Sunday, May 3, 2020

What Indian Kings and Leaders have in common - “Keep’m Poor!"


As I saw Sengar walking out of the court with a despicable smirk on his ugly face, his expression said “I might have committed the most heinous crime but this is a minor blip and I will soon be back – because in India “Sab Chalta Hai”. How I wish and pray someone had done a Hyderabad on him.

And that smirk has pretty much defined the character of this nation. Whether its corruption , conduct of politicians and citizens alike, getting away with proverbial murder or whatever…..


So as my dear friend, prolific and thought leader par excellence - Andy Mukherjee recommends article after article, ways to take this country out of an economic malaise through large spends on development, in all three scenarios of BC DC AC (Before During After Corona), I beg to disagree with his positivism and audacity of hope, as large part of every Initiative, Govt spending, Tax collection, Infra spend, gets diluted and withered away to land into the pockets of corrupt stakeholders at all levels thereby depriving every single citizen of India – A truly morally and ethically clean nation. And any strategy fulcrummed on a spend centric evolution is most likely to be withered away or land where the tax dollars mustn’t.


Abraham Lincoln s Gettysburg speech in 1863 has been a bedrock of ideology of every democratic nation on this planet, but few nations have been able to follow / imbibe it in its true spirit. Most have just lost the opportunity of implementing true democracy.

Societies that establish democracy on the bedrock of truthfulness and discipline (Singapore) – flourish, but societies that use democracy as a fundamental right to abuse the system and to get away with everything, neither deserve the luxuries of a democracy not would they be able to imbibe a degree of conduct that is expected for a democracy to flourish and function.

Let me endeavour to address a few points that frustrates a middle-class/educated Indian & that are reflective of the state of a nation. And how in the AC (After Corona) world the moral compass of humans and nations could change for the better. But that cannot happen if we don’t recognise and acknowledge the real virus plaguing the deepest innards of our character.

Corruption
In my mind corruption is the most debilitating virus that has embedded in the soul of the nation and if it drains an average of 10% to the Mr. 10 %’s of the nation we are looking at an average annual loss/leakage of approx. 200-250 Billion USD. I am still reminded of a gentleman named Madhu Koda many many years ago (I am not even sure whether he is alive or dead) who in a mere few months of being in power allegedly amassed thousands of crores of wealth through abuse of power. Compare that to an ignorable flutter when a few MPs in the British Parliament submitted a few parking tickets that were fake and had to resign instantly from their positions. An indiscretion like that would be considered a joke in India – maybe considered a fundamental right.

“If one can get away with something, one will most certainly get away” – and that’s the basic problem with democracy.

State of Infrastructure..
Nations have been judged on the strength of their infrastructure – which has catapulted cities/nations to become the global hub of finance and fulcrum of progress – London Underground and not any intellectual superiority,  is one single catalyst that has catapulted London to become the financial hub of the World.

It is believed that India has a total length of 4.3 million Kms of road network that’s managed by state / central governments. Each KM of road costs approx. 1.4 mill USD for a national highway and about 0.7 mill USD for a feeder road/state highway to construct. At an average of 1 mill USD per km, we are looking at staggering numbers that are being spent on infrastructure – primarily roads. A leakage of a few percentage points (at a general norm of 10%) we are looking at billions of dollars of leakage by junior officers, contractors delivering deficiency of service and quality. (rough estimates peg this at 3-5 Bill USD). Most roads across the country need to go through just one rainy season to get completely eroded. It was shameful in the global media, when a prankster made a video wearing a space suit and what appeared to be craters on moon were in reality a usual road in Bangalore.

And during my world travels, when I end up visiting same areas year after year, I haven’t seen any eroded road even on the usual routes that I travel because roads there – last for years without any maintenance. Why – Because they do their job right as per specifications and as per contract.

Enforcement of Contracts
In one of my jobs, I entered into a registered contract to provide some service to someone. And the other party used my service for a year and reneged on the obligation to pay me for it. Shame on our internal system of judiciary and enforcement of contracts that I, I the last 2 years haven’t been able to even deliver the summons to the other party inspite of all the technological advances of emails WhatsApp text-messages because we are still romanticising the systems of 1900’s of a court official delivering subpoenas and leaving all loopholes to be exploited. A nation where a registered promise cannot be enforced – has no real future and can never enthuse any degree of confidence either in an investor, or an entrepreneur – Because You one get away with everything.

State of PSUs
Someone rightly / clichédly said – Government should never be in the business of business. When Coal India launched its IPO, many many years ago, it was expected to become the most valuable company on the planet at that time. Afterall we were dealing with monopoly, infinite coal reserves (probably the largest in the world) some say enough for another 150 years. Yet Coal india is being operated at the lowest possible level of efficiency. Has destroyed entire shareholder wealth and has seemingly no future. Swaminathan Iyer wrote in the TOI many weeks ago about the inefficiency of Coal India Ltd and the key take away point was – Indian worker produces 0.8 tonnes of coal per man shift compared to Australia that produces 40 tonnes per man shift. In the name of socialism the much earlier Prime Ministers created and concentrated national reserves and treasures as engines of welfare for Politicians, officers and workers at large. If the extraction of coal per person per day cannot be linked to the compensation of the CMD of Coal India and every single of its 300,000 employees – the PSUs will continue to erode taxpayers money and shareholder wealth. It was also the same eminent Mr. Iyer who predicted in Jan 2010 that India will over take China by 2020. Alas it remined a dream that might not come true for another 2 decades….

Some 20 years ago as a 25 yr old manager of a small hotel (at the start of my life) in a small hilly town I would always desire my hotel to be full. I would do all that it took to ensure that every guest who ever checked in would always come back and never go anywhere else. At that time I was keen to get a confirmed business of an Oil PSU to be their designated-hotel for their visiting executives from all over the country. Only to realise, as I overheard during a social gathering, that that PSU has an emotionally watertight contract with a hotel far lower in class and service than mine, because the dealing officer gets approx. 2 lacs a year to renew that contract (Mind You I am talking of year 2000). That year he got a Maruti Zen (a popular car of that time). TVM (Time Value of Money) pegs that amount at about 30 lacs in todays value. Such is the quantum of leakage – All at taxpayers expense.

No wonder how hard You try – even though oil is floating and being thrown away/sold free across the planet, its still selling at over Rs 70 per litre in India. - Inefficient monopolistic OMC’s do churn a profit – But they could churn many times more.

Imagine this is just one instance of one PSU involving one city and one officer. Extrapolate it to the entire country. You would want to shoot Yourself in the head – if You complete that math.

Take the case of Oil PSUs, NALCO, NBCC, HUDCO, SBI, GAIL, BHEL, BEL, etc etc etc. If the respective Minister’s and MD’s salaries were directly linked to the EBIDTA of these companies and to global thumb-rules of performance of similar industries , they would have all done well. But the massive destruction of shareholder wealth slowly orchestrated by the inefficient stakeholders at large has truly eroded the incentive to perform and sowed the seeds of deep-rooted malaise that has seemingly no cure. And it’s ironical that the Govt wants to IPO The Life Corporation of India. Some quarters of financial whiz-kids are gung-ho on LIC IPO. Mark my words today. It’s the biggest disaster waiting to happen and biggest fraud on existing policy holders who are expected to partake in the growth story of Indian economy and its financial markets.

Spare a thought for an average tax paying Indian 
  • 30-40% Income tax
  • 18-28% VAT on everything
  • Pathetic supply chain management resulting in inflation upwards of 6-8% (that’s the real inflation really irrespective of the statisticians claims)
  • Most expensive Fuel in the world – despite of lowest crude prices
  • Accumulated losses of PSUs such as Air India @approx 150 employees per aircraft compared to just about 70 employees per aircraft @indigo – the less said the better about the efficiency and hospitality of Air India
  • Infrastructure worst than what human mind can possibly fathom or fragile human body can bear
  • Public health and public education in shambles that has allowed the private participants (private hospitals and private schools) to emerge and charge obnoxious tariffs for rather mundane services.
If India has to survive the AC era where the likelihood of deflation and depression will hit it like an unexpected Tsunami soon and the futile narratives built around the demographic dividend (youngest population on the planet) have to remain relevant – the character of this nation must change.

Taxation
Social Security / Consistency of salaries and allowances cannot be secured for half the population (Government Employees) by the other half. The recent unsolicited advice by some IRS officers to increase taxes and subjecting incomes / profits to additional COVID cess is both obnoxious and thoughtless and eeks of fascistic mindset while masquerading as communistic in thought processes but sounding more proletariat.

Taxing the very few who are responsible through their capitalistic superiority by taking risks and putting their capital to work should be rewarded for adding economic value to the nation by generating millions of jobs and generating already high taxes that are withered away by inefficiencies at every level with abject neglect of accountability.

On the contrary, rather than taxing anything that moves, all that the Govt needs to do is to allow the corporates to draw a reverse Covid-Cess (from a national corpus created by the Govt to fight these unusual times) that is a percentage of the sum of average taxes paid by the business in the last 5 years or so.
Rather than juggling with a future stimulus that’s impossible to figure out in a complex country like India where the economic engine has come to a grinding halt – Why cant a % of annual taxes paid be returned to the tax payer to alleviate the economic pain.

GST has been a revolutionary reform that reflects the quantum of sale of an organisation. The Govt can easily make a reasonable assumption of the Operating Profit of respective businesses according to their industry and deduct that from the reverse calculation of the revenues and provide that liquidity to enterprises that allows these to survive.

It sounds mighty responsible while sitting on a high horse to say “Dont retrench and don’t enforce a paycut” But can an organisation print/create money? – NO!!

But Governments Can – That’s what Governments are supposed to do while being responsible in good times while collecting tub-full of taxes year after year. And this isn’t the time to worry about Fiscal Deficit as inflation is the last cause of worry when the entire nation is afraid to spend even for basic needs because of the underlying fear of the unknown.

With all the alleged discipline that our policy makers seem to be proud of, we could barely manage a BBB- on our sovereign, does anyone really care if it changes to Junk.??

The stimulus that will save this nation is elusive, and the little flutter that was created so far is 0.8% of the GDP of India whereas USA has already given a stimulus of 12% of GDP and an additional 2.6% of GDP in payroll protection. In rupee terms Indias stimulus amounts Rs.1307 per capita in comparison to approx. Rs 5 Lacs per capita in the US.

The greatest service that our politicians and officers can do right now is:
  • Show up more frequently (great leaders are always there in form and spirit)
  • Demonstrate that You feel the pain of the common man / businessman / taxpayer / who are going through severe economic compression
  • Avoid frivolous, confidence draining statements (Ala IRS officer’s note to revive economy)
  • Find simple ways to give much needed stimulus rather than inventing complex formulas (that will never be perfected). Corporations / Individuals have P&L’s and Balance Sheets – Find ways to just use existing declared data to reverse the debits from these statements
  • Involve Industry leaders (who run real businesses and manage real situations) to tackle this vicious enemy
  • Reach out to political opponents (who are experienced & educated) and shed the walls of partisanship in the face of such adversity
  • And above all let the economic engine NOT STOP under any circumstance. Restarting it would take years
  • And lastly build confidence among us 1.3 billion people. Loss of Confidence kills the spirit to work, aspire, travel, purchase and that deflates an economy like nothing else.

The AC world is going to be far far different than what we are imagining right now. Not one economist / chartist / thought leader has the mental / academic bandwidth to fully model the effect of Corona on our planet – as right now we are still in the middle of a global crisis that’s unravelling.

But Lets get real , lets get going before its too late.


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6 comments:

  1. Wonder if at some level, over the ages , we as a country where we are today here in India , has it boiled down to ....
    Corruption :: Genetic Imprinting..

    Causation... Correlation
    Error I know.... But u get my point

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  2. Good well thought out article. As someone running a small business - totally agree with the fact that in these trying times the government needs to support the industry. Time is of the essence and the more we delay the worse the economy will get. Like your suggestions on a formula that can be used. Keep these coming.

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  3. Can't agree more with the content, though was bit concerned earlier on while you started with PSU, socialistic approach, once you got to the wise taxmen side i realised where you heading.

    I was just wondering, when countries have remain concerned around their supply chain, and it's pretty clear like day light, that it will get reorganised from Communist thugs like china, what stopped a country like india to roll out a policy guideline with say 5% income tax (never heard of), special zones for different manufacturing, creating clusters, single window operation..That just needed a bit of brain power and no real money power to make it clear in front of the world, that India is ready for business and ready to support...missing.


    Second on in terms of providing assistance to organisation brilliant point mentioned...Let's understand indian financial services dominated by PSUs are dead meat and have no scope of revival..They cannot...They can't fund innovation, they can't fund services, they used to fund hard assets...But do not have a liability franchisee neither an ability to compete on interest rate in terms of long term financing.


    Regarding rating and our pseudo fight on inflation by measuring onion prices kind of summarises where we are as a country.

    My only wish, if this country have anything is that people and if the govt could only have demonstrated today that they are ready to put it into use to generate items for the planet by enabling an able, corruption free, easy to understand regulatory authority we would have come winner ...

    But alas...

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  4. Very well put Manu! Hope someone responsible reads this and can pick a thought or two to have it implemented! It would be a great favour to this struggling nation!

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  5. As always ..hitting the nail on the head...!!
    I truly wish some serious work would go into uplifting the country as a whole rather than just vote bank politics and agendas..
    Manu..you need to be on some advisory panel...!! Or..why don't you pen down your suggestions in an open letter to the PM or something....more people need to read this...God bless...keep penning your thoughts down..🙂






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  6. Our leaders reflect us... we need to change and then you will see the change there as well. We want to take short cuts every where - from Govt office to Ticket Queues to Education Seats, and then we have a reason to rationalize ourselves.

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Your comment is immensely appreciated and will be published for a discussion - soonest. Thanks. manu

 
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