The Ride Of The Valkyries

The Ride Of The Valkyries

The economic games we play are not lost when profits start to disappear but much before. It is when an economy fails to understand which way to jump to get ahead and keeps subscribing instead to the game it knows. It thinks it is playing to its strengths by doing this, but yesterday’s victories mean nothing to tomorrow’s challenges.

And this goes double for ideological shibboleths. You cannot bring back, for example, the Congress Party glory years, at least politically, as in Mrs Indira Gandhi’s time, with its successive terms and majority governments by playing her garibi hatao card rebooted in 2013. It will not work but the government does not seem to agree. So we shall see what we shall see.

There comes a time though, with terrifying speed in these days of rapid technological obsolescence and great leaps of invention, before no-one knows who you are anymore, because you, truth be told, belong to another era.

This is how The Economist writes pessimistically, startlingly, of Microsoft’s future, because it has not quite kept up with the shift away from the PC towards hand-held devices, the tablets and smart phones that everyone seems to tote about these days.

So even though at present with Windows 8 it is still making good profits, the tomorrow scenario is going to thrust it into yesterday’s greatness. It has happened to Apple in comparison to Samsung though many claim the fat lady has not yet sung in the apple tree. But visionary Steve Jobs is gone and they simply don’t make game- changing inventors like him every day.

Apple is struggling with its minimally improved iPhone 5 and Blackberry is trying to resurrect itself from the dustbin of history with the Z10. Nokia, king of the hill just five years ago, now dead in the water, is doing and hoping likewise with its Nokia Lumia.

On the software providing side,  our own Infosys and Wipro are trying to survive in a world that is looking for innovation and not cost savings through body- shopping and offshore batch- processing. With the Western economies shattered there is no demand for the old model of growth. TCS may be surging for the moment but the ebb- tide is not far away for them either.

The bigger picture is that the 56% of the Indian economy, perhaps a bit more on momentum, is  under siege and is going to shrink, unless there is massive reinvention to suit a very altered reality.

So our growth engine, the key to the India Story itself is dying, even as we have been railing against obtuse government monetary and fiscal policies and surging inflation.  But consider this, even if the government, this one, or the one that follows it, did everything right, we still might not be a software superpower anymore.

Our software providers are experiencing shrinking demand and not just cheaper competition. Ditto the world of call- centres. They need an economy to cater to too! So never mind cheaper competition from the Philippines,  because that is not the real problem.

Looking at the West, France has slipped into recession, the second biggest economy in the EU, only just in the quarter past, but experts say the contraction will accelerate. Under the Socialist Francois Hollande it can do nothing else, because Socialism has no answers for the challenges of growth.

First placed Germany has grown but just 0.1%,  and is expected to get better, but number 3, Italy, is down 0.5% and slated to get worse. There is no possibility of the EU as a whole turning around, even slightly, till 2015, or later, and its banking system could collapse in the meantime, pretty much anytime.

Richard Wagner’s work in parts were a great favourite with the Nazis. They loved the intoxicating grandeur of his music and felt it expressed the heroism of the “Aryan Race” and the glory of the Third Reich with its crashing cymbals and soaring notes.  They also thought he was anti-Semitic like them. All the better to like his music, though there is some doubt on Richard Wagner’s paternity and that he might have had a Jewish father, that Wagner senior may not have fathered his ninth child. But the myth- making carried on unheeding.

In The Ride of the Valkyries, a short five minute or so piece within his 2^nd Opera, Brunhilde and all her sisters assemble at the top of the mountain to carry the fallen heroes to Valhalla, the German but more especially, the Nazi heaven.

Valhalla, and the many flaxen- haired blue- eyed Brunhildes of the Nazi imagination, must have been   very over- burdened by the time the WWII ended. It was truly a dream gone wrong. A would be thousand year Reich ended in just three with millions sacrificed to its ambition.

It is time for us to realise that the old India is not adequate to the task. And we don’t have the luxury or time to prevaricate and dicker. With a population of 1.21 billion, we need to come to conclusions that deliver 8 to 10% per cent growth or preside over what promises to be a very painful decline.We may, without a drastic makeover, find ourselves going backwards, like the Europeans, the Japanese and the Americans. Who would have thought?

(883 words)

May 16^th, 2013

Gautam Mukherjee

We Need A New Militarism To Stiffen Our Spines

We need a new militarism to stiffen our spines

India reasonable is India laughably soft. We are now reduced to a global pushover thanks to our unblinking appetite for humiliation self-justified with amazing verbosity. Many people look at a sub-continental country of 1.21 billion people quite unable to hold its own, with amusement. Not even against Mauritius, and Nepal.  

But we can rationalise any insult with exquisite wordiness, and convince ourselves we have done very well for ourselves. Italy challenges our courts and strains our ability to rectify the hurt, and China tells us what to do in our own territory. We can protect neither our distressed citizens abroad nor our tortured and mutilated soldiers on our borders.  All we can produce is clumsy diplomacy and ponderous self- regard.

Why we won’t militarise sharply defies logic. Of course, our policy implementation is so poor and slow that a lot of our unreadiness is due to this. Our military back-datedness  obtains by default rather than design perhaps.

Our armed force may be ill-equipped, but it is well trained nevertheless, and enables us to acquit ourselves well in any theatre of conflict or war. Of course, we lose more good men like this, because bravery and the spirit of patriotic sacrifice has to make up for our criminal neglect of the  equipment needs of the fighting man.  Nevertheless, the Indian armed forces are respected globally for being able to punch much harder than its weight.

Of late, most of our prowess has been demonstrated ably, either in UN Peace Keeping Missions, or in joint exercise with other militaries. We have, in these joint exercises, always impressed our counterparts with our ability and professionalism which stands out all the more starkly due to our inadequate and obsolete weapons and delivery systems.

We also manage to keep going, without adequate ammunition and spare parts, by cannibalising, localised ingenuity and substitution. We have had no howitzers enter the Army since the Bofors scandal broke in the eighties for example! The Defence Ministry is now looking into the matter after 30 odd years. Who knows, it might take another several years to come to fruition.

Our defence sector is also riddled with corruption at various levels up and down. The graft and commission farming encompasses even some serving men in uniform and retired officers. The recent Agusta Westland helicopter procurement scandal is a case in point.

We manage, despite the incompetence of our defence preparedness, to compete most creditably with much superior technology available to others, the Americans and Chinese for example.

The roots of our battle readiness, regimental spirit and izzat, may well hark back to the days of British India. But we have more than held our own over the 65 years of independence, and almost all the credit for this goes to the Armed Forces themselves, rather than their civilian masters.

Domestically speaking, it is our Army, Navy and Air Force, along with the CRPF, the BSF, the ITPB etc.  that we routinely involve to quell both insurgency and manage disasters. And the men in uniform invariably do a heroic and competent job. The guts and glory seems to slip up with more public contact and interaction, as in the Police. While there is much to be proud of in the upper echelons of the IPS, the lower ranks are often riddled with petty corruption, mirroring perhaps the citizens they are mandated to protect.

It is an irony therefore that such a corrupt and venal people produce and maintain such an honourable and admirable armed force! This is given teeth by the fact that we are an overt nuclear power. Even though Pakistan is attempting to raise the ante by working to develop tactical nuclear weapons in addition to having numerical superiority in warheads.  Having said all this, we, like the famed Polish Cavalry, could be wiped out in any conventional war with China, and be badly mauled even in one with Pakistan.

We are being constantly menaced and bullied by China with little by way of counteraction available to us. Diplomacy may settle the border issues with China but any negotiation will see India represented from a position of weakness. How then can our voice be taken seriously by a belligerent and militarily regenerated China? Pakistan,  which is China’s cat’s paw to harass India is complicit at all times, to compound the issue and potentially subject India to pincer movements.

It will take a decade or more for us to develop sufficient strategic deterrence vis a vis China. The worry is, what can we do to protect ourselves from the Chinese dragon in the meantime? And this presupposes that we intend to catch up, or at least checkmate Chinese designs to dominate India ,if not with overt military action, then with constant menace.  

In the event we do nothing to help ourselves, let us understand that this time there is no JFK and America’s overwhelming military superiority to come to our rescue as happened in 1962.

Today America’s economy and domestic appetite for foreign adventures is severely curtailed. It has made a mess in Iraq and Afghanistan. It does not quite know what to do about Iran or Syria. Europe also is too economically afflicted to come to anyone’s rescue.

The situation abroad, combined with India’s extraordinary political weakness is perilous. We have a government much diminished by deserting coalition partners at the fag- end of its tenure. It is also wounded by an aggressive Opposition.

China could well seek to exploit our domestic weakness at this juncture, but may hold off if it wrests enough economic manna from an India being driven to its knees.

It is sad that we have had no real recognition of what a multipolar world means. It is even sadder that we aspire to not even one of those poles for ourselves. India has no strategic vision and all its diplomacy seems to be ad hoc fire-fighting.

We are experts at selling ourselves short. Whether a country like this can lead in South Asia, let alone in the global scheme of things, depends most sorely on a rebooted political vision. The UPA may be too tired to enunciate it.  But if it loses the next general election, the winners will have to address the looming challenges of national security.

In the meantime, vulnerable as we are, let us hope China has a greater desire to consolidate its domestic scenario under the new leadership of Xi and Li, instead of letting the PLA set the agenda.

(1,080 words)

May 14^th, 2013

Gautam Mukherjee

Money Gone Wrong

Money Gone Wrong

The EU economies and the US alike, are paying for running up mountains of debt, largely in the past, but continuing still, to prevent a collapse of their over- leveraged financial systems. This is helped very little by current rates of miniscule growth, and rank price-band uncompetitiveness.

All this has happened, and continues to happen, on the back of cheap money, and borrow-and-spend economics, inclusive of major wage hikes for employees, also funded alas, with borrowed money.

This despite the Americans and Western Europeans having many gems of technological excellence that have high export and collaborative potential. But being stewards of very high wage zones they are trapped with the bloated end- pricing of their wares.

Demand for aeronautics for example, is now taking the shape of joint ventures with foreign entities who want the manufacturing moved to their countries along with the technology transfer and future upgrades. Volvo for another example, is now Chinese owned, as jaguar/ Land Rover is Indian.

India and China with their sizeable appetites are obviously prime potential customers, but they now have the leverage, and need not necessarily pay the exorbitant prices being asked. Meanwhile, to add urgency to the deliberations, unemployment rates continue to surge in the EU and the US.

Unemployment statistics from there are anywhere between 10% to 25% amongst the eligible work- force, and crests at more than 50% in extreme pockets.  This is exerting a hurtful pressure on their governments and private enterprise alike.

The tectonic plates of world power are shifting inexorably, as is the balance of power, and perhaps the only silver- lining for the Western economies including Japan is in the weaknesses coming to light in the emerging market economies as well. This tends to even the balance to some extent at least for the time being.

India’s banking system is relatively small and underdeveloped. It is also under stress both from bad debt and non-performing assets (NPAs) and malpractice of the money laundering kind.

It is long rumoured that the Chinese banking system is also riddled with NPAs, but being a relatively closed society the extent is not generally known. Also, the remedies and purges, if any, will have to come from their own all-embracing communist party. China has massive potential problems with its currency valuations pegged at a largely fixed rate artificially, and a slowing economy with worrisome future growth projections. There has been and continues to be a lot of unproductive asset-building. There is also the balance of trade issue, hugely tilted in favour of China, waiting to find a more equitable solution.

But let us, for the moment, worry about ourselves.

The NPAs in India are a consequence of apparent collusion between banking professionals eager to sanction loans against inadequate collateral and then writing them off the books when the borrower fails to pay up. Public sector banks (PSUs), are reportedly writing off Rs. 15,000 crores of bad debts annually now!

With a loan written off, the borrower also escapes prosecution by the CBI because the matter is seen as an exigency of business gone wrong rather than deliberate intent to defraud. Our PSU banks are burdened with unprecedented levels of bad debt and non-performing assets. Witness this:  “Over $ 15 billion or more than Rs. 83,000 crores of corporate loans have turned into bad debts in less than a year- and- a-half, according to a report of the parliamentary standing committee on finance  which expressed concern on the phenomenal rise in non-performing assets (NPAs) of public sector banks.”   So this too has all the markings of a major scam with government action to control NPAs failing miserably.

It is also seen that a lot of the government bank loans to the corporate sector gone bad, are made to influential entities backed by politicians, including ministers and their families. Mr. Bansal, the erstwhile Railway Minister, figures in a recent report but is hardly the only one.

On the money-laundering front, the problem first brought out by investigative website Cobrapost and subsequently corroborated by the government including the RBI, the issue is tax revenue lost, even as the money is entering the productive economy.

Some would argue that “black”, unofficial money entering the “white” official economy via a number of private banks is not such a bad thing. Defrauding a corrupt system of taxes seems almost like a good deed along the lines of something Robin Hood might have done. Besides, the inflow is not just from individuals and businesses but also from the cooperative banking system funnelling cash into the mainline banks, thereby obscuring the names of the original launderers.

With a wobbly public banking system both under capitalised and over exploited and of inadequate size on one side, and massive government debt on the other, we may have a problem, a debt trap, closing on us anytime soon. This could take the shape, as it did in the West, of serial bank collapse or worse, its collapse leading to crippled businesses and destroyed lives on Main Street, or in our case, Mahatma Gandhi Road. There is an MG Road prominent in all our cities after all.

Now let us add the government’s massive welfare bill to the rest of its poorly run list of activities and we begin to see the gargantuan size of the tsunami that could engulf us.

Corruption and collusion has led India into very dangerous territory indeed. We have little time to lose to put things right.

(911 words)

May 14^th, 2013

Gautam Mukherjee

Spartacus Lives

Book Review

Title: Spartacus

Author: Aldo Schiavone, translated from the Italian by Jeremy Carden

Published by:  Harvard University Press, Cambridge Massachusetts, 2013.

Price: $19.95

Spartacus Lives

Real people who become legendary do end up living forever. Spartacus, who led a revolt of gladiators and slaves against the might of Rome in the first century BCE, is one such. Several movies have been made on him over the years. And most recently, a rip-roaring sword and sandals TV series that ran into three highly popular seasons. And this latter, though highly commercialised, did cover the historical ground quite diligently, as this book by Aldo Schiavone reveals.  

Spartacus by Aldo Schiavone, a noted Italian historian, places the man and the slave revolt he led in the context of the economy and political thinking of the early Roman Empire. It was an economy, largely agrarian, skewed to serve a patrician elite, and some Roman plebians, that would not have been sustainable without slave labour.  

The free- men, the Romans, patricians and plebians alike, had to be mainly soldiers, invested with the duty to conquer, expand, consolidate and sustain the Roman Empire. They were few, the slaves were many, hence the need for an iron fist.

And so, the revolts, not just of Spartacus and his followers, but several other eruptions unconnected with his, were a threat to the very existence of Rome. 

But fortunately for the Romans, almost all the revolts had no game plan beyond the first flush of rebellion. In Spartacus’s case, he had some experience of governance as he was once a  Thracian mercenary and then a Roman soldier before being sold into slavery and becoming a gladiator at Capua.

Because of his Roman military training and his natural gifts as a strategist and tactician, Spartacus managed to keep his variegated flock together and focussed for much longer than usual. But his followers, even those with gladiatorial experience, were not much good for essential unity or administration. 

They were also disparate in origin, with differing personal aspirations on what to do with their hard won freedom.

Nevertheless, Spartacus and his band of rebels won a number of military victories in the early stages when Rome did not take his insurrection very seriously.

But eventually, Rome sent its richest man Crassus, with fifty thousand battle hardened Roman soldiers after them. The Roman Senate also directed Pompey, returning from a victorious campaign in Etruria, to help Crassus. The end of the slave revolt thereafter, was inevitable.

The Romans were disciplined, organised and motivated to defend their republic and way of life. This along with an attitude and belief in arch-militarism as the route to power, glory and riches, animated their world view.

So conquest, plunder and dominion was an economic necessity. But consolidation and viability thereafter necessitated the acquisition of defeated peoples as slaves. Slaves,  to be put to work for the sustenance of Rome.

Today it may seem that Spartacus and others of his ilk were early martyrs to the ideal of democracy, equality, liberty, natural justice and so forth, but in imperialist Roman times, revolting slaves were subversives to be captured and killed. 

But the slaves who revolted were themselves not very clear as to what they wanted to do with their freedom. They had no ideology or bigger purpose. They did not want to form their own independent country.This divisiveness amongst slaves always worked to the benefit of the enslaving order.

The slave- labour based economic  model, not just in Rome, but throughout the various European empires that followed it, and even in slave- keeping America, believed that the dominant entity were many times more entitled than their slaves who were merely their property.

And slaves were property much more than they were human beings, which was an incidental in that entire scheme of things.

And the fact that as an “unfair” way to organise society, it persisted for so many centuries under diverse stewardship, only goes to show how times have changed. The major difference today is of course the effect of an industrial age that ended up empowering labour of both genders.

And the technological revolution, the mechanisation that grew alongside, democratised and gave a modicum of dignity to the labouring classes.

Back in the lifetime of Spartacus though, he walked along the fault lines of both the individual aspiration cruelly supressed, and the tensions caused by an expansionist military empire. The last element of that evolutionary system was the limitations of a republic. As it was constructed then, it was ideal for a city state, where the people could all assemble in the city square, but not an empire stretching over vast geographies and peoples.

The attempt to run things better as the time went on, took the shape of a dictatorial triumvirate soon after Spartacus’s death; then a Caesar all powerful; and later, a far flung autocracy.

And this shared imperial power, under an Emperor, a Caesar, with his largely advisory Senate, did keep the Roman Empire going for centuries.  When it ended in the West at Rome, it lived on in the East from Constantinople for several centuries more before finally giving way to the Ottomans.

(836 words)

May 11^th, 2013

Gautam Mukherjee

Who Killed Cock Robin?

Who Killed Cock Robin?

“Who killed Cock Robin? Not I said the sparrow” would be an apt reworking of the perceptive old English nursery rhyme as all of them tend to be. This one, with its detail on the aftermath of a murder, the funeral preparations etc. is almost like a repository of political comment dressed up to entertain children. And indeed there are several theories on what it refers to, death of a king, fall of a government and so on.

Unlike the nursery rhyme, in which the sparrow boldly declares he killed the robin with a bow and arrow, our economic scenario tends to have no stewards, or as we like to say mai baap. We, especially, are not in the business of taking responsibility for a debacle. Whatever goes on in India is nobody’s fault, it just happens. This is axiomatic to our thinking.

Economically speaking, it is all ad hoc and short term, though our political masters like to pretend that they are working to a grand plan. If we take that intent at face value we have to conclude that the plan is just to stay in power. And failing that, to amass as much money as possible before being voted out. This comes handy to get back in the game later and keep the patronage principle going in the meantime. The money bags help sustain out- of-power politicians forced to wait it out.

The collection of narrow -prism decision making, based on the loot potential in our economic arena creates a chaos of policy confusion, and mighty difficult, wasteful circumstances, on the ground.

The coal and mining scams that threaten to bring down the central government and walk it to the Opposition benches for at least one term, is a case in point.

The UPA is under fire on coal allotments and it lost its Goa government to the NDA largely over perceived excesses in mining. Ditto the NDA government in Karnataka, routed over its mining scandals. No doubt there were other factors, but squandering of natural resources to benefit a few is something of a norm in the Indian scenario.

If one considers the deeper reasons, it is likely to come to light that the government is lousy at conducting business. Whenever it deals with assets it ignores market valuations and proceeds to cater to its own political principles of patronage and power. Consequently, after the fact, it invariably turns out that the people, the real owners of natural resources that belong to the nation, have ended up drastically short- changed.

The answer is not in trying to turn government market savvy but in getting government out of market operations altogether.

But this would need us to jump one way or the other. But since we come from Socialism with its bias towards state ownership of both assets and enterprise, discarded long ago in other Socialist domains, including Britain and most of Europe, we are confused. The market is viewed with suspicion, is constantly undermined and interfered with, and kept on a leash.

But ever since liberalisation began in 1991, the truth is that the contradictions between big government and market forces- led private enterprise has occasioned ever higher levels of corruption.

The market valuations are now well known and kept in mind, even as restricted access and power play is used to enrich a few. There is no open competition. There is no transparency to speak of despite the charade of a seemingly professional tendering process.

In most cases the discretionary power exercised and the interpretations used are enough to direct the outcome whether it be a defence contract or a land allotment.

And so we have the procession of scams which are a consequence of our policy confusion as much as greed and venality.

The 2G Scam is another mess of undervalued allocations conducted by the government. Perhaps it is because the government places the value of all national resources at zero in the first place and so any addition above the line to its mind is positive enough. And if there is a political dividend from favouring some people over others isn’t that the name of the game?

Defence, of course, has always been the happy hunting ground of the powerful out to feather their nests with fabulous riches. It is not so much a market forces thing as high unit values of defence equipment, one of the largest military establishments in the world, and the wonderful world of commissions to incentivise everyone concerned. It is a perquisite for some. It goes with the territory, and will not vanish no matter what form of economic policy we are able to evolve into.

Ultimately, we will have to recognise fair valuation as a bedrock economic principle. We are doing it with oil as in diesel and petrol and LPG gas now. We are not doing it yet with our PSUs and a disgracefully run Air India yet. Our government’s self- serving food- for- vote welfarism is very bad economics but it doesn’t seem to care.  Still, the unsustainability of our profligacy will force us to self- regulate. But the politician of today would rather send this particular postcard to the future.

(865 words)

May 10^th, 2013

Gautam Mukherjee

What's going to happen next at TATA?

What’s going to happen next at TATA?

Savvy comment in knowledgeable circles has it that the Tata Group under Mr. Cyrus Mistry is going to ramp up its infrastructure contracting capabilities. This is his great strategic ace coming up. Right now TATA is not even in the top ten in the field, but fellow Mumbai based neighbour and friend L&T heads the “infrastructure” list. But L&T, that is all it does, at a turnover of around $15 billion per annum. It lacks TATAs strategic depth. And TATA is, as we know a “salt to software conglomerate” with its own Tata Administrative Service (TAS) and over 363,000 employees to draw upon.  

That TATA should be looking at contracting/infrastructure for its quantum leap towards perhaps doubling its current size of about $75 billion in revenues, is not surprising. The domestic potential, even as identified by the Government and various analysts including a recent PWC report, holds it in trillions of US dollars. At $150 billion therefore TATA would be in the same league as GE, amongst the biggest conglomerates in the US.

This is when, at $75 billion, it is already the biggest Indian/Indian multi-national private sector group give or take versus Reliance, as we stand. It has grown to many times the size it was in JRD’s day by the time Ratan Tata passed on the baton recently. It is also a multinational with over 60% of its turnover, and sometimes the bulk of its profits coming from its overseas holdings and operations. But the downturn abroad is forcing a rethink on where to focus.

Ratan Tata may have expanded abroad to get away from our over- regulated and corrupt market and to achieve the inorganic growth that he has. But the business scenario abroad is no longer good. Corus is losing money. Jaguar/Landrover is making profits but from its Chinese sales. Tetley Tea is doing alright, as are the hotels in the main, but nothing terribly exciting is happening abroad. Even Laxmi Mittal, the steel baron and owner of Arcelor is having a hard time of it.

Also Cyrus Mistry, the former MD of Shapoorji Pallonji, one of India’s biggest private sector quality civil contractors has taken over and understands this space. With companies like AFCONS in the S&P Group, the infrastructure space is not unknown to the Mistrys.

 But the scale on which he could potentially operate in TATA is much larger. There are also engineering and management synergies possible on a very different level from S&P which in the end is a family-owned and managed business.

 And with greater private sector participation being invited and inevitable in infrastructure development, alongside FDI, there is a lot of money to be made in infrastructure building in a grossly under- built country like India.

But this foray envisages much more than building buildings and colonies and hotels and institutional buildings or even flyovers. We are looking at roads, ports, railways, electrical projects, defence contracting etc. etc.  With the TATA heft, the Group could also tie up with the major international players with not an awful lot to do in recessionary times abroad. TATA could also buy up good strategic fits internationally in this field as it has done in other areas of business.

The balance to be maintained is of course in the degree of leveraging undertaken. Even a great company can ruin its prospects with too much debt. An element of this is already troubling the TATAs.

In combination with cutting- edge foreign companies, they could be a potent, professional, modern and specialised force, and not just in India. And, potentially cost effective too, though India’s work force is no longer as cheap as it once was.

At the expertise end, the idea of imported talent is not new to the TATAs. There is some of it afoot presently right at the top in both Tata Motors and Indian Hotels for example. And they started Tata Steel in the face of imperial scorn using British Engineers way back when.

Cyrus Mistry’s job is to grow the group to double its size over the next several years, to compete with the international big boys. This is difficult to do with product sales alone however well done. Hence the likely new thrust area.  

Besides the motivation is likely to be very high. Mistry is young and along with his brother Shapoor, he owns 18% of the Tata shares. The Pallonji family are the only significant individual shareholders. The bulk of the shares, over 60% are, of course, owned by the fabled Tata Trusts. This also makes for TATAs unique brand of professionalism in the functioning, imbued with the ideal and atmosphere of trusteeship that distinguishes the Tata Group.

(779 words)

May 5^th, 2013

Gautam Mukherjee

The Great Stock Market Meltdown

The Great Stock Market Meltdown

There was a time when every company dreamed of going public to access shareholder money. The biggest success story in this regard was Dhirubhai Ambani’s Reliance Industries. If Dhirubhai had not tapped shareholder enthusiasm then, filling stadiums for his AGMs in the process, we would not have Reliance, both versions, run by brothers Mukesh and Anil, in the top twenty amongst private sector companies in India today.

But he did more than succeed in his business. Dhirubhai  Ambani was the superstar of the equity cult. He delivered on a dream of ordinary shareholders growing wealthy on the strength of their investments in solid enterprise. But even when he began to rock the market there were already those who owned Tata shares. But they were heirlooms, not for selling.

Of course, the minnows spoiled the party even then by jumping on the bandwagon only to loot investors and turn sick in the shortest possible time. The market regulators were always ineffective except for a few high profile busts such as that of big bull Harshad Mehta, decades ago. Then there was Ketan Parikh later.  It only goes to show how long it has been since there was any spark in the market.

But the trend away from the comatose bourses seems to be taking hold now. The international  economic scenario in the West is going to stay down indefinitely. And India has wilfully destroyed its very promising own story.

Not only is the Government’s always ham- fisted approach to oversight , regulation, taxation, money laundering, retrospective levies etc. a major irritant and incredibly arrogant to boot, but the stock markets themselves  have lost their charm.

This is for reasons outside, in the real economy, due to disastrous policy measures, delay, confusion, hesitation, obtuseness, fear. We have seen no new all-time highs in the Sensex or Nifty since 2008. It has only been a sad little see-saw ride going nowhere in all this time.

The FIIs are disgusted, their quantum investments have plummeted, and even enthusiastic and influential domestic  players such as Rakesh Jhunjhunwala, a stock market icon, can’t seem to make money trading in shares anymore.

Most of the other big boys such as Hemendra Kothari, Nimesh Kampani, and KR Choksey, have either sold out majority stakes in their firms, or are trying to do so. There is no life in the market anymore and so they have cashed out, or want to do so - content now to sit on Boards and Advisories, or enjoy their semi-retirements.

If the big cannot sustain their interest in the exchanges, can the medium and small do so? They too have deserted the stock markets in droves.

The TV channels devoted to the markets have lost viewership as there is no shareholder cult anymore. They too will now start to close one by one or shift focus to softer news such as company profiling, CEO views, sponsorships etc.. Many have already changed their water, and not just on weekends when the magazine programmes used to be slotted, but even this can’t flog a dead horse.

Instead of growing the shareholder base and promoting market investment amongst the public, unimaginative Government policies have shrunk it since 2008. Every sector of the economy such as automobiles are gasping for breath. The auto sector is significant also because it has attracted much FDI which is now not doing so well.

But still, there is faith in the future of the real economy based on the sheer size of the Indian market, and the 1.21 billion population. The old established MNC players are using this lull to try and consolidate. Private equity is the name of the game now and large MNCs and domestic MNcs are using their money more and more rather than public shareholder equity.

Some, with solid fundamentals such as Unilever are buying back their shares with a view to going private once again. Recent reports indicate Unilever is not the only one willing to lay out billions of dollars to buy back shares towards making up majority holdings.

So, consider this, if the MNCs and blue chips exit the trading arena, what will the stock markets do with themselves? And with total lack of enthusiasm amongst the investing public, how will the PSUs divest shareholding to the public?

This Government has failed pervasively on all fronts. The country’s security is compromised. The business environment is vitiated. The political hold of the central Government, already ravaged by the foolishness of diarchy, is weak, and dependent on restive outside support. Many of the states are in effect bankrupt. The focus of the political classes is on assembly elections and the general elections bound to take place within a year. There is little regard or attention being paid to the economy at present.

It is a cascading effect of non-performance and lack of vision, an ad hoc limping onwards as a pale shadow of governance. Everything is waiting for the new Government at the centre including India’s stock markets.

(832 words)

May 2nd, 2013

Gautam Mukherjee