The Missing Masters
Dec 12th
Three things sell like hot cakes in India; sex, Shah Rukh Khan and fear. The recent virulent propaganda against FDI in retail is symptomatic over our still xenophobic ways, appropriately craftily exploited by wily politicians. Do you really see the young spiked gelled hair Salman Khan clone sitting in the loss-making kirana store in Darbhanga, Bihar managed by a septuagenarian sentimental father? By ostensibly using the bottom of the pyramid argument we keep them in the bottom of the poverty-pit much longer. We are still susceptible to the pseudo, time warp / ideological rigidities of conformist politics. But if India is changing, its politics will have to change faster as it has a lot of making up to do. It needs to set higher standards to smother the hullabaloo of the hypocrites who discredit its constitutional foundations, halt healthy debates. The loss is more than merely financial.
While India paralyzed itself over FDI in retail, 36% of PDS wheat and 31% of PDS rice was appropriated by private partners from hapless, innocuous farmers at all India levels by middlemen. Are we perpetuating backwardness, the widening chasm between India and Bharat? Infrastructure development, land allocation, child/adult education, corruption, supply chain systems, public health and legal laws are compelling challenges. How can we meet them by our daily dosage of calumny and public flogging?
Vociferous, vitriolic attacks is becoming the standard norm; the year has witnessed physical assaults on several leaders, not necessarily the apotheosis of incorruptibility perhaps , but the apprehension is what if they become violent? Worse, there seems to be a wave of self-righteousness unambiguously endorsing vilification. Is India in desperate need of a moral infrastructure before constructing sleek airport terminals?
Team Anna are ingrained drama queens. Anna Hazare announced fresh agitations post-Ram Lila itself in August 2011 if three clauses were not incorporated in the Lok Pal Bill. . But he will keep his promise, whatever the few logical , convincing deviations in Lok Pal Bill draft; it is enough of a flimsy pretext for some more dramatic outpourings. What is extraordinary is the insouciance with which anti-corruption crusaders parade their arrogance. It seems de rigueur. It reflects both our masochistic propensity to be subsumed by mendacity as well as our perverse satisfaction at seeing powerful men being mortified. Either way, there is something nauseatingly immoral about it. There is a disturbing anger being assiduously fermented by some forces; it could boomerang. The politics of contempt and hate has human , biological limitations
The sudden vertical ascension of the Indian economy particularly in middle-class consumerist India has not kept pace with slothful, inefficient, tardy and often corrupt public services. A galloping aspirational India holding 3 G mobile phones and multiplex tickets romantically expects an equally extraordinarily improved government standards. Overnight. At the root, this irrational expectation mismatched with potential delivery capabilities is the real problem that UPA is battling with, or any government would face. But instead of accelerating change through consultative dialogue, reducing red-tape and increasing reforms through a visionary roadmap and planned execution some outside civil society forces are creating claustrophobic pressures, fully aware that changing antediluvian processes takes time. Crucially, it is actually a proxy battle for power, fought through subterfuge, vicariously. Creative destruction is misunderstood to mean destroying creativity; the government is being denied elbow-room and space for innovation. The truth is it is genuinely trying hard. But it needs breathing space, and less of both skepticism and cynicism.
Authoritative leadership that is hugely reassuring usually counter- balances intransigent public protestations. As Egypt /Occupy Wall Street movements demonstrate rudderless mass uprisings may create volcanic eruptions but have a limited shelf-life , and are at core unsustainable. But these sporadic outbursts, I concede, could become a tactical ploy for future pressure groups. In India, they get accentuated by the prowling beast of political opportunism. For a strong center, India’s unity in diversity is a singular asset, for a confused, phlegmatic one used to getting frequently gobsmacked it’s a liability.
We all know Mohammed Ali, Joe Frazier, Mike Tyson but do we remember their contemporary middle-weight boxing champions of the world? That’s what India is , the powerful middle-weight player, we have not yet qualified for serious heavy-weight bouts. It is too early to get cocky. Perception matters; we cannot expect to be the all-seasonal flavor for foreign investors. India’s currency depreciation, high inflation and slow reforms could all result in a sudden downbeat sentiment. The oppressive gloominess spread by some is self-defeating, frightening. In an interconnected world, every whisper can reach a crescendo.
We are in a peculiar predicament that is unlikely to change for at least another decade; India is neither a free-wheeling capitalist economy like the Americans (with 600 mln BPL without social security we cannot afford that model) or the controlled growth of China (courtesy our chaotic, though vibrant democracy). The sooner we accept that hard reality the hype over our demographic dividend being our USP will quickly calm down.
It is a chimera , as yet. Over 40 % of profits of top 100 listed firms still comes from state controlled ones. India’s growth story is not unsurprisingly therefore pregnant with contradictions. Farmer suicides and multi-storey billionaire homes co-exist because they are a natural corollary of our grudging acceptance of enhanced liberalization. There is nothing vulgar about the contrast, it is really inevitable given varying degrees of access to opportunities.
Paradoxically enough, this government has actually been India’s most responsive, people-friendly , and transparent one in its parliamentary history ( created an unprecedented Lok Pal joint drafting committee, passed several pro-poor reforms, is processing historic legislations on land acquisition, food security and sports development ). The PM himself disclosed his personal assets ; how many Indian CEO’s with the Golden Peacock awards have done that ? If it successfully maneuvers in troubled waters till 2014 , we could yet witness the currently hobbling UPA sliding smoothly on a skateboard.
VS Naipaul famously talked of a million Indian mutinies; what we need to unleash is a million entrepreneurs, dreams in their eyes, passion in their hearts and an insatiable stomach for risk-taking. Like a Flipkart.com e-commerce company that uses vertical integration to distribute books speedily at best prices. And several novel seeding in the social services sector. India’s growth lies among its people. Employability and entrepreneurship are crucial.
India is throbbing, thriving amidst a tempestuous, turbulent storm. But then that has always been our history. But then it also needs to overcome dark clouds of negativity, despair. As Cassandra’s converge, India desperately needs prophets of hope. Optimism. Faith. Self-belief. People who are like the masters in Richard Bach’s classic Illusions “ what the caterpillar calls the end of the world , the master calls a butterfly”.
Night of November 26th
Nov 26th
I was at Wasabi , the ceremonialized Japanese restaurant at the Taj Mahal hotel in Mumbai a few days ago. Taj Mahal after the nightmarish violence of 26/11 televised non-stop world-wide has become a must- see monumental structure like its magnificent namesake at Agra. Often backpack tourists stare awe-struck at the 108 year old building, their backs to the iconic Gateway of India, perhaps reminiscing those bloodcurdling moments of its hideous siege three years ago. Terror tourism is our brutal reality, as people relive a vicarious horror.
It is human to rewind events; at Wasabi I feel completely overwhelmed , imagining the chaotic last moments of innocent people making desperate attempts for survival against an unexpected unrelenting enemy. So close to open skies, the Arabian Sea, police headquarters, the buzzing , pounding energy of Colaba. And yet tragically enough even closer to death.
It was approximately 10.13 pm on a Wednesday three years ago when I saw a missed call message. It was from my driver of eleven long years, still unfamiliar with mobile technology and prone to eccentric bouts of making accidental calls. Slightly unusual though I surmised as he had clear instructions to be on a long evening duty and there was no apparent reason for its abrupt abbreviation. My elder daughter was out attending a friend’s birthday dinner. Albeit a wee bit exasperated, I called him back.
“Sir, there has been some shooting in the Taj Hotel. Gunfire. Also in Colaba.” The panic in his voice was evident “ Which Taj? I asked nervously fully aware that my daughter was at the Taj President at Cuffe Parade, not far from it’s more illustrious cousin. Before he could answer I did what millions did, switched on the TV instantly on hearing of the sudden attacks. The first news break stated that there was firing reported at Café Leopold , a seaman’s anchorage and yuppie hang-out , where over agreeable omelet and chicken fry, beer consumption beats the national average by a whopper. It could always be the handiwork of a loony man gone berserk , or inebriated by excess of bubbly, I thought . Or just some inter-gang warfare. But that was not the case. Within minutes, the initial anxiety had assumed frightening proportions. CST (Victoria Terminus) and Trident Towers at Nariman Point too had witnessed a similar exchange . There seemed to be a diabolical deadly pattern emerging. This was not just a one-off violent incident .It was a well constructed conspiracy to create havoc on an unsuspecting city just hitting its early night notes . People would die, they were meant to perhaps . Memories of serial bombings in a bloody March afternoon fifteen years earlier came back to me at frenetic speed. It seemed like the beginning of a long chilling night.
The fast-paced frantic journey to fetch my daughter from the Taj President was a hellish experience. The crowd had thinned considerably in minutes but the traffic signals seemed to stretch to infinity. Just a few kilometers away the terrorists had pumped bullets into our senior police officers. Trident Towers was already barricaded with siren-blowing police vans and resembled a towering skyscraper in spectacular loneliness reaching out to unresponsive skies for help. Marine Drive , usually a late-night speedster’s fancy wore a deserted expression. For the first time, I missed a traffic jam. The city was fast getting enveloped in a deathly stillness. I drove on.
By the time I had crossed the Badhwar Park jetty where the ten cold-blooded young merchants of death had alighted not too long ago , it seemed like eternity . I kept calling my daughter intermittently , apprehending every time the cold clinical auto recording, “the number is not reachable ”. But soon she was waving at me from the guarded , crowded entry to the hotel porch . Just seeing her , I felt an unfathomable lightness of being.
Over the next few weeks and onwards one has heard the familiar statement : “Mumbai will never be the same again”. But we forgot Mumbai has never been the same since 1992 when insane fury ostensibly termed as religious convictions over a disputed temple site wreaked havoc on India’s most cosmopolitan city. When political leaders conveniently presided over the planned destruction of a historical mosque. When nefarious elements danced atop it’s falling dome celebrating the success of their organized devastation of age-old bricks. When a state machinery targeted a specific community as riots broke out. The serial blasts that followed in 1993 as an aftermath was a reminder that retribution would be lethal. A decade later Gujarat refueled the hate-tank. The fact that India has looked sideways instead of addressing the harsh reality of emerging militancy has only accentuated matters. The bottom-line is that we have unleashed upon ourselves a difficult local monster, which has now mingled with disaffected global disruptive forces with their own sinister agendas. It is a toxic combination. It is imperative that the infiltration by rogue terrorist bodies appropriately buttressed by an unfriendly neighbor does not impinge into impressionable minds in the minority community . There are many vulnerable borderline youth caught in an unfortunate cross-fire. It is like a ticking bomb. There is a lot of hard work ahead, and as the July bombing this year demonstrated, perhaps even more pain. Worse, it has resulted in the rise of extreme Hindu militancy, thus exacerbating an already volatile state of affairs. Religious fundamentalism is assuming ominous scales from the majority community as well. Mumbai is a soft sitting duck vulnerable to every disruptive group conceivable.
And yet, life must move on , like an inexorable formidable machine in an assembly line where even a transitory pause is considered a fatal disruption. The third anniversary of 26/11 is upon us. As I departed Wasabi one could hear the archetypal loud conversations of happy souls , animated chatter near the sushi bar, the pulsating energy of Mumbai’s night-life vibrating through its bright-red colored spiral steps and wondered about this amazing unseen, untouched, and yet unmatched thing called the human spirit.
The World Is Not Flat, Mr Friedman!
Nov 10th
Morgan Stanley had just completed a whirlwind road-show across India, ensnaring giddy-headed investors into buying its much-hyped NFO for a close-ended mutual fund scheme marketed with such masterful strategy that the gullible lot thought they had bought into a galloping Reliance IPO. Some of India’s leading hot-shot merchant bankers had duplicitously allowed a false notion to pervasively prevail that Morgan Stanley was like glittering gold; an investment that was a roadmap to El Dorado. Investors thought that a unit and a stock were both interchangeable. Expectedly, the NFO was a mind-boggling runaway success, accumulating a record sum. It’s subsequent fall from grace is legendary. That was 1994-95.
Morgan Stanley is now a traditional commercial bank, not an investment bank with other financial products to attract affluent risk-prone investors. Post- the cataclysmic collapse of 2007-08 following the credit default swaps bloodbath , the white-collared dark-suited Wall Street breed has been permanently vanquished, their cocky demeanor tumbling dramatically as US Treasury salvaged them by playing fairy god-mother. But even in earlier heady days, when working with a blue-blooded investment bank was considered a career pinnacle, one suspected something rather extraordinarily strange about this sublime , sacrosanct breed called investment bankers.
“What do you think, should we invest in this stock or just ignore it?”, asked the foreign-educated, market savvy, media-obsessed portfolio manager for a global asset management firm. Outside, a rotund, gold-plated spectacle-wearing burly man with a grin wide enough to accommodate the Grand Canyon waited anxiously. The concerned stock was seen as the then “Ipod” of the emerging portfolio; the broker had some strong insider information on a proposed bonus issue straight from the horse –owner’s mouth.
We shrugged our shoulders; after all, it was the chief investment officer who had to take the final call, the rest of us were mere signatories on pre-printed forms, part of a larger committee as per the company’s due diligence norms. A dart -board stood framed disconsolately on the blank white walls opposite the CIO’s desk. ” Let’s take a shot. If it hits the bull’s eye, we buy full quantum. If we score under 8, we pick up half the recommended allocation. If it’s less, we give it the thumbs down”. He took the sharp-pointed dart in his hand, and taking aim glided it towards the bull’s eye. This is not a sardonic exaggeration, rest assured, it actually transpired. Of course, it may have been in lighter vein and not practiced in deadly earnest, but the more pertinent point is the cavalier attitude to investor funds.
In all fairness, I do not know whether the CIO finally executed that transaction based on the result of his Robin Hood aim, but that was the style , mood and attitude that prevailed. Equity research did not mean plant visits, extensive deliberations with production staff, interacting with the firms’ suppliers and dealers, analyzing industry trends, or assessing customer feedback. Most decisions were a function of secondary published research, subjective calls, insider trading , business networking, and confidential invitations to promoter boardrooms. There was something disturbingly disquieting about this category of money-managers.
I was to meet a well known head hunter later by sheer accident at a private gathering, and asked her; ” So what do you think of the current global mess? Don’t you think it exposes the over-rated over-paid over-promoted tribe of “I” bankers. The I, Me, Myself lot who cannot see beyond their annual bonuses and extravagant off-sites, and yet appear so pious about stakeholder interests ?”. Her reply stunned me.
“Oh , come on ! It’s not their fault at all . They are greedy. It’s the regulators to blame”. Of course, it was also a system failure, borne out of regulator apathy, thanks to America’s passionate embrace of pure market capitalism, but didn’t the regulator and the government work over-time to bail-out the massive losses on account of speculative CDS derivatives and subsidize the hefty pay packets to preserve sanity on Wall Street ? As a disgruntled friend told me ” The next time you hear these guys saying they are bullish on TV channels, all you will think of is that they are all bull”. Welcome to the world of cowboy capitalism! And now to a rag-tag, disaffected bunch protesting on Wall Street.
Of course, the commercial and investment bankers can always justify that the CDS ( credit default swaps) was a breakthrough product, meant to create a new derivatives market, and free up capital for more structured lending. Ultimately, it would have ostensibly meant higher ROI for both customers and investors. But surely, investment bankers were not expected to be so stupidly naïve about the risk of over- exposure multiplying through a vicious chain of internecine investments , which portended a huge systemic fall. Even a high school student could have predicted a stratospheric nosedive , if just one variable—-home loan defaults , began to escalate. After all, they were sub-prime by definition, weren’t they? That is exactly what happened. Are investment bankers serendipitous by nature, or what?
Which brings me to Mr Friedman. Perhaps that is what the acclaimed author/columnist Thomas Friedman ( of New York Times) meant when he said The World is Flat, his much touted international bestseller, titled with an appropriate catch-phrase for grabbing eyeballs, based as it is on an oxymoronic factual fabrication. As central banks all over the world converged to salvage the US financial mess and their own , it’s repercussions were felt world-wide. Perhaps this is the “level-playing field” that Mr Friedman postulated on in his book, which at best, can now be called pulp fiction.
The Wall Street fiasco which led to the investment banks tumbling in a calamitous heap, best explains why Friedman’s book is based on fragile assumptions of continuous world-wide prosperity, over-dependence on technological innovations , internet connectivity creating everlasting boundaries. In the 1930’s , the Great Depression was a function of the stock-markets tumbling on speculative investments; almost 78 years later , it was a similar chain of avaricious misdeeds that led to the big bubble burst. What goes round, comes round and around, Mr Friedman. And that can only happen if the world is round. Not flat. Galileo can rest in peace, even as Mr Friedman scripts another bestseller in his quiet backyard. Hence, the world reels in with the Euro crisis, Greece and Italy are on the brink of a precipice and apprehensions of a double-dip are rampant even as I write.
But maybe Mr Friedman biggest blunder in his entire book which wants us to believe that the world is flat, is that his world conveniently does not include Africa, calculatedly forgetting the dark continent of the world. Because Africa is HIV/aids infected, suffers regular epidemics, starvation levels are shockingly high, ethnic genocide continues, and it is politically irrelevant and economically bankrupt. It has no “value added proposition”, perhaps. Its recent upswing courtesy Chinese interest is yet piecemeal. Level-playing field?
Mr Friedman will be best advised to look inwards and introspect on a simple maxim which applies to investment bankers today; surely, if stock market experts were so proficient they would be buying stocks, not selling advice, right?? If New Orleans itself is so far removed from Manhattan, Mr Friedman, don’t you think it has been rather presumptuous on your part to hard-sell to us all that the world is flat? And as Occupy Wall Street categorically establishes, before embarking on promoting a universal theory on the shape of the world, one should have taken a long deep look in one’s own enclosure to discover that America itself is not flat; it’s undulating. Uneven. Excessively lopsided in income distribution.
The fact that Occupy Wall Street has spread to different cities in the US, Europe and Asia is a manifestation of the global outpouring of anger against the Big Business-government nexus. We do live in a world grossly unequal. 73% of the world’s population does not even use the internet for heaven’s sake, Mr Friedman! It is a flat fact.
Taxing the Richie Rich!
Oct 18th
“In this world nothing can be said to be certain, except death and taxes.”
( As Occupy Wall Street spreads into a global protest, there is a compelling case for taxing the rich. Rising income inequality is India’s biggest challenge. Why India needs to also introduce differential corporate tax rates! ).
There is a discernible chill in the dealing rooms of Wall Street’s investment banks, forever inebriated on the toxic philosophy of Gordon Gecko; greed. But joining their sleek Jaguars on the pavement outside are now thousands of resolute protestors, carrying placards with arresting messages: I got 99 problems, the rich got none; Banks got bailed-out, we got sold-out, and Occupation is my occupation. Occupy London Stock Exchange has quickly followed on the heels of Occupy Wall Street. In an unusual expostulation of spirited candor, the philanthropist son of the world’s third richest man Warren Buffett, chairman of Berkshire Hathaway has conceded that “ corporations really screw people”. Evidently, following the Arab spring, we now have an American winter, but for entirely different reasons; glaring income inequality. The top 1% earners in America paid 40% share of income tax. Says the Economist; “ the rich have done very well in recent decades, and the richest have done best of all”. With American unemployment at a record 10% the anger on the streets of North Manhattan is understandable. But in India, are we any different? Have we not stretched the income distortions to its maximum elastic levels? Isn’t it time for systemic corrective action ?
The famous Buffet tax is simple math which can be calculated with insouciant ease; in short, Mr Buffett paid a lower average tax rate than his not –so-magnanimously compensated secretary. Now that is elementary commerce; personal income tax rate is higher than capital gains/ dividend tax which comprises of bulk earnings of fat cats of the financial services industry, particularly investment banks, private equity, stock-market brokers and hedge funds. I guess salaried persons are considered second-rate citizens because they do not take crazy risks with other people’s hard-earned cash. Occupy Wall Street is not a contrarian movement to the Tea Party, it is the expression of public revulsion for obscene extravagance of overpaid money sharks. Those who created The Great Recession through their propensity for recklessness.
In India, we have a peculiar dichotomy; burgeoning economic growth for a decade coupled with accentuating inequalities. It is a dangerous mix. Over 120,000 dollar millionaires and 69 dollar billionaires reside in premium luxury homes in India . The aggregate wealth of the latter exceeds USD 280 billion. Alongside co-exists 500-700 million ( depending upon your subjective interpretation ) whose poverty line status of Rs 32 or more is currently undergoing rigorous research upheaval in the Planning Commission . It makes for a grotesque mismatch, whose continued existence threatens our social fabric. The poverty line in US is $ 22000 per annum for a family of 4; India is at $ 100 per month for a family of 5. The gap is disconcertingly high even if you factor in purchasing power parity. There are 40 crore at BPL levels, for heaven’s sake!
Is it fair to apply on a hard-working middle-class man earning more than Rs 8 lakhs the same tax rate as Mukesh Ambani or Vijay Mallya or Ratan Tata? By the same analogy is it appropriate that an SME firm or a start-up or any modest operation pays the same tax rate as Reliance, Infosys, Tata Motors or ITC ? Is our tax system compromising with equity in a trade-off for efficiency? Worse, our low-paid workers do not have the safety net of social security like their counterparts in the west. And everyone pays the same sales tax and other indirect taxes anyway, right?
Instead of conveniently following the conventional model of widening the tax base and lowering the tax rate, what India needs is new bands of tax rates that provides lower-tax at base level, and rises steeply at the higher levels.
For instance, I recommend the following on personal income tax:
Upto Rs 5 lakhs: 0%
5-10 Lakhs: 10%
10-20 lakhs: 20%
20-30 lakhs: 25%
30–50 lakhs: 30%
Above 50 lakhs: 40%
On corporate income-tax, there should be a similar tiered system based on net profit :
Upto 2 crore: 10%
2-10 Crore: 15%
10-25Crore: 20%
25-100 crore: 25%
Above 100 crore: 40%
Needless to add, but the tax structure can change periodically depending upon our fiscal fitness. It is time for out-of-the-box thinking. Wealth tax , for instance, requires a certain review upwards. We also need to scrap meaningless deductions for tax avoidance. As a country, we are at a unique cross-road, we need a radical fresh innovative approach to our economic model shorn of traditional panacea. I am not suggesting robbing Peter to pay Paul, but to give Paul his basic pocket-money. Besides, it will increase consumer spending power and lower administrative burden of micro-tax management .
The rich actually get away with double-bonanza of benefits; low corporate and personal tax rates corresponding to capacity to pay. There is a strong argument in favor of minimizing the tax rate gap between salaries and bonuses and capital gains and dividends It exacerbates the sharp income divide. There is a compelling case for raising taxes on the crème de la crème , without the exaggerated apprehensions of an investment backlash or tax evasion. Despite a top tax rate of 50% doesn’t London still remain a formidable financial center???Is it any surprise that in Italy a special levy for those earning more than USD 410000 and in France of Euro 500,000 are now being doggedly pursued. Inequality is a global phenomenon, only, in India both its magnitude and acuteness is shockingly high. We cannot pretend to turn a blind eye to it. Moreover, we need large public resources to fund welfare schemes. Taxation will have to be integral to budgetary plans. We have a difficult predicament which remains unresolved by our gigantic GDP size or even per capita income; there is a severe disproportionate distribution of assets.
The old classical argument correlating high income tax rates with and tax evasion needs to be looked at afresh. Procedures are less red-tape, electronic-filing systems have introduced transparency, bureaucratic procedures are relatively simplified, and a Lok Pal bill is round the corner that will cover government , corporate sector, public-private partnerships and PSU’s. Thus, the trade off between high tax rate and evasion may not be as symmetrical as before. Likewise, a differential corporate tax which provides exemption at lower levels for start-ups, SME’s will actually encourage entrepreneurship instead of the hackneyed assumption of it being a disincentive for the highly affluent.
For India the big transformational change will come through cashless transfers for welfare schemes through UID Adhaar of approximately Rs 300,000 crores . Even a 10% operational leakage is a staggering Rs 30,000 crores almost equal to CBI’s alleged estimation of 2 G loss. MNREGA, RFS, RTE, etc will need public spending and we need to increase tax revenues ; supply-side economics that depends on pure growth stimulus has serious limitations. While we need to unleash reforms and privatize operations for an efficient corporate India, we need to concurrently invest in education, health, skills and infrastructure. Somewhere in the midst of our gold-rush bullet-train, we need to ponder over the fate of 700 million Indians who may never understand the big India story. For the world’s largest democracy, lifting a huge mass of humanity up the poverty curve is its litmus test, its gargantuan challenge. After all every 1% uplift will alter over 10 million human lives. It is time to make a renewed beginning. Now.
The author is Co-Founder, HamaraCongress.com. He can be followed on Twitter@JhaSanjay
The Mythology of a 176,000 crore loss
Oct 6th
(The apparent difference is just a measly Rs 173,355 crores between the earlier inflated allegations of financial loss in 2G scam and the new figure in circulation of Rs 2645 crores. How come such a gargantuan ruse was pulled over our naked eyes by CAG??? The extraordinary manipulation of a mythical loss).
In Washington they say that even a dog refuses to be a man’s best friend. The poor canine sniffs trouble interspersed all around him. Conspiracy theories, palace intrigue and internecine feuds are considered commonplace and customary conditions in most political capitals of the world. Delhi is no exception. There is always something uncannily sinister in the dark corridors of power; its stealthy political one-upmanship accentuated by the imperceptible influence of corporate rivalries, raw media power, lobbyists and odd assortment of power-brokers.
Last week in Delhi someone told me in deadly earnest what has been often rumored that the Sangh Parivaar has insidiously infiltrated into key organs of our democratic institutions. I am not making any innuendos, but the CAG’s remarkable promptitude in publicly pronouncing the 2G scam numbers at a mind-boggling 1.76 lakh crore indeed raises more than mere suspicious eyebrows especially now that it is known that RP Singh, Director-General ( audit , post and telecommunications) had a comparatively pygmy-like figure of Rs 2645 crores ascribed to the policy contraventions. The 2G report almost threatened the very existence of a democratically elected government, led to the rise of extreme extra-constitutional forces on an anti-corruption crusade, besides systematically decimating a beleaguered coalition at the helm. We are talking serious business here. CAG chief Vinod Rai needs to explain the exaggerated 80 times multiple that he assiduously postulated as damages, when his own principal investigator had a contrary opinion.
To understand the 2G scam though , we need to sub-divide the core issues in the imbroglio:
1. Presumptive loss is a notional figure where financial impact is measured on certain assumptions. The fundamental aspect therefore is the reasonableness, validity and foreseeable actuality of those assumptions. If the assumptions themselves are seriously flawed, the figures may be grossly exaggerated making the entire debate ridiculously skewed.
2. To understand the erroneousness of CAG’s estimations, we have to go back to the basics on which this monstrous mythical figure of 176,000 crores made its formidable debut. Even companies like Swan and Unitech that got the spectrum at arguably cheaper prices, issued fresh shares to foreign buyers to create a joint venture as opposed to earning capital gains on promoter equity dilution. Thus, the respective companies gained fresh equity capital for company operations/expansion as opposed to private profiteering, even if the promoter stake naturally fell corresponding to value of fresh equity offerings. But were these transactional financial deals good enough to be construed as potential market value of 2 G spectrum ? The answer is NO, and has been further explained below. Of course, it can be alleged that the companies benefited from the unusually high valuations giving them undue competitive advantage.
3. By the same criteria, how can S Tel’s offer for a pan-Indian license also be a benchmark for evaluating the loss ( it was also subsequently withdrawn) . These are corporate decisions based on company’s assessment of the telecom market, their global footprint, shareholder value projections and capital capacity. Sure, it is market forces at play but it has the major drawback of adopting a transactional approach, as it is prone to the subjective judgment of just a few corporate entities that may have no practical universal application. Let us take an example; supposing I volunteer to purchase property from the GOI at some ridiculously exorbitant rate, can that become an acceptable “ benchmark” for other similar investors??? I may have made a grievous miscalculation or been highly bullish, or had ulterior motives; should other genuine investors pay a hefty price for it??
4. I am flabbergasted as to how a crucial element of telecom valuations was casually camouflaged ; 2G and 3G are vastly different technology platforms. With faster downloads, broadband wireless, video streaming, mobile TV, e-banking happening on handheld instruments, 3G is a technological leap, like a mammoth metamorphosis. 3G is for India’s young urban middle class consuming mobile on the move; a high-value premium service for a niche affluent consumer . With mobile expansion slowing down, telecom operators see higher per user revenue realization from 3G , hence the successful auction war for it. Can we compare the brute power of BMW SUV with that of a Nano just because they are both four-wheelers??? The CAG argument is not just seriously blemished , it defies elementary common-sense expected of a first-year commerce student.
5. Thus, the estimation of loss itself has taken several forms simply because it is subject to myriad interpretations based on subjective assumptions. An auction reflects price-discovery, the market sentiment at a given point of time which can drastically change overnight. That’s why the CBI has got its own version of Rs 30985 crores ; it tells you the absence of an acceptable common determinant for projecting profits/ losses on 2G spectrum sale, and that too, with retrospective effect.
6. The problem as usual lay in the outlandish execution by the former Telecom Minister Raja which clearly appeared disputable . But the policy per se could not be faulted. Incidentally, the first come first served policy was consistent with the GOI’s objective of increasing tele-density. Raising large public revenues can easily contravene the key objective of affordable access of mobile services for the common man, as telecom operators would pass the higher cost to unsuspecting consumers. .You cannot decouple the two innately conflicting objectives. That in short is the simplest explanation for the telecom scam. A fine balancing act on a slippery tight-rope was always going to be difficult exacerbated by the fact that telecom pricing was in an evolving market with no historical precedence.
7. Ideally, Raja should have arrived at a “ fair price” taking into account multiple factors when he issued those controversial 122 licenses. Even the cost index inflation was inadequate. Ideally, one should have considered the growth in telecom business/users ( the number of users had increased to 280 million in 2008), falling tariff rate, cost of capital, extent of investment, employment opportunities, projected profitability, and unexplored market potential. The truth is that spectrum pricing/ allocation is a complex math as it is an intangible asset with significant hidden monetary value. Governments usually lack the financial engineering skills needed for litigation free fund raising. Giving the telecom minister a virtual license ( pun intended) to determine pricing was always a risky proposition.
8. I think the core focus should be on whether there was a willful criminal conspiracy to manipulate regulations to defraud the exchequer to favor select parties. Because the fact is that whether it was Rs 176000 or Rs 2645 crores it is still not small change. But why did Vinod Rai’s CAG office leak the report before it reached Parliament ? Who authorized it? To use the same argument of the BJP on cash for votes,, who was the real beneficiary of the CAG fissures ? That is where the real story lies. Why was an obstructionist attitude demonstrated towards one of its own key investigators? The BJP may have chuckled with sadistic delight at Kapil Sibal’s zero-loss proposition, but as of now it is Sibal who is perhaps having the last laugh.
The CAG it seems applied too much lotion to a notion to keep it in motion and hurl it into a commotion. It’s not over yet.
Controversially Indeed!
Sep 26th
If you happen to be a young and unknown Pakistani pace bowler who has just taken the wicket of Rahul Dravid, one of the world’s most accomplished batsmen, you can feel a 100,000 pairs of eyes boring into you while a deafening roar pours out of 100,000 throats as their hero, Sachin Tendulkar, walks in. But if you knock off his stumps with your very first delivery to him, your ears meet with a deafening and almost eerie silence .
The above paragraph is not my own written description of that spell-binding moment at Eden Gardens in 1999, but an extract from Shoaib Akhtar’s Chapter 1 itself from his just launched book appropriately titled Controversially Yours. He has evidently hit the hot buttons.
All those who saw Akhtar’s deathly demolition of two of India’s greatest ever know that it is the stuff of repeated YouTube viewing. You could literally hear the Pakistani players in exuberant chatter amidst unbridled celebrations mid-field as the Calcutta crowd stunned beyond the pale of their contemplations fell into pin-drop silence. Adds Akhtar “ I did it, I thought, I did it, as I pressed my forehead to the ground in gratitude”.
That to me , paradoxically enough, is actually Akhtar’s tribute to the greatness of Dravid and Tendulkar, his most heroic haul, given its august, apposite place in his book in the first page itself. Surely we cannot grudge him his extraordinary moment of destructive bowling. His comment though about the match-winning capabilities of Dravid-Tendulkar, and the latter’s squeamishness when facing him have raised a hornet’s nest.
I was looking forward to a real exciting animated exchange at the Cricket Club of India on Sunday evening between the inimitable firecracker Akhtar, the incendiary irrepressible fast-bowler, also called in cricket folklore as the Rawalpindi Express. The mercurial Akhtar has clearly raised a lot of dust on the tracks in India going by the dramatic last-minute cancellation of the event with leading political parties going fervently berserk to claim credit for “preventing the sullying of the image of the God of cricket”—Sachin Tendulkar. Frankly, it is grotesque and contemptible. The God, alas, added fuel to fire by apparently making a rather haughty, terse statement; “ It is beneath my dignity to respond to Shoaib’s book”. That is exactly the kind of persuasive provocation the Shiv Sena and the NCP needed to get into their own slugfest to score brownie points.
As usual, we come across as petty, parochial and pedestrian. Akhtar is entitled to his opinions, no matter how outrageous or deliberately instigating. In this case, it was neither, just a plain-speaking competitor voicing his personal opinion. Until the remarkable turnaround in the Chennai Test against England, Sachin was being roundly castigated even by his most ardent adulators as a one-trick pony, one who flattered to deceive, almost invariably failing in getting us to the finish mile. Dravid was comparatively a more reliable bulwark. Around the time of the great Indian resuscitation from 2008-2011 ( till the disastrous England tour), India virtually never set a foot wrong. That was also the time when Pakistan stood ostracized from world cricket, post its own internal disturbances and the terrorist attacks of 26/11, and perhaps never saw a resolute resurrected Tendulkar rediscover an insatiable appetite. To a great extent, that explains Akhtar’s wayward miscalculation on the match-winning abilities of Dravid and Tendulkar.
But in our bizarre bull-headedness , we should not miss in Controversially Yours what is obviously the archetypal tale of most Pakistani cricketers; the story of living in abject penury, frequently physically thrashed for inane reasons by disciplinarian family members, of getting drenched in rain when the roof of the house collapses and that headstrong dream to somehow make it. In case of Akhtar, the urge to also just keep running. There is an earthy sincerity somewhere, and the courage and modesty to acknowledge his fallibilities. And yet Akhtar has clocked the fastest delivery ever at 100.2 mph which he proudly parades on his broad sleeves.
I have so far read just the first two chapters, but like Andre Agassi’s OPEN, it makes for compelling reading, simply because unlike several others such as Mohammad Amir, Mohammad Asif etc for whom cricket is a tragic tale of lost dreams and unfulfilled potential, Akhtar survived the internecine politics of a checkered Pakistan cricket administration and the dark world of match-fixing. Besides, some embarrassing nocturnal scandals.
“Controversies have hovered around me since the day I was born. Take my name for instance. In Arabic, it means the one who brings people together, but it can also mean the one who separates”. I will recommend , dear reader, that we go with the former interpretation.
The Game-Changer
Sep 15th
It takes a far-out real-life narrative involving Vilasrao Deshmukh to understand the filibustering that Ajay Maken, Sports Minister can expect for his audacious effort to get the watershed Sports Development Bill approved by the Cabinet.
