Saturday, December 31, 2011

Virtual water-the case against exporting/producing water intensive crops.

 Laissex fairez would advocate the free market as the best arbitrator of allocation problem, but the rampant market failures in agriculture(manmade and nature induced) make governments step in even in the emerging economies, to "solve" the issue.

With the water wars heating up in Southern States of India(as witness the Kerala-Tamil Nadu war of words over the safety of the ancient Mullaperiyar dam) and Africa(where the 4 upstream nations of the Nile have reached an agreement increasing their share without the 'ratification' of the downstream nations like Egypt), water politics are attaining a zenith. Even the reputed Indian Infrastructure Report 2011-published by IDFC and coordinated by IIT/IIM-focuses on the issue of water scarcity, and its implications for development and growth in years to come. Given that this publication is not prone to exaggeration, and has been often ahead of its time on issues like urbanization, contract structuring etc, its views should be taken with respect.

I stumbled across a dissetation by Suvi Sojamo, titled Merchants of Virtual Water – The ”ABCD” of
Agribusiness TNCs and Global Water Security,
prepared for Msc(water science) at King's College. Read it here 
The paper argues that major global agribusiness players(ABCD of agriculture) are major global water managers due to their remarkable shares of international virtual water 'flows' embedded in agricultural commodities. The entire report makes for interesting reading, but the takeaway I got was that crops like corn, soyabean, wheat(and in Indian context, rice/sugarcane/cotton) may have high margins but a better public policy measure would be contribution/profits per unit of water used. And thanks to the underpriced water in India, the apparent profits would be high for those crops as the social cost of water is not factored completely.

At the very least, this issue needs study in India while fixing MSPs of crops, designing export incentives for primary produce etc. Otherwise, we risk spending heavily to fix the water scarcity issue, while spending elsewhere on encouraging production/export of those very crops which aggravate the issue.

Saturday, December 17, 2011

Learn proper English and do due diligence before transacting online

In these days of financial inclusion/inclusive growth/bridging the digital divide, businesses are actively trying to make to easy for non English speakers to use their services. Be it Google(search in 8+ Indian languages), multi language websites using Google Translate, multi lingual call centres etc, efforts are being made. However, the terms and conditions(be terms of use/conditions/fine print) invariably stays in English(or English IS the authoritative version in case of differences). Hence, people who know just a smattering of English may even be able to transact online, but they cannot/do not make the effort to completely understand the product/services/perform due diligence. That is why so many people get conned, when just a simple Google search and some critical thinking would have warned them. Some evergreen cons:
  1. Send money before getting the appointment letter
  2. Multi  level marketing
  3. Nigerian lottery scams
  4. Online shopping sites of dubious repute
  5. Time sharing at holiday resorts
All these are chronicled with ample depth online(even by RBI/regulatory agencies). And yet, people get conned. I'm not passing a value judgement/stereotype here, but in the 4-5 consumer complaint sites I've visited, bulk of the complaints have been written in ALL CAPS, broken English, insulting tone, incomplete and childish manner. People have obviously not tried to research it online/write a letter to the company but expect that by posting their complaint for free on a random website, a magic genie will resolve the problem for them. When will the morons learn that nothing of value is free?

Of course, getting conned happens even to those who speak impeccable English and who should have known better(for example even a bank manager(!) got conned in the Nigerian lottery scam). But a majority of those who helplessly seek advice from strangers are of the type I mentioned. Unfortunately, good written English and persistence is needed to navigate the consumer care labyrinth of most companies. Having extracted refunds after multiple attempts, from Airtel, Uninor, Dell, HDFC and ICICI, I can vouch for this with abundant experience. So if people expect that the invisible hand of the market will protect them who only transact blindly, then they are in for trouble.

Tuesday, December 13, 2011

US type IPR framework for India-absurd and utopian

If I'd a rupee for everytime I saw an IPR reform proposal referencing USA, I'd be a rich man! Besides those who see USA as a panacea for every Indian ailment(despite its creaking education/healthcare/fiscal issues), even absolutely rational people point to USA, correlate its global power status to its innovative nature(so far logically plausible) and then make the logical leap of faith to connect it to its IPR. Now,trying to match the same format is absurd in India because of the factors outlined below. For the record, by US type IPR framework, I refer to a system friendly to the inventor rather than public interest; where fast track courts settle disputes; where IPR violations are stringently punished even at consumer level by fines/barring ISP connections and where an entire ecosystem(patent trolls, lawyers etc) extract rent from the system.

  1. IPR protection not embedded in Constitution:-Patent Protection is a constitutional right in USA, while the Indian Constitution does not even guarantee right to property!
  2. Traditional Knowledge and Different culture:The traditional Western model of IP does not sufficiently protect traditional knowledge, and presumes that people need only a monetary incentive to invent. Prof Anil Gupta's work at the National Innovation Foundation, proves that that is not the case.  
  3. We are still net importers.:-India does import IP whether it be directly(royalty payments by Maruti to Suzuki for example) or indirectly(mobile manufacturers paying Qualcomm etc ). And of software, I'm hardpressed to name a single Indian produced software 
  4. And countries grew rich by not paying for IP:-Be it USA(for books), UK(for machinery), South Korea/China(for technologies), even countries topping the innovation charts have stolen their share of IPR. Is India in a position to pay for IP? In a land where good foreign published books can cost a week's average income, is it fair to penalize students for piracy? 
  5. Our legal system would crack:-Intellectual property being a legal right, its ownership.validity can ultimately be decided only in court. And IPR being subject to fast erosion of value if subjudice, not having fast track courts/speedy justice does defeat the purpose. And it is a matter of public policy to decide whether IPR law should get priority over a host of other laws when it comes to justice enforcement. When not even TRIPS requires this, I doubt this will happen anytime soon in India. After all, setting up new fast track tribunals for law/tax cases has been hanging fire. 
I know the above arguments have some logical fallacies(like #4 has the fallacy that two wrongs make a right), but I feel it is not in India's interest to accord that same level of IP protection. If I was a content creator, I would use cloud computing etc to protect my rights via technology, instead of lobbying for changes that overall affect the country. So which kind of a system would I prefer? Something on the lines of utility patents(cheap, simply, for proven useful IPR). I'll do a follow up on this after more research on the subject

Monday, December 12, 2011

Why financial innovation IS necessary and useful

Judging by the number of books/articles/blog posts and Steve Job memorial mentions, one would think that innovators are the most valued ones in this economy, and that innovation is good. But recently, two facets of this debate struck me.
  • Students's dream jobs are now in tech companies like Apple, Google and Facebook-which are all glorified despite significant concerns about privacy, impact by creatively destroying other industries..
  • Occupy Wall Street(OWS) students ambushed recruiting sessions at Yale of Goldman Sachs/Bank of America and harangued them about how their rocket science had resulted in evil.
 It is fashionable to trash the financial sector for creating instruments and structures which induced helpless real world borrowers to spend more, buy homes beyond their reach, and deceived governments to maintain unbalanced budgets. But even leaving aside this simplistic explanation for a moment,  one cannot deny that many financial structures are products of extreme creativity and innovation, and were originally crafted to address real world issues. So why are they now villifed as rocket science/web of illiquid complex assets etc?

Recently, Mr Masaaki Shirakawa, Governor of the Bank of Japan gave a keynote address, at the
Netherlands Bank conference in honour of Mr Nout Wellink on “Welfare effects of financial
innovation” . He focused on the special aspects of financial innovation, and the speech can be read here( The main points he made were
  1. Innovation means changing the way business is conducted in order to better serve the clients
    of the business.changes, which provide the same or better service to clients at lower cost, are certainly innovations in the usual sense of the word.
  2. Innovation can be technology driven or modality driven. Technology-driven innovation
    crystallizes when the application of technology results in a better way of doing business(like ATMs). On the other hand, modalitydriven innovation aims at rearranging business processes for the better(like derivatives risk transfer)
  3. Technology-driven innovations are more likely to be beneficial, because, when the innovator is deliberating on the application of technology, the client cannot usually be ignored. On the other hand, in the case of modality-driven innovations, one can easily lose sight of the client when cutting and dicing existing businesses(emphasis added). Very often, modality-driven innovations are the result of efforts to circumvent regulations, taxes, and accounting rules imposed on the financial industry
  4. Problems seem to have arisen when a product or service is insufficiently anchored in inter-mediation or facilitation of payments(the core function of banks)
 The above chain of arguments would lead one to the premise that unless the financial innovation is anchored in 'basics of banking' like cheaper intermediation/payments system, then its utility is doubtful, or at the very least, subject to more layers of scrutiny.

However, the financial inclusion agenda of regulators, would require banks to adopt technology driven innovations, while the infrastructure financing needs would probably need modality driven innovations to come up with innovative financial structures, eschrow mechanisms and build in adequate safeguards(like MIGA guarantee etc) so that the players would have rational incentives to keep up to their word. And more modality driven innovations would be needed for risk transfer. One can certainly argue that the basic bank and investment bank should be split, but that may make both individually riskier(no diversification) and increase capital costs.Hence, before trashing the rocket science/quants/legal eagles of banks, one should also think of their positive uses.

Thursday, December 8, 2011

The case for prosecuting Tamilnadu CM Jayalalitha for corrupt practice for her photo on free laptops

In Sep-11, the scheme was finalized to distribute a free laptop to lakhs of high school students in Tamilnadu, ostensibly to help with their education. The laptop configurations could have been better, used open source software and included a webcam to allow students to benefit from elearning(as pointed out in this Tehekla article, but otherwise the scheme seemed to be have covered all bases. I was impressed to see a scheme benefiting students instead of distributing colour TVs/washing machines/radios etc. But when I saw the pictures of the first batch of laptops, then the diabolical genius of the scheme hit me. As evident from the photos of the laptop cover in the Mint article(, each laptop has the photo of the CM herself! Even if the laptop life is 3yrs, the students(future voters of tomorrow) and their immediate families will constantly see that photo. This is more effective than any transient publicity like newspapers, TV, handbills..

Now, some may call me naive, or may dispute the efficacy of the scheme's publicity because
  • Every ruling party releases full page advertisements with the party leader's photos, dwarfing the scheme/project for which the advertisement is released for..
  • The CM is an iconic figure in the state, so what difference would it make if her photo is there in one more place?
  • The initial impact will fade away after sometime. 
  • People should be having sufficiently developed voting sense, not to vote for someone just because such a 'populist' scheme is made.
Whatever the case maybe, one cannot deny that she is benefiting from state funds to get her photo into the home of 7 lakh students and thousands of schools.  One would be outraged if school assemblies had the CM's photo prominently displayed, but this  photo display is as bad as that.

Section 13 of the Prevention of Corruption Act 1987 on criminal misconduct by public servants states that (1) A public servant is said to commit the offence of criminal misconduct,....- (d) if he,-..(ii) by abusing his position as a public servant, obtains for himself or for any other person any valuable thing or pecuniary advantage. Publicity and association of the government funded scheme to the personal offices of the CM via the photo, is certainly a valuable thing, if not monetary. 

The hitch with the case is that only a police officer of ACP/above can take up the case, also the person competent to remove the CM(Governor) must give prior sanction, which would invite accusations of witchunt from the opposition, which is already on the warpath and remembers the use of Article 356 to unfairly dismiss earlier CMs. That is a pity, because such a test case would really deter politicians from blatantly benefitting from public funds for their own publicity. It is one thing to claim things in campaign material/rhetoric, and yet another to permanently emboss your image on state funded property.

Tuesday, December 6, 2011

Time for India to derecognize/stop student loans for bad courses?

NASSCOM, FII, industry leaders claim that anywhere from 10%-25% of India's graduates are directly employable after they graduate. Now, one may argue that college is not a trade school, so companies should not expect colleges to do the hard lifting and tailor the curriculum to their needs. Well, that is true especially when it comes to technical subjects where the pace of curriculum revision is slow so companies do not find the contents relevant to their needs. But as it turns out, the issues are with very basic technical skills(coding, logic, knowing accounting principles) and soft skills(English, writing, reading, etiquette, critical thinking etc). Recruiters can quite easily teach technical skills to those with the requisite aptitude but to teach soft skills to 20year olds, is something which should have been handled at school and college levels. So what is the result of this?
  • Low proportion of employable, this is opening the route for 'finishing school' institutes like Purple Leap, NIIT and others. 
  • Enormous application/job ratio for 'safe' PSU jobs
  • Very low level of English and critical discourse on public forums. For example, when someone posts a job with clear instructions to email  the CV, some retards reply with comments under that asking the recruiter to consider their applications.
  • High level of plagiarism and deterioration of writing skills, as students copy/outsource project reports and assignments. 
 While one can go with the finishing school option, this is a clear recognition that the system is broken. But thanks to the powerful education barons(many of them elected legislators) owning these colleges, there is little likelihood of change in the system, despite what AICTE/UGC/NAAC may do. So what is the way out? Social media reviews of colleges, compulsary national level passing out test on the lines of GRE, which would be used to measure college quality at an aggregate level etc. These scores could be then used by colleges to fix filters for the college programs eligible for education loans.And if tracking the employment status is possible, even that could be used as a metric, as also student rating of the college after graduation(via social media/forums)

In the present system, the false notion of education inclusion makes banks extend loans even to colleges they know are worthless, and to students for enrolling in those colleges. This has already lead to increasing education loan defaults, though not on the scale prevalent in USA. Maybe its time to do what China did( and pull the plug on ineffective subjects. I recognize that these would include many arts/commerce courses besides engineering, and while I do not have an elitist bias or prejudice towards any stream, one should recognize that if this present situation continues, the education bubble may set into India as well/.

Sunday, November 27, 2011

Is ICAI really a partner in nation building or a conspiracy against the laity?

During the last 3yrs or so, ICAI has been spinning the message that it is a partner in national building. Noises have been made about helping in training(tax department officers, Government accounting), improving compliance(via audits/reviews), plugging tax loopholes(via prebudget memorandums) and generally ensuring proper flow of verified information. While all these sound good on paper, they are all win-win for ICAI since they come with the additional caveat of more professional assignments, carving out more exclusive niches, mandating tighter rules for SMEs. So is this a self serving stand, or does the improvement in public good offset the private gain?

Adam Smith had termed trade unions/associations as a conspiracy against the laity(''people') as he felt that no good could emerge from a trade meeting behind closed doors. And centuries later, the existence of cartels, industry lobbies and the trade union behaviour has proved him write,  in country after country. And this is true even for professional services associations like ICAI, where the information asymmetry and difficult to understand professional services, ensures  that scrutiny is not much. Few people understand the issues, and fewer bother to raise them in public forums. Hence, under the guise of ensuring better quality services, they get away with practices like severely restrictive entry norms in licensing, widely drafted professional service standards to reduce liability etc-all in a view to maximize the welfare of its members.

Now, if the services(audit, certifications..) were achieving their purpose, then one could be content that the larger public interest in served. But even in the mainstay(statutory financial audit and tax audits) work where decades of experience and well drafted standard exist, the end user satisfaction is on the downtrend. Few investors trust the audited accounts anymore, and even the taxman is resorting to mass online surveilance systems etc to detect cases of tax evasion. And contrary to the Hippocratic oath of not doing any harm, scam exposes have repeatedly revealed the active help and commission by omission of CAs who have been middlemen for bribes, helped launder money abroad, suggested sharp practices in tax, not been critical enough etc.And with LLPs fast gaining traction, the corporatization of the profession will be complete with the 20partner/firm limit being dropped.

So what is the way out? Let the profession not claim to have public interest as primacy, as the hard reality is that it IS becoming a business. Spin off the regulatory function to a independent regulator, and have ICAI as the first line Self Regulatory body. This post seems a rant but I just had to get it away from my system! And unless pro-bono work is done like the BCAS Charitable Institutions Accounts and Audit clinic, the claim of working in the public interest should be viewed with skeptism.

Friday, November 18, 2011

Justifying ebook 'piracy' in the Indian context

As a typical Indian of my generation, I have(in the past) used software and read ebooks without purchasing them. In some instances, they were not legally sold in India(or the Indian edition would be too delayed)-remember this was often in the pre-Amazon boom age. Or(more commonly), the purchase price would often exceed my monthly pocket money. Now, some readers may take umbrage with this and question that would I steal physical books/CDs from a store? If not, then why would I do that for digital goods?

Keeping aside the economics of it(digital goods have zero marginal cost, and therefore are not perceived as stolen 'goods' since the seller is not 'deprived' of anything. Ok, he could have realized the selling price, but the issue is whether that selling price is 'fair' or not ) and the morality(is this theft? Are we taking money from the pockets of the creators, retailers), it struck me that in this case, the David vs Goliath analogy was more apt. I(and doubtless many others) saw no shame in taking from a big anonymous entity out there(Microsoft, Harper Collins), even if we adored the creator(Bill Gates, JK Rowling etc).  And then, IPR awareness is still not that prevalent in India.

Another interesting explanation is that Indians are inherently uncomfortable with knowledge for profit. Since ages, the knowledge in books was freely available to all. While the Brahmin community did try to hoard it by forbidding the education of certain 'lower' communities, that was more out of a genuine belief in the caste system than an effort to profit from their knowledge. In the modern day era, it reflects in the fact that traditional knowledge is often shared without expectation of profit(as experienced by Prof Anil Gupta during his work with the National Innovation Foundation); non vocational accredited education is largely still not legally allowed to be for-profit; and IPR filings for designs/GIs are quite low. And Tagore's famous poem also mentions 'Where knowledge is free'. Now, it is quite likely he meant it in the intellectual freedom sense and not in the financial sense; but they are quite simillar anyway.

So in such a culture(where knowledge is freely shared) and legal environment(poor awareness), one can almost understand ebook 'piracy'. But what about those who are well versed with the legal situation, and who still do it? For them, an argument could be Two wrongs make a right. Basically that since the 'West' robbed the East of traditional knowledge(using it for pharma patents), clinical trials data and other things, this is one way to hit back because the publishers are mostly from the Anglo-Saxon world. Another argument could be that there is no opportunity loss(since they would not have purchased it anyways). Another could be that the prices are too high.

Now, all these arguments could be refuted under the English common law principle of sanctity and freedom of contract. And under the present legal context, one cannot invoke public interest to suggest that ebook 'piracy' is akin to free compulsary licensing of ebooks to those who cannot afford them.
But legal arguments often fall on deaf ears.

Therefore, an interesting way to spur on copyright respect and awareness, is to invoke the Indian concept of karma(like the Chinese principle of joss). Both these concepts would imply that do unto others as you would have done to yourself. Even the most fervent open source advocates would not accept working full time like how many authors do, and then giving away their output for free. But for this concept to be accepted, it is necessary to have a C2C platform between the author and reader. Platforms like Amazon self publishing already permit such a thing, and it would be interesting whether the social media burst(and resultant author-reader interaction) would result in lesser ebook piracy. After all, people hesitate to 'rip off' friends or people whom they know.

Saturday, August 20, 2011

Organizations enforcing commercial laws((YouTube's triple strike ban policy)-is this fair?

Internet is a nearly costless(on incremental cost basis) distribution method, and amenable to use by digital goods industries(media, software, information etc). The relative anonymity and ease of use, provided by internet(relative to other media/distribution channels) enables impulse purchases, but also allows for easy piracy. The music records industry was decimated by Napster(and later Apple itunes), the book publishing/distribution industry is in decline(witness the decline of Borders and the upswing of Amazon/Apple) and other industries(movies, gaming, software) seem destined to go the same way. While some are cleverly averting it with the mantra of cloud computing-where users must operate in a controlled environment where piracy is no longer possible-others are taking legal shield, compelling others to enforce the laws for them.

Take for example YouTube. It does not actively encourage uploads of pirated content. But if copyright owners successfully report pirated content repeatedly, the offending user's account is subject to deletion. There are some safeguards here, that if the user contests the piracy claim, the copyright owner must sue in the courts of law. But given the legal expenses, individual users would mostly not have the will/resources to contest those suits, and may lose. One may argue that thievery cannot be condoned, and that Youtube is justified in ensuing that its users do not use its network to break the law

But taken to its logical conclusion, this argument is dangerous. No organization has clean hands, and some or the other offence/violation/ethical breach would have been committed. If a vigilante takes up those breaches in its hands and decides to mete out instant justice, where would those organizations be? Yet, such justice is conceptually no way different from organizations voluntarily enforcing other's IP. As a ISP like platform provider, Youtube's obligation is at best to delete the offending files. Deleting account access is an extreme step. Such issues will become more important when internet/Google are recognized as essential services.  

Saturday, August 6, 2011

Deregulation cannot be done till market failure is removed.

No regulation is welcomed by industry. And for good reason. Academic theory holds that regulation exists to correct market failure(or the chance of that happening). Regulation does impose costs on everyone involved, and the expense is borne ultimately by end users. But instead of terming it a deadweight cost and calling for 'light weight regulation','self regulation' etc, one should first introspect whether the market imperfections have been corrected or whether the policy framework is self reinforcing. If not, regulation should stay. Few people can openly advocate this position though.

Below are a few areas where 'reform' is often sought, but I propose to show that relaxing regulation would be a disaster, as the market is not mature enough to ensure good behaviour.
  1. Labour laws
  2. Corporate disclosures
  3. Corporate governance
  4. Environmental assessment
  5. Corporate pay-especially to promoters/their relatives
Ironically, people love regulation when it suits them. For instance,
  1. Exercise of eminent domain for private land acquisition 
  2. Coercive savings direction into infrastructure/favoured sector
  3. FDI caps/restriction on foreign competition
  4. Export bans/tax on raw materials(rice/wheat/onion/iron ore)
  5. Subsidized fuel/minerals/freight
So before signing up on that petition opposing 'Big Brother' government, think hard on what you are signing up for. The results may surprise you.

Friday, July 22, 2011

Is it time to review additional responsibilites given to practising professionals?

In the recent years, the response of every professional institute(ICAI, ICSI, ICWAI) to corporate scams, is to indirectly demand additional work for their members. Whether it be precertifying annual returns, allowing fast track process for optionally precertified forms(like availability of name application approved instantly online in such cases), increasing number/scope of audits(secretarial audit, borrower compliance certificate etc), the desired and conferred work have only increased.

But in their zeal to get assignments and execute them quickly, are professionals blindly signing forms? In a June-11 circular(, the Ministry of Company Affairs pointed the case of 11 companies(including a few listed companies like Raj TV) where a basic data field(number of shareholders) was given absurdly high/low numbers which besides being patently absurd violated even the statutory norms/previously filed returns. This reflects poorly on the preparer(company) but even more on the certifying professional, who receives his fees for verifying the return. There is no excuse for this lapse, because even a cursory sanity check would have revealed the absurdity of this.

With responsibility comes accountability. If professionals do not show themselves to be worthy of this trust, then their license to practise should be suspended. Alternately, we should bar such professionals from practise for say 1 month, to set an example for others. After all, the need of professionals was precisely to prevent such garbage values, but now this is happening.

Wednesday, July 20, 2011

Anti Naxalite militia Salwa Judum-a case of police outsourcing gone too far?

Before reading the entire judgement(, I was taking the ultra right view that the Supreme Court is playing into the arms of Naxals, and endangering national security. But after reading the entire judgement and reasoning, my ideas changed too much.

This month(July 2011), the apex Indian legal court(Supreme Court) declared unconstitutional, the tribal militia armed and financed by the State of Chhatisgarh. For some background, note that the Maoist Naxal violence earlier confined to the mineral rich belts of Orissa, Chhatisgarh, Jharkhand etc is now spreading to all deprived areas including Maharashtra, AP etc. An estimate is that 100+ Indian districts are now under the Naxal sway. Besides issues of internal security, this also holds up 'development' projects-both by Government and private sector. The conventional police means have not worked, so the State Governments are trying all means like amnesty schemes, arrests of supporters and special tribal compsoed state sponsored(Indian government often funded upto 80%) militas like the Swala Judum/Koya Commandoes. It is this last one which was under appeal.

The press and 'Civil Society' activists have largely opposed it on ideological grounds-that the State cannot arm tribals, that they are used as cannon fodder etc. These grounds may be valid, but they are policy choices which even courts cannot question. What was questioned(and grounds for holding the militia unconstitutional) was
  1. State abdicating its responsibility to police:- Salwa Judum was seen as an 'off balance sheet' police force, with arms loaned to them, and money given as 'stipend'. The State did not have to contend with tricky questions on human rights violations etc. The Court objected to the State relinquishing its monopoly on violence
  2. Unfairness to tribals:- While expected to do similar duties, under like disciplinary codes and exposed to greater risks, the SPOs just got a 'stipend' and a 'temporary appointment'. No special counter insurgency training was given to them, thus causing risks to both themselves and society. It is therefore unfair under Article 14. Contrast this to the Greyhound force in Andhra Pradesh of simillar composition/objectives, but with a critical difference, that Greyhound staff was part of the AP police, and given superior training/status. This did not happen in Salwa Judum, reading to much higher death rates of 6%, compared to 1%(average) for Central & State forces.
  3. Questionable motivation:- Both army and police recruitment tests apply psychological screens to weed out vigilantist/paranoid personnel, or those who cannot act coolly and dispassionately.  This may lead to field mistakes/massacres, but also far graver consequences.  Local enmities, normal social conflict, and even assertion of individuality by others against over-bearing attitude of
    such SPOs, could be cause to brand persons unrelated to Maoist activities as Maoists, or Maoist sympathizers.
  4. Post termination consequences:- A SPO could be terminated for far lesser cause and without appeal, than a regular police constable. His erstwhile opponents(Naxals) would target him both for his past actions, and then for his special knowledge on informers, operations etc. In that scenario, the sacked SPO would refuse to surrender arms and may pose a risk to society. And when India does not have a witness protection scheme or a way to protect high risk targets(except jail), his concern would be valid. Given that 1200+(out of 3000-6500 SPOs) were sacked since inception, this problem is not a small one.
The way forward:- The argument of Salwa Judum being a 'force multiplier' has been rejected. So unless the Government inducts these milita members into the police, there seems little scope to comply with the SC ruling, as disarm net is otherwise impossible. And hopefully, police outsourcing next time will be less blatant. India does not have its Blackwaters yet, so till then only the State can do the policing function.  

Saturday, July 2, 2011

RBI mandates banks to ensure 'reasonable property prices'-how to implement?

While reading the RBI master circular on Housing Finance issued in Jul-11(, one condition was that banks could extend term loans to builders only for specific projects(no general loans), and not for land acquisition(even as part of project). The subsequent text made my jaw drop.

Care should also be taken to see that prices charged from the ultimate beneficiaries do not include any speculative element, that is, prices should be based only on the documented price of land, the actual cost of construction and a reasonable profit...
 Has anyone even thought about how will the banks enforce this? For a sector without a price regulator, with no accepted costing standards and with so much opaqueness, who will make this work. Let us see each of these 'price elements' which the RBI desires.
  1. Documented price of land:- Land transactions involve substantial amount of black money. But accepting the principle that Govt should punish black market deals, this is fine-punishing the builder for undervaluing the land procurement cost.
  2. Actual Cost of Construction:- What about overheads, interests, construction delays(avoidable costs) etc? We do have accounting standards for all of them, but they need to be audited, on a project basis,  to be of any use
  3. Reasonable profit:- Who determines this? Market(via P/E/ROE/markup) or Govt(price cap etc). This determination is an open invitation to rent seeking.   
Good intentions are fine, but why play to the gallery to mandate something which you know cannot be enforced? This will only give RBI the excuse to point fingers at lending banks, when blamed for rising prices. And at worst, banks may curb term lending and structure it differently. However one slices it, this is just not done.

Sunday, June 26, 2011

Why girls have it good in top Bschools

1.     I would have usually posted this in my blog on my IIMA experiences, but considering that this blog is for 'unsanitized' unconventional views, I thought this will be a better fit. As always, I welcome any comments but no personal attacks please! This post covers the little reported topic about how women find it difficult(relative to males) to get admission in IIMABC(and few other top BSchools) but once in, are on top of the world.   as in admission itself-once they clear the CAT hurdle. 
1.     Bias in admission itself-once they clear the CAT hurdle. Directors openly want ‘diversity’ etc tweaking the criteria to accommodate girls. For example, the IIM-K director openly boasted about tweaking the criteria to ensure 40% girls. Even other IIMs do try to help girls indirectly-for example give weight-age to Board Exams/consistent track academic records, where girls statistically outperform males.  IIM-K for instance, boasts of 'giving preference' to girls and has 35% girls in its 2011-2013 batch. But only 84/121 girls have a CAT percentile over 90-which speaks volumes for the relaxed standards they are applying to the fairer sex. And adding insult to agony, they claim that girls get better placements. With a system rigged in your favour, why won't they?
2.     Demand-Supply equations-can balance suitors for a long time. Males(especially those freshers out of engineering hostels starved of female company for years!) gravitate to women, as moths do to a flame. Like the typical moth, they may end getting burned(losing focus etc) if not careful.  
3.     Placements-on an average, girls get better placed than someone with similar CV-solely because companies have this gender diversity mandate. An investment bank even went to the extent of releasing a 100% female shortlist at IIM-A(find out yourself who!)
4.     More PPOs on average due to better networking (whom would YOU want to talk to-a chick eyeing you admiringly or a male?). Wormen just flutter their eyelashes and play the role of a damsel in distress to perfection, men will come rushing to help. This does help during internships. While a male intern may be perceived as dense for asking a question, the same thing when done by a woman may seem gallant to answer/ help out. 
5.     Flip side does exist-they are minority, seen as 'object', slightly harder matrimonial prospects in certain communities(which do not value that education, so these girls end up doing a love marriage. Someone even labelled top Bschools as a matchmaking place for their female students, but maybe society is to blame for this, because highly educated women may need to pay more dowry or find it harder to get same community suitably qualified matches.  Can’t blame them-2yrs is a long time to know somebody well, and probably safer than the conventional arranged marriage.  Also, they are sometimes stereotyped though-like not offering certain finance roles. This does help for sales/marketing roles though.
7.     They play their own role-contact lenses, downplay their off campus bf, dress ‘appropriately’ especially on placements day-a friend of mine even speculated that part of the placement prep in girl’s hostel is on the art of ‘dressing appropriately’ to wow the recruiter. I forbear comment on this one.

Maybe, all the above can the be justified on other grounds such as ; males themselves give attention, need to encourage women in managerial positions, Indian socio economic position etc. And by no means am I implying that they are less 'competent' in any sense of the word. It is only that 'ceteris paribus'(in terms of measurable parameters like skills, qualifications, impact), women do get that extra edge.

Thursday, June 16, 2011

Professionals/Bankers limit responsibility instead of enlarging it.

Open any audit report or a banking agreement(loan/ISDA etc). They are generally one sided, protecting the professional firm(accountancy, law, actuary etc) or bank(lending, derivatives etc) from their errors, to the fullest extent allowed by law. Instead of mentioning their due diligence, the firms/banks prefer to take management representations on even the most trivial points. And to add insult to injury, even if the client has wholly relied on the pitch book/opinion, he has to legally agree that he has sought independent advice etc.

Recently in India, independent directors and auditors have been jailed; practicing accountants/company secretaries have been pulled up for casually certifying obviously incorrect company filings. But the professional response to this has been to clamor for increased legal protection by shifting the blame on full time executives. The argument runs that only the full time executives know the in-and-out of the company, so only they should be penalized in legal disputes. But then, what does the company pay audit committee sitting fees, audit fees, certification fees etc for? If one cannot discharge its duty properly, they should resign from the engagement, but if they choose to continue then they should bear the cross.

Statutory/Regulatory amendments has handed over plenty of work to professionals/bankers like
  1. CAs have benefited from the mandatory internal audit requirement imposed on firms, and also the increasing number of statutory pre certifications mandated from CAs/auditors. 
  2. CSs have gained work due to the compliance certificate requirement, yet one does not see any substantial improvement in corporate reporting practices
  3. From 2011-12, the Management accountancy profession will boom in India thanks to the voluntary cost audit. 
  4. Banks gain business due to mandatory appointment of investment banks for certain capital issues exceeding defined size, need to appoint independent M&A advisor etc.
Everyone is willing to pen their name to a self serving petition demanding XYZ regulation(which throws some bones to them via new work, increased fees etc), but when it comes to professional reform from within, there is a deafening silence. And it is this that is worrying.

Wednesday, June 15, 2011

Commerce for the uninformed is MORE profitable than commerce for the informed

In the book 'Poorly made in China', the author describes an episode where his Chinese interpreter could get brochures from the supplier's stalls, only because she pretended that the author was a 'stupid' foreigner willing to pay any amount. Indeed, suppliers dream of such customers. Couched in the financial context, such a person would be someone who banks with that institution only, does not shop around etc. For such customers, relationship managers can overprice and get away. The customer's wealth or poverty does not make a difference here, a savvy rich customer would probably be less profitable than the poor rustic. The former would demand free services, personalized treatment, lower rates etc, while the latter would be content with being served. C.K Prahlad's vision of 'Fortune at the Bottom of the Pyramid' probably did not intend ripping off the customer, but that is what happens in practice. Financially illiterate customers pay a heavy price by being sold(this is just the tip of the iceberg).
  1. Insurance as investment(endowment insurance instead of term insurance+PPF)
  2. ULIPs instead of index fund
  3. Unnecessary addons/floaters with their existing products/policies 
  4. Credit card personal loans instead of cheaper secured loans.
 When the nightsoil hits the fan, the customer(or counterparty as he;s treated) has little recourse. If he refuses to pay, the bank reports the default to CIBIl making it difficult for the person to get further credit facilities. And no one can compell the bank to hold back the negative CIBIL report even for disputed cases. Only if the person is politically well connected/forms group of affected people is justice possible, as happened in the recent cases of Standard Chartered & Citibank where HNIs who were missold certain products, pressured the banks to compensate them.  But only informed people do this. Most just grimace and bear it.

For most private banks, the notion of financial literacy means educating the customer enough to understand the benefits of purchasing their products. Banks like ICICI have now funded credit counseling centres like Disha, but on the general education front, the RBI is fighting a lone battle. And no wonder, why would a bank educate a customer that its most profitable products(endowment insurance, structured products, ULIPs etc) are probably not in his best interest.  The way forward seems to have a 'fit and proper' test for customer acceptance, but this is a Herculean task in any economy, let alone India.

Saturday, May 28, 2011

Indian and USA politics-more simillar than different?

When Obama's dream campaign catapulted him into the White House, the USA basked in the glory of electing its first Black President, and questions were raised whether this would have been possible in another country,. The 2004 Bush election fiasco in Florida was papered over, and other democracies seemed guilty of cronyism etc. But now, Indian politics do seem to resemble USA politics in more ways than one
  1. Top politicians's eligibility questioned:- The 'birther' issue in the USA(arguing that Obama is NOT a natural born USA citizen and so ineligible for President's office) resembles the debate in India about Sonia Gandhi's Indian citizenship, which peaked in May-04 when she could have become Prime Minister, but died down after that. Still, peruse any online political forum and this issue hits.
  2. Figurehead leaders:-The USA President's success story in 2009 apart, 2010 onwards has been a logjam in terms of laws, reforms, election results etc. Similar for our Indian Prime Minister who got a nominated backdoor entry into Parliament, and is not perceived as having influence. This was apparent in the recent telecom 2G scam, when corrupt coalition ministers were not sacked in the interest of keeping together the  coalition
  3. Crony Capitalism:- This has been a well honored tradition in the USA with Congressmen openly lobbying for projects for their own constituencies and encouraging unnecessary ''pork barreled' spending. They also derive personal benefits from lobbyists and the companies they represent. While the Indian side was exposed in the Radia tapes(of a lobbyist chatting with her clients of replacing ministers, altering policies etc), it has died down. 
  4. Faith driven politics in large areas:-In the Bible Belt of the USA, aspiring candidates must steer clear of the 3 landmines(Guns, God, Gays) if they desire election. Similarly, in Indian states like Kerala, North East(Christian Church advisory), Western UP, Bihar(where mullah support helps) and in UP/Maharashtra/Punjab(where certain religious sects dominate); faith issues are critical for candidates seeking election
  5. Revolving door between public/private sector:- Many Indian politicians own flourishing business empires(Navin Jindal-Steel; Reddy brothers-Steel; Vijay Mallaya-alcohol etc), and can at times as ministers shape the policies to suit them. This allows an exit option when the political fortunes change. In the USA, this happens in terms of cushy jobs post electoral defeats/return to private legal practice(true for India too). 
  6. Affirmative action angst:- This had not impaired Obama's campaign that much, but it is still used by rabble rouses to whip up fear among voters(WASPs) of being displaced. In India, post the extension of reservations(from 22.5% since independence to 49.5% in 2004-further action not taken only because the top legal court in India has capped it at 50%), the Congress did lose many 'upper caste' votes. 
 This post does not aim to rant on politics but hopes to spark off that hesitation before damming Indian politics as corrupt compared to other nations.

Saturday, May 7, 2011

Will Singapore become another Dubai?

Someone reading this title may think I am crazy-how can I compare a robust economy with one that was(and still is) quite shaky? But scratch the surface and there are more similarities than differences.
  1. Natural resources:- Both do not have significant natural resources(Dubai does NOT have oil, while Singapore needs to import most of its stuff from ASEAN countries/Australia/China). This makes them sensitive to global inflationary trends. 
  2. Politics:- Though Dubai is an autocratic state(Al Makhthum), Singapore is on the way there given that since independence, a single political party(PAP) has hogged 90%+ seats in Parliament. Though the 2011 elections( results were declared today) were the most contested in history with opposition standing in 82/87 seats, they managed to win just 6 seats(compared to 1 in the earlier 2006 elections). While this is a big step forward for the opposition-them winning a GRC(5 MP constituency) and unseating the foreign minister, the future does not augur well for dissent. To be fair though, the reason they have maintained power all this will is also because of the efficient functioning-with just 15% peak tax(till recently), Singapore public services are one of the most efficient globally. 
  3. Restrictions on citizenship/land ownership: Expats get citizenship with difficulty, and are rarely permitted to buy landed properties. The Govt owns all the land allowing just 99year leases. I agree that this is not unique to Singapore/Dubai, but then these restrictions do not encourage expats to invest in Singapore. 
  4. Heavy dependence on expats: As a perusal of the election manifestos shows, Singaporeans are feeling that expats are displacing them from their rightful place in the $100K/yr+ jobs in banking/finance. This is due to many factors(too long to list here) but then it does hit the educated youth hard when they find they are not getting the top jobs in the finance space. Even in other sectors, construction/healthcare etc, the lower rung jobs are also being taken away by Malaysians/Indians/Chinese etc. And now, citizens are asking whether this is necessary.
  5. Going away from core competencies:-Both Dubai and Singapore leveraged their maritime location well to build industries around shipping like ports, refineries, logistics etc, then inviting companies to set up their regional hubs their(Middle East/North Africa hubs from Dubai; South East Asia hub from Singapore). But now, both cities are focusing more on paper wealth created by the banking/finance/services space, and this has induced more volatility.
  6. Entitlement mentality:-As the ruling PAP pointed out often, Singaporeans are getting used to being coddled and expect the Govt to take care of them. This factor is already creating some unrest in Dubai, and may do so in Singapore too later.
 Let me clarify that I have the deepest admiration and respect for what Singapore and its Govt has achieved-creating a world class economy from a marshy swamp. But the way things are going, the parallels to Dubai seemed too close for comfort.

Wednesday, May 4, 2011

Why India's jugaad still trumps technology elsewhere

Tons of paper(and TBs online) have been spent(wasted?) on the topic of that typical Indian inventiveness called 'jugaad' so I shall not repeat the good old platitudes about how jugaad is good...but it has not produced an Apple/Amazon/Facebook. Instead, I put the case that such false comparisons of jugaad with world class infrastructure abroad, is misplaced.
  1. India's heterogeneity and size make systems design difficult:One may long for the luxury of Singapore MRT, London Metro, Tokyo trains etc but the fact remains that in a small high income place, one can ensure good connectivity(as the AC bus connectivity in Mumbai/Bangalore attest to), but those breakdown under population overload too, as the recent MRT expansion in Singapore is happening to adjust to the influx of foreign workers
  2. There is just copying/improvising for lack of resources no real invention:- Correct, but this misses the point that Indian innovation is just focussed in different field. As the high number of Indian structurers, traders, accountants and tax experts go, Indians can find loopholes in most things, because of their practice of navigating India's labyrinth like and illogical tax system. Also, building companies like Reliance, Educomp is not a joke-and those companies are built around quantum jumps while using what we have. 
  3.  More useful for the contemporary world:- When the famed high rollers of the corporate world(investment banks) mention cost cutting prominently in their annual reports/plans, you know that the world HAS changed. And in this, those used to improvising their own tools/methods in resource crunched environments would be likelier to succeed. 
  4. Technology is about how to USE a tool not really about making one:-In the field of finding new applications for existing tools, I believe Indians are up there with the rest.
This post may sound a bit(ok..very!) emotional but this hopefully adds some facets to the huge literature out there. 

Sunday, April 24, 2011

Why 'double taxation' of corporates is justified

Irrespective of the country, one common complaint from business chambers is the seeming double taxation of legal entities-initially on the income they earn, and then on the dividends distributed to their shareholders. The argument used is that substantially, these entities should be viewed as pass through vehicles, and so their shareholders should be taxed on their share of the income from the entity, similar to how partnership firms are taxed.  For good reasons, the tax authorities do not yield to this argument. And the reason boils down to(in my view) externalization of social costs.

Except a partnership firm/individual entity/LLP, all other business forms ringfence the other assets of their investors. In case of insolvency/lawsuits etc, if the business cannot pay its liabilities, shareholders will not be called upon to pay its dues(unless of course they have personally guaranteed the obligations or unless law casts obligations on them like in India where private company directors are liable for unpaid tax dues under certain circumstances). If an entity desires a legal form allowing ring fencing, it should pay its social dues for this service('taxation'). We could of course have an explicit bankruptcy levy on all companies to pay this cost, in lieu of tax. But something tells me that would not go down well either. So we are stuck with this system, which is equitable albeit seemingly logically unsound.

No payment for failure-an absurd proposition

Last year(2010), Gordon Brown's phrase 'no payment for failure' seems to have latched on to the UK financial services regulator(FSA) and UK headquartered banks(Standard Chartered/HSBC etc). Read their Pillar III disclosures and this phrase jumps out at you. Considering all the public outcry over bankers getting fat bonuses despite their bank being bailed out, it only seems reasonable that bankers are not rewarded for failure(of their institution) at a group level, or even individually(if they do not meet their targets).

But from the public disclosures(in Pillar III), what I gather about the implementation is that
  1. Stringent performance targets will be set covering profit, risk, people etc. These targets will be mostly in number of shares/options.
  2. The performance bonus will be adjusted for 'risk'(any adjustment to be DOWNwards only)
  3. Even after that, the vesting of the options/shares will be subject to clawback, deferral and overall group criteria in terms of total shareholder return, economic profit etc. 
  4. And finally, a significant number of people will be awarded Zero bonuses. 
 So those days of hitting a purple patch and then quitting the industry are gone. Even if a banker(trader/structurer/investment banker etc) is eligible for a $10MM bonus, chances are
  1. Immediate cash component will be capped at 10%(viz $1MM-for RBS it is 2000GBP!!!!)
  2. The rest will be paid out in terms of restricted shares-subject to market price risk and insolvency risk
  3. The bonus can be clawed back for N number of reasons-including quitting the organization etc
 Given that top bankers are somewhat like top athletes(in terms of peak earning years), this does seem unfair to cap a lottery type payout. And then awarding zero bonuses for average performers is also hard to justify-if the base pay is not increased accordingly.

Saturday, March 26, 2011

Why reducing IIM fee subsidy actually harmed the whole MBA student body

People feel that subsidizing IITs/IIMs by the tax payer, is like the poor subsidizing the rich. After all, the average pay of the graduates exceeds that of most tax payers. There are flaws with this argument(education as public good, the average fallacy etc) but even taking this as true, there is another major reason for keeping the IIM fee structure low.

For good or bad, most other colleges take cues from the IIMs. Whether it be faculty appointment, case method, admissions(removing GD), curriculum etc, IIMs are the trend setters for most colleges(I say most because a few like IIPM dare to think beyond the IIMs). Even in fee structure, this had shown. Colleges like NMIMS, XLRI, SP Jain etc had benchmarked themselves(and thereby their fees with IIMs). No college could seriously justify keeping a fee structure above IIMs. But with the IIM fee structure(A, B, C) ranging from Rs 13Lakh-Rs 15Lakh(around $30,000-$35000 at $1=INR 45), even lower rung private colleges have been emboldened to keep their fees around 1/2/ 1/3rd of IIM fees, without any improvement in infrastructure/economic rationale for the same. This had hurt the students because placements at those colleges have not improved commensurate with the fees. And for that reason alone, subsidizing IIM students(and thereby keeping IIM fees low) would have helped students at other colleges,as those colleges could not have hiked their fees then.

Please note that I consider the value of my IIM-A education to be much above the fees I have paid-I take no issue with that. But in the larger interest, changing the fee structure to maybe having a deferred fee component, may help students of other colleges.

Friday, March 25, 2011

How Indian newspapers typically fail the Google triple test for objectivity

The very title may raise eyebrows. How can I even compare the world's No1 search engine, to the sensitive sector of news? Though Google News straddles the two worlds of search and news, this post highlights a different aspect. Presently, the Indian news sector(like most other nations) is regulated on quasi-commercial principles. This means that regulators can overrule commercial decisions(selling rates of advertising space, content, circulation) on the grounds of public interest. This makes it paramount for newspapers to keep the customer in mind, or else risk extra regulation, as happened recently when SEBI ordered, But are they doing this?In India, newspapers sell for anywhere between 10%-20% of printing cost, so advertising revenues are key. This may lead one to argue that shifting towards advertisers interest is inevitable? But is it really so? Let us analyze the Google promise(Google does not charge search engine users and earns all revenues from advertisers). They promise the following:-

  1. We will do our best to provide the most relevant and useful search results possible, independent of financial incentives. Our search results will be objective and we will not accept payment for their inclusion or ranking.
  2. We will do our best to provide the most relevant and useful advertising. Ads should not be an annoying interruption. If any element on a search result page is influenced by payment to us, we will make this fact clear to our users.
  3. We will never stop working to improve our user experience, our search technology, and other areas of information organization. 
Against this, how do Indian newspapers(both English and others) perform?
  1. Content censorship does happen depending on the target company. A sign of this is that the main investigative campaigns have originated outside newspapers like from Tehelka, OPEN magazine, RTI applications etc. To their credit, newspapers have carried the items prominently post facto, but this may merely be due to competitive pressures
  2. Advertorials/Special Editorial features etc(HT Media's business daily Mint being a notable exception) carried in the same font/prominence often violates this principle
  3. Indian papers score well on this front. The TOI group for instance has launched focused newspapers like Crest, Spirituality centered paper etc while HT Media has launched Brunch/Me as separate magazines, each for their particular niche. But has this come with dumbing down news? Only time can tell. 

Saturday, March 19, 2011

Has NSE become like Big Bazaar-not creating customer value?

God knows that I have no sentimental attachment to the BSE. In my view, the old broker lobby(which had and still has, a stranglehold on the BSE) is responsible for the scams, market manipulation, investor mistreatment etc that was the hallmark of the Indian markets pre liberalization. In that atmosphere, the financial institutions promoted National Stock Exchange(NSE)'s professional approach came as a breath of fresh air.The list of innovations done by NSE is too large to enumerate-screen based trading, demat etc. But in the last 2-3 yrs, NSE seems to have stagnated. Barring the reforms carried out at SEBI's insistence, there is no new paradigm. But now, BSE seems to have woken up to the reality that it must compete on innovation. It has launched a new very user friendly free platform BSE Plus. This allows an retail investor to(for others there is always Bloomberg/Reuters/CIQ)
  1. Peer Comps(default + pick and choose)
  2. Retrieve annual reports and exchange filings
  3. Visualize certain indicators graphically(presently only default options).
BSE Plus type initiative could have been done by the tech savvy NSE much easier and better. But they preferred to sit it out. And when a new player innovates(like MCX), NSE adopted predatory pricing(zero transaction charges) to kill the competition. This tactic though legal, is not in investor's long run interest.

Similarly, the Kishore Biyani venture Big Bazaar's USP was 'Isse sasta aur accha aur kahin nahin' translating to 'You won't get it cheaper and better elsewhere'. As some one who has shopped in multiple cities(Mumbai, Delhi, Ahmedabad, Pune) over an extended time period, I note that the value proposition has steadily eroded. Groceries, fruits and consumables have become costlier. Branded items are sold at merely 5% discount and they give pride of precedence to their store brands. While this is an international trend(retailers preferring store brands for higher margins), Big Bazaar should simply drop its tag line, which is now more appropriate to a Star Bazaar or a D Mart.

Friday, March 4, 2011

Are we readers to blame for declining editorial standards in newspapers?

It has become fashionable to trash the print media for 'paid news', private treaties' and going soft on their key advertisers like IIPM. But from an economic perspective, what can they do? 

In her book, 'The Indian Media Business', the noted journalist Vanita Kohli-Khandekar(Pg 8) estimates the marginal cost of producing a newspaper to be Rs 15-20. But no newspaper sells for over Rs 1-5(the higher end is more for regional media than for English language papers). And then, the newsvendor may get a commission upto 50%. So the advertisers are the ones who largely fund the newspapers. And given that the Indian reader spends little on serious content(magazines like Money Life, Tehelka are struggling to get subscribers), the publishers have little option than to depend on advertisers. So what other options do these papers have to raise money?
  1. Transferring content online:- Paywalls have not caught on yet(except with Business Standard) but advertisers may support this online content
  2. Offering archives to subscribers:-This strategy, followed largely by print magazines, may work for newspapers if readers need to search a particular paper..
  3. Selling subscriber Data(of direct subscribers):- Papers like TOI, HT, Mint, Business Standard offer cut rate subscriptions(B2C) where they get customer data. This may help them push for better advertising rates and also insurance companies/others may like this data for mail promotions. But regulators may stop this route.
Routes (1) and (2) may at best pay for online prescence. Offline is still an issue.I am not tarring all papers with the same brush. Newspapers like Business Standard, Mint and Hindu manage to navigate that thin line quite successfully but the others quite openly show their priorities.
Bottomline:- Vote with your wallet by subscribing to independent quality media. Else, we do forfeit the right to comment on how the content standards are declining 

Saturday, January 29, 2011

Blaming complex rules-is it shooting the messenger?

Accounting rules(IFRS, GAAP) and legal rules(laws, regulations) are often blamed for their rigidity, antique nature, 'obstructive' nature, illogical etc. But since we mostly listen to the affected party('business')'s view point, I thought it is time to present the other view point also in this post
  1. Rules aim to govern reality: Governments do not wake up and decide to adopt rules for fun. They do so to address a malaise/issue in society. For instance, laws are mainly to resolve disputes and accounting rules aim to prevent window dressing. Rules are often 'locking the stable after the horse has bolter' type of response. For example, the famed US SOX Act was passed after scams like Enron, Tyco broke out. It takes time to make changes and by then things do get obsolete
  2. If unregulated, capitalists go haywire:-When we design the perfect economic system and incentive systems to correct market failures, then we do not need so many 'rules'. But till this Utopian vision emerges, we need rules to protect(or atleast try to protect) society from business
  3. It merely reflects reality:- For instance, accounting of financial instruments is blamed for the crisis(!) but this could well be due to the complexity of the underlying instruments themselves
Points (1) & (3) make the case that before joining in a critique of any rule, we should try looking at the core issue beyond emotional appeals. 

Friday, January 7, 2011

Are professional institutes(ICAI/ICSI/ICWAI) really self regulating?

One does not expect businessmen to discipline themselves but professionals(lawyers/doctors/CA's/CS/CWA's etc) are expected to do so. Even the consumer courts/HC/SC give reliance to the findings of the disciplinary bodies of those institutes before entertaining public complaints against these professionals.

The case for professional self regulation has been that
  1. only a professional can appreciate and critique the work of another('peer review' also based on this)
  2. Professionals work in the public interest and so can be trusted to self regulate themselves.
Sadly, this trust seems to have been some what misplaced. When a professional is arrested, the profession is certainly brought into disrepute. When ICAI, ICSI and ICWAI were slow to act on the press reports, the Ministry of Corporate Affairs(MCA) had to direct them via this letter issued in Dec-10 to take suo-motu notice of such publicly reported cases. The list of professionals (against whom such action is pending) has to be mentioned.

As an aspiring member of all 3 institutes, it saddens me to note that the MCA had to take such a severe step. Even a layperson(let alone an informed member) would expect speedier investigation by the institutes( into professional misconduct resulting in arrest) than by the investigating agencies. Hopefully, the MCA letter will restore some public confidence into efficacy of 'self regulation'