PETROL SHOULD SCALE MOUNT-200

BY: V Pattabhi Ram

Recently, in the city of Amravati, petrol price did the unthinkable: it crossed L K Advani’s age. Nonagenarian ‘petrol’ should soon hit a hundred, and shortly after a double ton. Only after that, it should be allowed to settle down. Let me tell you.

First up, our heart bleeds for petrol.

Today, at a price of Rs 90, the tax component is approximately Rs 50, as the base price is around Rs 40. So the tax is about 1.25x the base price. The final resting place should be 4x. If political considerations do not drive decision making, and we are governed wholly by economics, in about six months’ time, if the base price stays at 40, we should see Rs 200 as the price per liter of petrol. Now how does one decide 4x the base is right? Just as how one decided 1.25x was right.

Why does the government need so much money?

Because our roads are bad and need a facelift. Our infrastructure is horrible, and we need money for investment. The fiscal deficit is high, and should it go higher still the country will go broke. The previous government issued oil bonds, and this must be settled. All this has to be funded by real cash and not by currency printing.

Isn’t the government collecting enough by way of tax? No. Aren’t we some 3rd or the 6th largest economy in the world. Yes. Aren’t those who are supposed to pay, paying? No. Why is the government not pushing the envelope and collecting? Don’t know. Didn’t other government also raise oil bonds? Isn’t it that this government has repaid it in full measure. Can’t say. So because we can’t collect from those who don’t pay, others have to cough up more; for the sake of India. You see we are awash with money, being part of the fastest growing economy in the world.

Let’s take the middle class. Assuming the guy drives 30 km a day, it is 900 per month. At a fuel efficiency of 10 km per liter, he will be using up 90 liters. If the price is Rs 200, he will swipe only Rs 18,000 a month. Anyone who can afford a car and drive 30 km a day should be able to provide Rs 18,000: small change. Remember, this money goes to the country.

Should our heart not bleed for India?

Forget, that the political class may not curtail their ballooning expenditure. And lest we miss out, this money is required for various welfare schemes including the MGNREGA, healthcare, etc. It is immaterial how welfare plans were funded till now, or that they were mocked at, and we were told that everyone and his uncle should pay full fare.

After politics, comes economics. The more you push petrol price up, the less will be the inflation. Do not ask me how. This is neo-economics. When all our money goes towards buying petrol, we will have little money for other products. Hence too much of money cannot chase the few other products! QED. If you say there is a limit to studying Economics in the WhatsApp University, you said it, not I.

Finally technology. Push people out of something by making it beyond their reach. Cut the lifelines. By keeping prices high, people will find it easier to jump to Electric based alternative vehicles when they in fact come. They may do car-pooling and save money. Those who commute short distances will the good old cycle. They may even be pushed to use the metro.

Way forward!

By the way, petrol ought to have come under GST. 20 states are ruled by the party, which governs the center, the BJP. Petrol prices can be dropped at the state level. 20 states are ruled by the party, which rules the center, the BJP. Or for that matter by the non-BJP states. But who will want to do? After all, petrol is the cash cow. But at the rate we are milking, one day the cow will go dry, and when if we milk it when it has gone barren, it will scream blood.

Hey but wait for the elections. You can expect a sharp drop. And then you will be told about the virtues of a lower price, higher disposable income, and better standards of life.

 

 

 

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DEMONETIZATION:  KING’S GAMBIT ACCEPTED

BY: V Pattabhi Ram

When the history of modern India is written, Aadhar, GST, and Demonetization, will be looked upon as game-changers. On Aadhar and GST we will discuss another day. First up, DeMon.

In Jan 2015, Narendra Modi was still 21-months away from announcing the great cash switch. Speaking at a national conference, I had suggested that India must cashier its Rs 1000 note as a first step towards proving its sincerity of fighting black money. The following year, Modi unleashed the brahmastura by also banning the Rs 500 note. In chess parlance, it was classic King’s Gambit.  The amount involved was about Rs 15 lac crore.

Celebrated economists like former head of government Manmohan Singh and former RBI Guv Raghuram G Rajan looked askance at the move. In contrast, BJP ideologue S Gurumurthy gave his thumbs up.

Cut to Sep 2018. A full 22-months after Modi’s televised national address, Operation DeMon is spoken in hushed tones. The public posturing is of-course noisy. In a country that over the last five years has got dreadfully divided through a careful spread of malice and hatred, this is not surprising. But privately the tone is different.

So what was the cash-switch about, why was it put forth, who benefitted and how much, who lost and by what margin? Dr. Singh said it would shave 2% of GDP. He was proved right. Dr. Rajan indicated that long-term costs would outweigh short-term benefits. The jury is out on it. The government told the Supreme Court that India would have a windfall of Rs 3-4 lac crore: the cash that would not come back. As we will soon see, it turned out to be a vain claim.

If the initial expectations had materialized, India would have had several options. Like: the RBI would pay the government an additional dividend. Remember, the current practice is to retain nothing and give out everything. The government would then invest the money in infrastructure or social welfare projects. A second option was that to the extent money did not come back, it would be canceled out, and India could move towards a less-cash economy.  India believed, whatever it may say today, that it expected cash not to come back.

But we are getting ahead of the story. We need to get a few basics straight.

First up, we must understand that cash is an IOU, a liability.

Economics 101 tells us that money can take several forms. Cash is one form; a credit card is another. While cash is the predominant form, anything that is accepted as a medium of exchange and a measure of value can be called ‘money.’ Let me explain further.

Suppose you sign on a piece of paper saying you owe Rs 100 to the bearer of the note. I receive the note and proceed to the nearest shop to buy goods worth Rs 100. The shopkeeper accepts it and believes he can later purchase products or services worth Rs 100 by exchanging it. Now, for your chit to continuously move from hand to hand, everyone in the chain must trust you since anyone in possession of your note is deemed the owner. Basically, it’s a bearer-note, transferable by delivery.  Or as the economics teacher would say tongue firmly in cheek, the finder is the owner.

In an economy, this ‘you’ is the Reserve Bank of India. Mark it; the central bank is an organ of the government. The IOUs are the ‘currency.’ People trust the currency and believe that when push comes to shove the government would honor its liability. Essentially, for the RBI cash or currency is a liability. You will notice the RBI Governor signing, “I promise to pay the bearer the sum of Five Hundred rupees.”

I repeat ‘currency’ is all about trust. Without trust, it’s not worth the paper on which it is written. It is not backed by any tangible asset, such as gold, as it once was. It is supported only by trust.

The bottom line: the central bank issues cash. From its standpoint, cash is an IOU, a liability.

Second, we must appreciate what DeMon is.

In DeMon, the government asked people to exchange the IOUs with new ones. The idea was to find what who all have the about Rs 15 lac-crore value of IOUs. The government believed that those who had no business carrying parts of it (the difference between what they had and what they ought to have is black, and represents income on which tax is evaded) would be scared and so will not put it out for verification. To that extent, the liability will not be claimed, and won’t have to be paid, leading to windfall profit for the central bank.

Did things go as per plan? Fat chance. Cash poured into the banks like a rivulet. The banks had no means of verifying the genuineness of the currency. The RBI took its time to find out how much money had returned. 22-months later, at the end of Aug 2018, it announced through its 2017-18 annual report that it had completed the count and that 99.3% of the currency had come back. That is to say, almost all of the 15 lac-crore except for a small Rs 13,000 crore had returned. The so-called 3-4 lac crore which the government thought would not come too had come. If there were any tax cheats, they possibly slashed their money in other people’s account or quickly hid it in assets like gold or real estate.

The bottom line: Indian citizens had looked the government in the eye to either say, we-are-not-tax-cheats or to challenge them with a catch-me-if-you-can taunt. In chess parlance, it was classic King’s Gambit Accepted.

Third, we must accept there are a few things we will never get to know.

The prime minister had proudly announced in his televised speech that DeMon would arrest terror funding and kill fake notes. I thumbed him up on black money, but not on the other two. I am sorry to say I was proved right. After a brief calm, when the terrorists were testing waters, the India-fighters were back to business with more acts of terror. Truckloads of the new currency (Rs 2,000) were discovered in different parts of India, and quite a bit of it was fake No money in India has been copied so quickly and with such clinical efficiency.

Some part of the money that came in could also be black money getting officially declared and converted. The government gave the option to the citizens to come clean by paying the penalty. How much of this money that came back was of this variety, we may never get to know, if the sum was not significant. Some people suggest that the government planned this out to convert large tranches of black money into white. I am too naïve to accept that argument. Yet I am cut up with the government, which has amended the Act retrospectively to prohibit probe on all foreign funding to political parties with effect from 1976.

There is a lot of talk on the social media as to how tax collections have gone up, return filing has increased, etc., on account of demonetization. It depends on what you look at as the base and how you believe that anything that happens after an event is related to that event. After all, other triggers could have led to this surge. We need to appreciate the difference between correlation and nonsense correlation. For instance, I am sure no one believes that India’s Asian Games tally is on account of demonetization!

Does it mean that there has been no benefit?

I would be the last person to say that. One thing is sure. The original objective of cashing in on a windfall of Rs 3-4 lac crore did not happen. Whether it was because the government was unprepared or Indian citizens were up to take the challenge, no one will know. The prime minister was so cut up as to even upbraid the chartered accounting community for being responsible for the failure of DeMon. Yet there were good things that happened with DeMon.  For example, all money is now identified with a bank account. It means we can trace it back and check for its color. The government has indicated that Rs 2.7 lac crore in 18 lac accounts require scrutiny. That’s about Rs 15 lac per account. The challenge will be in getting enough proof to nail the culprits. There are layers of justice in our country that apparently take a lot of time.

I have two views. One is that if the objective of DeMon was unearthing black money, one needed to remember that the quantum of black cash is only 5% of the total black. People no longer keep their black money in bathrooms and under-the-pillow; irrespective of what the vice-president may like us to believe. Black is slashed in gold, in real estate, and abroad. Two is that black cash was a low hanging fruit. The move was as much political as it was economic. It was a message to the people of India that the government tried its best, and was an attempt to make them forget about the promise of bringing back the cash stashed outside India, which is supposedly the more significant and stricter chunk. To that extent, it succeeded.

Way forward

The people of India are either mostly clean with their cash or have challenged the government with a catch-me-if-you-can bait. The government should take up the challenge. The next logical thing to do is to tag every property with its Aadhar card because that’s where the black money lies.

As long we don’t have clean election funding, as long as the country is not linked electronically for every financial transaction, as long as we either lack sincerity or preparedness in arresting black, we will have a problem on hand. The cost of DeMon is the opportunity cost. Experts place the net loss at something around 2 lac crore. We need a less-cash economy, and we should create the climate and the infrastructure for it.

The bottom-line: the DeMon exercise failed. The topline: The DeMon exercise needed to be carried out.

 

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Office​ 2030: Abraham Maslow and the 21st-century​ audit firm

BY: V Pattabhi Ram

What are the needs of the members of an audit firm today? And how critical are they: hygiene or motivational? This article takes you through by borrowing ideas from Abraham Maslow and Herzberg.

This is the 75th anniversary of one of the pioneering theories of motivation: the Maslow’s Hierarchy of Needs. It’s incredible that what Abraham Maslow, the famed psychologist, wrote in 1943 resonates with Generation Y and Generation Z, although the nature of needs is different. As you get to run your audit firm into the third decade of the 21st century, it is necessary to know what drives your team.  Maslow spoke of five needs and the fact that lower ones need to be addressed before moving to higher ones.

We take each one of them, in turn, in the ascending order of needs.

1. PHYSIOLOGICAL NEEDS

According to Maslow, physiological needs are basic needs for human survival. Money is the medium to meet those needs.

a. Salary & Benefits: What constitutes today’s ‘needs’ for survival are different from what they were when Maslow propounded his theory.

“To a man with an empty stomach, food is God;” said Mohandas Gandhi. While that is still true, world poverty is no longer at the level at which it was when the Mahatma strode the world like a colossus.

Financial independence is one of the primary reasons why a person pursues employment. To attach value to money does not mean being materialistic. Whether we like it or not, for today’s generation, financial compensation is the most important criteria.  You, therefore, need to compensate the team members reasonably well, in line with comparable firms.

As they climb up the ladder, these members expect the pay to be commensurate with the effort, time, and strain that work demands. They also expect transparency about processes and criteria that determine their financial growth in the organization.

b. Comfortable work environment: Access to clean restrooms, requisite breaks, 5-day work life, good cafeteria, suitable leave structure, plus a reasonable HR policy are a few of the critical requirements. Breaks would of-course depend on person to person and should hence be left to the individual to decide.

The physiological needs are ‘hygiene’ factors, not motivators. It means that while their presence may not act as a stimulator, their absence can be a de-motivator.  The term “hygiene” is used in the sense that these are maintenance factors. In contrast, motivators are intrinsic to a job and give real satisfaction.

2. SAFETY NEEDS

Once the physiological needs are met, next comes the safety needs. In an audit office, it is about safety regarding the job, health, and workplace.

a. Job security: The days of job security are gone. Even in government jobs, one can be sacked. There are no jobs for life. That said, employees must not be made to be on the lookout for job safety continually. You cannot run a race, by frequently looking backward. While complacency and unprofessionalism must not be tolerated, a hire-and-fire culture does not yield results in the long run. Good firms take time to assess and recruit employees; and turn to fire them only as a last resort. If at all a person has to go, there must be an exit interview with a senior director in the organization where the party is heard out, the reasons for the pink slip explained, and the partying is pleasant without burning of bridges. Under no circumstance should HR alone handle this job.

b, High-pressure environment: While challenges are enthralling, care must be taken to not induce too much of stress on employees. This has long-term consequences. Understaffing is not a wise strategy. The modern workforce looks out for mental health as much as physical health and family time. Top-heavy firms must periodically assess the appropriateness of such a structure, and see that there is adequate bench-strength.

c. Workplace safety: Since a lot of women work in organizations, it is essential that adequate checks be in place when they work late hours, and that facility is provided to all employees to be dropped home. This is truer in an era where people commute long distances, and traffic snarls are the rule rather than the exception.

All these safety needs are hygiene factors.

3. BELONGING NEEDS

Third on the ladder is to have a ‘sense of belonging.’ This is what Maslow had famously called social needs. People like to be liked. Team members must take pride in the fact that they work for your firm. They must come to work every Monday with a smile and must feel it’s worth working with you.

Feedback, staff training, an open-door culture, mentoring, and team outing can bring in the sense of bonding.

a. Feedback: Reviews must be continuous. A two-way feedback system, preferably after every assignment, must be implemented. The immediate supervisor as also the functional head should give such feedback. These must not become a rote procedure; instead, they must be acted upon expeditiously.

b. Staff Training: In a world where knowledge is increasing at break-neck speed, if you do not update yourself you will rapidly become a museum piece. Training has to be continuous, and not an off-season affair. Firms can also take up the cost of studies and certifications, subject to the candidate passing the exam.

c. Employee-focused, open-door culture: All firms, especially medium-sized ones, must ensure that their workplace does not reek of office politics, lest it becomes an unpleasant environment. Directors and senior audit managers must be approachable and adopt an open door style of management. Partners must also be accessible on an emergency basis. When a team member wants to deal the partner directly, the partner must do so and not let an executive assistant take his role.

These three are hygiene factors, and the next two that come up are motivating factors.

d. Mentoring: A proper system of mentoring must always be in place for everyone. This is the best way to ensure a smooth transition in roles. Try to understand employees’ areas of interest and nurture them appropriately. Assign more work on such areas of interest and put them on to bosses who share the enthusiasm.

e. Team outings and fun: All work and no play makes an employee dull. While different people have a different perspective of what constitutes fun and relaxation, firms must engage in activities to foster team bonding and a better understanding of colleagues. Do not make them obligatory though!

4. ESTEEM NEEDS

People want to have a sense of self-esteem. A large measure of that comes from working with branded firms, challenging work, and flexibility. How lovely it sounds when you say you are a part of a well-known firm. How beautiful it is if you can boast of doing offbeat work and claim to have flexibility in doing things. Each of these is a motivating factor.

a. Brand: Employees seek to work for established audit firms with niche branding in the market. Multi-city firms and multinational brands are usually preferred. So firms must continuously try to expand.

b. Challenging work: Horizontal and vertical exposure make work-life more interesting. Using technology aids such as statistical tools, audit software, internal social network, data analytics, cloud applications, continuous auditing aids and collaborative team tools not only keeps employees engrossed, but also improves efficiency and effectiveness. Outsourcing or engaging non-accounting folks for administrative and rote work such as printing, xeroxing, formatting, proofreading, etc., can be used.

c. Flexibility and Freedom: There is now an increasing expectation of flexible work options. ‘Work from home, flexible time, remote working, and benefits like “unlimited paid time off” are international buzzwords. Firms are increasingly using technology and cloud-based services for this purpose. So long as productivity is ensured and clients are made happy, time-off, holidays, family time and personal space must be respected. Of course, some of these can be offered only at certain levels and not at every conceivable level, lest the organization becomes amoebic and unstructured. Also, space for different working styles must be given. While work processes and expectations must be clearly communicated to employees, the team members must be given the space to explore and discover their paths. If each partner demands employees to learn up to their way of doing things, it could become frustrating. Bosses must not micro-manage. ‘Review’ is checking what they have and understanding why they have done it. Space for different working styles must be given. Guidance must be provided when needed, and reviews must be undertaken in detail.

5. SELF-ACTUALIZATION NEEDS

How do you help your members achieve self-actualization? How do you ensure that they do “what every man is best capable of doing?”  One way is to allow them the laxity and space to pursue their personal interest that is not exactly connected with the interest of the firm. : if he is a painter let him use some office time when he is stressed, to paint. : if he is an ardent storyteller allow and encourage him to become an author.

On its part, a firm achieves self-actualization when it can get an ordinary team to do extraordinary work. If you hope to run audit firms in the 2020s remember, talent is not only going to be scarce but also expensive. You will have to work with what you have, convert them to world-beaters and lead an exciting outfit. Are you asking, “what if they learn in my organization and then leave?” Well, “what if they do not learn and stay back?”

And finally, trust your team.

 

 

 

 

 

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KARAN THAPAR SPINS A LOVELY YARN

BY: V Pattabhi Ram

You may not like the way he harangues guests in his talk shows. He is known to raise his voice and be acrimonious in his arguments. You might even hate him because he takes your favorite politician to the cleaners. But whichever way you look at, you cannot ignore the original angry man of Indian television. That said, the Devil’s Advocate, aka Karan Thapar, can write with ease. I loved his autobiography, which makes for riveting reading.

The description of Karan’s early schooling at Doon School, his college days at Oxford and Cambridge, his pathetic disdain for anything related to sports, and his love for debating have been captured with élan.  Born to a father 50 years senior, Karan was the doted son. So much so that when he was sent to boarding school, each term it would be the father, India’s ambassador to Afghanistan,  who would hide his tears.

Thapar graduates in England: never gets down to completing his doctorate as he lands in a dream job at the Times. Along the way, he falls in love with Nisha, a young lady who he first meets as a roomie in a paying guest accommodation position, then propositions her and finally marries. The marriage lasts no more than six years, not because they divorce but because God has his way of calling back people who are immensely talented and too young to die.

Karan never remarried.

Friendships all around

In England, he becomes friends with the woman who would later become Pakistan’s prime minister, the dashing Benazir. Each invites the other to their alma mater for speaking engagements and the friendship blossoms. In fact, Karan and Nisha attend Benazir’s wedding in what was billed in Pakistan as the marriage of the century. The story of the queen of Pakistan visiting Karan’s home with remarkable frequency is well told.

Thapar is related to Karan Singh, is friends with the Gandhi family, and is on first name terms with Aung San Suu. The story of his interviewing Narasimha Rao on the day after he became prime minister carries a pack of surprises. Invited to film the premises before Rao could come in, the crew is stumped by the super simple bedroom which has a bed with bamboo rods tied to them and sporting a mosquito net on the top, reminiscent of the boarding school. Hanging from the top of the net were a few undergarments of India’s most powerful man.

With prime ministers and prime ministers to be

In later years Karan would interview V P Singh only to discover that the Mandal messiah was an ace photographer.  The intrepid journalist questioned Chandra Shekhar about his clothes and general appearance, and the former prime minister did not like it one bit. His interactions with Vajpayee were interesting. In an interview after Rajiv’s death, Vajpayee told how the young prime minister was instrumental in sending the future prime minister abroad for treatment. Vajpayee comes off as a tall leader. Despite a critical column that Karan had written about Vajpayee when the latter was head of government, the prime minister noticing him in a gathering loudly calls him to his side and says his article was fantastic.

Thapar was great friends with Advani. Once the thespian wanted a reshoot of a controversial interview. Karan refused, and the friendship was lost forever. Almost ditto with J Jayalalithaa. The acrimonious conversation where Amma told Thapar that their discussion was unpleasant was to be reshot at the behest of Jaya, but again Karan refused to budge. Yet with the mercurial Ram Jethmalani, Karan reshot a full episode. Incidentally, when Jayalalithaa later met the Devil’s Advocate on a different occasion, she wondered if he would like to interview her! Thapar feels that Barack Obama had feet of clay. His argument: the Afro-American comfortably ducked loads of questions that our man directed at him. And finally, Thapar provides the background to the iconic story of Modi taking a glass of water and walking away from an interview that went on air sometime in 2007. Ten years on, apparently Modi still holds a grudge.

For all his bluster and bravado Karan Thapar, in hindsight, regrets many of his actions. Yet I would think he changed the face of interviewing and his book is an exciting read.

 

 

 

 

 

 

 

 

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WHEN GOD DESERTED HIS OWN COUNTRY

V Pattabhi Ram

Every tragedy, whatever the cause, calls for united action from the people of India.  Kerala saw this year, what Chennai had seen three years ago: unprecedented floods. Something like this had last happened in God’s own country far back in 1924. To get an idea of time, 1924 is the year M Karunanidhi was born.

The magnitude of the calamity cannot be expressed in words. It’s not just the destruction of life and property. It is also the dent in the confidence level of the afflicted people that must be looked into. Like in the case of Chennai in 2015, good Samaritans stepped in to alleviate the sorrow. Help poured from unexpected quarters: especially the local political class known to fight and bicker, lifted their dhoti up to get into relief work. The army, the navy, and the air-force moved in. The fisherman community and the common man came in droves to help those marooned. In many of these places people live in small houses and own just Kirana shops. Their life savings have gone for good.

I do not intend to point fingers at this moment of crisis. But the news from the ground is that there could have been a better level of preparedness. A month ago that a government report had named Kerala as the worst performer among south Indian states in the management of water resources. Maybe the severity could have been less if authorities had gradually released water from the 30 dams.  That, of course, is easier said than done; for in the battle between man and nature, nature wins. Experts point an accusing finger at the Centre too because Kerala does not get an early flood warning from the Central Water Commission, the only government agency authorized to do so.

A back of the envelope estimate by the chief minister places the loss at Rs 20,000 crore. Money and relief material have poured from both southern and northern states. Media reports suggest that at least 6 lakh people are stuck in 3,000 plus relief camps. The floods have wreaked havoc on the plantation sector. The spice capital, Idukki, has gone under. Yet insurance companies aren’t sweating because Kerala has not taken large crop insurance policies!

Where do we find the answer to these questions? Do we need a calamity of this dimension each time to bring out the essential goodness in the human being? Should we every time face the wrath of nature, or can we arm ourselves better? First up, India needs to link its rivers on an urgent basis. The battle in the next few years is going to be over water. Our dams need to be well managed. We need early warning signals, and a disaster management team. Next, we need planned urban living. Mindless urbanization, cutting out of forests, and ignoring climate change will only come back to haunt us. While a vast majority of social media was helpful, there was the small part, which showed its pettiness coming out with the odd joke and the equally bizarre insensitive comments, reducing it to petty politics.

That Kerala will limp back to normalcy is for sure. That attitude is the nature of the human race, and the Keralites are known to brave many things. The sad part is that once we tide over this crisis, the lessons may be forgotten. We must not let that happen. Let’s not forget that nature, water, wind, fire, and space are all said to be superior to the human race. We need to respect both environment and climate.

While Kerala is facing its worst disaster in a century, let’s help rebuild God’s own country. It’s also time not makeanother Kerala happen.

 

 

 

 

 

 

 

 

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