Showing posts with label Economy. Show all posts
Showing posts with label Economy. Show all posts

Tuesday, February 20, 2024

Character & Competence

 

I am tempted to republish this article in this blogpost as the nation needs to rethink, reinvigorate and move forward to reach its visionary goal of becoming a developed nation. 

Character and Competence  

 

 

B Yerram Raju 

 

Economist and Founder-Director, Telangana Industrial Health Clinic Ltd. Co-Author of the book ‘A Saint in the Board Room’ (2011)

 

Global Inequality Report 2022 mentioned that top 10 percent earn as much as the bottom 64 percent. India’s policy reforms during the last two decades saw high growth and high inequality levels intermittently. Quite often we also witness confrontation between the legislatures and Courts. We have also come across persons of acknowledged high competence landing in jail. Why?   

 

Sustainable and inclusive growth demands both competence and character. In order to define competence and character, and seeing the paths of their convergence, some storytelling becomes necessary.

 

The McKinsey Global Institute’s latest research on human development in Mapusa, a small town along a historic trade route in Goa, and in Porto, the second largest city in Portugal, unfolds “the story of both places that had virtually the same GDP per capita of $33,000 in 2019. At the country level, they are worlds apart: India’s GDP per capita was $6,700 (Purchasing Power Parity) or US$1941.82 in 2019, compared to $34,900 in Portugal—overall more than five times less.” 

 

Nevertheless, we are witnessing a few reputed leaders of self-aggrandisement and self-esteem directing the nation into the debris of material prosperity while a few others are wedded to the development of society. Hence, there is a strong need for recalling the basic principles of living that our inherent culture taught us emphasising competence with character.

 

S Radhakrishnan, the philosopher-statesman of India, said: “The ideal man of India is not the magnanimous man of Greece or the valiant warrior of medieval Europe but the free man of spirit who has attained insight into the universal source by rigid discipline and the practice of the disinterested virtues. He has freed himself from the prejudices of his time and place.” Indian heritage lies in humanism and universality. This sets the tone for redefining character and competence as traits of individuals and corporates. 

 

Wheels within Wheels

Meta, Amazon, Google, Wipro, Microsoft etc, are in no mood to keep their roasters intact. Jobs are removed in tens of thousands. NINJA (no income no job, no asset) had set in again. Banks and housing, and real estate companies are scared of their recoveries. Rising interest rates, lowering consumption sentiments, volatile markets, and untamed inflation are at the beginning of a new end. 

 

India, for the moment, seems to make a difference, raking in higher than expected revenues in GST and GDP growth forecast from the CRISIL placing it at 6 percent and Nomura at 5 percent in ‘23-‘24. When winter sets in, can spring be far behind?

 

Pure economics defies answers to many problems confronting society, while behavioural economics does offer solutions if character and competence move like two wheels of the forgotten bullock cart. 

 

If persons of character are afraid of their shadow and fail to take decisions keeping in mind the three ‘angel-robed demons – Central Vigilance Commission, Central Bureau of Investigation and Comptroller-cum-Auditor General’, competence in them takes a backseat. Autonomy, transparency, and timeliness in taking decisions never mean ignoring rules and regulations.

 

Lack of character is different from failure of character. Lack of character is unpardonable while failures are remediable. People who fail should be given an opportunity to correct and they should be made clear about the boundaries and consequences of the failure.

In Chapter 13 of Bhagavad Gita, (Kshetra, Kshetragjna Vibhaga Yogam), Lord Krishna defines the character: ‘Amanitvamadambhitvam, Ahimsaakshantirarjavam, Acharyopasanam, Saucham, Sthyryamatmavinigrahah’. The substance of the sloka is that a person with character should be devoid of pride and disrespect; should be humble, patient, and steady; should be able to have control over his self; be clean and clear in thinking and have restraint. We are at a point where we know what is right but are hesitant to adopt it. The Supreme Court had to pull up a plaintiff over the penalty sought on YouTube for airing what he preferred to see. 

 

High Character, Low Competence

How do we handle people on our leadership team who evidence the highest character, and the best motives, but are incapable of doing effective work? In a matrix of competence and character, fixing such people would be difficult. Organisations also skip them while mapping coaching and mentoring persons for results and sustainable growth. The loss is to the organisation and not to that person.

 

If we can draw a matrix of high character with high competence, high character with low competence, low character with high competence, low character with low competence in a Board of Governors, we will be able to establish the reasons for the failure of many a corporate who got the best ratings but ended up as disasters. 

 

The high character – high competence scenario will automatically lead to a high corporate governance (CG) scenario. But one without the other will not lead to a good CG scenario. It is said, “Economics without ethics is empty, and ethics devoid of economics is limp”.

 

We did not learn our lessons after the 2008 recession. The proverbial Vijay Mallyas proliferated and none of the cases of misgovernance and colossal bank losses got resolution. Over a decade of arguments in the highest courts of jurisprudence, involving malfeasance, misappropriation, corporate failures, and bad governance still defy resolution. On top of it, even the Insolvency and Bankruptcy Code gives the longest rope for resolution and those resolved, benefitted the errand.  

 

It is hard to disagree with EV Ramasamy Naicker, a Tamil philosopher of the 20th century, who said, “When I used to carry heavy bags during my younger days, my back would bend due to the weight, but not due to shame. Being straightforward and having less food is far better than diluting our character and taking lots of rich and quality food.”

 

The history of today’s wealthiest nation tells us about what happened between 1923 and 1948:

-        President of the largest steel company, Charles Schwab, lived on borrowed capital for five years before he died bankrupt.

-        President of the largest gas company, Howard Hudson, went insane.

-        One of the greatest commodity traders, Arthur Catton, died insolvent.

-        President of the New York Stock Exchange, Richard Whitney, was sent to jail.

-        A member of the President’s Cabinet, Albert Fall, was pardoned from jail to go home and die in peace.

-        The greatest ‘bear’ on Wall Street, Jessie Livermore committed suicide.

-        President of the world’s greatest monopoly, Ivar Krueger committed suicide.

-        President of the Bank of International Settlement, Leon Fraser committed suicide.

It was the pursuit of money to the exclusion of other goals that caused them their downfall.

 

Market behaviour largely depends on individual investor behaviour like buying-high-selling-low or buying-low-selling-high. Behaviour here largely is related to the character and not pockets. This character is typically borne of greed and not need. It is more like a honeybee that flits from one flower to another, sucking honey as it flies. But when it perches on its hive, it stops humming. 

 

Man is made by his own beliefs. ‘As he believes, so is he.’ (Bhagavat Gita). Henry David Thoreau may have told in different words, the same thing: ‘What a man thinks of himself: that is what determines, or rather indicates his fate.’

  

We need resilient boards of companies that can build teams of executives with foresight, virtuous and timely response, and adaptation capabilities.

 

India is at the cusp of change and the dream of India 2050 has to be realised by a generation that is seeing the garbage at the foot of the hill. They should be directed to reach the top of a mountain and every step counts. It is competence with character that should enable a crowning future. 

https://epaper.telanganatoday.com/Home/ArticleView?eid=1&edate=20/01/2023&pgid=48693

 

  

Tuesday, September 10, 2019

Revival of economy requires swallowing bitter pill


The US Fed rate cut last month signalled that the world economies linked to the US dollar are under stress. Also, the  International Monetary Fund (IMF) cut global gross domestic product (GDP) expectation from 3.2% to 3.1% while India’s GDP slowed down to 5% in the second quarter this fiscal. The debate and discussion in the media has been on: are we heading for a recession or has the economy hit a slowdown as a natural phenomenon of the business cycle?

Growth rate of the Indian economy is linked more to the agriculture and services sectors than to others. But the precipitous fall in business confidence and consumer confidence indices, slowdown in savings and investment rates, and in capital  formation signal the necessity of corrections on different fronts. 

A fall in the growth of real estate, automobiles, and core sectors warranted policy corrections. It is, however, doubtful whether a stimulus is required. Moody’s expect the growth of the economy to be at 6% current fiscal. A 6% GDP growth in an overall depressing scenario in the rest of the world, should be seen as encouraging but that does not leave any room for complacence. 

The IFO World Economic Survey, released every quarter, says in its recent statement: “In the emerging and developing Asia, the climate indicator fell, from +2.1 to –12.1 balance points. This figure mainly reflects the negative developments in China and India. 

The ASEAN-5 countries (comprising Indonesia, Malaysia, the Philippines, Thailand, and Vietnam) saw a renewed downturn in their economic climate, from 34.6 to 21.3 balance points. The present economic situation continued to deteriorate but remained at a satisfactory level. The best economic climate is reported for Malaysia and the Philippines.” Malaysian Ringgit, it says, is undervalued vis-à-vis US$.

INFLATION RATE 

Retail inflation in India fell to 3.15% year-on-year as of July 2019, less than the RBI inflation target of 4%. A growing economy should be having a healthy inflation index. High growth rates in the past were achieved against high inflation rates. 

An alarming rise in inflation to 12.17% in 2013 provoked the RBI to take stiff measures to bring it down to the inflation expectation target. Deflationary trend will send negative signals for growth. A comparison between India and China in terms of Inflation rates indicates peaks and turfs but do not cause the economy to shrink to lows, bringing it close to recession. 

On the retail price front, inflation accelerated to a nine-month high, though remained moderate and below its long-run average. If we can maintain at the RBI an expectation at 4%, that is a rise of 0.75 in the inflation rate, the economy will bounce back to a growth level of average 7%. 



GDP Per capita 



Comparing with US dollar, per capita GDP in India was 2104.20 in 2018, which is equivalent to 17% of the world’s average and it was at a record low of $330.20 in 1960. 

Poverty index also fell to a low of less than 20%, going by the Niti Aayog data. Bourgeoning middle class and conspicuous consumption would not disappoint the retail markets, particularly the fast moving consumer goods (FMCG) sector. This would mean that the slowdown would be a temporary phenomenon.

Consumer Confidence Index:

Consumer confidence in India fallen to 95.70 index points in the third quarter of 2019 from 97.30 in the second quarter of 2019. It is way below the average of 103.10 for the period from 2010 until 2019. It has been falling since demonetisation but started rising till the second quarter of 2018. Thereafter, the fall has been precipitous. Reversing this requires more than pep talk. 

The goods and services tax (GST) has a sagging effect not merely on micro and small enterprises but also on consumers. While it has brought about the much needed business discipline and tax compliance, input credit delivery suffered gradually eroding the confidence in the system. This needs reversal sooner rather than later. 

Bank mergers contributed to the erosion in consumer confidence. Mergers led to distancing the reach of banking to the people, notwithstanding the new initiatives like the small finance banks, postal bank, small payments bank, Rupay card and Micro Units Development and Refinance Agency Ltd. (MUDRA). 

The speed of service through technology is different from the reach. Caring for customers has vastly eroded in the banks. Apps may be attractive but difficult to access for the semi-literate rural clients. If growth of the services sector is declining, financial services has a major contribution to this failure. This needs quick reversal.

BUSINESS CONFIDENCE INDEX

The business expectations index (BEI) fell to 112.8 in the second quarter of 2019-20 fiscal year from 113.5 in the previous three-month period. The index in India averaged 117.74 from 2000 until 2019, reaching an all-time high of 127.50 Index in the second quarter of 2007 and a record low of 96.40 Index in the second quarter of 2009.

Ups and downs are part of business cycles. Several states indulge in make believe efforts when it comes to projecting ease of doing business. Still, several departments and public sector companies indulge in the procedural rigmarole for paying the bills and releasing the promised incentives. 

It is necessary that all states should revisit their industrial incentives as to what they can easily deliver and what they cannot, and whether the incentives are delivering the intended benefits at the right time. Giving rise to undeliverable expectations brings down the business confidence index. This needs correction.

MANUFACTURING NEEDS A BIG PUSH

The IHS Markit India manufacturing PMI (purchasing managers’ index) dropped to 51.4 in August 2019 from 52.5 in the previous month and below the market expectations of 52.2. The latest reading pointed to the weakest pace of expansion in the manufacturing sector since May 2018.

Output rose the least in a year and new order growth slowed to a 15-month low, with overseas sales increasing at the softest rate since April 2018. Backlog of works and project delays continued. Employment levels continue to cause concern with not so good results seen even against the huge investments made in skill development. 




Technology and markets are growing at a rapid pace, throwing up new opportunities. More than 75% of global growth in output and consumption is in the emerging markets. High tech advancements like the industrial internet of things, machine learning (ML), artificial intelligence  (AI), though have become buzz words in the Industry, they are yet to catch up in all the segments of manufacturing. 

Some of the announcements like relaxations in foreign direct investment (FDI) policy touching retail and media, government junking old vehicles and replacing them with new ones will trigger a demand in auto sector only marginally. Cost-cutting across the supply chain remains a major priority. 

Addressing the workforce skill gap remains a challenging priority. Manufacturers can address the skills shortage by forming partnerships with schools, associates and even competitors to train and recruit talent at an early stage.  But there exists a gap in the confidence of industry to partner with educational institutions, irrespective of the emphasis that Modi and several state governments like Telangana have laid on it. 

Though labour code has been introduced with the consolidation and rationalisation of 12 labour laws, the increased burden of social security and minimum wages requires re-engineering of business processes and restructuring of organisations and this may require some more time. 

In order that the industry develops its own push-pull measures, tax breaks can be planned by the government for research and development. Corporate social responsibility (CSR) targets can also be dovetailed for a soft touch to the markets. When the morale is sagging, demand generation is hard to come by. Every measure from the government addresses just one or the other key component of manufacturing investment. It needs to be a facilitator and catalyst rather than pumping money into the economy. 

The areas where it should pump money are public investments in infrastructure and fast delivery of contract payments. Quick credit of input tax on payment of GST will also help. But unless state governments also come on board, avoid wasteful expenditure, monitor all their investments for quick results on an on-going basis and review the situation periodically through accredited third-party agencies, it will be difficult to reverse the slow growth. 

Monday, September 21, 2015

Ending Debt Cycle Suicides in Telangana

http://www.thehindubusinessline.com/opinion/ending-the-debtsuicide-cycle-in-telangana/article7671053.ece

The State government can take a leaf out of Kerala’s book and enact a law against usury
Recently, the Telangana Agricultural Advisory Forum, consisting of a few university professors and scientists, deliberated on the causes and consequences of the drought and farmer ‘suicides’ in the State. The unofficial number of suicides attributed to farm families is 1,152.
An inquiry into some of the recent suicides reveals an interesting picture. The farmers were not indebted to cooperative credit societies or commercial banks. The case of a farmer in Nalgonda district is typical. He took on lease ten acres of land, dug five bore wells — none of which hit water — incurring huge private debt in the process. On top of this, he cultivated cotton. The crop failed without water, and the debts pushed him to suicide.

Tuesday, June 30, 2015

Growth of the economy at 8%?

250mn poor of India are being ruled by over 500 crorepatis in the Parliament and thousands of such legislators in states. Arvind Panagariya, Vice Chairman NITI AAYOG would like to believe that the growth of the economy would hit 8% by the end of this year.

AGriculture with its 13.7% share in GDP providing sustenance to about 50% of population still is posing risks to growth. So is the MSME sector, not still the darling of credit agencies. Exports did not rise significantly during the first quarter.

One consolation is that on the external front we seem to be doing fine.Watch this in the backdrop of one week's closure of Greece Banking and Stock Markets.


 In fact, while one would very much like to be optimistic, the dreams of make in India being still in the dark, uncertainties on the farm front, manufacturing yet to gain, the buoyancy of tax collections still to surface, the sovereign debt continuing to rise, and the hidden inflation at embarrassing level, the hope of 8% for 2015-16 that too from the Aayog Vice Chairman is really fond. Adding fuel to fire is the current Greek Debt Crisis impacting on our engineering exports and rising exports is the hope of Arvind Panagariya.

Wednesday, June 17, 2015

Still too many go hungry

http://www.thehindubusinessline.com/opinion/still-too-many-going-hungry/article7322506.ece


Despite the high growth years, malnourishment stalks the countryside. This calls for a small-farmer led focus
At a time when India’s GDP growth is hopefully pitched at 7.5 per cent this fiscal, touted to be higher than China’s, three global reports of significance also grabbed the headlines: The Global Findex Data Base 2014The Global Food Policy Report of the UN and the State of Food Insecurity in the World, 2014.
Ahead of all these, the IMF and the World Economic Forum reported that 25 per cent of India’s population still remains poor.
The Global Findex Data measured the financial inclusion around the world. The other two reports dealt with the food insecurity and the measures to tackle them.
It must be remembered that the data is mostly up to March 2014. The findings are of great import to this government for designing policies tackling financial inclusion, hunger and malnutrition.
The government would like to measure the poor by the JAM method — Jan Dhan account, Aadhaar, and the mobile. It has been acknowledged universally that there were no deaths due to hunger. But the farmers who produced food committed suicide were burdened by excessive debt.
The undernourished poor, like the Jan Dhan accounts, showed an impressive decline in the reports and these are counted once every three years.
A range of indicators can be used to measure a nation’s food security. These include average dietary energy and protein supply, access in terms of road and rail line density, domestic food price index, prevalence of under-nourishment, stability measured in terms of cereal import dependence ratio, political stability as well as absence of violence and terrorism, undernourished children below five years, anaemia among pregnant women, and vitamin A and iodine deficiency in the population.
Measuring insecurity

Malnutrition is redefined to include obesity and overweight. In India, child stunting (under five years) is 47.5 per cent while undernourishment is 15.2 per cent; whereas overweight population is 11 per cent. The country witnessed an average GDP growth of 8.7 per cent in 2003-08, 6.7 per cent in 2008-09, followed by 8.6 per cent and 9.3 per cent in the next two years.
When the growth of GDP was high and food inflation was also high, there was a decline in the percentage of under-nourished population.

Saturday, January 10, 2015

New Year Bites 2015

For the New Year:



Year 2014 can be termed as year in waiting. People waited with bated breath for the policy paralysis to end and for the economy to start growing to its potential. Post elections, the wait did not however end. There have been announcements more than achievements and promises more than performance. 2015 would therefore be a demanding year for the rulers.

The crude shocks elsewhere brought some cheer to India in containing its current account deficit and inflation that touched unsustaining levels in March 2014. Stock markets reacted favourably with the indices taking the highest ever jump of 6000 since the last General Elections. They shocked the investors with a peak in the crash on the 7th January 2015 led by yet another decline in global oil prices and other commodity prices.

Friday, December 26, 2014

Crude Shocks keep India in Smiles

B. Yerram Raju  & Nitin Gupta*

“The economics of oil have changed. Some businesses will go bust, but the market will be healthier,” says the Economist (December 6, ’14). Is this the beginning of cheap oil regime or just an interlude between two big bumps?

2013, in retrospect,  had turned out to be the strongest year of recovery, with growing US Economy and stabilizing Chinese economy. Commodity prices were projected to remain flat with an up-side risk due to unexpected supply-side shocks.

Enter December 2014 and all the projections seem little more than wishful thinking. IMF went on record recently: “the global economic growth may never return to pre-crisis levels” ! All the Quantitative Easing (QE) from the US (3 till now – totaling over $ 4 trillion or, twice that of the entire Indian economy) which was supposed to push cash to banks ended up just in increased valuations and stock indices accompanied by higher prices of gold and other commodities. Emerging economies like India had to contend with high inflation. Some even said: it is ‘US Fed exported inflation’!