The Last Post of Corruption in India

The Last Post of Corruption in India

The Indian Army, Navy & Air Force have had a relatively clean public image for long time. Even today the services officers and jawans are held in high esteem and respected for their valuable contribution to the service of the nation. While one would tend to look at a police officer or constable with sort of under the surface contempt for possibility of being corrupt, the same ire does not come to mind when one sees a defence officer or a jawan. In fact they do inspire people for their valor, sacrifice, discipline and ability to take on any adverse situation like floods, earth quakes, or other natural calamities. Even after 60 plus years of radio, the Jay Mala program of All India Radio still inspires millions of civilians as well as defence personnel.

Since the corruption in India is all pervasive, it is difficult to imagine that defence departments will be any exceptions. Nevertheless, the cases of level of corruption and scandals of misappropriation of funds coming to surface have been at much lower levels than their civilian counterparts. The cases which would be on top of mind like Bofors and the HDW submarines would be few and far between. Also they have political linkages if not patronage and therefore have to be seen more as civilian deals than defence. We have had some relatively clean ministers of defence also. So, for any scandals, it is overall political system which has to be responsible and accountable.

But what have come as a shock are the cases of high level corruption in army involving kind of a civilian transaction, not involving defence equipments or materials, but land valued at Rs. 290 Crores in Darjeeling. The extent of interests of the officers is not yet established or published. This in fact is pea nuts compared to the new bench mark of Rs. 4000 crores set by Madhu Koda, former Chief Minister of Jharkhand. The public is used to such figures in civilian domain. What separates the army and Madhu Koda is that the officers of army are appointed employees where as Madhu Koda was elected representative of people. Madhu Koda is supposed to have set highest standard of morality in public life.

The Army enquiry has reportedly recommended termination of services of Lt.General Avadhesh Prakash, Military Secretary at Army HQ and court marshal proceedings against Lt.General P.K. Rath who was being considered for post of Dy.Chief of Army Staff. Others under scanner are Lt.General Ramesh Halgali and Major General P. Sen. Chief of Army Staff General Deepak Kapoor has to take decisions on these issues now. Mr.A.K. Anthony, the Defence Minister, has had consultations with Gen. Kapoor on this issue and hope that due actions would be taken in the best interests of the nation.

There may be many similar situations involving land deals or land grabs in the civilian domain. Even a village sarpanch can be found to have grabbed land and so it is the land mafia which supports or gets into political system. It may be difficult to find large land deals of politicians without favours or frauds. So the political establishment has little to show the army any good examples to follow.

Army establishment would do well to set a good example for the politicians and the bureaucrats to follow. Let them not try to don spotless white pajama-kurtas which have come to symbolize as new garb of corruption. Let the uniforms not lower the guard on the doors of morality. The uniforms put a great responsibility and onus, of protecting not only the nation but also the national values, on the persons donning the same. The police officers in uniform have tarnished their image beyond white wash due to subservience to their political masters. It is so not only in the matter of financial frauds but all the levels and facets of morality. I have not kept any count but almost every month we read about DGP, IG or similar level of officers involved in some or the other scandal or headlines for wrong reasons. Even the bureaucrats also are let off lightly in similar situations.

Fortunately for the armed forces, the interface with politicians is not at all the levels but only at select top levels with the result that they can operate within their own discipline with greater commitment. They have advantages of having a system which is relatively isolated and has better discipline and respect for authority.

It is time for the armed forces to strengthen their value system as well as punishment system so that they can stand tall with courage & conviction expected out of them by the masses without casting a single vote in their favour. Let them manage deficiencies in their value system better than their counterparts. Let them be sure that if & when there is a call for duty, a billion votes are with them. Business enterprises have a lot to learn about strategic management from the armed forces. I wonder why political establishment can not take a lesson or two from them to stop erosion in national ethos and values. It is for this reason that all eyes are on General Kapoor for his decisions to uphold high standards and values.

As the year 2009 draws to a close, it will be remembered for considerable erosion in our value systems as reflected by Satyam Computers, Liberhans Commission Report, Madhu Koda, Singur, Swiss Bank accounts, CVC’s list of 123 officers on watch list, CRPF Scam, Pradhan Committee report on handling of 26/11, Chief Justice Dinakaran of Karnataka, and Haryana DGP S.P.S.Rathod among others. Are we ready to learn from these experiences to welcome 2010?

I wish all my readers a Merry Christmas and a Happy 2010.

Vijay M. Deshpande

Corporate Advisor,

Strategic Management Initiative,

Pune.

December 25, 2009

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Copenhagen, Hopenhagen or Hopelesshagen?

Copenhagen, Hopenhagen or Hoplesshagen?

Copenhagen is right now the focal point of the “bipolar” world. The Good Earth of Pearl S. Buck still has two poles with snowcaps though in the process of melting due to heat between the haves and have-nots. Haves represented by Buck’s Hwang and have-nots by Wang Lung, the poor farmer, who works hard and rises to prosper by farming on the lands of Hwang who “outsource” the tedious hard work to poor like Wang Lung. Though Wang Lung catches up on prosperity and passes on the same to next generation, sadly along with the rich heritage comes lack of respect for the good earth.

How aptly the analogy holds true as Copenhagen buzzes with the rich and the poor. The rich nations, who have outsourced manufacturing and dirty chimney stacks to the poor nations, are trying hard to keep the sticks in their hand and not parting with carrots either. The poor countries have a lot of catching up to do with rich countries and are looking for a fair deal. The western countries have dumped old outdated technologies in the developing countries at exorbitant costs and now want them to pay for newer technologies to reduce pollution or carbon footprint. As per Kyoto Protocol, western countries are required to provide money & technology to poor countries to fight global warming which is creation of the west. The rich countries are trying to wriggle out of such commitments and want all countries to have equal share of responsibilities.

The climates have changed due to global heritage of inefficient technologies from the western countries. The poor countries are already feeling the impact on agriculture pattern, uncertain rains, floods and draughts. The polar caps and the Himalayas have been shrinking. There has been lack of respect for the good earth by western countries greedy for their growth & prosperity.

By seeking to tie down poor nations to peaking year and targets for emission cuts, the rich countries are ensuring guaranteed market for their new technologies. With peaking year commitments for emissions they want to cap the growth of poor countries. Prime Minister Man Mohan Singh has categorically stated before departure to Copenhagen that "Climate change cannot be addressed by perpetuating the poverty of the developing countries".

G77 + China, including Africa, have been seeking funding from rich western countries to the poor countries for managing technology up gradation and related programs for cutting carbon emissions. African countries have shown that they can make the difference between success and failure. After considerable pushing to the brink of failure of the talks, the western nations have reportedly committed US$ 22 billion for fighting against global warming. Hilary Clinton has reportedly talked about joining US$100 billion funding program to fight global warming.

A key aspect of the negotiations is transparency in implementation of programs for emission cuts. Western countries ready to fund, want access for evaluation of progress and China is adamant on denying such access. China is manufacturing factory of the world with 50 % of their GDP coming from manufacturing sector. Their carbon intensity is 2.85 tons per US$1000 of GDP as against India’s 1.8 tons. China is number one polluting nation with India as fifth on the list. China, currently the bankers to the US, does not need funds to up grade their technologies. Nevertheless, they do have obligation to convince the world that they are doing enough to cut down emissions as per commitments made by them. This is particularly so in view of not very reliable statistics coming out of China.

US have only 20% of GDP coming from manufacturing sector with almost 73% of GDP coming from services sector. Just like Pearl Buck’s Hwang, they have outsourced manufacturing to Wang Lung or China. China must find a way to be transparent on such an issue or else like the inheritors of Wang Lung of Pearl Buck, the next generation Chinese will inherit wealth, luxuries and lack of respect for the good earth. Chinese should prosper but not lose sight of their responsibilities to the next generations.

US never ratified Kyoto protocol even as it is heading for end of phase one by 2012. True leadership has to lead from the front. US can not expect others to follow international obligations which itself is unwilling to accept. US have announced emission cuts with base of 2005 instead of 1990 which makes their target within easy reach. They can not have different starting or finishing lines. Even though their manufacturing sector contributes only 20% of GDP of about US $ 14 trillion, their capita carbon emission is about 20 tons as against China’s 4.5 ton and India’s 1.1 ton. With 73 % GDP from services sector, US are a consuming economy not producing. So their carbon emissions are more from consumption than from manufacturing. At first strike, automobiles seem to be single largest polluting product emitting carbon and therefore US should consider reducing their automotive carbon foot print by planning public transport systems which are almost non existent for the size of market and country. The number of vehicles on the roads can be reduced with efficient public transport. US consumers would not compromise even on their week end outing but the world must be transparent enough to show the rich countries that they are implementing emission cuts with access to western inspectors. Can we have equitable standards for global platforms?

The Danish Prime Minister in his opening speech hoped that Copenhagen would be “Hopenhagen” for successful multilateral talks and a treaty. Unfortunately, the President of the COP 15, Connie Hedegaard, was forced to resign on allegations of favoring western countries. The controversial Danish draft based on perpetuating the haves and have-nots has at last been dropped. The Danes have perhaps realized that they brought the talks to “Hopelesshagen” and must rescue the Summit with face saver. The climate change conference seems to be heading for a UN Climate Change Conference draft or in worst case a political declaration instead of an international binding treaty post 2012.

The top political leaders of US, and G 77 + China must still work for an equitable treaty based on transparency for all without exceptions including US. For President Obama the short distance from Stockholm to Copenhagen is running via two polar routes, the Alps, the Urals and the Himalayas all facing the heat of global warming. Quite a “Polar Bearish” task indeed. He will need to clutch his Nobel medal close to his heart and thank Pearl S. Buck for writing “The Good Earth”.

Vijay M. Deshpande

Corporate Advisor,

Strategic Management Initiative,

Pune.

December 17, 2009

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Telangana State- A Potboiler?

Telangana State- A Potboiler?

The developments of last one week on demand for statehood for Telangana have been very fast in Andhra Pradesh. Perhaps, the political circles in New Delhi were taken by surprise by the speed with which events overtook the decision makers. The 11 days fast of TRS chief K.Chandrasekhar Rao (KCR) forced a situation calling for swift decision by the UPA government & opposition parties on announcement for creation of a separate state of Telangana.

We have seen the political struggle & violence since beginning of the Telangana movement in 1969. While the states of Jharkhand, Uttarakhand, and Chhattisgarh were created as soon as BJP came to power, the issue of Telangana did not find favour with political allies of BJP. Congress ruled Andhra for most of the time along with TDP for breaks but did not concede demand for Telangana. Now, all of a sudden it is facing the stark realty and is forced to act. It was left with no choice but to announce initiation of process for separate Telangana.

With all the sympathy that KCR has gained with his fast, there is no doubt that the UPA government has to wade through a political minefield. Is 11-days-fast-unto-death the new formula for separatists, be it internal or external to the boundaries of the country? There are many other demands like Vidarbha, Gorkhaland, and Bundelkhand which have been on the back burner for a while. There was a talk of separating Jammu, Kashmir & Ladakh into three small states couple of years ago. It is but natural that Telangana will stoke the fires elsewhere. It is therefore necessary to have a long term strategy to decide in totality on such divisive issues of national importance and long term implications.

Review of New States created in 2000:

There should be a comprehensive review of economic benefits of creation of new states like Jharkhand, Uttarakhand & Chhattisgarh in last ten years. This should be done by the planning commission and presented to the parliament & then made public. Have the people of these states gained better living standards or economic opportunities? If there is significant dispersion of economic activities and development which can be directly attributed to creation of new state then the need may be justifiable.

Sustainable Economic Development:

What is the most economical minimum size of a state to be viable in relation to natural endowment factors and resources? The regions like Telangana, Vidarbha, & Marathwada have problem of water scarcity. Telangana has been deprived of the benefits of irrigation from Godavari which has gone to coastal Andhra. Will they be fighting like Karnataka & Tamil Nadu for water resources? The size of population, revenue generation and geographic spread must be the driving factors. We have created seven small states in North East and yet there has been hardly any economic development to talk about. We have failed to even promote tourism in North East to take advantages of the natural endowment factors. The people of North East have not had any economic progress visible in other parts of the country. That is why these states are sitting ducks for the Chinese incursions and malafide intentions. What is the growth in per capita income of this region since creation of smaller states? What have they achieved in last 60 years? They depend more on Central Govt. for financial assistance and have not done anything substantial to generate internal resources. Up to 60-80% of share of disbursement comes from the Centre. These states have been used to looking at New Delhi very routinely for their survival without efforts to attract private sector investment to generate additional sources of revenue. Most of the central assistance goes to meet non-plan expenditure leaving little for development. So if we create more new states like Telangana,Vidarbha & Bundelkhand what is the assurance that it will translate into economic development of the regions?

Blue Print for Growth:

Can Planning Commission along with industry & trade bodies like CII, FICCI and Assocham give a blue print for economic development of the new states? What industries can be set up in the new states and what new infrastructure has to be created to spur the growth? I was associated on behalf of industry to promote down stream industries in Assam in a specific sector. In spite of the natural endowment factor & resources available, there is hardly any scope for the ripple effect of large industrial complex being set up in Assam. There is hardly any local entrepreneurship to set up any projects. Entrepreneurs have to migrate from Kolkata or other industrial cities. Entrepreneurship development has to be an important strategy to empower locals to start small businesses to cater to local and regional markets. So, if a new state is created, there should be clear blue print for development. There should be adequate avenues for generation of jobs locally and for collection of higher revenue for sustainable development.

New Growth Centers & Not Just States:

Creation of new states should be considered only after other efforts for development of the region as growth centers have failed. Setting up of new growth centers should be done with special financial packages with objective of direct benefits in terms of addition to GDP contribution and per capita income of the region in a specified time frame of a five year plan of the state. The UPA government has just approved Rs 7,200 crores package for Bundelkhand (split between MP & UP geographically). That is simply because UP is a football ground between Mayawati & Rahul Gandhi and Congress wanted to score the goal. If Bundelkhand can utilize this package productively as intended, it will be a path breaker alternative to creating new states.

Was, any time in the past, any special financial package offered to Telangana even though it has been under Congress rule? Telangana was perhaps better off before merger into Andhra with Hyderabad. It is the case of economic neglect for short term political gains. There is no point in simply splitting a state like Andhra into two for political reasons. That would only create additional power centers, top heavy bureaucracy and more corruption as in Jharkhand.

Successful Small Nations:

The planning commission should study the economic model of small nations say in Africa. Botswana is fastest growing economy in the world. 70% land is Kalahari Desert and diamond mining is the major driver of the economic development. Per capita income is US$ 15000 approx. And they do have democratic elections! Jharkhand economy is also driven by the mining sector. Is it comparable to any other economy elsewhere under similar endowment factors?

Evolve New Model for Economic Development:

UPA government should consider Telangana development as a trigger to launch a new economic development model for fast growth of the new regions or states. The aspirations of the people in general are met out of economic development whereas aspirations of politicians are met out of power concentration they can create. When a new state is carved out, basically the politicians are interested in new power structure. Let UPA not fall for the temptations of political compulsions to create Telangana. Let UPA come out with its own blue print for ensuring that the devolution of economic power reaches people & not handful of politicians. Instead of segmentation by language, caste and sub-castes, let them segment the country by economic viable regions with focus on economic growth. That would ensure strategic long term benefits for the nation and people.

The creation of Telangana should not be done in haste. It is time to take stock of overall achievements of new states created in last 15-20 years and rework the model and then, if required, create not just Telangana but also Vidharbha, Bundelkhand and Gorkhaland and any other region which has potential to add to economic growth by special long term focus. Why wait for agitations and fast-unto-deaths to trigger growth. If you can generate growth, the political fall out is obvious.

Vijay M. Deshpande

Corporate Advisor,

Strategic Management Initiative,

Pune

December 11, 2009

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Dubai’s Financial Sandstorm,Tip of Iceberg?

Dubai’s Financial Sandstorm, Tip of Iceberg?

The news of rescheduling of interest payments on US $ 26 billion debt of Dubai World & Nakheen group came as a shock to the still fledgling global economy. Just when green shoots were claimed to be visible and feel of recession getting over in few countries was being talked about, the news from the unexpected quarters rattled the world for a day or two. As the details came out and bail out plans from Abu Dhabi reassured the global investors, the dust settled down. But this gave a stark reminder to the economists and financial institutions of the vulnerability of such shock waves.

Has the world taken a lesson from the global melt down of 2008 starting with Lehman Brothers and its fall out? At least in some aspects it seems there is a scope for picking up threads and putting an early warning system for potential triggers for financial catastrophes waiting to happen. It is obvious that the UAE government, Dubai World & Nakheen all were in the knowledge of the potential defaults and need to restructure their portfolios. They were on the brink of collapse and must have been trying hard to avoid a repayment default. Obviously it was kept under the wraps to void any unwarranted impact of financial markets and credibility of the economic driver in the Middle East. Now the UAE government has distanced itself from the Dubai World crisis. This disassociation hints at disowning any potential crisis in other government run companies. This helped a “stable” rating by Moody’s for UAE & Abu Dhabi governments. S&P have downgraded credit rating of Dubai World related government companies to junk status.

It is sad & unprecedented that when these companies borrowed the funds in billions of dollars, they were perceived to be government backed companies and now that they have been “disowned” by the government, they are reduced to junk status. What was the basis for granting huge loans without adequate security or sovereign guarantee? In a country with national debt of $ 80 billion, only two entities accounted for nearly 80% debt. How can the government distance itself from such huge commitments? If the loan repayments on debts of billions of dollars were not guaranteed by the government of UAE, then it is the case of over leveraging the mere government status by the banks ever eager to lend money. That is not prudent banking. This is reflection of “Value Management Deficiency Syndrome”. This leaves the companies’ rating reduced to junk status. Can this phenomenon extend to public sector or government run companies in other countries making borrowers suddenly vulnerable? Have Indian public sector companies adequately secured their debts?

There could be a number of situations around the world which are potential time bombs of financial defaults. The credit rating agencies are sitting on a pile of information on potential defaulters. There would be umpteen number of securities created on presumptive backings giving false derived sense of security to investors and have potential of triggering a financial disaster. Most of securities have ratings from reputed rating agencies which are privy to such detailed information on instruments of investments globally. Now Moody’s have moved debts of certain Dubai companies on “watch” rating. But this has been done only when the cat has come out of the bag. What is required is a classification of such potentially explosive instruments in a different category with a red flag from the beginning so that the investors have accurate perception of risk involved.

The global community can not afford a slide back on the gains of financial stimuli all over the world. Japan has just announced another massive stimuli of US $ 114 billion. Dubai episode has given a strong message of unlikely V recovery with increased possibility of W pattern of recovery. So it is necessary to brace for potential reversals on the way up.

To ward off any potential disasters in near future, all the rating agencies should put together a list of say 100 top potential large value ( billion dollar plus) instruments which could be closely monitored by international agencies like International Organization of Securities Commissions to reduce the risk of global failure. If there was no immediate clarification from UAE / Abu Dhabi governments or Dubai companies on plan B to make repayments and to reschedule their debts, the global markets would have been adversely affected. The interests of the global investors have to be protected by proactive measures and early warning systems with closer coordination between different countries.

In India, Securities & Exchange Commission of India (SEBI) and RBI should prepare such international list of potential triggers with or without India’s stakes if any. A band width of variations permitted should be fixed after detailed analysis for each variable impacting on the risk associated with each instrument. We should have our own early warning system so that our investors are protected and exposure to such risk is safeguarded. The warning signals should be discreetly used and shared with key stake holders so as not to upset the markets and yet play on safer side.

“Value Management Deficiency Syndrome” is again rearing its head in global financial markets and we better watch out for symptoms well in time for constructive response to save the situations.

Vijay M. Deshpande

Corporate Advisor,

Strategic Management Initiative

Pune

December 4, 2009

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