2009 and 2010 had been tumultuous years for India as it battled not only the effects of the worldwide recession, but also its internal demons, scams included. But these years held several lessons for India to improve in 2011. Seasonal Magazine brings 10 of these core lessons for India, inspired from our own pages, and the quantum of reader responses to these lessons, during these two dynamic years.
1) Big Business Needs Bigger Scrutiny
In February 2009, at the height of the Satyam crisis (BSE: 500376), Seasonal Magazine made a different point in our article titled, ‘From Business as Usual, to Trusteeship’. Simply put, it called for nobody - absolutely nobody - in big business to be put above suspicion when it comes to furthering their interest at the expense of the public. Specifically, we had mentioned some not-so-comfortable chapters from the early histories of some corporate benchmarks in transparency. Just 2.5 fiscals later, even we are a bit troubled that two of the images we used in that article - of NR Narayana Murthy (BSE: 500209, NSE: INFOSYSTCH) and Ratan Tata (BSE: 500570, NSE: TATAMOTORS) - have been somewhat dented in recent weeks, at least in public perception. While Murthy was caught unawares in the SKS fiasco (BSE: 533228, NSE: SKSMICRO) where lakhs of investors lost significant money, Radiagate may continue to haunt Ratan Tata in the days to come.
But did Seasonal Magazine offer any solutions then? Yes, we wrote back then - “The disease is not skin deep. It is systemic and it is called Capitalism. Once it was a medicine to kill an even deadlier disease – Communism. But now, it is The Disease. Marx had so eloquently explained how capitalists will multiply their tiny original capital to unprecedented heights, solely on the surplus labour of their workforce. The only practical solution, however, seems to be Gandhi’s Trusteeship Model. The Father of this Nation had so elegantly mixed entrepreneurship, Marx’s surplus labour theory, and his own social responsibility framework to reach at Trusteeship, which he termed as the “only way business can be done with morals.” One day, world will turn to it. Inevitably. It has to. There is no other way.”
2) Bring in the Power of Youth
In March 2009, amidst the Obama euphoria, and commenting on our aging political leaders, Seasonal Magazine wrote - “In India, it is as though you have to have 70 years of experience, before you will be entrusted with anything serious. This, in a country, whose only real strength is its mega youthful workforce, made possible by a birth-rate that refuses to fall to the absurd levels of the West. Yet, in a West plagued by a dangerously low youth population, we see a 47-year old Obama becoming the President, and George W Bush and Tony Blair calling it a day before they turned 63 and 55 respectively. Again, we scream, where are our youth leaders? Oh, then comes images of Rahul & Omar. Better we stick with our septuagenarians and octogenarians...Let us patiently wait for our Obama. But by the time we find one, will the original flop in US? God forbid.”
3) Stop Underestimating Pakistan
In the same piece, on the backdrop of Mumbai terrorist attacks, we wrote something, which WikiLeaks proved recently, 21 months later. Seasonal Magazine wrote then - “India is running from pillar to post, trying to garner support for its cause. It is getting plenty. But support against Pakistan? Aah, that is another story altogether. As India is realising gradually and painfully, US, UK, & China still have plenty of use left with Pakistan.”
4) Ban Politics for a Living
In the same month, in another article titled ‘Politics for a Living‘, in the backdrop of the upcoming general elections, we took a strange view on the parliament aspirants - “Take a cursory glance at this list of 5000. What is common? Many things, but what strikes most is that most of them are unemployed. Yet, living an affluent life. How do they live? 500 of them will, anyway, go on to become MPs. Though it will be difficult to continue their lifestyle with the around 20k monthly salary, the nearly 3 lakh worth of monthly allowances, perks, & freebies should be enough for the sober among them. That is, to meet the basic expenses. To accumulate wealth, they too have to look elsewhere.”
Thankfully, within months, they unanimously gave themselves a massive increment. But that was not our main concern. We had asked several questions in that article - “…And what about the rest 4500? They will continue to live even more stylishly. Do these parties pay them regularly? Not really. Whether it is party functionaries, MPs, or MLAs, politicians are expected to come up with their own revenue models. Party will just be a facilitator. Share the moolah with party, and party will continue to share the infrastructure with you. Politics for a living. Are our politicians so busy with social work that they can’t earn a decent living for themselves? Gandhi was even busier with social work, but could find time regularly to earn his living by weaving khadi. Even Nehru earned his living from the royalties of his books. When did this rot begin?”
Still, we have no idea really when it began, but now its contemporary symbols include a guy called A Raja and his always-calling-the-shots party DMK. But needless to say, if we dig deep, most parties are going to blush on this issue.
5) Public Disinvestment Should Put Public Interest First
In November 2009, that is around a year back, Seasonal Magazine wrote an article titled, ‘Can Public Make Money From the Coming IPOs’ on the topic of the massive disinvestment Government was planning through PSU IPOs/FPOs. Back then, we wrote, “Reliance (BSE: 500325, NSE: RELIANCE) and ONGC (BSE: 500312, NSE: ONGC) are in the same industry, both are public limited companies, but there is this huge difference. SBI (BSE: 500112, NSE: SBIN) and ICICI Bank (BSE: 532174, NSE: ICICIBANK) are in the same business, both are public, but again there is this discomforting difference. It can be argued that both sectors run on public money – investors, IPOs, secondary markets etc all apply to both – but companies like RIL & ICICI are always private companies. Call its public investors private investors if you like. They are there by choice. But is it the same with truly public companies like ONGC or SBI? Forget their private investors, but what about us? The taxpayers? Is our money there by choice? Do you personally believe in recapitalizing Andhra Bank (BSE: 532418, NSE: ANDHRABANK) with your money or ONGC drilling that next hole in Iran with your money? Probably not. But you don’t have much choice.”
Commenting further on the dangers of putting stock-market and investor interests first, we continued, “It is easy to confuse things between public and private using stock market lingo. But this is a country where the number of retail equity investors hasn’t reached that high figure - 1% - of the population, still. Agreed, NSDL & CDSL has 1.6 crore demats, but on one end there are significant duplicates, and on the other end a lot of empty accounts. It is not the same as the taxpayer base. Again, there is a riddle. Only 3% of the population pay personal tax in this country. And only 11% of the listed companies pay tax. But that is just the income tax or corporate tax. What about the numerous other taxes, levies, & surcharges that we pay whenever we buy, sell, travel, invest, redeem, or avail a service? PSUs are able to shine only on capital from these kinds of accruals.”
More than an year later, only a few PSU IPOs/FPOs have been able to deliver good, real returns to ordinary retail investors. But they have been anyway better than hyped up private sector IPOs like SKS Microfinance or DB Realty (BSE: 533160, NSE: DBREALTY).
6) Get Ready for a Chinese Crisis
In December 2009, while analysing past financial crises across the world and commenting on the Dubai financial crisis, Seasonal Magazine identified three aspects - hyped up real estate, dollar pegging of the currency, and undemocratic decision making - as three pillars of financial crises, and wondered at how China - that shares all these attributes - will escape a crisis.
We wrote, “Now the only relevant question is whether there are any other markets where both these conditions exist. Eerily, there is one – China. Though the country’s currency is only partially pegged to the US Dollar since 2005, by all practical measures it still remains deeply connected. The Chinese had unofficially strengthened this pegging post-Lehman as a last ditch effort to save its economy from collapse as it battles a real estate splurge that would shame even Dubai on the demand-supply mismatch. If China fails, it has the potential to take the world with it. And not at all comforting is a third attribute that Dubai and China share – non-democratic decision making.”
Now the world’s worst fears are coming true, as WikiLeaks has leaked, even the second-most powerful man in the Chinese power structure admits that Chinese financial numbers are rigged. And needless to say, on a full-blown Chinese crisis, next door neighbours will have to face not only economic heat.
7) Control the Needless Volatility in Stock Markets
Seasonal Magazine also almost predicted the recent stock market correction in that article. We wrote, “Of course, even without a Chinese failure, and even without the rupee being pegged to the dollar, India needs to tread cautiously as it suffers from excess liquidity driven by foreign investments that has overheated the capital markets already, much ahead of the real economy warming up.”
Later, in June 2010, Seasonal Magazine again warned investors and public about the effects of Smart Money. We wrote, “Retail investors would do well to keep in mind that nothing much changes for a business between one quarterly result to the next. Of course, there can be new order wins for the company intra-quarter, but even then there is no need for this daily frenzy. The only thing that changes every day, every minute, and even every second, is the money flow. Smart money flowing in and out, trying to take away your stupid money too, thereby getting smarter.”
8) Understand that Economics is No Substitute for Efficiency
And in last quarter, precisely in August 2010, we wrote about the theme that economics is no substitute for efficiency, which is a theme that refuses to die in India. As scam after scam unfolds, we continue to stand appalled at how systemic inefficiencies are breeding systemic corruptions, taking away the sheen of all economic planning.
9) Time is Ripe to Bring in Some Direct Democracy
In our last Issue, Seasonal Magazine argued the case for instilling some direct democracy into the system. "The only pill for democratic ills is more democracy. Can technology and manpower prove to be the engines for instilling more democracy? If it can, this will also be bigger than those much-vaunted trillion dollar opportunities in various sunrise sectors. India is today flattered as the largest liberal or constitutional democracy. But the flatterers and the flattered are sitting smug on a belief that constitutional democracy is the ultimate. Or, perhaps on the disbelief whether anything better is indeed possible. Nonsense. Constitutional democracy is, historically speaking, nothing more than a stop-gap arrangement. The real game-changer is something called direct democracy. Now, before some of you say it is impractical due to the referendums involved, let us remind ourselves that the times have changed, tech has changed."
The need for direct democracy is felt today more than ever, with the parliament in impasse for weeks over a petty quarrel between the ruling and opposition parties. We continued in that article, "Which tech-savvy youngster will buy this reason? He or she is already 3G, living in the post-Facebook, WikiLeaks era. Internet, mobile, and software technologies have advanced to such a stage that holding referendums, as often as needed, should be a snap. That is why UID is such an important step. But better than basking in its glory, the need of the hour is reminding ourselves that it is just an enabling step. The real achievement would be building a platform for referendum-driven direct democracy on UID and tele-density."
10) India Needs Leaders Who Plot Their Own Exit
In the same article, we tried to find out why direct democracy was not picking up steam worldwide. "Now that brings us to the real reason why direct democracy is not taking off. Will politicians plot their own end? Instead, they will guard their fort till the very end. And that is why thriving direct democracies are found only in some local communities in Switzerland, US states like Vermont, and some city states. It is a shame that no direct democracy exists outside the overruling power of a bigger state, province, or nation. Yet, changes are happening like the issue-based referendums in California, which have witnessed massive turnouts."
Focusing on the Indian situation, we continued, "But can’t India ring in the bells of change? If not for the only reason that the biggest democracy should also show the way? We have everything to make a go for it - brains, manpower, tech. And this can be a multi-trillion dollar domestic opportunity for the economy, which is increasingly threatened by a global slowdown. But for that to happen, we should prod our leaders to take that extraordinary step. As Anand Mahindra (BSE: 500520, NSE: M&M) recently put it brilliantly - a true business leader is one who plots his own obsolescence. This should be truer in politics than in any other sector. We sometimes take those steps. Like when we put Nandan Nilekani (BSE: 500209, NSE: INFOSYSTCH) in charge of UID instead of a Congress leader. But we also go backward, when we failed to extend the term to Dr. Kalam. One step forward, two steps backward."