The tale of the lost keys...

7.45 PM.:  It was time to go. All of us dressed to kill.  We had to be at our destination by 8.30 PM. After all it was my office farewell and I was the guest of honor. Arriving late was not an option in my book, though a common phenomenon in our realm. I asked my son to get the car out front and wait for us while we completed the last rites of our departure…

“Give me the keys”, he said. “They are in their usual place”, said I. He searched, but couldn’t find them. So I searched, but also, to no avail.. Then the rest of the family got involved. The keys eluded them too.  Pocket Panic set in - The Wallet, keys, lipstick, comb, spectacles and the like, vital for the journey, but momentarily untraceable.

8.05 PM.:  All of us are still searching. Panic is increasing. Irritability is rising. A Heated exchange of words erupts. The good mood is dissipating rapidly.  The Family is already apprehensive of the immediate explosive future. Questions abound.  Is this casual forgetfulness? Is it temporary, trivial and insignificant? Or a sign of the things to come? Profound questions, but it’s not the time for psycho analysis.

I am annoyed with myself. I last drove the car, and I cannot remember? A Lack of concentration? Too much distraction? Or something else? Is it serious? This was certainly not the first time, despite the self organized centralized deposit for keys in the house….

Is there another explanation? – The disappearing objects phenomenon (DOP) perhaps? – Missing objects found in the most obvious place or in the exact same place it was meant to be or last placed and the finding, accompanied by a soft gentle laughter in the background. Makes you mad, if you are not already….

8.20 PM: Time is running out. I am desperate. I activate my panic busting methodology – Deep breaths, worst scenario visualization, and alternatives exploration. Calmer now, I recheck my pockets and draw a blank. Suddenly, I have an inspired moment. I recall I had changed my pants…

8.25 PM. Eureka! Found them.  Off we go. I have decided to invest in the latest technology to maintain my sanity (and my family) - Blue Tooth stickers linked to a mobile app that triangulates a lost item!. The irony is that next time I might lose my phone!

By

Brian Fernandes

NPA's and Black Money - Time to act....

http://www.newskarnataka.com/news/content/exclusive/NPA-s-and-Black-Money-Time-to-act- 

Newskarnataka - Exclusive

by Brian Fernandes

News Item reproduced from the Daily Mail Website dated 25/5/2014:  A billionaire businessman has been executed in Iran for his part in a $2.6 billion state bank scam following the largest fraud case since the country's 1979 Islamic Revolution. Mahafarid Amir Khosravi, also known as Amir Mansour Aria, was put to death at Evin prison, just north of the capital, Tehran, according to Iran's state television. The execution came after Iran's Supreme Court upheld his death sentence, but Khosravi's lawyer, Gholam Ali Riahi, claimed it was done in secret, and he was not given any notice his client's death. State officials have not yet commented on Mr Riahi's claim. The fraud involved using forged documents to get credit at one of Iran's top financial institutions, Bank Saderat, and dated back to 2007. The credit was then used to purchase assets including state-owned companies such as major steel producer Khuzestan Steel Company. Khosravi's business empire included more than 35 companies from mineral water production to a football club, as well as a firm importing meat from Brazil.   According to Iranian media reports, the bank fraud began in 2007. A total of 39 defendants were convicted in the case. Four received death sentences, two got life sentences and the rest received sentences of up to 25 years in prison. The trials raised questions about corruption at senior levels in Iran's tightly controlled economy during the administration of former President Mahmoud Ahmadinejad. Mahmoud Reza Khavari, a former head of Bank Melli, another major Iranian bank, escaped to Canada in 2011 after he resigned over the case.  He faces charges over the case in Iran and remains on the Islamic Republic's wanted list.  Khavari previously admitted that his bank partially was involved in the fraud, but has maintained his innocence. (Courtesy Lucy Crossley, Daily Mail)

As the new finance minister, Arun Jaitley walks into his office today, apart from concerns about fiscal deficits, inflation and investments, he will have to tackle two significant legacies of independent India – Banks increasing ratio of nonperforming assets, and the issue of black money, which together, can wipe out any gains made from legitimate tax assesses, savings, investments and entrepreneurial activity across India. Interestingly both these issues were close to the heart of the new government…. While they were in the opposition and therefore the public can hopefully rest assured, that they will receive the attention that they deserve.

The Banking regulator is rightly worried regarding the increase in bad loans.  5% of the outstanding loans of the Indian banking Industry  and NPA’s – which is conservatively assessed at 2.4 lakh crore for the top banks – much higher than either the profits or the net worth of these lenders. An ABC analysis will indicate that a few large accounts, account for the lions share of  these NPA’s.  Information available in the public domain suggests that some large defaulters – Kingfisher Airlines, Winsome Diamonds and Electrotherm India – are causing pain for several banks in the system. These defaults also indicate a worsening scenario for Indian business.  It’s a double whammy and a double edged sword.

Take the case of the Punjab National Bank (PNB), the top 30 defaulters owed the bank a total of Rs 1,494 crore on 31st March 2011. This means that, on an average, each of these defaulters owed the bank Rs 49.8 crore. For September 2013, the 30 largest NPAs of the bank added up to Rs 6,310 crore – meaning the average size of each bad account was Rs 210 crore. Clearly, these numbers indicate medium to large sized companies. These 30 defaults add up to 38% of all the non performing loans of PNB.

A similar trend can be seen for other public sector banks as well. In case of Andhra Bank, Corporation Bank, Dena Bank, IDBI Bank and a few others, over half of all outstanding NPAs come from the top few accounts. SBI is an exception – but only because of its size.

Public Sector banks have a large retail portfolio due to their branch spread and this retail lending portfolio is the cover they hide behind when they lend to large corporate customers.  Private banks on the other hand do not  have a large footprint and therefore their corporate portfolio is determined by their linkages and the need for interest income.  Some of the old generation private sector banks and foreign banks, the share of top 30 defaulters is in the range of  85% of the NPAs.

NPA’s are bad because they have a multiple effect on the economy - they prevent entrepreneurial and employment growth due to a contraction of credit availability. They set a bad example for others in the private sector and they drive inflation by dampening availability of goods and services as the supply lines constrict. They must be dealt with before they get completely out of hand.

What should or can be done?

1. Reveal and publicize the names of large defaulters on the basis of an ABC Analysis of  unpaid debt.  Some efforts are on in this direction, by the AIBEA, and some public sector banks.  This must be done systematically at fixed intervals.  

2. Make such defaulters ineligible for bridge and other top up loans or any other loans unless they are able to convince a high power lending committee with an external presence about the reasons for default, and the need and prognosis of the fresh borrowing – This, to avoid impacting the economy by the collapse of the company and to protect the investments already made in the company by the Banks by way of loans.

3. Monitor large investments - A Presence of the board of Directors, would help, but has its limitations in its ability to restructure enduse –  it may be but, a monitoring mechanism, which  I believe is the key to manage repayments.  This is important as many of these loans didn’t turn into NPA’s overnight.

4. Share information - In the case of the retail borrower, banks do share information to prevent bank hopping and serial defaults. However that does not happen in the case of large borrowers due to the competition for margins and income as the sector opens up to competition.

5. Quick and firm action on defaulters - Quicker and harsher punishments for default are a must, if the rot has to be stemmed.  The Legal frame work and delivery mechanisms must match the intention at any cost.  A good beginning has been made in the case of the Sahara group – however that is a case where a company has defrauded individual investors. The key is to apply the same judicial intolerance to bank defaults, because indeed it is the agglomeration of individual savings that has been borrowed and defaulted upon.

Both the RBI and the  Finance Ministry  have realized the seriousness of these twin threats to the very survival of  India’s economy / growth story.  RBI in its Financial Stability Report on December 30 had warned that the strain on asset quality continues to be a major concern. "In a base case scenario, with the present conditions continuing, the gross NPAs (non-performing assets) in the system will rise to 4.6 per cent by September 2014 from 4.2 per cent in September 2013 or to about Rs 2.29 trillion from Rs 1.67 trillion a year earlier," it had noted.  Effective April 1st,  It revised its framework  to tackle this problem.  

The revised approach includes the following:

1. Early formation of Joint Lender's Forum for action plan
2. Carrot for lenders to agree collectively and quickly to a plan
3. Penalty of higher provisioning for delayed actions
4. Independent evaluation for large recast deals
5. Take-out and refinancing will not be treated as restructuring
6. Losses from selling of NPAs can be spread over two years
7. Buying and selling of NPAs between asset recast firms

Simultaneously,  as a part of it’s own strategy to deal with the issue, the Finance Ministry has directed all public sector banks to accord top priority to cases of fraud and willful default, and take legal action against those responsible.  These include cases involving the provision of wrong information, submission of fictitious documents and so on. The finance ministry indicated that the Government would be working very closely with banks . Banks recovered Rs. 18,933 crore worth of bad loans during April-December. They have been monitoring their top 30 bad loan accounts for quite some time now. PSU banks accounted for the disproportionate share in this increase in NPAs, while the new private sector banks managed to lower their NPA ratio. The new finance minister, has to tackle not only inflation and the deficit, but NPA’s too  while providing a credit line for business growth – A tough call


Black Money:

The other significant legacy is Black Money – the income that is received but not declared to the appropriate authority as required by law. New estimates, the first since 1985, born out of research  at the former government’s behest,  by three think-tanks, the National Council for Applied Economic Research (NCAER),  National Institute of Public Finance and Policy (NIPFP), and National Institute of Financial Management (NIFM),  is speculated to have pegged the size of black economy at about 30% of India’s gross domestic product (GDP) or about Rs. 25 lakh crore.
The BJP, in a 2011 report, had estimated India’s black economy to be worth around $500 billion and $1.4 trillion or about between Rs. 27.5 lakh crore and Rs. 74 lakh crore, while US think-tank Global Financial Integrity had estimated India had lost $123 billion ( Rs. 6.76 lakh crore) in "black money" in 2001-10.

These sums, compared to India's total annual welfare spending of about Rs. 3 lakh crore, are staggering. If hidden incomes of Rs. 25 lakh crore were to be disclosed and taxed at 30%, it would generate Rs. 8.5 lakh crore, enough to build a 2,000-bed super-specialty hospital in each of India’s 626 districts. Alternately, it could offer a “zero-tax” year for all individuals and companies, and still enable a sufficient budget that funds all expenses, including salaries and welfare schemes.

How is it generated?

Black Money is generated  from Land Transactions, Encroachments on land, receipt of bribes, Misuse of public property, Misappropriation of public funds, and  evasion of taxes through under valuations. Significantly the largest source of black money is Land (Under valuation to avoid both registration costs and Income taxes)  and bribes.  It also has a source in illegal activities, like, drug running, arms running, prostitution, human and prohibited items trafficking, extortion etc, but in comparison, to the legal sources, it is not so significant. In India, the issue is complicated in that the legal and illegal economic activity is interlaced. A major portion of the black money in India is invested in Real Estate and Share markets as in both these markets capital gains can exceed more than 30% mark. 

Conduits:

Conduits for black money include Hawala, Gold, Under invoiced Inventories, Film production and Illegal holding of precious metals, gem and jewellery and the services sector.  The services sector involves imprecise (over) valuation. For example, an activity worth Rs: 4 Lakhs is quoted at 8 lakhs, and once paid, it absorbs Rs: 4 Lakhs in Black Money.  It mainly operates in the unorganized sector where transactions and delivery are not easily traceable or recorded. 

Estimates:

While there are many methods to estimate the quantum of black money in circulation, a fairly accurate method has been developed by the Global Financial Integrity. It is called as “Block Recursive Dynamic Simulation Model of Illicit Flows“. It is dynamic simulation model that examines the complex interactions between macroeconomic, structural and governance factors that drive illicit flow from India. 

Conversion:

Money of both colors  are transacted through the same activities and entities -  one cannot make out whether it is black or white money being used. Black money may not be used in mandatorily recordable transactions, due to the disclosure requirements, but can be easily converted in transactions involving services, meeting daily needs, discounted real estate transactions and sale of jewelry and gold at a discount, amnesty schemes, donations.

Consequences:

Lower Employment Growth: Black Money is hidden. It does not circulate unless absolutely necessary and in small quantities.  Ideally it should improve employment, but in reality it does not, as investments are blocked by legal requirements.
Lower Infrastructure growth: the Black economy is in the hands of individuals and not the government.  Consequnently, investments are limited to the while money available with the government. Primary schools intended to be set up do not materialize. Roads either do not get built or are of sub-standard quality needing frequent repairs. Badly laid water pipes lead to both shortage and contamination of drinking water. 
Erosion of  institutions of democracy: Money for bribes is easily available and accepted because of the ease of its circulation. Consequently revered institutions and mechanisms of democracy are eroded.  

Remedies

The saving grace is that while the system has become decrepit, the country does not lack well intentioned people.  It is estimated that those substantially involved in the black economy are no more than 3% of the population. In other words, 97% are either not involved or marginally involved. In essence, the vast majority of the people are honest or can give up their expectations of involvement in illegality. Hence eliminating the  black economy is indeed feasible.

First of all,  Political will is needed to curb the growth of Black Money. Double Taxation Avoidance Agreement (DTAA) and Tax Exchange Information Agreements with Tax haven countries will certainly help in reversing illegal capital flight.  Transparency and a reform of the registration – taxation issues related to land transactions is absolutely necessary. Political Party Funding, State Funding of Elections and Tax Clarity and reform is essential. Effective and exemplary action on bribery, misappropriation and crime is one of the keys.  A good beginning has been made with Lokpal and the Whistleblowers Act, but the system and the judiciary need to deliver and deliver quickly on this front. 

Conclusion:

The matter has agitated the minds of citizens and political parties alike for some time now.  It has also received the attention of the Hon’ble Supreme Court which has now asked the Centre to constitute a special Investigation Team under Justice M. B. Shah to probe the issue thoroughly.  Even as the outcome is awaited, public consciousness has been aroused and awareness has increased and citizens that  await with bated breath the lifting  of these Economic Anchors stuck in the sand.

The Modi Victory - A Psychological Perspective

http://www.newskarnataka.com/news/content/article/The-Modi-Victory-A-Psychological-Perspective

The victory was overwhelming. The defeat crushing. The Victorious could not explain – they were themselves surprised – not at the victory, but its magnitude, and the vanquished – they had no explanation. It would not have mattered, even if they had one.

The galvanizing message was subtle, continuous and rhetorical – Acche Din Ayange - I will fulfill your hopes provided you fulfill my goals - Prime Ministership with a 272+ majority in parliament.  The Counter was poor – We have done it all, extended your rights. Divisive politics will destroy you….
One was Positive, the other negative. What did the Indian people choose? The Positive. It’s a lesson that all politicians, perhaps need to learn – Always feed on the positivity of the Indian People rather than use the TINA factor to win them over.

As the Campaign began, the Perception was, that  the nation was in bad shape – the polity was frayed by corruption in both low and high places, there was poor economic and employment growth, prices of ordinary living items were rising beyond reach,  the deficits were growing wider, the centre and the states were in a constant state of confrontation, there was poor defense preparedness, due to delay and corruption in defense purchases, there was a general lack of decision making and a general deterioration of India’s position among the comity of nations.  This perception was in relation to the expectations that people had vis-à-vis these important elements of nation building. These expectations were again the result of perception shaped by the opposition in a variety of ways.

Perception breeds in the silence of the mind – Ultimately it shapes human thought, speech and action. It may or may not reflect ground reality.   It’s molded by a number of factors - the human experience, and external inputs from a variety of sources - human, electronic and print, and in the run up to the elections,  the government’s knee jerk and uncoordinated reactions to events, a policy paralysis caused by a divided UPA, a thought gap between the Congress Party and the Government,  a  divided parliament, and primarily a lack of interactivity with the beneficiaries of its activities and programmes which were primarily carried out by the state governments giving them the advantage of first level recognition in regard to those initiatives.

Obviously there was a perceptional chasm, between what, those in government thought was delivered to its constituents, over the last five to ten years and the expectations the people had. This gap was widened by knee jerked action on the one hand and inaction on the other. It was also impacted by an extensive and relentless campaign in this regard, within Parliament, and on Electronic and Social Media which began almost 2 years ago, which was created and run by brilliant minds, who understood human psychology better than their opponents did or even cared – their disdain for this inexact science  proved costly on May 16th.

There was initially, a sense of disquiet,  then a sense of despair, and ultimately a sense of desperation, primarily among the youth, the middle class, those employed in the private sector and those who owned the private sector –  the class of people that were aspirational and wanted to live the dream  just as our PM in waiting did. He didn’t ignore them, he addressed them, with his slogan "acche din ayange" and they saluted him with an overwhelming verdict in his favor.

The Modi campaign Strategy has indeed borrowed heavily from the Obama Campaign Strategy – Primarily it was designed to be presidential in its approach, where his personality, his charisma and his track record was highlighted over that of his rivals. From the clothes he wore, to the speeches (he targeted local issues, local and national personalities and the future) he made at rallies across various cities, the interviews, the tweets and the like were choreographed so well that television channels were vying to record his presence over the others to raise their trp’s adding value to an already extremely well crafted campaign.

In 2008, Obama inherited similar national conditions from his predecessor George Bush. The American Economy was in shambles, its troops were stuck in a no win situation abroad, immigration,  employment and healthcare were major domestic issues – Consequently his message – Hope, Change and Yes we can.  He won the election on the strength of those slogans. What he emphasized was hope, what he delivered over four years was direction, and very few promised outcomes. Yet he was re elected….  Four years down the line, his slogan was “Forward” – He needed time to complete unfinished business.  His campaign’s number crunching was outstanding – the various analytics that helped him address various people constituencies across the country – their concerns, their needs, their hopes was relentless in its inputs to his campaign strategy.  Winning votes became a psychological game.

Modi’s campaign too, was scripted  just as scientifically, based on numbers from previous elections.  They targeted 295 constituencies for their 185 Bharat Vijay rallies. The data crunchers helped BJP identify strategic rally venues. “Bharat Vijay is aimed at maximizing and strategizing Modi’s outreach,’’ BJP vice-president Mukhtar Abbas Naqvi said while announcing the plan.  They also helped identify local concerns and needs,  the aspirational concerns of the millions of first time voters and the middle class who only wanted a chance to move up the value chain and better delivery of services and most importantly a stronger nation, so that they could hold their head high – when they visited abroad.

The Analytics then scripted  the message -  Hope combined with the  promise of delivery.  People now heard what they longed to hear and voted as they yearned to vote – for a person, not a party, for someone who   promised well being and  a track record that promised delivery.  This message resonated well with the people of India; especially the aspirational class of citizens and the affirmations are there for all to see and what is heartening perhaps for India’s future, is that these affirmations overcame all traditional polity divides.

Reality Check

According to the many experts who  adorn the TV these days, Modi has appealed to the aspirations of  the youth creating hope for the future - Lower prices, more jobs, Less Corruption , a Majority controlled lack of riots, a strong foreign policy and a secure internal environment.  

The Final results are not out yet, but Princes have already become kings....

God Forbid  the Reality over the next couple of years is different from the projections,  but he's worth a try if not anything else. After so much of hard work, sarcasm, and defiance of the countries constitutional machinery, he deserves a chance to set things right - his way.  My Hope always lies eternal. Without hope we are nothing.  However a note of caution, its easier to run a state govt with a powerful majority and appear anti establishment (opposing every move of the center for political one upmanship and gain) than actually running the centre itself and having the same opposition from the states chase you and if you are in a partnership, it gets worse.


Lower Prices - El Nino effect is expected - Monsoons will be scanty- Prices can only go up. Fuel Prices cannot be reduced unless you increase the subsidy burden. You increase the subsidy buruden, defence and calamity budgets will be affected. Same with Income tax rates - budget deficits will grow and in the because of the deficits inflation will again climb - a really vicious circle. In the meanwhile traders who are the backbone of the bjp will horde away to glory minting money.

More Jobs - Manufacturing has to increase.  Land is a scarce resource and the environment is precious. Both have active lobbies and the supreme court also dragged into these tussles.  Credit is costly at approx 10 to 14 % and cannot reduce unless inflation is brought under control - and that as already explained is a very vicious cycle.

Less Corruption - one must tremendous faith in the goodness of human beings to believe that human kind can get rid of its greed overnight and ten years out of power can only increase the thirst. The Gujarat Model does provide for no or a tame Lok Pal and the central law will undergo a change to that model before it is implemented. With the media solidly behind him and his team, ceratinly there will be less corruption......identified and exposed unless until one year into his rule, he can blame it on the previous regime - a favorite pass time of all concerned in the political process.

Lack of Riots: - of course there will be no riots.  People are already scared. As Alistair Maclean famously said fear is the key.  Criticising the big man itself is a scary proposition - one is labelled as anti National and suggestions are even made that such persons  should exit the country. Reminiscent of Germany in the 1930's. The constitutional machinery itself is scared,  forget about the people. So naturally no riots. That's good perhaps for the nation and its record overseas, but  the citizens - they will continue to live in fear...but thats the just way it is...

A Strong Foreign Policy - Geo Politics is not determined by a single person or a country that aspires to dominate - its the sum of a number of factors, from economic strength, to territorial size, to defense preparedness and capacity, to allies and enemy axises. All of these point to the fact that we have to co exist with Pakistan, China, Bangladesh and Sri Lanka. We have our differences with each, just as brothers and sisters do within a family - but we have to co exist. India being the eldest brother in a patriarchal family  to will have to find a way to bring recalcitrant siblings to the table - Refusal to talk may not be an option. Firm engagement probably is. But the expectation is unfortuantely, that a Modi Govt. wil stop talking, send in troops to bring back Hafiz Saeed and Dawood Ibrahim and retake POK even as it dismantles Article 370.  That is unlikely to happen unless schizophrenia takes over.

A Secure Internal Environment - Certainly upto a point, and will be brought about by the same principle that prevents riots - Fear. the Observation machinery is likely to be strengthened and privacy reduced on the plea of controlling untoward incidents. Can we endure that for our safety. Perhaps - but for how long and to what end? 

Yes Hope lies eternal, but the much touted track record (mentioned in so many interviews especially the last one with Arnab) and the ground reality have little relationship to the hope generated and that is what worries an ordinary person like me as it should you...

cam-pain end?

A rally a day
keeps the aam aadmi at bay.
The crowd - it surges
even as the rhetoric
and the repartee
drives you either
soporic or euphoric

Oh for those days
when the roads were clear
the heads were bare
and the clerical staff
and the DM could
sit at their desk
take out their tiffins
and together laugh.


The TV - modified
breaking away
from minute to minute
and often going astray
Talking the talk
wasting time
neither reason nor rhyme
steady like rock.