty supply-chain management? Is the promoter greedy and dishonest? Or is it plain bad luck?

Subramanian was arrested by the Chennai police on 19 September. Police says he was nabbed when he was attempting to flee Chennai. He claims he surrendered. Judiciary gave him a long rope. When the Madras High Court finally refused to extend anticipatory bail for him, his game was up. His family is on the run.

It is alleged that Viswapriya has failed to repay around Rs.150 crore to its depositors many of whom trusted  the company with their life-savings.

Ease of doing business in Tamilnadu

The Economist says, "MAHATMA GANDHI believed it was difficult to conduct business in a strictly honest way. In India it has become hard to conduct business any way at all."

Among the states in India, some states make it even more difficult to do business. According to a World Bank survey conducted recently, the state of Tamilnadu does not figure in the first ten states for ease of doing business. The opposition parties in the state do not use this information to criticise the government. Is this because making it easier to do business is considered as an indicator of corruption?

Are we reminded of George Orwell's 'Nineteen Eighty-Four' ?

Saturday, September 19, 2015


Following is in response to an article in The Hindu:

By categorizing the ban on sale of meat for a few days of religious significance to the Jains (Paryushan) as an act of ‘pseudo-religiosity’, Shri Shiv Visvanathan has jumped to the conclusion that the ban is a political sortie against minorities. I wonder who is referred to as minorities here. Meat-eaters are not a minority; vegetarians are. If the reference is to any religious minority, it is certainly misplaced because meat-eaters are dominant in all religions except Jainism.

The author pleads that food as a ‘symbolic marker’ has often become the site of a battle for identities and spaces between caste Hindus and Dalit and tribal groups. The author does not stop with this non-proven assumption. He goes on to add that the ethics of non-violence as a part of brahminism becomes a vehicle of a deeper violence of enforcing caste hegemonies on Dalit groups. This is fertile imagination. Gone are the days when Brahmins were mainly vegetarians or votaries of non-violence and Dalits mainly meat-eaters. (It is interesting to note that Jeremy Corbyn is a vegetarian. He is not a protagonist of any kind of brahminism.) Author’s innuendo that Dalits are not votaries of non-violence is unfortunate.

Thursday, September 17, 2015

Ban on sale of meat: Supreme Court's illogic

Few issues can polarise society like food. It is no wonder that tempers are running high on imposition of ban on sale of meat by various governments during festival times.

Most Jains are strict vegetarians. Non-violence to non-human beings is an article of faith with them. Paryushana lasting eight days is a sacred period for them when they aim at total observance of religious principles. In line with this, Mumbai has been observing absence of trade in meat for four days all these years. This year, the government notification has become a major issue.

The Bombay High Court stayed the government ban. Jains appealed to the Supreme Court to lift the stay. The Jains pleaded for compassion to animals atleast for some days. Supreme Court's reaction was as usual funny.

"Declining to entertain an appeal by a Jain organisation, the bench emphasised that the compassion for living creatures doesn’t have to be only on a few days but it should be for the entire year "

If compassion has to prevail throughout the year, the Supreme Court must have insisted that the ban should be made permanent! 

Tuesday, September 15, 2015

Distorted Democracy

We may take pride in claiming that we are the largest democracy in the world. Any thought about the kind of democracy we are practising will be an antidote to that pride.

Some may claim that we are a democracy, plain and simple, since all citizens above the age of 18 have an equal voting right at the hustings. This is only superficially true. It is well known that voting rights are not freely and fairly exercised. We have what is called 3M Democracy at the time of elections. Money, muscle and moonshine (bootleg or hooch) play an invincible role in almost all constituencies.

Elections are only the starting point of democracy. With a false start, our subsequent journey is characterised by obnoxious inequality everywhere. If you are a Manmohan Singh or K.G.Balakrishnan or Dayanidhi Maran or Shashi Tharoor, law will never catch up with you, not to talk of justice.

Manmohan Singh is protected by the advocacy of 'Zero Loss' Kapil Sibal who would argue and the Supreme Court will agree that the culpability of a minister, that too a prime minister (also called Crime Minister in a most meaningful typo), cannot be a matter of judicial scrutiny because such a scrutiny will stymie executive decisions ! Therefore, Singh has immunity from any criminal investigation. He is more equal than others.

Petition against K.G.Balakrishnan was taken up by the Supreme Court only after his term in the Human Rights Commission was over. Why cause inconvenience to KGB for his petty offence of misuse of Chief Justiceship to amass wealth and to enable his relatives to do so? The Supreme Court recognises that a former brother judge is more equal than other citizens.

CBI may be accountable for investigating crimes. But it has no right to demand custodial investigation of Dayanidhi Maran because only common people need to be so investigated. Maran may steadfastly refuse to be truthful, he may influence the prosecution witnesses, but so what? Is he not a former minister? Is he not rich and powerful? How will the Supreme Court allow CBI to treat him like an ordinary citizen? Maran is more equal than others.

Shashi Tharoor may have been complicit in the murder of Sunanda Pushkar. How can the police be allowed to investigate this case with a free hand? Does not a minister, especially one who procured a U.N. assignment to Manmohan Singh's daughter, have a right not to be suspected even if the evidence is stark against him?

What democracy are we talking about? 

Sunday, September 13, 2015

Winds of change in the British Labour Party

It was widely predicted that Jeremy Corbyn will be elected the leader of the British Labour Party. The prediction has come true. Change in leadership arose because of resignation of the previous leader, Ed Miliband who took moral responsibility for humiliating defeat of his party in the recent general elections when the Conservative Party was voted back to power on its own.

Jeremy Corbyn is the betenoire of Tony Blair. Blair made the surprising statement that anyone whose heart favoured Corbyn needed a heart transplant. A very shocking statement, but one can expect this from an extremely articulate person like Tony Blair whose tongue works faster than his mind. Blair's New Labour has been silenced for the present.

How effective will Jeremy Corbyn be? He is 66 years old whereas the person he replaces, Ed Miliband, is only 46. Corbyn is known to be an Euro-sceptic and a NATO opponent. Though he has won leadership of the party by a substantial majority, his charisma to win votes for the party remains untested. Anyway, general elections are due in 2020 only and anything can happen between now and then.

His views on economy and admiration for Marx are apparently anachronistic. Issues, economic and non-economic,  that trouble Britain and other countries cannot be addressed by a uni-dimensional Socialist mind. The Labour Party is unwittingly pitching itself into a losing experiment.

Thursday, September 10, 2015

Democracy and India

Democracy is almost universally hailed as the best political system. India has been a non-flourishing democracy since independence barring a brief interlude of emergency in the seventies.

As Bihar is preparing for a momentous election whose results are likely to impact the nation's future policy, we get an opportunity to introspect what democracy has done to us and what we have done to democracy. Winston Churchill complimented democracy pleading that it is the worst form of government except all the others that have been tried. In his saner moments he could also realise that the best argument against democracy is a 5-minute conversation with the average voter. This may be interpreted as a patronising and cynical view but cannot be dismissed offhand.

Nitish Kumar cannot hope to retain power in Bihar unless he aligns himself with a scamster. BJP's development-economics cannot guarantee victory unless it is diluted by caste vote calculations. Democracy dictates alignment with the dishonest and the disreputable because they are a substantial chunk whose support is necessary to gain control of the government.

Consequences and requirements of democracy are so ominous that one has to agree with John Adams, the first vice-president and second president of the United States who mournfully declared that there never was a democracy that did not commit suicide.

Sunday, September 06, 2015

Can RBI afford to cut Repo rate?

Pressure is mounting on RBI to effect reduction in Repo rate. Recent trends in the trajectory of inflation and quarterly growth rates are cited as arguments that call for immediate cheapening of credit.

RBI Governor has frequently stated with a lot of justification that likely inflation rates in future are more important than past and present rates as inputs for deciding on Repo rates. There are many indicators pointing towards likely upward trend in inflation.

Deficient monsoon causes concern, if not panic as of now, on the agricultural front. Food inflation cannot but shoot up. With OPEC deciding to flex its muscles, oil prices are only waiting for an event to justify upward movement. ISIS would readily oblige. Wages are likely to escalate. With OROP in place, similar demands from non-defence personnel are likely to mount pressure on the government. 7th Pay Commission report which is keenly awaited will push up salaries of central government staff with a percolating effect throughout the economy. In sum, there is no reason for inflation not to perk up.

Costly credit is not the reason for slackness in production. Overall demand is sluggish. Banks are doubly careful in lending thanks to toxic levels of NPAs.

Decrease in Repo rate in such circumstances may please the government but will not be economically prudent. Reduced rates will only act as a disincentive to savings without triggering any surge in output. In addition, it will further weaken the external value of Rupee.


Indian government has three crucial tasks on hand. These can be suggestively referred as OROP, DROP and  CROP. These respectively are a) obligation to honour commitments, b) readiness to meet technological challenges and c) readiness to address threats brought on by nature.

Like One Rank, One Pension , NDA / BJP made a number of promises during their journey towards power. These are not easily forgotten by electors. Ensuring punishment for the corrupt and unearthing black money are two of the most vital commitments over which the government has so far been tardy as tortoise. Having painted the Congress party as a den of corruption, the present government is duty-bound to prove its accusations judicially. Any slackness will only mean that the present government is complicit in the corruption culture.

Call drops have become an issue that affects every mobile user which means almost every Indian. The government that aims at digitalisation of India cannot afford to be indifferent to this apparent technological problem. It is no doubt difficult to tackle the twin challenges of  creation of additional  tower capacity and real or exaggerated impact of radiation at the same time. The government cannot simply blame others for these problems. The buck stops with the government.

Deficient monsoon is likely to create a calamitous challenge on the CROP front unless the government is prepared to deal firmly with hoarders and black marketers. It is easy to blame the state governments for probable scarcity of foodgrains and price rise. It is incumbent on Modi and his team to demonstrate that theirs is a government that works.

Friday, September 04, 2015

McKinsey's Four Scenarios

McKinsey has in a spirited crystal-gazing exercise projected four different economic scenarios for the 2015-25 decade. The firm has taken into account four crucial long-term features affecting the global economy, namely technology, aging, urbanisation and global connectivity.

The projected scenarios are two-dimensional involving growth (acceleration / deceleration) and economic trends (convergence / divergence). Accordingly Real GDP annualised growth rate of G20 countries during 2015-25 is arrived at.

The four scenarios are named as 1) Global Synchronicity (accelerated growth and convergent economies), 2) Pockets of Growth (accelerated growth and divergent economies), 3) Global Deceleration (decelerated growth and convergent economies) and 4) Rolling Regional Crises (decelerated growth and divergent economies).

India is projected to have the highest annualised growth rate in all these scenarios. The rates for India are 7.9%, 6.6%, 6.8% and 5.4% respectively. Comparable figures for China are 6.5%, 6.3%, 5.7% and 5.2% respectively.

Thursday, September 03, 2015

Pleasant surprise in Guatemala

Otto Perez Molina, the tough President of the Latin American country Guatemala has resigned in response to a popular furore over his involvement in a multi-million dollar customs scandal. Subsequently, he was arrested on the same day. He has agreed “All Guatemalans have to respect the law, and I assure you I will respect the law and this process.” The process refers to judicial hearings.

Molina was earlier a General in the army. Guatemala's history is pockmarked with a series of military takeovers and scant respect for will of the people. Molina was expected to dig in his heels and continue to ignore the allegations against him. It is not clear what caused change of his mind.

This is something that does not happen in India, putatively the largest democracy in the world. Indian political leaders think that they are armed with impunity against charges of any criminality. Very few among the corrupt in India resign. Even fewer are arrested. It is an inexplicable irony that will of the people prevails in dictatorship-prone countries and it is powerless in a 'democratic' country. 

Corporate Governance at its best or Gender Bias at its worst?

23rd of August saw the resignation of Smt.Ireena Vittal, an independent director, from the Board of Axis Bank Ltd. The bank says that she resigned voluntarily because of perceived conflict of interest arising from Kotak Mahindra Bank partnering with Bharti Airtel in pursuance of permission given by RBI to Bharti Airtel to start a Payments Bank. Her husband, Sri Gopal Vittal is now CEO of Bharti Airtel. Gopal Vittal had earlier earned his spurs at Hindustan Unilever Ltd.

Is there a conflict of interest in this situation? If we apply Chidambaram or Sushma Swaraj standard, there is absolutely no conflict of interest either in this or for that matter any other situation. But persons like Ireena Vittal or companies like Axis Bank are of a different breed and they are of the view that actual or potential conflicts of interest do matter.

However, there is an interesting riddle here. If there is conflict of interest, the resignation is legally and ethically mandated and therefore not voluntary. If there is no such conflict, the resignation is unwarranted.

Deepak Parekh and M.Damodaran have gone on record that notions of any conflict of interest in this case are far-fetched. Of course, they are not the ultimate arbiters, especially the former who has spoilt his reputation through his inaction and silence in the TERI episode involving R.K.Pachauri. (It is extremely regrettable that according to TERI's website, RKP continues to be its Director General.)

Smt.Rama Bijapurkar who was earlier an independent director in Axis Bank has raised an issue which is of serious concern. She claims that Vittal resigned after some directors in Axis Bank raised the conflict of interest question. If the claim is true, it smacks of indefensible gender bias if similar standards are not applied for male directors.

If a person resigns a job foreseeing conflict of interest, the act should normally be applauded. Axis Bank and Smt. Ireena Vittal should together clarify what really happened.