The real CSR stuff

Maharashtra, which accounts for about 15 per cent of India’s gross domestic product, is the 20th Indian state to introduce some form of plastic ban. On June 23, it imposed a blanket ban on plastic bags, bottles, disposable cups, plates, cutlery, wrappers and polystyrene containers.

With companies such as Coca-Cola and Amazon banging at its door, the state government relented a week later on bottles of drinking water over 200ml, medical packaging, wrapping materials thicker than 50 micrometres and garbage bags. Most shops in Mumbai, the state capital, are so far complying with the ban, and offer paper or textile bags at the checkout. [Link]

Is there any need to comment?

RBI Board appointment

The Government of India has appointed, among other people, Mr. S. Gurumurthy to the Board of Directors of the Reserve Bank of India. It is bound to send a wrong signal to the outside world on which India still depends on capital flows. It is a wrong signal not because he is a RSS ideologue, not because he is a friend of Modi, not because he is a BJP sympathiser and not because he recommended demonetisation, for the wrong reasons.

None of the above disqualify him. as FT makes it out to be.

The problem with his appointment is that he had criticised the previous RBI Governor and his policies for the wrong reasons. I had blogged on it here.

India cannot plough a lonely furrow on recognising non-performing assets as he recommends. It would be nothing short of disaster. India depends on foreign capital. India’s official savings rate and household savings rates have been declining.

India’s deposit insurance is not unique either, as he has claimed in a tweet, captured in this Bloombergquint article on his appointment.

RBI Board members do not have much say on banking regulation and on monetary policy decisions. So far, so good.

RBI Board members do not have to subscribe to Western economic orthodoxy. That it not even a remotely necessary condition for the role. But, it is enough if they are aligned with the wisdom of Indians such as Dr. Y.V. Reddy on central banking and banking regulation. That is not the case with Mr. Gurumurthy and therein lies the problem with his appointment to the RBI Board.

Bhushan, Sinha and Shourie on Rafale

Late on Wednesday evening in Singapore, a good friend forwarded me this link and asked me to go through it fully. It is a press statement or article written by M/s Yashwant Sinha, Arun Shourie and Prashant Bhushan.

At the outset, we have to note that the first two were Ministers in NDA 1 government of Vajpayee. PM Modi has sidelined them. They are bitter and angry. Mr. Bhushan was part of AAP and has pitted himself against the NDA 2 government in many instances.

Their press statement was released in which is also not so favourably disposed towards the NDA 2 government, to put it mildly.

Most SELL-SIDE research (research by stockbrokers and investment banks is called SELL SIDE research) in Financial Sector falls under this category. When they issue a BUY call on a stock, one does not know if they truly believe in the stock or if their investment banking interests dictate that they issue a BUY recommendation. There is a natural conflict of interest. So, it will be of interest and worthy of attention only when SELL SIDE issues a SELL recommendation.

So, like the SELL SIDE above, these three gentlemen have a natural conflict of interest. They have an axe to grind. When someone is bitter and has a personal animus, there will be a tendency to overstate the case, exaggerate a bit here and there and hide some inconvenient details, etc. One cannot lightly dismiss these possibilities.

Therefore, they have to make a rather rigorous case to convince the listener/reader that they have risen above their personal considerations. In this particular instance, when they have taken up something as important and critical as national security, the onus on them to be thorough with their homework is several notches higher.

My current reading of their press statement does not convince me that they have passed the above test. May be, I am wrong. One can never be certain, if one were honest.

To summarise their statement, they think that Government of India is vastly overpaying for the Rafale jet fighter, implying kickback, etc. It is not sharing the details of the contract. It has awarded the ‘Manufacturing under license’ to a favoured Indian private sector entity. These are serious allegations. Very serious. So, how seriously should we take them?

1) what is HAL’s record in defence production? How long did it take to produce the Light Combat Aircraft (single-jet, single-seat) and how comfortable are the Indian Navy and Air Force about the LCA? See here for details. It is a bit strange that Dr. Shourie, the man who privatised public sector enterprises is now batting for HAL with its track record of delivery.

(2) The questions raised by the three gentlemen sound so obvious. So, why were they not raised before and by others?

(3) How many defence manufacturing firms were there in India in the pvt. sector before? I presume the answer is zero. So, naturally, no firm will have a record. You have to begin somewhere.

(4) Understand the hsistorical context: When Korea wanted to become a steel power, they had no resource advantage or knowhow. They told Japan to pay war reparations in steel drawings and plans and depute people. The rest is history. Moral of the story: one has to start somewhere.

(5) Didn’t the French Government endorse the GoI answer on certain confidentiality provisions, after the ‘No confidence’ motion debate? See here:

Hours after Congress president Rahul Gandhi questioned the Rafale Deal, France responded saying a security agreement it concluded with India in 2008 legally binds the two countries to protect the classified information relating to operational capabilities of defence equipment.

That seems to make sense. Few countries would want details of the exact weaponisation and the customisation of a fighter plane to be made public. In fact, there is a healthy precedent with the UPA government Defence Ministers on this. See here.

(6) According to a Government of India press release, the process of acquiring a fighter jet was initiated in 2002 when NDA 1 was in office. UPA 1 and UPA 2 were in office for ten years from 2004 to 2014. They had not finalised and procured the fighter jets in these ten years.

The contract was signed late in 2016 finally, I think. By, August 2016, it was not signed yet. See here.

(7) The three gentlemen follow the ‘post hoc ergo propter hoc’ logic with many of their assertions. In other words, they are innuendoes, as of now.

(8) The clincher: the price of Rafale aircraft:

The most serious allegation that the three gentlemen have brought up is that the Government of India has increased the price from 670 crores per plane conveyed to the Indian Parliament in Nov. 2016 to 1660 crores per plane now!

In Feb. 2015, the French government agreed to sell 24 Rafale Jets to Egypt at EUR5.2 billion. Taking the average exchange rate of EURUSD and USDINR in Feb. 2015 (Source:, the price per aircraft works out to Rupees 1525.2 crores. That was in Feb. 2015. The Indian Rupee is now 10% weaker (USDINR = 68.60) than it was in Feb. 2015 (62.03735 USDINR then) and there are India-specific customisation which could be different from Egypt’s.

So, the current price of Rupees 1660 crore per aircraft for India does not seem odd or does not stink. Perhaps, there is nothing to see here.

It is quite possible the Minister who gave the price of 670 crores per plane in November 2016 was misquoting or did not take into account the correct exchange rate.

Many seem to forget that the Indian rupee depreciated 50% against the US dollar in 2011-13 period, thanks to double-digit inflation, high current account deficit and high budget deficit under UPA 2 government.

Yes, Indian sloppiness can be and is a security risk. Worse, India’s economic performance then was bigger security risk and some are working overtime to bring the risk back.

(9) Now, what about the bad debt problem in the Indian banking system? I think it is a very big economic and a security risk.

Let us crunch some back-of-the-envelope numbers:

India’s nominal GDP as of March 2018: 168,000,000,000,000.0

Stressed loans at 8% of GDP:                     13,440,000,000,000.0

Assume 60% goes bad                                   8,064,000,000,000.0

Assume 50% recovery rate; rest bad:        4,032,000,000,000.0

That can buy                                                   242 Rafale jets at the price of 1660 crores per                                                                                 plane.

Did the three gentlemen issue a press statement and urge the Opposition political parties to get to the route of the bad debt problem in Indian banks, to find out when these loans were made (under UPA 1, UPA 2 or NDA 2?), to whom, recommended by whom (UPA or BJP politicians?), sanctioned by whom and approved by whom and under what authority, etc.?

Tail-piece: In India, nothing except obituaries seems to be above politics. See here. Not even national security.

Final word:

Notwithstanding the above, given the nature of the allegations and given the previous Cabinet status of the two gentlemen making the allegations, it is incumbent upon the Government to share as much details as possible with the public to assure them that the transaction has been undertaken solely with natinal interest in mind and that it is above board.

Wrong solution for a distant problem

I was happy to read Harsh Vora’s piece and it is good that he was thinking far ahead – 10 to 20 years down the line.

I just have the following comments:

The case for freer capital flows, however, does not follow from his argument. If global economies are in a far advanced state of demographic decline – which they are – how do freer l capital flows help overcome the low natural rate of interest problem induced by the aging of the population?

Second, in India’s case, it will still be a developing nation and potential GDP growth improvements will occur through many other channels. In advanced nations, their potential growth is already exhausted. It is between 0.0% and 2.0%. The demographic transition to old age compounds the situation. It is not so in India.

Third, even if the supposed benefit of freer capital flows is that it allows the country to circumvent the domestic interest rate ceiling imposed by aging population is true, it comes with other bigger costs. Monetary policy autonomy is gone, in the presence of capital flows. It is the famous impossible trinity. In fact, it is an impossible duality. The exchange rate regime does not matter at all.

It might amount to burning down the house to get read of the bed bug.

A tragedy and a travesty if…

In today’s MINT, Ajit Ranade argues clearly and convincingly against the Government or the Parliament diluting RBI’ norms issued in February for recognition of non-performing debt. He is right and I agree with him. I had written on this right after RBI came out with its NPA recognition norms in February 2018.

This story in MINT on how the ICICI Bank had made an accounting rule change that enabled it to keep its non-performing loan ratio low and that too without disclosing the rule change to shareholders only strengthens the RBI directive issued in February.

It is all about a culture of accountability that is sorely lacking in India. It is missing almost everywhere, especially in public space.

It will be a travesty and a tragedy to dilute RBI norms issued in February.

State capacity malnutrition

A very sobering piece by Shankkar on Indian governments’ public service delivery or the lack thereof.

Niranjan analyses the economic growth constraints that have become history and leaves us to think about which constraints are binding (or enduring?):  lack of scale in production in farms and factories, human capability and state capacity – read the piece above.

Ajit Ranade on the enduring power sector woes [Link]

What these three articles tell us is that the amount of state capacity – intellectual and execution – that India needs – is of the highest order and, therefore, the ‘State Capacity malnutrition’ is probably the worst malnutrition?

Which PM will address the quality of his Cabinet, the organisational structure of his Cabinet and institute accountability mechanisms?

On the Edg(e)baston

Three days and one session – that is all it took to get a result in Edgbaston – the venue of the first of the five Test match series between England and India. It was gripping but as India entered the fourth day needing 84 runs with five wickets in hand, one had to admit the odds favoured England. Seldom these days have teams performed well overseas. Probably, that distinction belonged to the West Indies team of the Seventies and Eighties and the Australian team of that period too. After that, it is not just India who are supposedly tigers at home and lambs everywhere else. It applies to all teams.

I had watched South Africa in England last summer. I watched a day’s play each at the Oval and at Old Trafford. Hashim Amla, Faf du Plessis – they all disappointed. South African bowlers did not make English batsmen play as many balls as they should have. I was disappointed by their under-par performance.

India had a good outing in England in 2002 and in 2007, not to mention 1986. In 1990 and in 1996, India lost a test each. They were three-test series. In 2002, India drew the series. It was a four-test series in 2002. In 2007, India won the three-test series. India was humilated in the Test Series in 2011 and in 2014. A 0-4 whitewash in 2011 and India lost the final three tests badly in 2014, after having drawn the first and won the second.

Indian batsmen, based on my recollection, have not done that well, with the exception of Vengsarkar in the Eighties and Dravid from 1996 up to 2011. Sachin has a good average against England but he had two good series – 1996 and 2002. The rest – 1990, 2007 and 2011 were mediocre, especially the 2011 series. In that series, he managed two fifties in ten innings.

Ganguly had only twelve tests against England and he has a better average. Laxman had not done well against them, except perhaps in 2002. I am citing all these from memory. In other words, Indian top order batsmen have not fired consistently against England. That, to the best of my recollection, happened only in 2002.

So, the failure of Rahane, Rahul, Murali Vijay and Shikhar Dhawan in both the innings are par for the course although one is disappointed at Rahane’s shot selection. I thought he was made of better stuff. Rahul had a brutish delivery in the second innings but, in the first, the dismissal was of his own making.

It is the pressure, of course, that is built up by the good deliveries that make batsmen play loose shots at poor deliveries and get out to them.

That is the achievement of Virat Kohli in this test match – he did not let the good deliveries creat the platform for the poor deliveries to swallow him!

That said, I would hold his dismissal – against the run of play – on day 2 – as an important turning point in the match. Towards the end of the innings, he was on fire, toying with Ben Stokes and other bowlers. I thought he would earn India a 20-run lead or something closer to that. But, his tame dismissal against Rashid was a bit of a surprise. It came unexpectedly.

The second important turning point of the match was the quick half century+ by Curran. At 87 for 7, India will have fancied their chances of getting England out under 150, at most. The extra thirty runs made the difference in the end.

To succeed in England or to avoid embarrassing series defeats, a team needs at least two top order batsmen to score well and consistently and bat longer. If India does not manage that, a repeat of 2011 and 2014 might be in store. One hopes not.

In English conditions, this England team has a good attack – Anderson, Broad, Stokes and Curran. One has to admire Jimmy Anderson’s resilience, fitness and longevity in Test cricket.

Engrossing game of cricket, no doubt – not very pleasant to watch, if you are a batsman or inclined towards batsmen but gritty game. One that separates the greats from the also-rans. In that sense, Kohli succeeding in this test overcoming his own mental blocks and ego was a far more satisfying outcome for him and his fans than his centuries on other occasions.

Battling the mental demons and coming on top is always very satisfying. It elevates us and maks us better and stronger human beings.