Category: Miscellanea

The possibility of Greece debt crisis morphing into something more contagious cannot be ruled out. Japan is still struggling with spending cuts after the nuclear accident there. Look anywhere — US spending, China’s housing boom going awry and elsewhere — chances are that the global economy is on the edge again.

It makes much sense to set one’s own house in order. India needs to set many things right — from fuel pricing to inflation to deficit spending. It is, of course, in no way comparable with the Greek situation. And that is not the point. The issue is to be prepared to face uncertainty in the world economy and also any unforeseen external shocks.

HNWIs, in this context, are defined as those having investable assets of $ 1 million or more, excluding primary residence, collectibles, consumables, and consumer durables.

According to the 2009 Asia-Pacific Wealth Report, brought out by financial services firms Capgemini and Merrill Lynch Wealth Management, at the peak of the recession in 2008, India had 84,000 HNWIs with a combined net worth of $ 310 billion. To put that figure in perspective, it was just under a third of India’s market capitalisation, that is, the total value of all companies listed on the Bombay Stock Exchange — as of end-March 2008. The average worth of each HNWI was Rs.16.6 crore.

It’s ironic that there is an astronomical unmet demand for livable urban space among all except the very rich, and it is a colossal failure of both the government and developers that an enormous business opportunity, which can make everyone better off, is not being created out of it. Despite the abolition of the Urban Land Ceiling Act in most parts of the country, there is no perceptible increase in urban land supply which can make possible large additions to affordable housing. This is because urban planning is not promoting mixed development sufficiently, nor is urban infrastructure being built keeping in mind transportation links between new residential areas and job centres. Even under these circumstances, the middle class would pay through the nose for a place to live in the hope of capital gains over time. But there are dampeners galore. Not satisfied with raising EMIs, banks are turning more cautious in the face of regulatory exhortations to be mindful of rising non-performing asset levels. Plus, there is a mountain of anecdotal evidence of how buyers are short-changed by developers.

A Bill to codify customer rights and offer recourse through the creation of a regulator has been hanging fire for a decade. Developers are opposing it tooth and nail and political leaders are in no hurry to upset them. Developers have a point when they say that the need to secure multiple sanctions delays projects and adds to costs. But the existing crop of developers has got into the business with its eyes open. It is popularly believed that they are both repositories and launderers of politicians’ black money. Thus, entrenched corruption at the grass roots (those who process the multiple sanctions required) and protection from top are blocking change and reform. With the central government appearing paralysed by fear of decisive action on such issues, it can only be hoped that some of the more confident and politically secure chief ministers will take the initiative for policy reform.

The contrast with today could not be more striking, as the country seems to have a prime minister-inhiding. You see him seated at meetings, looking a trifle lost, or mouthing homilies at government functions (the MAFA syndrome — mistaking articulation for action). Other than that, he is both invisible and silent. This is no way to lead.

If his government is paralysed by inaction, and tarred comprehensively with the corruption brush, it is because Dr. Singh has not been true to his instincts, and too timid as the head of the government. Dayanidhi Maran as a stripling minister wrote to him in 2006, complaining that spectrum pricing should be left to him, not handed over to a group of ministers. Dr. Singh meekly acquiesced. Mani Shankar Aiyar wrote to him two years before the Commonwealth Games, i.e., before the bloated and wasteful spending began, to complain about Mr. Kalmadi’s budget-inflating habits. Yet Mr. Kalmadi was allowed to go his merry way till the damage was done.

When A. Raja cocked a snook at him, what was the response? Dr. Singh’s private secretary made the telltale request that the prime minister’s office be kept at arm’s length. In other words, he knew that skullduggery was going on, but wanted to turn a blind eye. On the spectrum scandal, he himself has explained that once two of his ministerial colleagues were in agreement, he did not think he could intervene! And now it transpires that a former secretary in the finance ministry (E. A. S. Sarma) wrote repeatedly to the prime minister, over two years, warning him of undue favours being done to private gas concessionaires like Reliance and Cairn, at the cost of the exchequer. He never got even a routine acknowledgement. Was Dr. Singh too scared to ask Murli Deora?

So the prime minister cannot say that he did not know. In every case, he was informed, and he chose to do nothing. This is not because he was corrupt; even his worst critics will not say that. Perhaps he felt there was no choice in a coalition other than to turn a blind eye to some goings-on (he once said something like “I am not in the business of losing my government’s majority”). But if an honest and public-spirited man allows scamsters around him to flourish, the stage comes when personal honesty is no longer a valid defence. And belated action under public and court pressure provides no absolution.

The agenda has been discussed with the advisor to Prime Minister Manmohan Singh on public information, infrastructure and innovations, Sam Pitroda, and Planning Commission member Arun Maira and has been submitted to the Prime Minister.

Moily, who was also Chairman of the second Administrative Reforms Commission, has pointed out that in view of the experience of the existing statutory regulators with retired officers and judges, the job of regulators should be restricted to serving officers and judges in order to improve accountability.

He has stressed this would need to be supplemented through a carefully planned capacitybuilding exercise at periodic intervals, which will bring in domain expertise and enthusiasm in the regulatory system, which is currently lacking. Other recommendations in the 10-point agenda includes a legislation on the lines of US False Claims Act, providing for citizens and civil society groups to seek legal relief in the cases of fraudulent claims against the government.

The proposed law would allow any citizen to bring a suit against any person or agency for a false claim against the government. If the false claim is established in a court of law, the person or agency responsible will be liable for penalty equal to five times the loss sustained by the exchequer or society.

Bringing in the Right to Service, various steps for improving urban land management, measures for improving administration in areas dominated by Naxals and tribals, a performance-related tenure of the government functionaries for making them more accountable, codification of guiding principles in a Civil Service Law, suggestions on functioning of Lok Pal and Lokayukta and unity of command and enforcement and accountability are also included in the 10-point agenda.

For ensuring integrity in appointment to public offices, Moily has suggested that charge-sheeted persons should not be considered for appointment. “This principle should be made applicable for persons contesting elections, also.”

The dominance of one business group in one segment of the media is dangerous, so is the increasing control of such dominant players across different segments of the media, namely, print, television and radio. While the Government has not come forward with the promised broadcast Bill yet, the new FM radio policy has shied away from more stringent curbs on cross-media ownership. The ‘play safe’ policy of auctioning licences to the highest bidder has been preferred obviously because of the controversy surrounding telecom licences, but there is a downside to ‘transparent auctioning’ in the media business. It can privilege the powerful. Companies with deep pockets end up pocketing licences in the name of so-called transparency. A more confident government would have laid down other criteria too, including restricting cross-media ownership.

The sharp practices by Mr. Murdoch’s men and women in Britain draw attention to the hubris of a media intoxicated by power, made worse by the direct control that owners often exercise over editorial content. The consequent blurring of lines between the business bottom line and the editorial line is an assault on the idea of media as the ‘fourth estate’ in a democracy. The Indian media has its Murdochs in every language publication and news channel. While the dominance of one or two media groups in each state and language market has not come in the way of a thousand flowers blooming, it has forced a large number of smaller players to become pawns in the hands of other business persons with deep pockets.

The Niira Radia tapes controversy in India drew attention to some of the unsavoury aspects of a nexus involving professional journalists, owners, politicians and business persons. This is only the tip of the iceberg. In various Indian states, the situation is worse with many Indian language media groups. The number of powerful politicians and business persons owning and openly controlling as well as manipulating the media is on the increase. The controversy surrounding former Union Minister Dayanidhi Maran is an example of the media baron-politician-business person nexus. The Murdoch murk in Britain is a reminder of what could happen in India in the absence of regulation, rules of the game and codes of conduct aimed at preventing such unfair professional and business practices.

Why, then, is there discord or murmur when courts issue orders commanding the authorities to enforce laws and in cases in which such authorities, particularly executive authorities, fail to act in national and public interest? It will not be correct to say that in making such orders Courts encroach on the jurisdiction of either the Legislature or the executive authorities who are empowered to act for enforcing such provisions.

No one can say depositing money and transactions and deposits in a foreign bank in violation of laws should be ignored and such violators allowed to go free without being punished and that it will not affect national security and public interest. Against this background, let us appreciate the value of the appointment of the Special Investigation Team (SIT) by the Supreme Court to ensure that laws are implemented and black money is brought under proper action.

The point that the appointment of an SIT is innovative is uncalled for and misconceived. The Court has appointed an SIT, for example, to investigate the Gujarat riot cases. This is the first time, however, that the Court has appointed an SIT in a case associated with finance and black money. This has been done in the interest of the State and public interest. When the authorities concerned have failed to act, setting up an SIT is a noble cause and a step that urgently needed to be taken. Arguments that there are agencies assigned for such work and the Court should have exercised discretion to direct any such authority to take steps instead of appointing an SIT are also uncalled for. The Bench of Judges that has passed this order was also conscious of this fact. The SIT is constituted by taking officers from all such relevant agencies. Since any such agencies have limited powers, one or the other agency alone may not be able to locate and find black money, fix responsibility for violations and prosecute.

No one should feel hurt if a Court asks authorities to act in the interest of the State and public interest. After all, the Court has issued such orders only when others designated to act failed to do so. Such orders are a welcome relief in the prevailing situation.

The latest example is its purchase of the Gandhi- Hermann Kallenbach papers. Kallenbach, an architect, was a close collaborator of Gandhiji in South Africa. The two issues may appear distinct, but they are not. The history of a country can’t be divided into what is acceptable to the government and what is not: that is not history, it is hagiography.

No Indian scholar has access to papers on vital post-1947 events such as the 1962 war with China, let alone recent matters such as our involvement in Sri Lanka after 1987. India’s archives access policy is perhaps one of the most illiberal anywhere in the world. It should be discarded fast.

Which is just another means of reinforcing the social and political faultlines the entire political class thrives on, given that it envisages politics as a competitive identity management project. Just as people’s representatives cannot amend, just because they have a majority, say, the theory of relativity, they cannot decide the school syllabus. There is a National Curriculum Framework, meant to further a consultative approach to framing school textbooks, but that fact is drowned in the cacophony of contesting, and largely manufactured, rage.

Focussing on these phenomena from the integrity viewpoint, makes it possible for managers to focus on the value that can be created by putting the system back in integrity and correcting the non-value maximising equilibrium that exists in capital markets. In effect, integrity is a factor of production just like knowledge, technology, labour, and capital, but it is undistinguished — and its affect (by its presence or absence) is huge. We summarise our new positive theory of integrity that has no normative content, and argue that there are large gains from putting integrity into finance — into both the theory and practice of finance. We define integrity as being whole and complete and unbroken. We argue that if finance scholars, teachers and practitioners take this approach to applications in finance, there are huge gains to be achieved.

This will not only ensure that the country’s coal sector transforms from a dark realm of loot and thuggery to an efficient supplier of the country’s most abundant fuel, but also reassure potential inves- 36 37 38 Tarunkumar Singhal Raman Jokhakar Chartered Accountants Miscellanea tors that India is serious about economic growth. Muster courage to implement a Cabinet decision to decontrol diesel, and institute competition, including from independent operators, in the retailing of petro-fuels. This will slash the fiscal deficit, reduce inefficiency at India’s oil companies and increase energy efficiency across the spectrum. By reducing the fiscal deficit, the reform would also reduce the current account deficit, thereby easing pressure on the rupee. This move, too, would go a long way in restoring investor confidence.

Make progress on the ground on implementing the goods and services tax, getting the IT infrastructure and procedural framework for seamless integration of the tax ready. This will put pressure on the BJP-led states holding out against the transition. Concrete action of this kind is what we need, to restore investor confidence and get the economy vrooming. Kind words of good intent spoken with sincerity are always welcome. But the big stick that needs to back up soft talk is what has been missing and needs to be found.

“My heart sinks every time there is a scandal and the perpetrators are in London, even if it is not always the UK’s responsibility, it is under our noses,”

Sharon Bowles, chairwoman of the European Parliament’s economic and monetary affairs committee, said in an interview.

“There is an effect on the UK’s reputation, and it reinforces the view that even after all the apologies there is much to do.”

London, ranked as the world’s number one financial centre by research firm Z/Yen Group, was where American International Group and Lehman Brothers Holdings booked transactions that helped lead to their downfall. This week saw Bank of England and UK government officials tied to the interest-rate fixing scandal that cost Robert Diamond, London’s best-known banker, his job at Barclays. With the European debt crisis on its doorstep, London now faces calls to cull its bonus culture, rein in risk-taking and beef up a light-touch regulatory system that fuelled a decade long boom.

The danger for London is that Europe is preparing to set up its own regulator for banks, which may exclude the UK or disadvantage firms based in the city. Domestically, the industry is losing longstanding political support from both Conservative and Labour parties — as well as the public. Home to about 250 foreign banks, London is the world’s biggest centre for foreign-exchange trading and cross-border bank lending and trades INRNaN trillion of interest derivatives daily, according to the Bank for International Settlements.

What better way to do that than have friendly banks deliberately under-report the actual rate of interest in order to depress Libor, the market benchmark used to price financial contracts, globally? If true, the implications are much more serious and go well beyond the UK. Allegations of Libor rigging are not new.

For now, Barclays’ claim that it had official sanction to manipulate the rate and report it lower during the crisis has not found many takers. But there is no denying that after the collapse of Lehman Brothers when banks’ borrowing costs increased dramatically, managers and governments were keen to shore up confidence, tempting banks to present a rosier-than-actual picture by reporting lower-than-actual interest rates. There is also no denying the nexus between Western governments and banks.

Most US Treasury Secretaries have cut their teeth on Wall Street. But the Barclays scandal shows the nexus could potentially be wider and far more damaging than suspected so far. Libor determines the interest rate on transactions to the tune of close to INRNaN trillion globally. Like Caesar’s wife, it must be above suspicion.

Three dimensional printing, in which a computeraided printing machine deposits successive layers of different materials to produce solid designs and objects, is a key exemplar of this third industrial revolution. The knowledge and service content of the final value of a manufactured product would go up, and the labour cost would go down. Mass customisation would be in and locating manufacture to low-wage countries would be out. Boston Consulting Group foresees a resurgence of manufacture in a country like the US at the expense of a China, or an India. Several policy ramifications follow.

One, India will find it well-nigh impossible to take the route to prosperity that Asia’s miracle economies, including South Korea and China, followed, of outsourced manufacture to feed demand in developed economies.

Ten years from now, much of the manufacture to meet demand in the US and Germany could well take place in those countries themselves. Two, low wages would only be a drag for attracting investments, whereas smart labour and a huge home market would be a big draw. Three, knowledge would drive the entire economy: not the rote-driven mastery of yesterday’s verities but a ceaseless quest to challenge established wisdom and produce new knowledge. Universities have to not just train manpower but create new knowledge, serving as hubs of new production ideas. Our school and education systems would have to undergo a fundamental change in terms of organisational structure and culture. The way ahead is to universalise not just secondary education but also tertiary education, with extensive modular course offerings.

Four, the financial ecosystem must evolve to mediate funds towards knowledge acquisition, knowledge creation and conversion of knowledge into production. Finally, high-speed broadband must become ubiquitous and cheap, to enable all this.