Roads alone dont mean Development

Roads and Connectvity alone may not deliver rural development.

Got 2 days to drive around in Rayagada district in Southern Orissa, amongst the poorest 3-4 districts in India. One could not but admire the great strides Roads have made in the region. Govt also seems to have made a lot of progress thru residential school for tribal children which seem well maintained (I saw 3 of them within 20 km stretch). A few takes and lessons.

1 Our first stop was a plantation nearby under the aegis of co-operative group. while the increase in tree growth was visible due to better farm practices, what was not visible was the government funding agencies which recoil at the first sign of trouble.  If risk aversion is the primary motive, development initiaves in such societies at the brink of economic existence will all fail. The Government has to take a more sanguine view – the farmers are never going to take advantage of legal loopholes a la a kingfisher nor dodge a bank manager, if he is solvent. if he has the money he will pay. counter party moral hazard is likely to be the lowest.

2 I met the farmers (slide 11) but it was a difficult conversation. My Hindi was not good currency; the accompanying colleagues’ local oriya was only a passable currency. Thank god we have one language across India. I asked the farmer in saffron T-shirt upto which class he has studied. He prevaricated but signalled something to the locals which was translated to Sixth Standard. (But barely convincing). The man in green T shirt seemed to own 2 plots. With some difficulty we could figure out it must have totalled 3 acres. I asked him what class he has been upto. He signalled to the first one and said something to the effect – to the same extent. (I couldn’t believe him either).

3 Visited the training centre of local SHG which had trained itself in book binding hoping to get some contract jobs in the local banks, factories and shops. (see the videos and the group conversation). We are not just short in financial inclusion alone. Of the sample of 20 i saw, none had been inside a train, only one had been upto class 10, 19 out of 20 did not know 3rd table, only one had gas. Surprisingly none of them had worked in NREGA.  2 claimed to own cell phones (but they all knew what i was talking about) and 2 others cycles. All had electricity and claimed that they toilets.

But i was deeply touched by their guilelessness and genuine warmth. The meeting had been arranged with just 15 minutes notice. They gave a locally made flower bouquet and coca cola (to everyone).

4 Many villages seem to be independent land locked republics within India. I could only with difficulty hold myself from asking if they knew that they belonged to a country called India or that it was once ruled by Moghuls or british and that it has got its freedom. (I did not know if it is lawful or will be deemed instigative; hence i stopped). But as you can see from the video they had very little to do with India or its development. The only ‘Indian’ they seemed to know was Naveen Patnaik.

Villagers (see slide 5) in this tiny hamlet had erected a bamboo toll gate and refused entry or exit unless we paid their toll. Toll collectors were 2 young girls of may be 9-10 yrs. There were chawls on the side each having rows of houses sharing walls with others on both sides. each such house would have been around 10ft by 10. I could see 3 or 4 ladies sitting inside and 1-2 hanging outside besides the children baking themselves in the sun. I could see a solitary hand pump, the cemented platform around which served as a open bathing spot for a village adult in full view of all those who cared to see.

5 We wanted to visit the solar pumpset which was to be inaugurated to supply water from below 200 ft to some 26 acre of land. we reached the spot at around 5 pm but found a group of people (nearly the population of the entire village) walking towards a spot very near the solar system, with 2-3 of them carrying what looked like spears. Later i learnt/saw that it was for the pre-marital prayer to thier chief temple/diety (see slide 3). After their modest prayers were over they perhaps ascertained from our guide the purpose of our visit. (Our guide knew the villagers since we had sponsored the project). There was quick confabulation amongst the villagers. They took some time off their routine to give me a ululating welcome (local custom) and performed an impromptu folk dance for me. (see video). Meaning i was told ‘bahooth dhoor se aaye hai our guest; lets welcome him’. Nice of them.

6 On the way we stopped by a hostel schooling tribal children. (see slide 4). I started asking the most grown up looking amongst them (the one to my right and the one in yellow T-shirt). But they were hardly able to speak but were stoic. the care taker intervened to say that it was their first day in the school and where they have come from and circumstances; I had difficulty preserving my tears within the countours of my eyes.

Some lessons:

1 The region is poor and crop mainly cotton, hurhur, millets and in some places Rice. Recently they have added tree plantation to their kitty. Area is rain fed which imposes its own limitations.

2 False pride is good: Although efforts from several CSR activities, govt initiatives, etc seem to be on the area is largely illeterate. You can get a sense of what they mean by literacy in the video of SHG group. The men in slide 11 claimed they had done upto class 6 or 7 before dropping out. I doubted both. But on reflection found that kind of ‘false pride’ a welcome sign. It only indicated that thay have accepted that education is a desirable end state and they are craving for a better end state than they currently were in; this desire and higher aspiration is a prime requirement for any development initiative to succeed.

3 Thank God for Hindi: The areas were hardly 12-30 kms from the district headquarters. Imagine that we had not integrated India with one language formula – with every district and sub district speaking different dialect or variations and so much time and effort lost in translation -it would have been a massive waste of national energy. (Thank God we have saved ourselves this much at least due to proper actions on independence). Our politicians have done somethings right.

4 Can Roads and Connectivity alone achieve progress: I have been visiting nearby places for the last decade. The roads have come up very well. Most village roads are concretised. The times on most roads, district, sub district and state highways have become 1/3rd and it is much more certain and lot less damage on your spine and vehicle parts. Communication connectivity has also improved greatly. Most villages have someone or the other with cell phones. The progress in literacy and living standards seem nowhere commensurate with the progress in govt infrastructure. (guess not even 15-20%). We seem to be miscalculating the linkages between the 2. (I am not saying these are not important; but how much they are able to use them at this stage is questionable. Looks like a 25 terminal airport for 2 flight landings a day). Roads in most parts seem ready for the next 25 years. (see the photos).

Government may need to work on assessing the skill levels of each village and work on each village to boost their income. The focus has to be on increasing their ‘marketable surplus’. (elaborated later).

TV in each home (still a pipedream in many villages) and programmes for social change, advisories on agriculture, personal health and hygiene will all serve great purposes.

Gas seems economically misplaced. The payment for Gas goes out of the village system whereas the fire wood they were using was ‘manufactured inside’ the village boundaries. (this needs to be studied and validated)

5 There is great potential in increase in crop yields. Our scientst told me that soil should be so prepared that the loosened soil should just about envelope the aura of the root system. It will enable the root system in absorbing the nutrients and fertilisers without running off. Tight soil wastes them on top and loose ones enable run off. There is different requirements for different plant species but most places in India resort to uniform ploughing. Soil nutrients are different from place to place – may be even within the same village. Fertiliser and nutrients have to be adjusted accordingly. He claimed that such care alone can improve the crop yields (physical or financial) by about 60% in India.

The villagers also require better linkages to the markets (for many of them the universe ends at the village boundaries and their Government is the Village headman). Such increased linkages with partner end user corporates will bring them better technology, softer credit, better information, opportunity to add more value (like sorting and grading, washing and preparing them for markets and these can sometimes be significant 30-40% of mandi values) at village level itself. Government need not relax land ownership rights at all; just more facilitative of contract kind of farming will do.

6 Corruption to me seems a secondary issue in these places. For most of their transaction with the ‘outside’ world they need transactional interpretors who can (and do) take them for a ride in every possible way – be it in religious conversion, NREGA money distribution, freebees from government, etc. It is this that they have to be liberated from first even before corruption.

7 Trapping more income inside is essential at this stage: One of the  villages had an electrical repair shop repairing fans, TVs, motors and pumpsets, and lighting earning Rs 4-5k per month. In most other villages this amount is paid to external people. Govt has to analyse such possibilities of retention of income within village as well enhance values of what they sell outside and prepare them for newer activities like vegetable growing, fishing, water harvesting, solar panels, sanitary pads making (may be for a few villages in the nearby areas), poultry and milch cow raising. This requires external help and may be investments. Government can rope in retired civil servants, local students, corporate and wealthy individuals as Village development sponsors and draw up a village level development plans and guide these villages along the path of development. India has just 6,00,000 villages.

8 Compared to what the individuals, NGOs, judiciary and media and voluntary systems have achieved, the work of the government in these areas is so far starkly ahead, at least in the last 10 yrs. The remedy of our constant carp may be redesigning the election systems so that it becomes lot less expensive and faster administration of punishment for political misadvantures. What can u achieve from a justive system which passes judgement on disproportionate wealth accumulation after 20 years and after the person has died). If these 2 can be addressed and we give the politicians some space, perhaps we can make faster progress.

If judiciary and Lawyers can together ensure that delivery is not derailed and delivered within 2-3 months for cirmes, crimes and thefts etc might even vanish. Even Politics will become a lot cleaner. Will our Lawyers accept the challenge. In fact the media should also concentrate on exposing lawyers who delay justice infinitely by misuing their priveleges.

9 India should perhaps have gone for European type co-operative model of corporate existance than English and American type Limited liability company types. We are high social animals and more susceptible to social policing and peer pressures than top down relatively more impersonal legal governance, audit and rules based systems, court trial and punishment systems. social pressures would have achieved the end result at a far reduced cost. (may be, I am foolish, but when no one can prove it otherwise let me take some liberties in being expansive).

(Sorry no videos in this piece)

Demonetisation Lessons from Brazil

An edited version of this article appeared in Financial Express today. Link: http://www.financialexpress.com/opinion/note-ban-lesson-from-brazil-best-way-to-demonetise-is-not-to-have-one/472432/

Public policies are best when a lot of reason goes into their formulation and passion into their implementation.Those looking for an effective recipe for formulation could learn a lot from Brazil. It has demonetised its currency 8 times since 1942 and thrice simply knocked off the last 3 digits of its currency overnight i.e. like a 10,000 Cruzeiro (then Brazilian currency) will be 10 Cruzeiro from next day morning.

Lessons from 1830s to 1942.

Even before from 1830s it has been compelled to experiment with its currency due to evolving politics. The early experiments are to do with metallic convertible bases like silver and gold, metallic copper coins, birth of parallel paper money,  etc.

In early 1830s in order to stabilise the external value of Mil-Reis (then currency), the centre starved supply of currencies reducing the circulation of copper coins in the provinces. The provinces responded by issuing their own notes to neutralise demonetisation. Promissory Notes issued by Commercial banks valid for 15 days by law began to be accepted far beyond their due dates. (Source: Page 39-43,  Monetary Statecraft in Brazil: 1808–2014, Kurt Mettenheim)

Some other time commercial banks were allowed to issue bank notes (like in Hong Kong where currencies were issued by Standard Chartered and HSBC till accession). This led to loss of control of central authority and dilution of monetary policies.

Brazil through its history has clearly proved that no one can ‘starve’ the people of currency for far too long.

1942-1994

This period was mostly about high government expenditure, unbridled fiscal gaps and high inflation. Brazil demonetised 8 times before the last one in 1994.

It has had to change its currency, the ultimate form of demonetization for every conceivable reason – to tackle black money (Indian objective), to tackle hyper inflation, tackle daily cumulating interest rates of 3% (which is nearly 50,000% p.a.), base erosion, commodity price volatilities especially in Copper or just to avoid confusion (if Brazil had retained its currency same as in 1942, it would be 1 US $ =  2750 followed by 18 zeros, a nightmare for the accountants). They have been far deeper than t he Indian type demonetisation – the entire spectrum was replaced and the currency itself renamed.

The last in 1994.

The most recent in 1994 seemed Quixotic. It was aimed more at breaking the psychology of inflation. With 100% inflation consistently for 14 preceding  years (in 4 years over 1000%), shops had to revise prices 3 times everyday. That is when the government decided to use two currencies simultaneously – one virtual for counting the real value of currency and another for payments and settlement – and every shop having to display its prices in both and revise it 3 times a day.

But unexpectedly, people started anchoring their values against the real value (which was set near 1 Real Value unit = 1 US$).  Within a quarter or so, it was clear people were not rushing any longer to shops to avoid their currency buying less than when they started from home. Inflation abated and the real value became the Real the official unit. It was perhaps one of its most successful experiments that has lasted till date.

Lessons from Brazil

People will seek ways to settle transactions in the most cost and effort efficient ways. For many transactions in much of India, using currencies across the counter is still the most efficient option. In 1970s and 80s, when there was a coin shortage of sorts,  Chintamani co-operative superstore in Coimbatore used to issue their own tokens. These slowly gained acceptance with public so much so that even government owned busses and offices used them.

The parallel systems will start issuing notes and IOUs which will be strictly ‘enforced’ amongst its members through extra legal authorities.

One thing Brazil has always got right (between 1942-1994) is to have the 1,2,5,10,20,50,100 note sequence – considered the most friendly from transaction settlement point of view.

Currencies are as much about psychology and convenience as values for accounting and transaction, as the 1994 experiment so decisively proved.

The best way to demonetise is not to have one – avoid inflation, avoid unjustifiable or un-implementable tax systems, and not to issue too much of it anyway. Brazil has about 3% as currency/GDP whereas India’s is11-12%. Government should have incentivised and reduced it by 1% every year rather than force it in one lump.

A parade of demonetisations has not exactly curbed either parallel economy or corruption in Brazil. Corruption and black money is so rampant, their President was recently impeached for corruption, their biggest real estate tycoon is behind bars and may have to spend the rest of life there if not politically rescued.

Why black money or parallel economy, there is a near parallel administration being run by the mafia through drugs, extortion, violent thefts (one murder every 10 minutes i.e 140 a day, down of course from 600 a day not so long ago), etc. none of which will be happening through tax paid cheque money transfers.

Conclusion

In summary Brazil offers 3 ground rules (perhaps not with successful examples as much as negative narratives):

  • the way to tame inflation is not periodic demonetisations but curb state populism,
  • the way to curb black money and illegal economy is not starving people of cash but well thought out tax policies and effective punishments, and
  • the way to protect free trade from causing domestic unemployment problems is to maintain the external value of the currency which in turn is achieved by restricting external capital inflows to just what is required for financing current account deficits. (Donald V Coes, Macro Economic Policies and Growth in Brazil, 1964-90)

One would definitely give credit to both the government and RBI for curbing state populism within FRBMs. But given the levels of corruption in tax collection systems itself, black money curbing through demonetisation seems an ill fitting solution. Unemployment is rampant and growing due perhaps to highly overvalued Rupee and extra terrestrial real interest rates.

The daily dose of RBI circulars does indicate that someone is extremely alert at the wheel but whether he knows the destination and if it will deliver enough gains for the pains people are experiencing, time alone will tell.

The writer is CFO and author of ‘Making Growth Happen in India’ (Sage Publications)

Modi’s 500/1000 move may have sent him to stratosphere; but he has to be more convincing

 

I have a slightly negative view on the likely impact of demonetisation more especially the proportion of people who have to undergo the pain for catching a few (may be less than 1%) errants. In many cases the Govt may also know who those politicians/individuals are. So spoke to several people (besides several corporate types during the course of meetings) to gauge the mood; lucky I have not gotten beaten up yet.

First a Kaamwali (she wasn’t all that specific except that mentioned that she has just got Diwali bonus), a Receptionist in Mumbai at one the largest cement firms (she was inconvenienced but said that she supported Modi since it is required for the nation), an Old and frail Tamilian lady who needed some help with Kiosk check in, and my driver for the day. He with a bit of glee and satisfaction said “I had only Rs 3000 which I will exchange”. “Is it required? Do you support it?”. “Yes He has fixed all those **** (reference to some community). They have been asking for it, crooks. They were hoarding so much black money”.

A slightly serious looking Security staff who frisks you at Airport at CS in Mumbai.  When I opened the topic he was cross with me and put his finger on his lips to ask me to shut up. I trailed off with Modi’s name. His outlook took an about turn and asked in utter curiousness ‘Kya Kya Kya?’

I said Rs 500/1000. … he: yes yes. Me : Do u support it. Him: Yes sir.

Me: Why? Aren’t you inconvenienced?’

Him: ‘Yes sir. But that’s little’.

Me: So you can bear it.

Him: There is Hope sir now. I will bear it. His mouth was quivering. I was expecting an English response I was not prepared for an emotional response. I just patted him and said “great man Keep it up” and moved on.

 

2 jet pilots flying off duty. “Sir I can hope to buy a house now. They used to be asking so much cash… where will i go for that kind of cash. We support it”.

My next victim was a 5th std Master Kavya studying  in Singapore Public School in Dahisar seated next to me. Slightly on the studious side but very eloquent and fluent for his age. I took his mothers permission to talk to him for a few minutes.

He would have liked Clinton to come back, since she would have succeeded Obama who is a great friend of Modi. He likes Modi because he is the one to start Swatch Bharat which will clean up India.  They debated the effect of Rs500/1000 in the school.  The teacher briefed them on what ‘black money’ is. They had concluded that black money is not a fair system that some people bear and some people go free, it is cheating. He said that his parents would be greatly inconvenienced but still he supported Modi wholeheartedly.  ‘Its required for the Nation’. Views were erudite but he made his point in a manner befitting his age.

 

I was zipping thru most of Delhi and India Gate at 9.45 which was deserted like someone had announced that a nuclear bomb is going to be dropped there in an hour’s time. ‘Aaj Kya hai?’ I asked the Mega cab driver. ‘Logoan ke pass paise nahi hai’ he refrained. I thought I had at last found an ally and started a conversation. But he was more than a fan of Modi; he almost looked an appendage to him. Next 15 minutes he gave me a lecture on how Modi is good and how what he does is good and how it will benefit in the long run. I had no choice as his captive audience.

 

With 6 -7 others also, Modi seem to have scored a perfect 10 with this move – somewhat surprising for a debative society…he has managed to whip up a frenzy to ecstasy in support of his action. ‘Sock those Black Money B***ds’ seems to be the mood.

 

I did not expect such a one sided view from lower /middle income people.  So when I write this piece i know I’m in a minority. But still i present my sour grapes.

 

And Now the Sour Grape

Someone asked Deng Xio Ping the architect of Chinese reforms, on the 200th anniversary of French Revolution as to what its impact on Democracy was? He replied, ‘Too Early to Tell’. My instinctive reaction is to reserve my judgment on this recent chest thumping by Modi fans on his recent salvo (Mandatory Disclosure : I am a Modi fan myself, except i want to temporarily suspend that status on this issue till i get convinced on the benefits of his recent action).

What has been done is bold, no doubt. His speech was more patriotic, but it needed to be convincing more than being patriotic is my opinion. He could have told the nation on how much Black money he thinks is in circulation, how much the Government aims to garner thru this action, how much Taxes the Govt hopes to get as a one-time measure and how much on a running long term basis,  how much additional growth its going to create.

Most of all how am I as an individual going to benefit for the pains imposed on me – at least in qualitative terms. I have not earned a penny with tax dodge – rather I am yet to get so many I Tax  refunds (petty though) from the Govt since 1995-96. This is a pure compliance measure; so to impute any sense of patriotism is unwarranted, i reckon.

Half way into Modi’s term, i am far less convinced about his (or rather his cabinet’s) ability to deliver on the one most important thing – growth and with it employment for the rural, youth, newly graduating. I don’t think there is even a plot or story line leave alone a convincing plan. So i am not willing to be mesmerised by side shows, however impressive. If MMS was lack of action, Modi’s cabinet seems to be lack of ideas. Growth seems to be in an anaesthetic state. Just excessive focus on a few things  alone is not enough to run the country. And he hasn’t addressed the core issues causing black money – unreasonable stamp duties and Capital gains taxes alongwith election funding… in that sense the monster will sure take rebirth and start from zero again

When some Isreali said that even they would have been proud of India’s surgical strike, sure my chest went up 560 inches. Sure he is doing a great job of whatever he is doing; but then is he doing what all needs to be done?

While resolving strictly to comply with the rules, i am tempted to suggest the following actions:

Devalue our currency also – to may be around Rs 76/$ which is its true value. Impose a 30% tax on Chinese imports citing national security interests (their actions on Brahmaputra and POK).

It will create all the jobs that our youth and country needs.

To give a sense of balance, sure Demon’n will ease inflation and hence interest rates. It will make real estate more affordable and not prone to periodic price spirals and so people may not invest in them out of desperation but only when needed and look for better alternative investments. May reduce fees and prices of sectors thriving on black money like doctors and lawyers and some professional classes. It will motivate me more to pay taxes…but that alone may not convince the 99% abiding citizens to strain themselves (i thought so… but quick survey exposed my hollowness) to facilitate the government to catch the errant few.

With some serious disgust i should also mention that balanced debate seems impossible on this subject. Modi baiters throw all kinds of silly bile  … it won’t work, too draconian; what happens to A, AA, MA, BA,him, etc., will not succeed using anything from vile adjectives to heavy invectives. On the other hand Modi fans are rather obsessed – they talk as if this is the best thing that could have happened to the country since independence, this act required stature of Go… or such terms. You utter your reservations, abuse is not far away in time.

I am sorry. I am a big Modi fan myself. But i refuse to back him wholesale. I retain my right to be critical on certain issues or as in this case certain aspects of proposed action. To surrender this right of mine is an assault on reasoned debates and a vacuum of balance.

When we were descending I asked Kavya as to how he would like to be told by the teacher on any issue (i) Just be told by the teacher what to do in a stern way or (ii) she explains the matter, tells him about the risks and benefits and recommends that he acts. He didn’t hesitate to vote for 2nd option.

At last some consolation for me. Modi could have taken the convincing route than the prescriptive school teacher approach.

Responsible Recovery of NPAs

Treating all debtors the same, including those with scope for turnaround, is bad for banks and the economy

There can be no doubt that banks need to go after the non-performing assets (NPA) vigorously so that the moral hazard of wilful default does not get hard-coded into the DNA of borrowers.

Banking thrives on the delicate psychological infrastructure of public confidence. One should also bear in mind that one of the most essential ingredient of growth is risk-taking capacity and entrepreneurial zeal.

The current hysteria being created by media and the sudden near-choking actions of the RBI towards NPA recovery seem to overlook the fact that we need a balanced approach to recovery even while preserving the above two.

Reasons for bad loans

The current stock of NPAs is the result of court actions of cancellation of licences, government not keeping its word on contractual obligations, global commodity price movements, low equity base in India, irrational exuberance in sanctions and a lackadaisical approach in the past, free-trade agreements (FTA), a sudden sinking of the growth table from 8-9 per cent to 6-7 per cent with services taking a greater share, etc.

Of these, the Asean FTAs have played a large part in pushing many units to involuntary defaults. According to one estimate, when all ASEAN countries implement their FTA commitments with India, India’s exports to them are supposed to increase by 21 per cent while India’s imports from them was slated to increase by 59 per cent (C.Sikdar and B. Nag, 2011,Impact of India-ASEAN FTA).

Surprisingly, Asean FTA, effective January 2010, remained largely unnoticed till the last leg. When the import duties on many end products became zero per cent from 2.5 per cent in 2014, it became a tipping point for the media, traders, and even the overseas exporters.

The cumulative lag in its impact weighed in heavily all too suddenly. This put the domestic manufacturing industry’s prices on import parity and several industries became uncompetitive or saw their margins shrink. In any case their ability to pass on input cost inflation became restricted. Due to this, the growth rate in several Indian manufacturing sector has sharply come down from 7-9 per cent to 3-4 per cent. This has elongated the pay back of several projects from 6-7 years to 10-12 years.

A moderated approach

Banks should carefully segregate stressed credits into (a) where Return on Capital Employed (ROCE) is still more than Cost of Capital (COC). This would indicate that the credit is still viable but less liquid than earlier planned, and (b) where ROCE is less than COC, where the feasibility itself in question.

In case of (a) the RBI should allow one-time re-scheduling of loans in line with the revised economic assumptions and the elongated paybacks, with adjustments in credit spreads, but without strangulating either the clients or banks by provisioning.

Such cases should not be reckoned as NPA in view of the general objective of maintaining a conducive atmosphere for investment. They should not be allowed to erode the confidence in our banking system and preserve the capital base of banks.

Most of current stipulations seem more appropriate for Type (b) cases. The combined might of the legal system (with its slothful, apologetic approach) and existing regulations is the weakest in cases involving immoral and wilful defaults. Immediately after the crisis of 2008, it was found that the CEOs and traders of investment banks had appropriated for themselves huge bonuses from questionable practices and structures.

The Swiss and the Swedish authorities, instead of protracted legal battles, arm twisted them to pay up a substantial part of their ill gotten gains, threatening them with the might of the State which yielded optimum and quick results.

Given that the top 60-70 cases would cover nearly 80-85 per cent of our current NPAs, the regulator, the government and the banks might do well to take lessons from such an approach and jointly ‘arm twist’ a settlement.

This approach might involve transfer of ownership in Type (b) cases to others in the industry who have competitive strengths in manufacturing, technology or distribution to make a less viable unit to fully viable one. Central Banker should have ideally asked for easy exit norms including the court procedures, automatic transfer of licences and permits instead of just concentrating on provisioning alone.

Banks should also agree on norms for lending for takeovers and mergers which is taboo as of now at least for cases involving share purchase, even if the acquirer has to pay for liabilities simultaneously.

Overly cautious approach

The contrasting approaches of the Fed to 2008 crisis as against the current scene in India is interesting. The 2008 crisis was caused by individual excesses and born of instruments created by outlandish models.

Professional excesses were writ all over and unjustified transfers of wealth humongous. Yet their approach was to save the system and public confidence and many of the sins were forgiven or forgotten, despite the effectiveness of their legal system.

Our strangulating approach of ‘one prescription whatever the diagnosis’ seems destined to manufacture a crisis out of what is at worst a matter of serious concern. This, when an accommodative monetary policy is the need of the hour, with the bulk of the economy and manufacturing sector struggling and growth and employment addition far below potential.

The excesses of strangulation can be gauged in the light of the equity that RBI holds in relation to its total balance sheet size. RBI’s ratio in this regard is the second highest in the World at 32 per cent (next only to Norway at more than 40 per cent).

The same stands at a mere 2 per cent for the US and UK. There is a clear case for a more nuanced and segmented approach, appropriate solutions for each class of cases, besides of course a re-look at the real interest rates which are at historic highs for many sectors, stubbing out any entrepreneurial spurs in the affected sectors. The high equity component in the balance sheet should be a source of comfort and assurance of the system; unfortunately RBI does not seem to know its strengths.

An edited version of this was published on March 28, 2016 in The Hindu Businessline. Link: http://www.thehindubusinessline.com/opinion/going-overboard-on-npa-recovery/article8406146.ece

 

 

Wealth of Guilt

IMG_0890[1]

(only a part of my ‘wealth’)

My Wife had been nagging me for the most of last year to clear old and excess stuff and unusable items in my study, bath, wardrobe, and show case. As usual it faced stiff resistance till one day she cleared out partially and brought out many stuff out in the open in the drawing room. I could not resist any longer and plunged into clearing the weekend before year turn. This is what i found by way of ‘excess’ – quite apart from what i kept for possible future use or current immediate revival.

  • 1 home theatre and 2 music systems and a CD/DVD player, (I have 2 more systems for use)
  • 6 speaker sets, may be a dozen ear phones (apart from the half a dozen retained),
  • 23 leads 2 way pins old style which engage making a click sound,
  • 10 charging chords, (I have kept 18 chords of various kinds for future use),
  • 14   2-pin or 3-pin plugs,
  • More than 32 combs,
  • 17 mouth wash bottles,
  • 2 dozen tooth brushes,
  • 5 calculators,
  • Lucky I disposed off 4 shoes i am left with only 10 pairs now besides 5 sandals /chapels,
  • An embarrassing number of pens of various description (at least half a dozen of which are of high end variety like Waterman, Schauffer, one gold cross pen (gifted to me in 1993 and today’s indexed value must be more than Rs 60,000 but never used),

Batteries, watches, cell phones, batteries for cells, dozen toilet kits, scissors, staplers, punches, marker pens, fevisticks,… too embarrassing to tell.

I am sure many of you may not be far behind if you care to count and admit. I am sure that wealth – things bought with enough ‘economic’ logic’ in ‘emergent’ circumstances – afflict corporations, government departments, perhaps even ERPed organisations. (that is if they don’t have 2 versions of ERP running one for back up).

If I am not able to control this accumulation of ‘wealth’ (sure all these have entered into the National income and GDP of some country) why blame the likes of Imalda Marcos for her 4500 pairs of footwear and 15,000 saris of Tamil Nadu CM … perhaps they may have exercised their choice and bought for pleasure and it may have been far more affordable to them than the above things were to me.

Don’t read me wrong – I am not a kleptomaniac. My mother has given me strong sense of values not to pick even an unclaimed 10 paise coin. They say that we start questioning the logic of everything by age 13-18 and start questioning our values by 40 (so perhaps the saying ‘Don’t get naughty when you turn forty’). In my case this particular sense of righteousness seems to have survived the battle with values. So not for me inflating tour expense accounts, spending differently if it is from company’s account than it is from own account, seeking bribes on duty, etc. Values settle many day to day decisions for me instantly … no ruminations, no vacillations and hence no agonising over them. In that sense it has been a source of great help and happiness…regrets, I believe, come in only from foregone alternatives. A strong sense of values sort of effectively shuts out many of them and hence a lot less of the feeling of ‘foregoing alternatives’ and hence much less unhappiness.

Nor am I a shopaholic… just shopping for pleasure… compulsively!

Or profligate spender with loose controls. Again my mother would have accounted for every grain in her kitchen/house (some exaggeration here… but those were her times). Regret she didn’t train me in the same mould. Or perhaps she did. And I get overwhelmed by the scale and variety of new gizmos, articles, choices, things we are flooded with (deluge, should i call). The best of training has limits, I guess.

Regret my school didn’t train me in being responsible in housekeeping – putting things in their place for easy retrieval later, not buying anything more than strictly necessary. But then again any upbringing also has limits. They could train me to take care of 2 pens – one as reserve, but could they have imagined that one day i will be faced with a deluge of 200 pens/pencils in my house? In their days that’s what shopkeepers would have had.

I think this accumulation of ‘wealth’ may have happened in 2 ways.

These days most electronic gadgets come with their own set of connecting wires, plugs, chords to interface with TVs and Laptops without ask (and most of them look alike) instead of leaving it to be purchased independently. The Government should tax these add-ons heavily so that neither the seller or buyer supplies them as an automatic annexure.

The next perhaps bigger reason is lethargy which in a sense (at least in this) seems a sort of arrogance of affordability. Lethargy in keeping things in their designated place … or designating a place for each and taking cursory care to keep them in that place and lethargy in searching when required. When things don’t materialise as wished when required I get frustrated and go to the nearby shop to meet the ‘emergency’ or when we visit the mall next if it is something that can wait out my frustration. When I buy, an exaggerated sense of importance of my time overcomes me and ‘economic order quantity’ (why spend so much time shopping for such a small thing… hence take more than two or perhaps a dozen) is bought to be kept wherever till I hit the same patch of lethargy and frustration and the cycle repeats.

I wonder how much of our GDP and national wealth are of this kind.

How effective or desirable is ‘market economics’ when it allocated ‘resources’ for such ‘inessential’ uses when there can be so many out there more needy (or the future generations) for whom the use value would be far more even if they don’t have the ability to pay.

I don’t mean they should be given a dole at my expense. I hate doles and charity… except some basics. There is no better way to kill individual initiative and breed mass lethargy against progress than doles and charity, me thinks. But some kind of a prick on my ‘arrogance of affordability’ or on the ‘lack of discipline – lethargy – needless buying’ cycle so that i become responsible… and don’t ‘deprive’ others by boosting demand and inflating prices for them.

Putin – In the eyes of Common Russians

 

 


Putin: In the eyes of Common Russians

‘Putin is heading us back to the dark days of cold war, he is a dictocrat, upto needless aggression, etc.’ are the impressions I carried.

And the experience at immigration during my recent visit to the country seemed to confirm such misgivings. The lady passenger ahead of me took close to 7-8 minutes to clear – she was the first in my queue and me the second. She looked around bored and tired. From where i was i could see nothing but a covered enclosure with transparent glass only on the passenger side well above the waist level. I thought there must have been something wrong in her Visa or something which was upto close scrutiny and hoped that it would not otherwise take more than 2 – 3 minutes.

The lady immigration officer asked me to remove my specs and had a close look at my eyes like an eye doctor doing retinal examination. Then she took out a hand held lens and started peering into my eyes in the Visa and then the Passport first page. She must have carried on some other verification for the next 2-3 minutes. Then a colleague of hers dropped into her cabin … i thought she must have been taking too much time and he was there to expedite. She told him something and he pretty much repeated the procedure. He had his own lens, which looked larger. I thought he would say that it was OK to proceed. But after a couple of minutes more their supervisor came. She briefed him. He motioned me to take off my specs in a stern way. I did. By that time i was feeling nervousness creeping in on me. He had a different device – perhaps a miniature microscope. Peered into my eyes in the visa and the PP but said nothing before going out. I started apprehending some action perhaps being taken aside for some serious questioning or … like they do sometimes in Hong Kong airport (if you travel in a group they would pick one and take them aside for 1-2 hours interrogation without giving any information to the others who will be made to wait it out patiently. Well it has happened to me twice… but it may be wrong to generalise). But luckily she started Xeroxing the Passport which brought some relief. I would not have minded 70-80 minutes if the lady had peered into my eyes directly using the tiny lens. But no such luck. After 8-9 minutes of intense silent interrogation, Kumaroa4wsky or Kumarachev was let into Russia.

Some insights or conclusions

What follows is based on my in depth talk with just 4 of them – the tourist guide (who was with us for 3 ½ days (and whatever small small but serious conversations, i had with her), the cheerful and handsome doorman of the hotel who spoke flawless English (he had studied English in school and worked for sometime in Thailand and Egypt before taking up his job in St Petersburg although he himself is from a place called Rastafarin (hope i have recalled the name correctly – some 200 Km up north of even St Petersburg, I never believed some city could be even north of St P), a Cafe manager and a Girl or a lady corporate professional in mid-20s who helped me in translating my request for Vegetarian to English and i stuck up a conversation of sorts. And some casual conversation with an Andhra Student who is doing his Phd in paediatrics and is employed during evening times in an Indian Restaurant and a couple of locals. So you can dismiss the whole thing as not being representative. It is OK.

I have largely related it as if I was talking to one person – saves me some bother in writing. Excuse.

  1. I asked one of them which politician they hate the most – past or present and pat came the reply – Gorbachov. G represented an ideal statesman for me. I have grown up worshipping his style of ‘perestroika’ and had always imagined that his was the boldness we lacked and should emulate for quicker economic progress. For me it was like a big dampener. And who is the second one …’Yeltsin’. ‘What is about them that you hate?’ I ask. They could not deliver – there was chaos all around. The public sector employees were not getting their salaries paid for six-seven months and Russia was largely Public sector at that time. They did not have a clue on how to handle it. In such a chaotic state corruption was rampant. Disastrous their regime was.
  2. ‘Putin?’ I asked‘. He has brought order back to Russia. It is functional again. He promised to pay the salaries on time and re-start pension to pensioners and he did deliver on his promise.I ask her who amongst the Soviet socialist time they liked best. There was some vague facial expression/gesture as if she doubted if there some such period like ‘Socialist, who?’…as if the period did not matter. I prompted her with some names … Gromykov, Krushchev, Brushnev, etc. There was only disinterest, although she was middle age and sure have lived through their regime. Whether it is collective amnesia or selective amnesia (of the 5/6 i asked) i do not know. ‘We all knew that the previous scheme of things (referring to the order before 1990s) was not sustainable and would one day collapse … yet G and to a lesser extent Y were disasters.
  3. I ask one of them ‘which one thing they would like to change in their society or desire their politicians to do’. After some deep thought, ‘Would like lesser corruption’. Has it come down of late. ‘Yes it has. But still when i have to bribe some officials or approach someone in authority through someone to get some papers or permissions, it hurts me to feel that I have to do it on my own soil’.
  4. Another one said that Putin stands for the Russian people. He connects with us and tries to deliver what is in our best interest. He is trying to re-introduce religion again. Russians were always peace loving people and God fearing. We had our Russian Orthodox Church. I don’t know whether we believe in God strongly, but attending Church has become fashionable once again. We may quarrel within the country, regionally but when it comes to an external enemy we all stand up together … and thats where this man scores. He stands up for our country. (Another fellow traveller recalled Putins recent remark … ‘it is not for me to decide whether to punish the terrorists or not. It is the Gods duty. It is my duty to send them to Him’).
  5. They all respect the Chinese. ‘China has done a lot for the Siberian/Asian side of Russia by infrastructure development. You know Russia does not have that much money these days and the economy is in a bit of problem… so their help is very much admired. Never mind their habits as tourists but they are there in large numbers.’ Earlier I learnt from one of the tourist guides that when the Chinese come, 4-5 of them crowd around the exhibits in the museums or monuments and spend endless time in photos excluding everyone else including their own group members. Even as a guide it is difficult since at any point of time you can address only the 4-5 nearest to you. They are completely oblivious to others’ conveniences and sensitivities’.
  6. I saw it first hand during the concert of Russian folk dances in their main theatre hall. Our group made up the majority, came first and were seated in the centre part of the audience from where we had the best view of the performances. There was a 20 minutes break during which some wine and snacks were served in the adjacent hall. When we came back all our seats were gone. Every single seat in the central part first 3-4 rows of seats had been taken by them. Any jackets, Russian Topis etc left behind on our seats found themselves deposited in the back rows. And a few front seats which were vacant were also reserved with bags and Hankys for their friends or folks who were still relishing their Champagne in the adjacent hall. Siege of sorts or ouster. Distasteful it felt. This notwithstanding there is unanimous appreciation for the Chinese by Russians. Chinese were the largest contingent of visitors last year – of the 6 million visitors last year they were 2 million.
  7. Jobs are not in plenty. They may be difficult to find. But things are far more organised. There has been no pronounced increase in Divorce rates… looked like status quo maintained. Surprisingly none of them seemed to mind the Russian period of Czars and Czarinas (pre 1917) and talk of most of them in awe, respect and admiration. (I thought that they were hated figures for their excessive wealth and highly opulent lifestyle and not caring for the common people like a communist government would have… but I could not find much success in unearthing the reason behind what looked counter intuitive to me).
  8. I had a long chat about marriage, girl friends and divorce rates with the doorman on a cold night with stiff breeze. He had a permanent smile plastered on his face … one of juvenile or young adult optimism. He was full of banter. I asked him about his marriage. Not married. Girl Friends?. Two but one now. Why not two I ask, cheekily. Only one boy or girl friend at a time allowed. Why I ask. There is a rule that we can have only one at a time. ‘Oh! Is there a law like that?’ ‘No. Not if you are a Muslim. Their religion allows multiple marriages’.  ‘Even in Russia?, I ask. ‘Yes, there is nothing against it’. ‘How come then only for Russians a different restriction.’ I understood that the rule of one for one and only one at a time is more of a custom, religion and society matter and not one of Law.
  9. I could sense some animosity towards Nazi Germans and the way they destroyed many of their monuments and starved more than a million people to death during their 900 day siege of St Petersburg in the 2nd World war. Surprisingly there is no animosity towards Catherine the Great who was of German origin. And if I heard it right, within six months of coming over to Russia as wife of Peter the III, (from Peter the Great lineage) had an affair with one of the Guards and had (reportedly) her husband killed and then ruled Russia for 34 years on the trot. She did wonderful work. I pointedly asked the lady about the paradox… of admiration for one who killed one of their kings from the founding and the most admired ruler families. ‘She had the courage to stand up, rule firmly although she was new to the place, she took fate and future in her hand although she had no way of knowing what and how strong the reaction will be … and then delivered over 3 decades of peace and progress. So why should we not admire her’. I thought there was a tinge of chauvinism in her argument – a kind of I am a woman first (so I will admire the one who could stand up for her conviction), a Russian next.
  10. I asked about the recent skirmishes and conflicts in Turkey, Crimea, Syria, etc. ‘Our constitution permits help to any nation who asks for help. The Syrian President had asked for help and so it is justified for Russia to help him in whatever way we could. About the other two there are many day-to-day issues since lots of families are split between Russia, Ukraine and Crimea. We have relatives and friends living in there and very difficult to reach help to distressed, care for old age parents who may be there, parents to send money to jobless children, etc.’
  11. I asked about the impact on travel and tourism due to recent events. ‘We were bracing up for the worst. We were anticipating a significant drop. As against 20 tour groups my company would have hosted for American tourist groups on an average between May to November in a normal year, our company has had just 6 this year. I have heard that the US has issued advisories telling their people not to travel, that we will be put to a lot of unwanted hassles in immigration, their passports taken away etc. (don’t know if any such thing has been issued by US). Usually late November and December are leisure times for us Guides… we have holidays and not much workload in the cold weather. But this year I am still working and there are two more rounds to go and the next 20 days are tight. The French and Chinese have made up in large numbers. For the French, Russia seems like a weekend outpost. They come at all times – Christmas, New Year, Weddings, just merriment, etc.
  12. On the final day I could not resist asking of my frightful experience at the incoming immigration and if that was the most effective way of promoting tourism and inviting guests. What followed was a lengthy justification. ‘We are a peace loving people. But we are vulnerable to terrorist attacks. In 2006 we lost many children in bomb attack in Moscow. So our President is very watchful and has initiated tough measures to ensure your safety and our safety. Would you like your safety and security to be compromised while you are here. Would you even care to visit our country if there were frequents incidents. I hear that you face similar problem in Kashmir and on your border with Pakistan? Wouldn’t you like to deal with your problem resolutely and with tough measures?She set me on a thought train…her resolute defence (almost chiding me) and our own inability to deal with our problems in stiff and decisive ways. After her admonition (should I call it), I could not but feel sheepish… may be stupid. There is a surprising oneness of opinions about most things amongst Russians. We debate each and everything ad nauseum. May be that is the hallmark of a democracy. But at least on matters of terrorism, wish we spoke as one. Like the Russians. ‘I think a few minutes more wait at the airport is justified to ensure such safety. The authorities have a problem with your names. So they have to spend extra time to decoding letter by letter. And you also came in through Dubai which does not have strict controls. So it is easy for anyone to use it as a transit point. We welcome these measures and feel safer for them. But you would have noticed once you are in the city it is safe … there is no intrusion or policemen watching you or following you. You can walk around at midnight without fear’.

On balance Putin seems would win 4.5 votes out of 5 – and straight from the heart. One of my friends reasoned that Putin is from St P which explained his popularity. Me thinks that how much a politician is hated is an inverse function of the distance … people in Assam and Punjab may not hate Jayalalitha or Karunanidhi as much as Tamilians with the possible exception of Laloo who is ‘hatedmired’ all over India…so the admiration for Putin is counter intuitive.

I thought Russians would be stiff, uncommunicative, not so helpful, English would be a problem and many such hangovers from the socialist days and what one heard of such days. But there was warmth all around, there were plenty of people who spoke English… when i asked for directions they were willing to walk some way to put me onto the right track, when i ask for a specific shop to pick some item, the hotel receptionists didn’t just stop at giving directions but suggested other alternatives (things to shop as well as stores), I could feel safe enough to go for my morning walks at 6 am in the cold weather when not many are in the streets, (in Winter the Sun does not seem to be up before 10-11 am till which time street lights are on), found them humorous and ready for banter… may be the immigration were doing their job alright.

Rats and the Bureauc’rats’

Rats and the Bureauc’rats’

This is not a fib. Shows me in an awkward light. But it is OK.

I have been living in a flat in the 4th floor which belongs to a MP, in a fairly decent locality of East Delhi for the last almost 10 years now. His wife in whose name the flat stands has visited our house 3-4 times in the last 10 years and he – never. I have attended his Iftars a couple of times and met him once in his office. Very decently behaved.

The first 9 years we have not had much problems with the flat – no problems from cockroaches and other insects or rats. In the last year or so a lot of people have started remodeling their kitchen or bed or toilets and have had to work upon the pipelines and drainages. And suddenly rats started invading our house about 4-5 months ago. From being an occasional visitor to weekly to daily their familiarity with us seemed to improve with time.

My wife is mortally afraid of them and exhibits a near phobic reaction seeing them. The store is somewhat tucked in and I don’t need to go there for my daily routines. So whenever my wife used to complain or start discussing their presence or disgust I will simply bark back at her and put her down or somehow make it out that she is more of a problem than the rats. From being a weekly routine, it sort of became a daily scene – with the watchman coming to take the trap and leave them in the nearby park. The more frequent their visits, the more frequent my wife’s screams for help and more intense my reaction. But apart from the occasional help with setting the trap – grumpy and grumbling – not much of an intervention from me -at least they were not crawling on our dining table or bed or drawing room.

And suddenly one Wednesday about a month ago my wife had to leave for Chennai for some urgent work.

I prefer to cook my own food whenever she is out. I sort of like it for its meditative value. I need to concentrate to get it right, mixing or clubbing various activities so as to optimize time, scheduling them etc. and during that time, normally I don’t think of thinking about my boss or meddlesome colleagues or irksome tax authorities or Kejriwals or Arnab Goswami or the plethora of scarecrows and demons in our daily life. The 40-45 minutes is a pure yoga for me.

I was greeted by our esteemed visitor when I was preparing to cook that evening. Seeing one run to hiding in the store …I was overtaken by a sort of hesitation… in opening the doors or store, drawers or even the Microwave as if one will jump out at me. From thinking of my cooking routine most of my time went in thinking about my ‘athithi’. After dinner, set the trap and caught one and handed it to the watchmen. Not that they fall for whatever you bait. They have their own taste (hope it does not differ from one to the next) and are highly choosy. But from my wife’s harangues I had learnt some tricks about what gels with them.

The overhang of thoughts about coming face to face him made me lose some sleep. And it sort of visited my thoughts during the office hours next day. Thursday the problem persisted … looming larger. Half the sleep gone and torments from pure imagination invaded me during much of those wakeful hours in bed. Rats had become my new source of meditation.

Friday morning … and evening… it was sort of I had to do something about it kind of situation. I called my driver and society’s plumber on Saturday morning to see how to resolve the issue. Both of them were kind of amused, suppressed though since they may have learnt to live with the problem.

We searched all the possible openings in the house, the drains, the inlets of water, the electrical lines, those which had been recently re-done by others… The plumber was smirking half the time. My driver is a sort of serious but irresponsible kind of fellow. No smirks from him but blindly followed instructions…the plumber became an expert of sorts offering his own logic (mostly counters) to whatever I suggested. He kept saying where there are no droppings there is least likelihood that it may have been a point of entry. (makes sense but to me it did only in retrospect; not then). ‘Do as you are told’ was my shout and refrain and insisted on his plastering or filling whatever it was under scanner. I guess both of them must have been pretty exasperated with me.

My driver pointed to a small gap in the junction box of electricals high in the dining area. There indeed was a gap of may be one cm – good enough for a cockroach I thought but hardly could agree that a rat would be able to squeeze through. But not having made much headway, I told him to get the ladder, open it and see. He did and also saw their droppings. The ply board used as cover to the JB had wilted due to age and bent creating some gaps. I told him to put brown tape around its borders. I sealed the electrical switch box as well which was right inside the store.

Phew! For the rest of the day no rattling noise form kitchen store. Not in the night either. Not the whole of Sunday … and then Monday. I asked the plumber to seal and do up all the damage done during our investigation. And there has been no visitor since then…in fact for the last whole month.

Reflection

My wife of last 25 years was not able to get my attention at such close quarters what a 48 hrs direct encounter did. I am sure most men of my age around the world would behave similarly (at least to their wives I guess!). Unless regulated by rules, social values, culture, policing and punishment, peer pressure, etc. our reaction to others problems are likely to be equally lethargic and insensitive.

Given the current level of insensitivity to others (my neighbors park their car sometimes in mine, in Delhi the whole road however wide is a parking lot, rickshaws can drop or pick up passengers any place – right in the middle of a road busy with vehicular traffic), moral degradation, lack of work and duty consciousness, dilution of values at least in India, our model of bureaucracy perhaps has run out of context.

I don’t see similar degradation in many other democracies, some military regime and communist countries. May be this is representative of countries where corruption is high or they are both two sides of the same coin. May be around independence our Bureaucratic model of governance was appropriate but the background assumptions have so changed that it no longer looks appropriate.

So you have a defence secretary who denies snow boots to Siachen soldiers, bullet proof vests to frontline armymen, and now a massive cumulative deficit of even basic ammunition; Judges and your own lawyer least concerned about administering justice in a hurry, regulators not deciding on price hikes for Delhi Metro (actually problem I am told is a little deeper) for the last 6 years.

Given this should we not insist that for anyone to be eligible to be defence secretary s/he should have spent at least one stint of 4 months in Nathu La pass eyeball to eyeball with Chinese soldiers, one winter in Siachen and at least 3 years with other stations taken together.

I am sure if a son or daughter of the then Cabinet Secretary was in IC 183, we would not have wasted precious 2 hours at Amritsar Airport and we may all be talking of a different scenario than Kandahar.

We should also provide for 10-15% lateral entry into our bureaucracy from end users so that they can sensitize our system.

People say that we should impose a hefty fine on people asking for stay orders in Courts. But me thinks it is a waste of time. People who can pay (the rich) will impose it on the other unfortunate side pining for justice. I think it is the decider whose shoes should be made to pinch. The decider of stay orders is the Judge and we should impose a fine (or fees) on him. Even in a corruption free environment, the day we say that judges will be allowed a quota of 12 in a year and every additional grant will come at the cost of his promotion and increments, he will think deeply before granting one. (or may be he will trade his quota also).