corporate curruption in inda and US

                              

This blog is especially written in response to the article by josh Goodman in wall street journal, his article on ‘what India can learn from the US battle on bribery’ is an excellent piece, but certain refinement is surely needed in Indian context.

He points out quite rightly that it was not only the enactment of Foreign corrupt practices act 1977 in US that reduced corruption, but other factors that accelerated the process were exposing high profile cases and penalising them like Daimler, Siemens (jointly paid penalty of $ 2 billion) which could became model for other corporate to deter them from being involved in the corrupt practices, creating stakeholders in non corrupt practices and political will. There is no doubt that these measures are very important, but what is more important in India, looking at the recent spate of scandals, is little different.

The one common thread that runs across all the major scandals is the lack of automated transparency, which simply means transparency of a kind which is deeply embedded in the process itself. Let me explain it, technically the most democratic form of corporate are joint stock listed companies, the value of a company depends upon the information it reveals in the market, shares prices move as per the prospects of profit, not only that, people are wise enough to gauge the impact of even a political event on the prospects of a company, so movement of resources are ideal, but that never happens in any country, in any company. Why ? because information  are either suppressed are calculated wrong information is circulated to misdirected the choices of investors, this is exactly what happened in Satyam, Worldcom, Xerox, Enron cases where wrong accounting data were provided to the market.

In corruption cases like 2G, antrix- devas deal the major problem was again the same where, contracts or allotment of scarce resources were made through a clandestine deal, only came in the public notice when damage was already done.

So what is needed most, is the reform which embed the transparency automatically, every information that is provided by the corporate must be verified, corporate governance and especially, corporate accounting and auditing need to be strengthened , today ICAI hardly makes any news  about auditing and accounting in Indian corporate except conducting CA and CS exams, this is the high time when 2^nd generation reform is adopted,  listing of public corporate  is achieved, SEBI the market regulator is given more teeth in corporate governance, the overlapping issues between SBI,RBI, ministry of corporate affairs need to be resolved. The more the economy will be open, liberalised and market friendly, the more open information in the market will prevail. The right to information act with some exception need to be applied on the corporate as well.

India is in the nascent stage of corporate governance whose problem of corruption is anatomically different from the corruption prevailed in the US corporates which has a fairly strong corporate culture, the company like galleon and person like Rajat gupta are caught and charged, while in india, we have not heard any galleon or rajat, gupta barring few mysterious arrests like harshad Mehta and ketan parikh.

The political will follows the trend, not the vice versa, political will need to be made a process not an individual effort, to make it a process , it is important to have a strong and vibrant corporate governance, where every possible information is revealed. The major challenge is to sustain the political will not its sporadic application.( the best example is the Nitish government in bihar, who have made development as an issue, so no matter who follows him , he will always be judged on developmental parameters, so successor will be process bound to undertake development.)

Flying woes- bleeding aviation sector

Some 5-6 years back the number of air passenger in India was roughly 5 millions, in 2011 the numbers of passengers were 51 millions, the demand for air travel is growing by roughly 20% and will continue to grow in coming decade, but still baring indigo every other domestic airline is running in loss. The story of Indian airlines and kingfisher is well known to everyone.
So what holds back Indian aviation from making profit?
Well there are number of reasons, first, world over the fuel cost(including taxes) is around 20 to 25% of operating cost, but in India it is around 50%, secondly, there has been steep reduction in airfare right from 2000, while the fuel prices has increased from that time, thirdly, the ground cost,(cost of airport and handling charges) are on rise, fourthly, major and profitable routes are intense competitive and price based competition is continues, fifthly, the funding cost for aviation sector is one of the highest in india.
Probably the most important need of the time is to open the aviation sector, because, the investment has to come from there, the techonology needs to come from the best international players. Swiss airlines was bleeding when it was saved by luftanza, similarily virgin Atlantic was saved by the investment made by Singapore airlines. Years back Singapore airlines proposed to invest in Indian airlines but the proposal was sidelined due to sectoral investment caps. FDI in domestic aviation sector would generate less controversy than what has been erupted by FDI in retail. Its right time to go for iot.

RETAILING THE FEAR AND HOPE

THE much awaited (perceived by the policy makers) big ticket reform, that is FDI in retail has been allowed, well first on the timing of it, there are two views first that UPA was genuinely frustrated over the long delay in second generation reform process, it could not waited more so it was the right time to sail it through, when the country is gripped by  all round corruption issues. Second view says that UPA needed a fresh approval at least by any class, a kind of legitimacy to continue in the office(read corporate class here) so it went for the decision.

 Well the issue has came up at the time when UPA is already at back foot and quite expectedly this issue has been highly politicised, there are some genuine threats and opportunities both, but for good reasons it is improbable that this reform would be a catastrophe for the farm sector and will push our farmers at the level of destitution.                                                          The mother arguments of all type of stakeholders is that it will lead to massive reallocation , in which, supporters says middleman will be eliminated farmers will directly be accessed by the corporate, back end infrastructure will be created, inflation will go down, disparity between farm and manufacturing will reduce etc while with the same forcible logic its opponents argue that it will lead to ruining of mom and pop shops, elimination of small and marginal farmers, massive rural unemployment etc.                                                                     Let's get the fact first, retailing contributes 22 percent of GDP, it earns the bread and butter for not less than 2 million household as on date, the size of retailing business is roughly 350 billion $ annually and expected to grow by 1o to 15 percent in coming decade, moreover AT Carney has ranked India as the most lucrative market third year in a row. Organised retail is just 5 to 8 percent of this market.                                             

 Now even if FDI is allowed, it will go in the highly urban areas, where not only the presence of mom and pop shops are less but also these areas already have presence of organised retailers like big bazaar, so real completion is between Indian and foreign retailers, which is good. Small retailers have their own USPs like any time offering, selling on credit, serving the individualistic demand for consumers, personal relationship etc. Apart from it there are spread in the length and breadth of 6 lakh villages’ there sheer presence can never be challenged by any Wal-Mart, because Wal-Mart is not going to serve the villages.                                                            

As far as back end is concerned, farmers are already in not so good situation, they will definitely be at better side, yes they have small farms but strategy can always be worked out for area and size specific products. New jobs will be created in back end operations. The physical infrastructure creation which will be useful for farmers is doubtful but intangible structure most likely to come.                                             

 Having said that, it cannot be forgotten that jobs will definitely be lost, major loss will be seen in urban small retailing. We are neither Canada nor Malaysia where good and bad example exist for multi brand retailing. I always believe that India is a strange country, what work as poison for others work as elixirs for this land such is the resilience and adaptability of this land.  Who can forget the forced opening of Indian market back in 1991 and the wonder that happened after!                                   

  Finally, the decision has to be finally taken by states, because they will grant the permission for opening of such stores, so there is no need to panic as the new circumstances appear new lessons are learnt new strategies are drawn and this is how development takes place because we like it or not we have to face this, sooner or later, and like many things in life, in this particular case, sooner is better.                                    

ARABIAN CRISIS AND LESSONS THEREOFF

. As the rulers in Egypt and Tunisia chose to hand over power to their own people, Libya still fighting on. the crisis of the Arab world has enveloped entire world, not necessarily for the same reason and in the same order, but to different degree and in different diamension. In one of his remarkable books " Future of democracy" Fareed jakaria had very strongly argued that in any case the Arab world was living at the margin of political spectrum and it was just a matter of time before they explod for larger political change the reason put forward by him were mainly that once a country crosses the certain income limit (around 6000 dollers per capita) political changes are more likely than others since it develops powerful orientation for middle class and business class for further reforms in political field, In arab world till now situation have been little different here governments were so rich that they didn't need to tax people to run the government and in return they never gave much desired popular liberty to people. Meanwhile, one of the most dreaded face of Arab dictatorship colonal Gaddafi was killed by the mob, which was an unprecedented event in the political history of the Arab region. It has created various new implications for the world politics in general and for arab politics in perticular. For the world politics massage is loud and clear, firstly, no country can enjoy political immunity no matter how rich it is.seconly, political vaccuum, immidiately after lost in the faith by people in governmental agency needs to be filled by an international arrangment otherwise it will produce political chaos, thirdly, pampering of Arab world by the western power which is probably the biggest reason why political reform in Arab world is obstructed, need to be stoped. Fourthly, political conspiracy at international level, polarism should be ended so that international community could not remain only the mute spectetor in the event of international crisis

Scenario of higher education in India

once again,India is on the crossroad, there was a time during 60s when India was regarded as coming superpower while many other countries like South Korea, Malaysia, Thailand were regarded basket case, fifty years down the line case is upside down. The reason- set of policy choices adopted by them and by India differed crucially and so did the outcome. Now again, international agencies, think tanks, intellectuals are talking the same thing or in other words time has taken a full circle and once again opportunities are knocking the doors, policy choices of today will be an outcome of tomorrow.

The greatest opportunity before India is its demographic dividend combined with the arrival of knowledge based economies. The key to capture this opportunity is the revitalization of India’s education sector in general and higher education in particular.

The current status of higher education in India is grossly inadequate; the enrollment ratio in higher education is dismal 6% which is one of the lowest in the world, comparing with the USA where it is 25% to 30% there is huge gap. On other parameters, only 400$ per year per student is the amount of public expenditure in India while comparable amount in USA is over $9500 and in china $2728. Although systematically, public spending on education has gone up but still it is less than 1% of GDP in India, while it is in much higher proportion of GDP in other countries.

The growth of higher education in India has been phenomenal. Starting with 1950- 51, there were only 263,000 students in all disciplines in 750 colleges affiliated to 30 universities. This has grown by 2005 to 11 million students in 17,000 Degree colleges affiliated to 230 universities and non-affiliated university-level institutions. In addition, there are about 10 million students in over 6500 in vocational institutions. The enrolment is growing at the rate of 5.1 per cent per year.                   However, of the Degree students only 5 per cent are enrolled into engineering courses, while an overall 20 per cent in sciences.

There are few important features of higher education in India

·         Highly bureaucratized system with multiple controls and regulations exercised by Central and State Governments, statutory bodies (UGC, AICTE and others), university administration and local management.

·         System is heavily subsidized by the Government. Up to 90per cent of the operating costs are paid for by the state. The efficiency of fund utilization is very poor due to internal rigidities.

·         Salary and compensation for teaching staff is poor and, therefore, higher education institutions are unable to attract and retain qualified and trained teachers. Besides unattractive compensation packages, recruitment procedure is lengthy and working environment not conducive to retention. As a result, a substantial proportion of high ranking students who could fill up such assignments prefer to work elsewhere or go abroad.

·         Most institutions offer outdated programmes with inflexible structures and content. While course content has been updated and restructured over time in the world’s best institutions, Indian university curricula have lagged behind.

·         Multiple regulators and overlapping of regulatory work

·         No consensus on entry of foreign universities

The major challenges can be summarized as follow that has gripped the higher education sector

The Government’s dilemma is well known. On one hand India has a huge population of uneducated children and the Constitution provides for free and compulsory education upto the age of 14. On the other hand, the growth of the knowledge sector along with BPO is sending a new signal to the economy. The experiment of India in developing its institutions of higher learning has paid off. While growth in South East Asia, starting with Japan, then the Asian Tigers and now China, is export led in nature with cheap manufacturing products leading the fray.

    India’s present growth is led by service sector, which has had a boost due to the ICT revolution. However, this is a skill-intensive sector and India is now moving up the value chain, which calls for greater R&D efforts and requires knowledge workers as opposed to manual workers. A new strategy for meeting this challenge needs to be evolved with complete policy commitment on the part of the government. The knowledge sector boom unfortunately, can only reach the initial benefit to the educated, who are generally better off and, therefore, does not impact on the poor directly. The manual labourer who can qualify for a factory job is excluded from this growth process.

  This new window of service sector export led growth in India is not an opportunity that

can be frittered away. Similar to export of manufacturing, which requires an infrastructure of roads, electricity and dedicated manual labour, service sector export requires a steady supply of highly skilled manpower which can only be supported by a robust Higher Education System along with an internet infrastructure that is both deep as well as broad. Seen from this perspective, the business of providing appropriate higher education opportunities is not just the concern of the Ministry of Education, but all other ministries with operations in related areas such as, the Ministries ofCommerce, IT, Communications, Health, Science & Technology, Finance etc.

                        

A silent revolution in Bihar

Amidst all the good beginning in Bihar there is yet another albeit, less known revolution is at work in the state, this is in the field of primary co-operative societies. They are primarily involve in credit delivery for practically all purpose to the villagers, they fund themselves from loans granted by upper institution like district cooperative societies, state cooperative and from NABARD. apart from it they also mobilize local savings. In nutshell they work like rural banks. In the middle of massive financial exclusion in rural India their presence is very important.

In the various studies conducted by the state and central government across India few common fact emerged and largely all were negative like hugely loss making, very weak organization structure, low recovery of loan, highly dysfunctional, moribund work culture, high burden of loan, weak networking etc, some committees even recommended scraping up of this structure altogether, but strongest positive thing of all, and that was well recognized by the successive committees was their deep penetration in rural hinterland, there sheer presence at such a ground level and its accessibility to almost every villager absolve these societies from the crime of dysfunctionality.

In Bihar alone there are more than 6600 PACS, before 2003 hardly any of them were profitable but gradual improvement in law and order and trust of people in governance led to increase in the activities of PACS, people started depositing money and more importantly started taking credit from it, as it was more convenient to them in terms of conditions etc.

A very vibrant model emerged in the district of Samastipur, here in SARAY RANJAN panchayat, chairman of PAC transformed the society from a moribund to a huge profit making organization, when he took over the charge, there was deficit of Rs 19 lakh and by now it has a profit of Rs 55 lakh society distributed credit of Rs 6 cr in the panchayat In this financial year alone and have a surplus of more than Rs 1 cr. And this is the story of one panchayat , this scale of achievement is unimaginable for any single financial entity and just imagine the scale of financial inclusion ! The chairman became a model and now imparts training to other PACS, today more than 200 PACS are running in profit.

How he did it, simple answer from him that he used the social connection and credibility to pursue people for deposits, rather than taking deposit first and giving return after some time he reversed it to gain the confidence, sheer dedication to work, identified the group for credit.

What matter most for village people is that there needs are taken care of, you trust them and they will trust you more and that can be the foundation for bigger programmes like in case of above panchayat, we don’t need to import technologies, answer lies in capitalizing the immense social wealth in rural areas.

It’s my way or highway

There is hardly any doubt about the merit of the institution of civil society in any country, in fact they strengthen the democracy and serve as a bridge between otherwise unrepresented social group and the decision making bodies, in countries like U.S. numbers of registered civil societies run into several thousands, they are well protected, having good source of revenue, have very strong lobbying and that’s why they exert very effective influence on policy making and have great contribution in deepening the institution of democracy itself. Quite importantly they also serve as a backwater for the political class and it is not ironical that countries having strong and influential civil societies generally have less chances of plunging into political crisis, although any country being completely immune from political disturbances is out of question.

In India civil societies have a very long history but that became buzz word especially after Anna hazare’s zantar mantar fast unto death exercise. Bending a reluctant government or political class for a just demand was something like a breeze of fresh air not really known by present generation which has remotely heard or reluctantly studied about Gandhian techniques. People cheered victory, crackers, congratulations, and the battle was won. But then, another fast by yet another prominent personality and story goes on.

Now there emerges some serious questions, like first -against whom the whole exercise is directed, when gandhiji did this it was directed against a regime which was unelective , superimposed by British to serve the imperial interest, but here, the case was just opposite. Secondly is it worth meeting all demands without compromising the position of some other institutions, thirdly how far is it feasible to translate every wish list into a sound , concrete policy at least in short run. Fourthly wouldn’t it create a perennial problem, if at every now and then civil society start using this technique to pressurize the government? Fifthly is it not possible that those who are publicity hungry may resort to the same technique used by the genuine one? Sixthly isn’t that civil society might be moving toward political blackmailing.

What would be the answer of above questions depend on how civil societies are going to get themselves identified, if they are  going to be noisy, destructive, coming across the way of every legislation, the answer would be negative but if they choose to be constructive rather than merely criticizing everything  then answer would be positive. The point is, we have to draw a line somewhere separating the crucial from mediocre elements otherwise , probably we will miss the entire objectivity in this vital rise of civil society.