Corruption is Good :)

On 2nd February ,2011 when A Raja,the former Union telecom minister was informed at CBI headquarters that he would be retained in judicial custody,he appeared a humbled man.The Dalit star of DMK and UPA-II had come a full circle from humble beginnings in Tamil Nadu to be humbled back at headquarters of premier investigation agency of Indian Union.The event marked an end of era in Indian telecom sector which was started with the introduction of mobile services in 1990's.The arrest was celebrated by leading political thinkers,media and me as a symbol of survival and semblance of constitutional values.The 1.76 lakh crore thief had been caught..they said..or had he?

Our nation has been brought up on a dosage of Gandhian values.While on one hand we are taught to swear by them in theory on the other we flout them in practice.Consequently corruption is a stigma for everyone of us and yet a convenience we prefer to practice.Life seems to be so easy with the 500 rupee note which prevents the cancellation of your licence or the odd 100 rupee that you slipped to the ticket checker when you didnt want to stand in a queue to buy the local ticket ...So is corruption really that bad or is it just a way free markets have adjusted to get over the impractical laws and rules that are "idealist" netas and babus frame for us

The US Commerce Secretary ,Gary Lucke quotes all difficulties in doing business in India from poor infrastructure to high tariffs except corruption.A survey by Transparency India found West Bengal and Kerala at lower spectrum of corruption while Delhi and Maharashtra were touted as one of most corrupt states in India.The Indian Black Money economy is supposed to be sized at at least one fourth of our GDP and is responsible for employing atleast a tenth of our population...So we are forced to ask is corruption a necessary evil we must stay with?

Before making an attempt to answer this question let us consider what would have happened had A Raja & Co. not stolen 1.76 lakh crores from the state Exchequer.Well it would have probably been invested back in giving subsidies to farmers or sick industries controlled by politicians.Alternatively it could have been wasted in NREGA which as a recent report suggests has leakages to the tune of 70%.It would have undoubtedly fuelled the subsidy on the petrol that run rich man's cars.Contrast this what happened because of this scam,while part of the money went to buying Omega watches and trendy cars for our babus and netas,the rest of savings were capitalized by telecom companies to provide Superior telecom infrastructure and data services to Indian people.The lengthy process of spectrum allocation was quickened leading to crores of savings in interest payments.Indian people today avail call rates which are cheapest in the world.While undoubtedly this filled coffers of some private players.At the same time it boosted employment generation and aided growth of Indian industry with superior infrastructure support,something our state run telecom companies could never have achieved.Business in India has benefited or in a better sense been subsidized in a very effective manner by this 1.76 l crores.Infact a closer analysis reveal that much of the corruption money once sent outside was quickly re routed back to India via tax havens and invested in Indian businesses.It is widely known that private spending is much more efficient than public spending in terms of efficiency,GDP growth and employment generation and sustainability.

By saying all this I certainly do noy .But to point out that the solution to corruption is not stricter anti corruption laws and their enforcement.But the solution is a deeper analysis to the situation and eliminate the problem from roots.We have to make our laws our pragmatic.For example in case of telecom industry the problem was scarcity of spectrum and the high fees would have made sustainability of industry a question mark.Efforts could have been made to implement newer technologies and free up more spectrum from Defence and other areas.Similarly we whine about corruption in subsidy bills while it could be easily avoided by eliminating subsidy and opening up markets directly for farmers.In fact what it seems is that many laws are tailor made to encourage corruption.

Its high time we re look at our laws or else the free markets will always find a way around.This time it was 1.76 l crores next time ,it might not be so peaceful...we could well choose the Egyptian way :P

Happy Blogging

Onion Tears

On Wednesday morning the price of aam aadmis vegetable - onion touched a year high of Rs 70 per kg.The Government of India in a franatic attempt to contain prices announced a slew of measures ranging from an indefinite ban on onion exports to an attempt to directly sell onions through public outlets.The result a somewhat cooling of onion price but the trend seems to be intact.In the past decades,onion prices have made many a governments bled to death.The most famous being the classical loss of BJP in 19998 to Congress when Onion prices broke through the rooftop and landed a victory to Congress on platter.No wonder ,rising onion prices is the worst nightmare for any political leader in power in India.

While rising onion prices may have drastic political consequences,a bigger question to be debated is the importance of onion as an agricultural commodity.Can onion be given the same importance that is to be given to essential commodities?A closer analysis reveal,onion has never been classified as an essential nutritional ingredient.So why should government put so efforts to control prices of a commodity which merely serves as a culinary pleasure rather than an essential healthy additive to food.Would people of India demand same protection from spiralling prices of turmerics,cinnamon or other pricey spices? Obviously not

A second important point to be considered in our story of onion tears is the role of speculation.Political leaders have often blamed traders and hoarders for rising commodity prices.However noting could be farther from truth.For one speculators can only intensify the price rise to some extent but not be solely responsible for it.Consider for example a commodity,say X.If a speculator hoards a commodity even if enough is available in the market,he will only lay trap for his own death because the excess supply would not make it possible for him to demand a price increase.In a country of 1 billion people its hard to imagine how anything other than demand supply situation can drive prices.

The best solution for the government to improve the price scenario is by taking steps to boost production.For one the government must concentrate on reducing cost of production by converting wasteful subsidies into useful soft loans and research funding.The government has long used steps like farm loan waivers,fertilizer subsidies etc as means to help farmers.However,something the government fails to realize is that subsidies are nothing more than white elephants.A recent UN report sights the wastefulness of these subsidies.An estimate puts the efficiency of such schemes at less than 20%(which translates to just 20% of money actually reaching farmers).The government can instead do away with such subsidies and instead focus on providing soft loans for implementation of newer technologies to boost production.A classical case in this respect is the free power distribution in Punjab.The state spends thousands of crores on power subsidies but the result is decreasing productivity and increased fiscal deficit of state.Free markets demand that government only acts as facilitator in business development.Its high time government starts recognizing agriculture as a business and focus on developing markets,finance and technology for it rather than subsidizing losses.

Perhaps the most important need of the hour is agricultural reforms.Contract farming is still illegal in many parts of the country.The government prefers to keep the farmers slaves of Minimum Support Price and arhtiyas (money lenders) rather than opening large scale window of opportunity for them.A second step needed to be taken is corporatisation of agriculture.Indian agriculture is in dire capital needs and the small Indian land holdings do not make entry of PE and FDI/FII players profitable in Indian agriculture.The plantation and cash crops have richly benefited from corporatisation..why leave others behind?Similarly the long standing battle over GM seeds need to be resolved to improve productivity.Some other areas where government can focus are improved use of IT and improvement of market infrastructure.More commodity exchanges need to be set up to provide farmers alternate ways to sell their produce.Currently most farmers are forced to sell their produce at local mandis at prices dictated by local arhtiyas .

Whatever the government chooses to do...one thing is clear...unless something is done...onion tears of government are not going to dry soon

Donating India Abroad

In 1975 a young man having tasted salt in the workshops of one of the biggest steel manufacturers of the world ,attended the advanced management programme at Harvard School Of Business,the mecca of management education .His stint at Harvard was to be soon followed by 26 years of painstaking work ,failed adventures and drowning companies until he tasted success after becoming chairman of one of the largest business conglomerates.The man was Ratan Tata,one of Indias most futuristic and prominent businessmen

In a spirit of philintrophy the TATA Trusts have decided to donate $50 million to Harvard School Of Business.A bit earlier another Indian Business Tycoon,Anand Mahindra had donated $10 mn to Harvard Humanities Department.The donations have been celebrated in the Indian media and sadly nobody seems to raise the obvious questions.Instead these multi million dollar donations are seem to announce the arrival of India in the big club.There was a time when India struggled to open premier institutes.Its best institutes like IIT's and IIM's were started with foreign donations and collaborations.50 years hence....the story seems to have reverted or is it?

The bigger question which seems to have missed everybody attention here is:Should a business house donate such extravagant sums abroad when more than 50% people in India do not even have access to primary education (Source:UNESCO).The 2010 budget estimated total expenditure on education sector at 4.1% of GDP.Yet we are ranked at lowly 82 in a pool of 150 counteries.India has just 2 universities in the world top 100 and just 3 in world top 500.The Government aims to spend more than Rs 1000 crore on development of new IIT's and IIM's to bridge the gap between quality technical education and industry requirements.So while India grapples for funds our biggest chose to donate abroad.

Before arguing on,let me first analyze the purpose of business in a free market society.Business in any society exists to create value,so that the added value flows back in form of profit and this profit can again be used for development of society.Seen in this light a bigger question that arises is :Should groups like TATA's and Mahindras be allowed to donate such big amounts when more than 80% of their profits come directly or indirectly from India.In essence,shouldnt this money be ploughed back in Indian economy?Further would these kinds of donations make entry of these business houses easier in the larger economies?Arent we acting like the proverbial slave who toils hard to work for the master for free.Here the masters are people in western countries and slaves ,Indians who toil hard to generate wealth only for their capitalist masters donating abroad for unknown reasons.

Perhaps,TATA's and Mahindra's feel with acquisition of companies like Tetley,Corus and Jaguar and land rover,it becomes their duty to act charitably for western economies.Perhaps then it means that these acquisitions are creating sustainable profit for their business groups or if not they are atleast paying back the high interest loans that were taken to fund these acquisiotns.,The answer ofcourse is an open secret.Any multimillion dollar donation would be justified had it been funded through profits in western counteries.Sadly this is not the case

From a finacial point of view,a 50 million dollar donation in a developing country has better utlization and reach than in a developing country.What do you think is better? Using 50 million dollars to educate a million poor people or using the same money to make 5 start buildings for educating CEO's of the world (the $50 mn donation at HSB would be used to make a new complex for executive MBA programmes).Isnt management education at top level supposed to be funded by corporates.An average executive programme at Ivey League Colleges costs close to 100,000 US dollars and would be attended by CEO's or top management who would soon go on creating new busts like Lehman and 2008 financial crisis.If purpose of any donation is to benefit the needy then it seems TATA group made its worst investment ever.

After deliberating all this it seems the only reasons such donations are being made is to make the name of the families immortal.Quickly after accepting the donation HSB announced it would be naming a new building at campus as TATA HALL and name of Humanities department be would be changed to incorporate Mahindra.Another luxury spending of the super rich ..is it?In yester year Kings were known to make grand masoulems and pyramids to make themselves immortal.Perhaps today the culture has changed..donate a few million to get yourself a page in history.Who would have remembered Alferd Sloan but for MIT Sloan or would have remembered Harvard but for Harvard University.If this is indeed the case,then I have no argument with Mr. TATA.Everybody has a right to spend his hard earned money.But then the tax slueths in Delhi ..do collect your Luxury Tax recievable from Bombay House