HAVE A WINNING CULTURE

Gaurav Taneja, National Director of Ernst & Young’s India Tax Practice, delivered the Valedictory Address at the Concluding Day celebration of Prime Academy’s 24th session held on 31st March 2007. He talks about the global scene, the Indian scene, the two generations of economic reforms and finally what all this has for you as chartered accountants. A must read

It is a great pleasure for me to be here this evening at the Prime Academy’s Valedictory Day function. Today I am going to address you all on three issues. One, on what is happening at the global level; two, on what’s going on in India and three on what all this means to you when you become chartered accountants.

The world has never seen anything as dramatic and as fast as “change today.” The changes that have happened in the last 100 years are equal to the changes that occurred in the last 2000 years. Electricity was discovered not so long ago and from then on literally everything on earth has changed.

The global scene: Look at how Russia opened up from being a communist economy and has transformed itself dramatically. Look at how Germany, destroyed at the end of World War II through vision and hard work re-emerged as a strong nation. From the production of cars and pharmaceuticals to playing football Germany has come a long way. But today, the people there have a tremendous sense of pessimism. Their economy is growing at only about 2 %. There are more elderly people than young people and because of regulations and certain other factors the scope for growth for the young has been limited. Look at how the US is changing and because of the environment of continuous change and acceptance of change, the US has been the leading country for a long time. This is because they have the culture for rebuilding themselves and striving for more. But now even they are concerned because for every two jobs created in Infosys, TCS or Wipro, one job is possibly lost in the US. They are now branching out more into research and technology, the creation of more IPR’s and brands, in short, further moving up the value chain to maintain their lead as the number one economy in the world. Finally look at Cambodia and Vietnam. 20 years of war has killed people over there. But now even they are growing. Companies like Intel, Nike are setting up manufacturing plants in these countries providing that country with tremendous opportunities. This shows that during dark times, will power and optimism helps people come up. The one major dark spot on earth today is Africa, which is full of killing and brutality. But in general, the earth is a much better place for people to live. What we see today is better than what prevailed a hundred years ago.

The Indian Picture: India’s GDP is growing at 9% net of inflation. About 2 to 3 % is contributed by agriculture. Services and industry are growing in double digits. This has not happened overnight and has not been done without effort. Back in 1991, our foreign exchange reserve was almost nothing. The government of India had to mortgage its gold reserves. But a lot of opportunities was created out of this situation when Dr. Manmohan Singh (then Finance Minister) and Mr. Narasimha Rao (then Prime Minister) used it to pave the way for the first generation of reforms. The pace of reforms was initially slow, and we have been able to reap its benefits over the past the years. And now India is moving on to overseas buying. Take the Tata-Corus deal. An Indian company acquiring a global major is a paradigm shift. Over the past 12 months about 140 transactions of Indians buying overseas have taken place. India is the second largest investor in the UK. Liberalization and reforms have been there, but it is people with aspiration, self-confidence, vision and the ability to execute, have contributed to the success. Reforms have been contextual, but the aspiration, vision, and confidence of Indians are the key to the success of India.

Infrastructure: A study shows that we could increase our GDP by at least 2 % if only we had better infrastructure like roads, ports, power plants, water, sanitation, etc. The most important thing today for India to go forward is its infrastructure. As you progress in your careers, keep an eye on that. When it comes to local counselors and state government, vote for people who make that infrastructure happen. Each of you can make a difference.

Education: The second most important area is education. Our primary school, secondary school, and higher education are suffering badly. I, therefore, congratulate institutions like the Prime Academy which go out and train so many of you people which increase your chances of becoming successful chartered accountants. They are playing an imperative role in the private sector. Unfortunately, the government has not done enough for education. And therefore whatever little we can do for educating our colleagues and peers especially in the rural sector will help India grow fast. When the IT sector took off, the difference in a US salary and Indian salary was about 1:15, so the labor arbitrage was fantastic. This has now shrunk to 1:6 which proves that salaries in India are growing rapidly. While it means a lot to you and me as our salaries go up, we must remember that we have a billion people, and we must ask ourselves whether all the billion are employable in the role and in the capacity they should be? The answer is “No.” There is a need to set up educational institutions both in the private and the public sector, and Prime Academy is an excellent example reaching out to people all over India.

Inclusive growth: When the UPA government came in, they came in with a theme of inclusive growth. People wanted to know what that was. Unless there is real growth in the rural economy, India cannot grow that fast. So when the reforms took place, the idea was that there would be a trickle-down effect. That industries will come, and services will also come in slowly and trickle down to all parts of our society. But 15 years have shown that that has not happened. It has shown that not only a pull factor from the top but also a push factor from the bottom is very vital. And therefore I fully support inclusive growth, my organization fully supports inclusive growth, and you have to do more and more for the rural sector. Now many governments have come and gone, but they haven’t done much for rural reforms. If we get these thing rights, namely labor reforms, if we get the supply chain in the rural sector going then we can grow the rural economy from 2 to 4%. And that growth from 2 to 4% will take India’s GDP to 11 and even to 12%. It is vital as 60 to 65 % of our population stay in the rural sector. If we can unleash this potential imagine how much can be achieved. Inclusive growth is required otherwise the difference between the haves and have not will become so immense that it will create a social disorder in our country.

What it has for you as CA

Let me move on from what’s happening around the globe and what’s happening in India to what it means for people like you and me. What are the lessons that I have leaned from working for the past 20 years? What is it that my colleagues and I look for from people who join our firm as Interns or as chartered accountants?

  1. Have Integrity: There is no question in my mind that the most important thing is integrity. It is a fundamental value. It is the ability to say no when you see something wrong and not getting tempted by temporary benefits. It comes from your core. Without integrity, you will inevitably slip, whether it is your business or whether you are working in a company or a partnership firm.
  2. Work Hard. CA is the first real test of hard work. It is not easy to become a chartered accountant and if YOU think becoming a chartered accountant is hard work, its only a start. Hard work is critical. No one has succeeded for a long time successively without putting in hard work. You may be very talented, you may have a lot of luck and may succeed temporarily because of your past karma, but consistent hard work is required to be successful. Success is 99 % handwork and 1 % luck.
  3. Respect Others’ views: As you work in an organization learn to respect other people’s views. You may not agree with what the other person says; it may not be the right view, but if you want to grow, you must hear people and their views. Otherwise, people may not respect you. However senior you may be people will work for you only because you have ordered them to do so and not because they wish to work with you. Remember you are only as strong as the weakest link in your chain. So respect for people around you, both seniors and juniors are vital. You will start your careers shortly. You will be at the bottom of the pyramid tomorrow but the day after you will become leaders. You will have to make sure that you adjust well with people and that you get the best out of people. Even if one person is left behind in a team, you will not be successful.
  4. Have enthusiasm: Your career is not a sprint but a marathon. You will need energy for the next 40 years of your life. Not all days will be good and sunny. If your energy and enthusiasm levels are safe, and it is cloudy, everything will turn out okay, and that is the true spirit of a successful human being. And for that, you need the courage of a warrior. Courage to say, “No matter what, I will find the solution.” It is very easy to say that the circumstances were unfortunate and hence you couldn’t succeed, but it is your enthusiasm, energy, and courage that will make you successful. Courage comes from within. People can only motivate you only up to a point. They can lull you with high money, share their experience and inspire you a shade. But it is only you who have to motivate yourself.

Winning is not somebody else losing, it is your energy, integrity, hard work and courage that will make you successful. Courage is the most important. Courage to say no when something is wrong and the courage to stand up to the right thing. These are your core values that you imbibed from your parents, teachers, and relative when you were small. As you grow, you tend to forget these things. You have to find it within yourselves. If you can find it, you will become successful in whatever you do.

  1. Have a Winning Culture: You must have a winning culture whether as a group, individual or as a team. An excellent example of this is the Australian cricket team.

Winning culture in an organization is the sustainable competitive advantage. Technology is not a sustainable competitive advantage; it can be bought. IPR is not a sustainable competitive advantage; it can be created. But a winning culture can neither be bought nor built overnight. It is truly a sustainable competitive advantage. Think about that when you start your work a couple of years from now. And finally, if you are successful, remember it will come with a lot of sacrifices.

  1. It is lonely at the top: The road to success is lonely. At the head of the mountain, you are alone, and you have to pay the price with blood. It is painful, but you have to go mentally behind that barrier if you want to win. Michael Schumacher is a superb example of someone who wants to win and is determined to win no matter what the circumstances are. But remember, at the top, there is a place for only one person. You will have certain doubts from time to time, but you will have to overcome them. No one will help you with that. Not your mother, not your father, not your wife not your husband. Those self-doubts have to be overcome by you. It is a lonely place. There is only one Prime Minister of India. There is only one CEO of Infosys Technologies. There is only one Ratan Tata. And Ratan Tata had to take the important decision on the Corus deal all alone, all by him. His advisors may have told him many things, but finally, it was his call. The 12 billion dollar decision, was finally his to take, which if it goes wrong could significantly effect theTata group.

So are you ready to make sacrifices to get successful? Are you willing to pay with blood and sweat? Because this is what is required in the journey to be successful.

  1. Be a Nice person: But no matter what whether you are successful or not, be a nice person. Because that is how people will finally remember you. And finally, do try to make God a part of your daily life. No matter what you do without God’s grace, it is tough.

Best of luck

 

Posted in SPEECH, Uncategorized | 1 Comment

A SILENT FRENCH REVOLUTION

V Pattabhi Ram

Written for Saint-Gobain

Some 40 kilometers southwest of Chennai, on the National Highway 4, a silent revolution is going on.

Once a sleepy little village, this place is now a vibrant industrial hub, with global industrial giants descending on it. Car major Hyundai; computer king Dell, consumer-durable leader Samsung and glass giant Saint-Gobain are among a few big guns that have set up large manufacturing facilities here. While the stigma of being the scene of Rajiv Gandhi’s assassination may never disappear, Sriperumbudur has in a way atoned for the sins of the past.

Remember: in 1991, it was almost a god-forsaken place. Twenty-five years on, in 2016, it’s a beehive of activity. On a typical day, the traffic is as bad as it can get. Industrial activity is frenetic, and the giant factory chimneys that are visible from a mile are an indication of the changing face of this town, located on the outskirts of Chennai. Not just that. Sriperumbudur’s vicinity is seeing massive construction activity, the natural corollary to industrialization anywhere in the world! India, which sat out of the industrial revolution, has in the last few years tried to catch up on lost time. In less than two decades Sriperumbudur evolved as the fastest growth center in India housing a gorgeous cluster of the automobile, electronics, and communication industries.

Also on that Sriperumbudur belt, spread over 177 acres of land sits Saint-Gobain India Private Ltd., (SGIPL). National pride, with a French connection, it is India’s largest float glass manufacturer. It is here, in this 100% subsidiary of the 350-year-old Saint-Gobain, France, that the revolution I referred to, is happening. If the revolution catches fire and spreads nationwide, it will change India rapidly. So powerful is the idea.

Recall: when India opened its economy in 1991, China was 14 years ahead in the race and Soviet Russia had just started to sing hosannas to the tunes of glasnost and perestroika. While Russia missed the bus, China emerged as the leader with India giving it a close run for the medal. While in the last quarter of a century, India basked in the glory of Bangalore emerging as India’s Silicon Valley, hordes of young Indians hit it big in the land of opportunities, the United States. While both the quality of life and living in India magically transformed the lives of a vast majority, there was another India, a large underbelly, where things didn’t change. It stayed static, rooted in the past- uneducated, unskilled, underfed, uncared and unemployable. If not properly handled, the situation could spin into a social war. That’s the space Saint-Gobain has sought to address; that’s the area that’s changing, revolution-like.

 XXX

 Every revolution was once an idea in one man’s mind.

Sometime in 2008, disappointed by the educational system that mass-produced diploma holders with less than relevant industrial skills, Saint-Gobain looked at altering the way it recruited technical force. Until then it picked apprentices from the polytechnics. This process of apprentice picking wasn’t turning out to be meaty. The boys had good academic inputs but no practical insights. To make them employable was a tough task. Also, the transition from a student to a worker wasn’t seamless. Policy-makers, employers, and employees were all tired of expectation gaps. Rather than mourn the hole, the alternative of private initiative stepping in to provide education and hands-on training made sense. If a new pool of manpower can regularly emerge with sustained input year on year, it would be the best thing to happen to industry and the working class as well.

So the idea of creating homegrown interns emerged. “Let’s admit school pass-outs who cannot afford higher education, train them in the factory, provide them in-house with tailor-made classroom inputs and give them a diploma,” thought the brain trust of Saint-Gobain. It was called Diploma in Manufacturing Technology. The course consisted of five days a week of training on the shop floor and one day a week of sitting in a classroom course. Call it a school inside a factory or a factory inside a school. Like medical college students having the hospitals as outposts, the interns would have the factory for an internship. It was a four-year program.

How would it help Saint-Gobain? At a practical level, there would be a constant flow of skilled, employable workforce with adequate strength. At a corporate social responsibility level if the candidates selected for education, training, and placement come from the marginalized strata of society – from the other India – it would be making a difference in their lives; it would skill him.

Remember: despite all the talk about India being a knowledge hub, many cannot read, write or do simple arithmetic exercises; they stay misfits for life. Socially, Skilling India would be the real reform.

With no strings attached, the diploma holder can choose his employer. The liberal scholarships offered also proved attractive for drawing in large numbers candidates from the poor and marginalized sections from the villages around.

Would the idea work? You wouldn’t know unless you tried out, isn’t it?

Luckily history was on Saint-Gobain’s side. For instance: in the automobile sector, companies had successfully run this model, albeit on a smaller scale. That parameter of ‘precedent’ taken care of, the next step for the glass major was to look for teachers to teach, and experts to identify which positions in the factory were amenable for an internship. Since offering classroom instruction is by itself an art and needs professionals who have both the aptitude for teaching and compassion for students, Saint-Gobain decided to look out.

Its hunt for a partner ended when it identified NTTF, an education outpost that was completing almost 50 years of existence. Thankfully, it had the experience of having worked on similar projects elsewhere, was on the same page as Saint-Gobain’s vision and understood the mechanics of the scheme.   NTTF also had a simulated training center in Vellore, about 70 kilometers from the Saint-Gobain factory.

XXX

 Here, a little bit of history is in order.

The Nettur Technical Training Foundation (best known by its brand name NTTF) is an educational foundation established in 1963 to promote meaningful technical education for India’s youth. An Indo-Swiss co-operative project, NTTF grew with generous funding and technical training support from the Government of Switzerland, HEKS (a Swiss NGO) and Swiss Development Co-operation (a Swiss development agency). The Indian government also pitched in with its support.

Structured around the Swiss model of simulating the factory environment in the learning process, the NTTF enjoyed industry recognition while its competitors, namely the polytechnics and the ITIs required licensing by the government’s All India Council of Technical Education.

Today, the Foundation implements its programs through more than 20 training centers in States across India, emerging as a major dispenser of technical education. By partnering with industry associations, it has been able to produce quality manpower. Typically, it costs a student a lac of rupees per annum to do a course at NTTF.

With NTTF on board, Saint-Gobain was ready to take off. There was still the issue of recruiting the candidates, identifying where in the factory they would work, and who would coach them.   Saint-Gobain roped in the Center for Excellence in Organization (CEO) for this. The Bangalore-based organization specializing in executive search, it was given the mandate to go deep down rural India, make the program visible, recruit students who met well-set criteria and then run the Practice School. The Practice School was an omnibus term to denote candidates working under different coaches inside the factory to learn the practical needs of the trade. CEO was to identify the positions in the plant where the candidates would be trained for jobs needed with requisite skills. Care would be taken to design the courses, neither too mechanical nor monotonous.

NTTF, along with Saint-Gobain, stitched up the courseware, and with CEO, worked out the profiles and timelines. Together NTTF and CEO went into the hinterlands of Tamil Nadu to bring in youth from the marginal sections of society – the underprivileged – who were either in their late teens or early 20s. The pre-requisites: the boys should be economically backward, socially disadvantaged, and must hail from a rural background. It was an exercise in affirmative action.

The screening is based on multiple tests: aptitude, English, psychometric, group task and neuro-muscular.   Importantly, before onboarding, there is an orientation session where the parents should also turn up. “We request them to be supportive. We get their buy-in.”   The selected candidates then go through a one-month nurturing program at NTTF’s Vellore campus. Here they go through Soft skills, 5S, Discipline, Engineering, HR principles, and Safety.

Conceptually it was a win-win arrangement for both Saint-Gobain and the students. The company gets trained apprentices. The student gets hands-on experience even as he pursues his education and picks a diploma. With a scholarship (Earn), training on the job (Learn) and a Diploma (Certificate), he is equipped for life. Better still, there was no compulsion that he should work only at Saint-Gobain after his diploma. Like any free citizen, he could move to any industry of his choice. Yes, the relationship is that of student-institute and not employer-employee!

The collaboration began in mid-2011, and the first batch came on board in end 2011. Soon after that, the second and third batches trekked in. The recruitment was at multiple points in the year and not necessarily at one fixed point. The exits too will be at various times. The first three batches with a cumulative strength of 54 are graduating in July 2016 and are ready for industry absorption. In a sense, they are the pilot teams. The year ahead will tell how well they raise the bars for their successors. Eight other batches are at various stages of completion and will graduate between 2017 and 2020.

A team of 8 faculty members, all engineers and currently under deputation from NTTF handles the classes. They come with varied levels of experience. Some have been with NTTF from the start of their careers and others like Principal A B Chithra, have an industry background. She worked for seventeen long years, including as the head of operations at a couple of manufacturing units. The classroom instruction itself is for 1500 hours spread across four years and eight semesters. The students have a clearly defined syllabus, a well-documented process for tests and exams and a set passing grade.

Do students who join stay the full course? Frankly speaking, no. There are various reasons for this. Some find the rigors of the course too hot to handle. As they transit from one semester to another, there is a quantum jump in the scope of learning. Some are unable to come to terms with it. Then there is the possibility of their getting a government job in the interim. In India, a government job is always like manna from heaven and is not something the lower income group will miss.

XXX

 Has the program impacted the students? Has it brought a smile to the faces of these young boys and their families? Read on.

Let’s talk about Santosh. A high performer in academics, he scored 975/1200 in his Class XII, got a seat to an engineering college but was compelled to let it slip, because there was no money in the granary. With his father working as a vendor in the Jollarpet railway platform and mother doing day wages in a rice mill, the granary cannot be expected to be full. Education was expensive. So what does the young lad do? He seems to have stumbled upon the saying, “if education is expensive, try ignorance.” He takes up masonry work for a year, before accidentally coming to know of the Saint-Gobain offering.

The eagerness to pursue higher education is visible. Ask Santosh what he is currently doing and he says: “I am studying at NTTF.”   Notice: it’s not “I am working for Saint-Gobain!” This philosophy is the underlying thread amongst the interns; a clear indication that they are students in an educational institution with an overhang of a large practical laboratory called the factory. Now don’t get this wrong. He does not mean he owes nothing to Saint-Gobain. Ask him, “How has the program helped and he says that his scholarship has gone a long way in aiding his younger sister study nursing. These days money doesn’t talk; it goes without saying! Ask him about his experience in the factory and he says it’s been a great blessing as he gets to understand better the theories taught in the class.

Santosh is amongst the toppers in the graduating class of 2016. He has a 94% mark-score. In these four years, he’s made — hold your breath — 55 suggestions to the company on various aspects relating to the shop floor. That’s a little more than an idea a month. Not bad for a rookie. Of these 25 were implemented. The most attractive solution, the one over which he gushes even today, was the one that leads to a reduction in the time taken for re-installing a cleaning robot. His idea slashed the time from 15 minutes to just two minutes! Little wonder, he wishes to continue to work at Saint-Gobain. In his spare time, he watches the news on his mobile. And cricket matches!

Take another intern, E Vellai. He scored a decent 866/1200 in his XII class, studying accounts and auditing in the vocational stream. I didn’t have the heart to ask him why didn’t he want to pursue chartered accountancy. There must be something that propels an accounting student to turn to machines; I told myself. In a country like ours where a vast majority lives below the Lakshman Rekha, it’s money more than the passion that drives several decisions. When Vellai heard of the Saint-Gobain program through a newspaper, he immediately applied for it. They tested him, interviewed him and found him fit to recruit.

He could easily absorb the subjects as at the classroom he was “taught from the basics.” At the shop floor, 30 out of his 35 suggestions were accepted and 25 implemented. Son of a cycle rickshaw puller, he helped settle a family loan of Rs 2 lac and contributed Rs 50,000 to his elder brother’s wedding.

A third intern is S Vetrivel. His is a poignant saga. The only breadwinner in the family from the age of 15, he worked for the contractor of a construction major, drawing a meager salary of Rs 1000 a month. He worked the night shift and went to school during the daytime. How he found the time to sleep and do his homework is anybody’s guess. That was how life went by for four full years as he studied Mathematics, Botany, Zoology and Biology, a stream that should have ideally taken him to the medical field. He neither had the marks, the money nor the maturity for it. Someone told him “Saint-Gobain is offering work, plus the opportunity to study.” It was like a 2-in-1, and he grabbed that. From earning Rs 1000 a month to Rs 5000 was a quantum jump. Monetarily, he has done well for himself in the last four years, saving enough to support his younger brother’s education at a polytechnic in Chennai, and get a younger sister married off. At studies, the going has been good; he has scored 84% in his diploma. At work too, he has earned high recognition, both in the line and from German experts with whom he interacted for a couple of weeks. “They had nothing but high praise for him,” says the principal.

Vetrivel says he now has a diploma and can work anywhere as he has good technical knowledge. A product of Tamil medium he can now speak reasonably good English, learning it on the fly. He thanks his teacher at NTTF who would patiently and painstakingly correct his mistakes and tell him what was right, and what wasn’t. “We are treated as students,” he says, with justifiable pride.

Mahendran is another of those interns to whom life had been unfair. His father met with an accident in the early 1990s and had been bedridden these 25 years. His mother does not know whether she is 50 years or 60 years old. But of one thing she is sure, that Mahendran, one of her five children, will eventually take care of her during the evening of her life.   She has no words to express her happiness. She feels her son has evolved as a well-rounded human being after joining the program. Turning emotional and close to tears, she visibly embarrasses Mahendran, until the teacher puts a hand around Mahendran and tells him to let her emote.

Chinna Kutti’s is a star turn. Education doesn’t run in his family’s veins: his elder brother stopped going to school after class 8. A niece, now ten years old, refuses to attend school. But he was made of sterner stuff.

A resident of Javadu Hills those houses 216 hamlets, he studied in a nearby government school, living in a hostel. Personally, the change was welcome because besides providing quality education it also ensured three meals a day and also meant living away from a shanty dwelling and squalor. There was also the difference: teachers at the school were conspicuous more by their absence.

The school had only up to 8th standard, which meant that once he completed it, he had to shift to another school. He wanted to study in a private school with hostel facilities, but that was out of the question in the context of the family’s economic condition. It was the school watchman who drilled into him the need to go for higher studies, come hell or high water. So for the next four years, he settled down to trekking six kilometers up and six kilometers down for further studies! He finished his class XII studying commerce proper; the stream that leads to a professional course like chartered accountancy.

Once he completed class XII, it was back to the same old story. He wanted to do graduation. His father was equally clear: no higher studies because there was no money at home. And then as divine intervention, it was the very same watchman who saw the ad and suggested NTTF’s Saint-Gobain program. It would mean coming down to Chennai to study. His father was all right with it since it did not involve spending from his minimal earnings. Once Chinna got the clearance, things happened fast. In the next couple of days, Chinna Kutti got enrolled. He put his heart and soul into his studies and is now graduating with 81% marks.

You get an idea of the lack of facilities in his village: recently Chinna’s father had a snakebite that proved fatal. The villagers carried him physically to the hospital that was miles away, and he passed away en route.

Today all the hard work of Chinna is beginning to pay off.   He says, with a twinkle in his eyes, “I never knew what a mobile was. Today, I use touch mobile.” He adds: “Earlier people in the village wouldn’t even talk with me. Now they are keen to do.” Obviously, the success of becoming the first graduate from his village has impacted so forcefully! “Ours is the first family in our village that bought sweets and new clothes for Diwali and that only after I went for work!”

 XXX

 While for sure the interns are the poster boys in this game-changer played by Saint-Gobain, the coaches are the unsung heroes. They have a pivotal role to play, as the success of the internship program depends on how they assign work and oversee the wards.

“The first two batches of students,” says Pon Kamaraj D, “were highly matured boys. They had work experience   even before joining Saint-Gobain and to that extent were both older and worldly wise.” That’s the batch, which is graduating now.

Some 152 students are now in this program. S Mahalingam, another coach says, “we explain to them how glass is made. We explain how a small damage can be catastrophic as these are high-value items.”

The days ahead will tell how well the experiment has worked. But to seek to change the dynamics of India and to take the initiative to skill the unskilled is a game-changer by itself. As more companies espouse corporate social responsibility with business motives, you could see more of such experiments happen across the country. If that happens, it would be a giant leap of faith. It would mean you would have made a difference to quite a few lives, and that is what is good citizenship.

 

 

Posted in Saint Gobain | Tagged , | 1 Comment

Is this one finally for real?

V Pattabhi Ram

“Real estate is the real things, go grab it: they don’t make any more of that stuff,” said the wag.

Historically if the epicurean principle was eat, drink and be merry; if the American idea of a dream was wealth, wine and women; Indians believed in gold, property and religion, not necessarily in that order. A roof to live under, a house before 35, have been typical middle class dream … until the economy opened up and India turned aspirational.

But in recent times, the property market has a lot of answering to do. It has given the good ones too a bad name.

If you have been one of those teeming millions taken for a ride by builders, here is some hope.

The Real Estate Act, 2016 has been passed by the two houses of parliament and received presidential assent.   That it should have taken so many years since it was first introduced in parliament is a tad sad, but “it’s better late than never.”

The Act is welcome because it protects buyers by offering them TEA: transparency, efficiency and accountability in the execution of real estate projects. No one is saying that promoters are crooks but there have been rank inefficiencies even amongst the best of them, and there were no sufficient distress redressal mechanisms.

Here are THIRTEEN important things that you should know about the new Act.

  1. Real Estate Regulatory Authority

If you have a grouse, you can lodge your complaints with the proposed “Real Estate Regulatory Authority (RERA).” This body will be set up within one year from the date of commencement of this Act. Until then there will be a stand-by body. One hopes that RERA does to the real estate market what SEBI did to the capital market and what IRDA did to the insurance sector. Remember, despite all the noise, AMFI in the case of mutual funds, SEBI in the case of equity market and IRDA in the area of insurance have done swell jobs.

2   Registration with the Regulatory Authority

A few specific requirements have to be adhered to by every promoter.

  1. Every promoter has to register his project, whether residential or commercial, with RERA before booking, selling or offering apartments for sale.
  2. In respect of projects ongoing on the date of commencement of the Act, and which have not received a completion certificate, the promoter shall apply for registration within three months of the start of the Act.
  3. The following projects do not require registration:
  4. Where the land area to be promoted does not exceed 500 square meters or the number of apartments to be constructed does not exceed eight apartments.
  5. Projects where the completion certificate has been received before the commencement of the Act;

We believe that this is the first defining step towards building Accountability. Remember, accountability is the starting point for professionalism in any field.

3   Carpet Area

A marked departure from the past is that developers can sell units only on carpet area. This would essentially mean that the quote will be per unit of carpet area.

Carpet area is the net usable floor area of an apartment. This excludes the area covered by the external walls and common area but includes the area covered by the internal partition walls of the apartment. Typically in high-rise buildings, 30% of the area is the common area. Thus, if you are buying a property of 2000 square feet at say Rs 7500 per square feet, you will be paying Rs 150 lac. But in reality, you would be paying that amount for about 1700 square feet of livable area, which translates to Rs 8823/-. Yes, this does not change the buyer’s money purse, but it, at least, gives him the true cost of purchase.

This is a step towards Transparency. Transparency we think is the second step towards professionalizing any field of activity.

4   70% of realisation from allottees in a separate bank account

  1. The promoter will have to deposit 70% of the amount received from buyers in a separate bank account. This money will have to be used only to defray the cost of land and construction of this specific project.
  2. The promoter can withdraw the money in proportion to the percentage of completion of the project. Such drawings can be made only after certification by a CA that the withdrawal is in proportion to the percentage of completion of the project.
  3. The promoter gets his accounts audited by a CA within six months of the closure of the financial year.

This is a step towards efficiency. Efficiency involves using money for the purpose for which it is intended. Any professional would like to see his business run on professional lines. This is fair to both builder and buyer.

5   Acceptance or refusal of registration

  1. The Regulator Authority shall within 30 days, grant or reject the registration, failing which the project shall be deemed to be registered.
  2. Upon granting a registration, the promoter will be provided with a registration number, including a login Id and password for accessing the website of the Regulatory Authority and to create his web page and to fill in complete details of the proposed project.

This is a step towards efficiency.

6   Website of the Regulatory Authority

The promoter shall, upon receiving his login Id and password, create his web page on the Internet site of the Regulatory Authority and enter all details of the proposed project including providing quarterly updates on the status of the project.

The presence of a well regulated website would add a lot to the credibility of the builder. This is a step towards transparency.

7.  Revocation or lapse of registration

RERA can revoke registration if the promoter defaults in doing anything required under the Act. If the registration is canceled or it lapses, RERA shall:

  1. Debar the promoter from accessing the website about the project, specify his name in the list of defaulters on its internet site and inform other Regulatory Authorities in other States and Union territories about such cancellation;
  2. Facilitate the remaining development works to be carried out by competent authority or the association of allottees.
  • Direct the bank holding the project bank account, to freeze the account.

This is a step towards accountability.  We believe that a few tough measures, that include making an example of chronic defaulters, and publicly announcing the same will weed out a lot of bad apples.

8   Advertisement issued by the promoter

  1. The advertisement or prospectus published by the promoter should prominently mention the website address of the RERA.
  2. Where any person makes an advance on the basis of the information contained in the advertisement or prospectus and sustains any loss because of any incorrect statement included in these, he shall be suitably compensated by the promoter.

This is a step towards accountability. In an era where creative professionals and celebrity endorses can weave a wool of magic around the eyes of the buyers, this is a welcome measure.

9  Limit on receipt of advance payment

A promoter shall not accept a sum more than 10% percent of the cost of the apartment or building, as advance payment or application fee, from a person without first entering into a written agreement of sale with such person and register the said agreement of sale.

This is a step towards efficiency.  This is fair as there is no reason why a promoter should need more money than that.

10   Restriction on addition and alteration in the plans

  1. The promoter cannot make any other addition or alteration in the approved and sanctioned plans, without the previous written consent of at least two-thirds of the allottees.
  2. The promoter shall make good without any further charge any defect in workmanship or obligations brought to his notice at any point within a period of five years from the date of handing over possession.

This is a step towards efficiency.

11. Refund of amount in case of delay in handing over possession

If the promoter is unable to hand over possession to the allottee in accordance with the terms of the agreement, he shall on demand being made by the allottee, to return the amount received by him from the allottee with interest and compensation at the rate and manner as provided under the Act.

This is a step towards accountability.  Promoters are known to levy penalty on buyers for delays even of by a day. It’s time they learn how the shoe pinches.

12. Other relevant provision

a. The same rate of interest will be payable by the allottee and the promoter in the event of their respective defaults.

b.  After the promoter executes an agreement for sale no charge can be created by the promoter on such property.

c. The promoter shall insure the land and building and construction of the project and pay the necessary premium.

d. The promoter shall compensate the allottees in the case of any loss caused to him due to a defective title of the land.

e. Every allottee shall take physical possession within two months of the occupancy certificate issued for the said apartment.

These steps are towards transparency.

13   Real Estate Appellate Tribunal

  1. A decision of the Regulatory Authority can be appealed before the Real Estate Appellate Tribunal within 60 days.
  2. The Appellate Tribunal shall dispose of the appeal within sixty days from the date of receipt of the appeal.

These provisions are likely to bring in greater transparency, efficiency and accountability in the execution of real estate projects and act as win-win for both parties. It also would inject a lot more of professionalism into the industry.

All told, this is a bill, which hasn’t come a day too soon in a country, which is getting to be increasingly aspirational.

 

 

 

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The Panama Papers singes celebrities…

 

A British Prime Minister is embattled and a Polish premier had to give up his job.

The Panama that Indians who grew up in 1980s knew was the popular cigarette brand. In the exchange of used packets, Panama enjoyed a premium while Charminar sold at a discount!

‘Panama’ is in news once again. This time it is Panama, the country and not the brand, which is the center of attraction. The new fiscal year opened to startling news from the Latin American Island.

The news had the same old script of a whistleblower and an ever-willing media. An illegally hacked database landed on the lap of journalists who then performed data-analytics that singed world leaders and global celebrities alike. This included several Indians.

The Polish Prime Minister was named and he promptly resigned from his job. The British premier’s father too was on the list but Cameroon for now stays in his job. A number of Indians, including actor Amitabh Bachan, and lawyer Harish Salve make the roll-call but a mere presence there does not mean they have illegal money.

Mossack Fonseca leaks 11.5Mn documents

At the heart of the leak was Panama’s top law firm, Mossack Fonseca. The firm has forty offices worldwide, and provides services like incorporating entities in tax havens. It had incorporated 14,658 active companies in Panama till August 2013. 
No mean achievement indeed.

The story ripped the veil off transactions routed through the Panama islands. The ‘Panama Papers’, as they are now called, are confidential documents leaked from Mossack Fonseca. These provide information about offshore entities and identities of their shareholders and directors, till now held as a global secret.

Ramon Fonseca, co-founder of the firm, confirmed that the papers are genuine.

The leaked data has 11.5Mn documents shaved off Fonseca’s internal database by one of its employees. 
Call him a thief, a whistle blower, or whatever you please, he handed it to a German newspaper, which in turn shared it with the International Consortium of Investigative Journalists (ICIJ)

The Papers contain information on 2.15 lakh offshore entities cutting across two hundred countries. The leaked data covers over 40 years and dates back to 1977. It lists individuals who have offshore entities in Panama that give them either direct or indirect ownership in these companies. The list includes Indians who floated such companies when forex laws of India prohibited such transactions.

Why is Panama important

But why does someone want to take the Panama route? Here are a few reasons.

Like, you can incorporate a company in just 72-hours. 
Your identity and those of other shareholders and directors is kept a secret. Bearer shares are allowed which means anyone who is holding on to the certificates, like anyone holding a 100-rupee note, is the owner! 
Share transfer is therefore both easy and confidential. Further, shareholders, directors, and officers can be citizens or residents of any country. Meetings can be held anywhere and accounts need not be held in Panama. Finally, Panama’s circulating currency is the dollar, and Panama has no currency restrictions. So money is fungible.

In Panama privacy is protected by the Constitution. Revealing banking information is a crime. Panama has no mutual assistance treaties for sharing of banking information with other nations. It does not recognize court rulings of other countries. 
Things can’t get better for someone who wishes to hide. Today, it is home to the second largest international banking center, next to Switzerland.

There are other reasons why people establish shell companies in tax havens. Shell Companies have no independent operations, assets or employees. 
Such companies are used to hide the real identity of the creators or buyers of assets. In other words, these are established not to pursue a legitimate business but to obscure the identity of owners.

So, the two big attractions of offshore entities in jurisdictions are secrecy of information relating to the ultimate beneficiary owner, and zero tax on income generated.

Can Indians incorporate overseas companies?

A person resident in India is free to hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India if such currency, security or property was acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India. 
 Further, a resident individual can also acquire property and other assets overseas under the LERS.

RBI has permitted resident individuals to remit up to USD 250,000 per year abroad for any purpose under the Liberalized Remittance Scheme (LRS). In the year 2010, RBI clarified that the LRS scheme only allows residents to purchase shares outside India and it does not allow setting-up a company abroad. Thus, companies incorporated abroad during this period were considered as having violated FEMA. From 2013, RBI allowed a resident individual to make overseas direct investment in equity shares of a Joint Venture or Wholly Owned Subsidiary outside India.

Panama Papers and Black-Money

Black money may reside abroad but they originate from India. In May 2014 there was a lot of talk about bringing black money back to India.

The Anti-Black Money Act came into force with effect from 01-07-2015. I t was enacted to tax the foreign income and assets of a resident individual, which were not declared earlier to the tax authorities. 
If the Panama Papers provide evidence that Indian residents hid foreign income or foreign assets either in their return of income or under Voluntary Disclosure Scheme they will be taxed at a flat rate of 30%. The penalty for such suppression shall be thrice the amount of tax payable thereon. Further, there shall be rigorous imprisonment ranging from 3 years to 10 years for such tax evasion.

India has had a history of cover-ups. Politicians sing one tune during elections and a completely different tune when in power. Will they work on a windfall call Panama Papers or will they cover themselves behind banalities. Time will tell.

Is hacking any the less illegal than tax evasion?

In this Panama war, even the innocent is going to get killed. Remember, not every rupee that goes through Panama is tax evasion. There are perfectly justifiable and legal reasons to place money in the islands. Such men have the right to be considered innocent until proven guilty. They have the right to privacy.

The media has spoiled the fair image of those who have been named. It would be very hard to reverse that image. It’s a collateral damage. Sad but true given that the twelve million documents is only the tip of the iceberg.

By the way, if you have any documents that make you uncomfortable, seek professional help. Review all of your structures. Do not act impulsively. Do not pull down structures if these have valid justifications. The clean up time is “NOW.”

 

 

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The King is DEAD

V PATTABHI RAM

The king of good times is now facing bad times. In one sense he is a fugitive, hiding in England. If you think, he will go behind bars for a long time to come, think again. He has the connections and the chutzpah to swing things his way.

Let me tell you his story.

It was some 30 years ago, when he himself hadn’t turned 30, that Vijay Mallya inherited Papa’s business, the UB Group.

Over time, the liquor baron, now fancying himself as corporate raider, began acquiring companies. He built on some, he stripped some and disowned others; in the process he made enemies, and tarnished a few reputations including that of Manu Chabbria from whom he bought Shaw Wallace.

In 2003, he set up Kingfisher Airlines. In 2006, he got it listed. By 2011, he hadn’t shown a single rupee of profit for his effort. Shortly thereafter, the company was grounded.

Many believe that Mallya’s work-style killed Kingfisher. But, the jet-setting czar, who fancies himself as India’s Richard Branson, thought differently and once pointed an accusing finger at the rising price of Aviation Turbine Fuel (ATF). And he had added, “the industry is in serious trouble and we are not worse off than anyone else.”

Should he not have stuck to his liquor business? For someone who spends personal time holidaying in yachts and headhunting models for calendars, was the tricky business of airlines right? If it was about an ego trip, should he not have stuck to owning a couple of aircrafts in which he could have partied and flown to the rest of the world?

In the end, it was about show; about seeking to tell the world that there is a glitzy connection amongst wining (remember Breweries), racing (stakes in Force India which is into Formula One racing) and flying (Kingfisher). The show was e completed by buying media companies (including Asian Age), television companies (including NDTV Good Times), a football team (East Bengal) and of-course a cricket franchisee (Royal Challengers).

In short, the man was all over the place.

Given his glittering background, it was natural he wanted to get into airlines. After all, he had travelled in the best airlines of the world. He possibly thought this business was just an extension of the hospitality business. That, what mattered most was how the guests were taken care of. In a country where the customer is routinely taken for granted, he promised to change the face of air-travel experience and make flying entertaining and enjoyable.

At one level he did deliver on the promise. While his airline did charge premium price they provided top draw facilities. Each seat had a television screen where guests could flip channels of choice. On domestic aircraft it was the first of its kind; you have that privilege only on international aircraft.

He played to the gallery by appearing on those screens welcoming guests. He asked them to get in touch with him directly if they had any issue with any service. The audience lapped it. There was no compromise on food. Otherwise used to banal stuff on many airlines, this was a big relief.

At the airports, you were welcomed right at the baggage-screening machine; you would have someone to help you getting that done; your boarding pass was issued without a mess by ever-smiling employees. It was first class.. I guess overall people loved the experience and it was hep to fly Kingfisher.

Having set customer service in place, Mallya decided to expand. He bought Air Deccan. Capt G R Gopinath, the man who forever changed the face of air-travel, was looking to cash out because his low-cost carrier model was a failing proposition. Mallya hopped into the bandwagon as a knight-in-shining-armor.

The acquisition made sense. It gave Kingfisher access to the Air Deccan market and helped it list on the bourses. In another sense, the acquisition made no meaning. There was no way a low cost airline would work in an outfit which had Mallya’s signature all over the place. Was cost control possible in such a mindset?

In the end, Mallya had overstretched. His flamboyance killed him. A man of his vision should have actually gone places. Law must not only be level for all, but appear to be so. Mallya should be made to cough up what is legally due from him. We should not have a government bending backwards to bail him out the way it did Lalit Modi.

 

 

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