The House Of Tata Rapped On The Knuckles

The House of Tata Rapped On The Knuckles

Just when it seemed the Chairman of the Tata Trusts and restored Executive Chairman of Tata Sons Ratan Naval Tata had got away with a number of  questionable moves, dramatic developments have come home to roost.

Ratan Tata and his advisers have returned to the public gaze as many of their decisions will be examined by the apex court of the land at the behest of ousted former Executive Chairman of Tata Sons, Cyrus Mistry.

The latest troubles come on top of others. Some of the Tata Trusts, indicted in 2015, and promptly challenged by the Trusts concerned, have been held liable in 2019 by the Income Tax Tribunal after examination of the facts.

It is for a massive evasion of taxes, activity not normally associated with a Tata entity. Appeals are under process to the higher judiciary, but the taxes and fines imposed are for violating the terms that rendered the trusts tax-free in the first place. For decades these trusts have worked with integrity and probity. But lately, they have apparently gone in for some profit making in violation of the rules. 

The consequences are onerous enough to break the backs of the trusts indicted. The Tata Group has said the Trusts, six of them out of several more, surrendered their registrations voluntarily in 2015 and should not have to pay the Rs. 12,000 crores called up. They have, in  fact, only had their registrations cancelled by the tax authorities in 2019. These six trusts, though not the main ones, own 39,000 shares of Tata Sons, the principal holding company of the Tata Group.

 And now, to compound the group’s troubles, there is a sensational judgement of the NCLAT, restoring Cyrus Mistry, (also a minority shareholder, along with his brother, with over 18% in Tata Sons), as Executive Chairman of Tata Sons.

This has come after many  adverse judgements over three years in various courts, all against Mistry. But apparently, good legal counsel and persistence has paid off in the end.

The Tata establishment, on its part, has been given a four week window to appeal to the Supreme Court, while the restoration of Mistry is held in abeyance for the duration.

Cyrus Mistry, a 51 year old billionaire, who owns the Shapoorji Pallonji Group along with his brother and other family members, has also been immediately restored as Director on the boards of four leading Tata companies that he was thrown out of.

In addition, Tata Sons, converted illegally into a private limited company as per NCLAT, from a deemed public limited entity (for its sheer size), has been ordered to revert into a public limited company.

All of this has cast serious aspersions on the judgement of an ageing Ratan Tata and his advisers, and damaged the reputation of perhaps India’s most valued corporate group. The turmoil and uncertainty of the legal ramifications going forward is also taking its toll on the share prices.

Ratan Tata, currently in the eye of the storm, was once the very leader to emulate. He took over the Tata Group as the designated successor to J.R.D Tata and both consolidated and grew the companies manifold over the years. He undertook diversifications into newer areas of business better suited to the liberalised era post 1991. One of the greatest successes was Tata Consultancy Services (TCS), which became the Group’s most profitable company.

Ratan Tata recruited N Chandrasekaran, the erstwhile boss of TCS, to replace Cyrus Mistry as Executive Chairman of Tata Sons, but this too has been found to be illegal by the NCLAT.

The irony is that Chandrasekaran, confronted with huge indebtedness and slowing revenues has been following a course very similar to that taken by Cyrus Mistry. He too is cutting away dead wood where he can, and taking steps to hive off companies that are draining the group of its financial resources.

Some of these include overseas acquisitions made by Ratan Tata in the boom years at high prices. These, such as Corus Steel, and, alas, Jaguar/Landrover, are now bleeding cash in recessionary conditions. This, even as others, such as Tetley Tea, are doing fine still.

Ratan Tata, in recent times, has apparently been trying to hide his mistakes or bets that have gone bad because of altered market environments. Some of the new people he has relied upon have departed from the usual high standards of ethics upheld by the Tata Group in earlier days.  In the quest to turn into something of a multinational, vast differences in remuneration between Indian managers in the group and foreign recruits have demoralised many old stalwarts.

It is not clear if Cyrus Mistry will resume his old position once, and if, he is vindicated by the Supreme Court. But if he does, there is a good chance that he will be able to restore the Group to its former glory.  The Mistry family, father and son, has sat in on the boards of not only Tata Sons but various other companies for decades now. Cyrus Mistry is well versed in the Tata ethos, and connected with the group’s Parsi roots.

It is these important intangibles that were being diluted, rather alarmingly, resulting in the Tatas’ becoming just another large conglomerate by Indian standards.

(883 words)

For: WIONEWS

December 19, 2019

Gautam Mukherjee

War Of The Worlds

War Of The Worlds

British author H.G. Wells wrote and published War Of The Worlds in 1897, serialised first in Cosmopolitan magazine, and issued in hardcover in 1898. It took  the reading audience by storm with its descriptions of an alien invasion.

When the visionary Orson Welles, of Citizen Kane fame, narrated an adaptation of the self-same on the radio as part of the Mercury Theatre on the Air series, in 1938, he actually created a national panic in America.

H.G. Wells broke new ground and anticipated scientific developments that came decades later. This, in a spectacular series of prescient science-fiction novels. And Orson Welles also was much ahead of his time. In the cinematic techniques he introduced, his scripting, and the realism of his radio theatre.

As a metaphor for the clash between “The Idea of India” of Nehruvian extraction, with its selective secularist pretensions, and the Modi era’s “New India”, replete with its Hindutva assertions, it could be seen as apt. One world, struggling to survive, the other determined to replace it.

In the middle, are competing interpretations of the Indian Constitution. But is the Indian Constitution really under threat? Is it a living thing rather than a set of commandments set in stone? What is under attack surely is the long standing status quo.

Today, opposing worlds seem to be colliding with great heat and light. In Modi 1.0 many bills were stymied in the Rajya Sabha where the NDA was well short of a majority. And many working days were lost to disruption, both in the Lok Sabha and Rajya Sabha. By way of contrast, Modi 2.0 has been highly successful with passing its bills into acts of parliament.

So now, the protest has mostly spilled onto the streets. Because, in parliament, the government is winning support for its legislation convincingly in both houses. This in the teeth of a noisy but electorally inadequate opposition. Many, nominally in their ranks, are actually siding with the BJP.

The ruling dispensation is still short of a majority in the Rajya Sabha, but this is no longer stopping the legislation.

The fact that the opposition is unable to gather enough support to defeat any of its bills, is indicative of profound and sure-footed change. And the sheer pace indicates there is much more to come between now and 2024. Changes such as the UCC, the retaking of PoK, labour and land reform. It will put the challengers out of commission. There will be no turning back the tide, and the India we once knew will transform into a de facto majoritarian universe without apology.  

It is this trend that has prompted the Home Minister to assure the people that CAA will be implemented despite the protesting on the streets of multiple cities. The protest is seen as a proxy fight against the Modi government itself. It does not harm the interests of Indian Muslim at all.

The parliamentary parties on the losing side are disturbed, perhaps for the anticipated loss to some of their vote banks. It is reminiscent of the opposition fury from quarters such as the Congress and the TMC when demonetisation affected their electoral funds kept in cash.

However, it is still they, along with underground and banned political entities, antisocial elements, gangs of illegal immigrants. This, rather than many students who are being put to use. Together, they are accused of instigating most of the protest. Given that the ethnic Assamese, those from Mehgalaya, Tripura, have a legitimate grouse, that must, and is, being addressed.

This  protest has been sometimes violent, leading to loss of life and limb. It has been accompanied by arson and flagrant destruction of buses, trains, cars, motorcycles and other private and public property.

The new CJI has made it clear that the Supreme Court will not even hear petitions from human rights lawyers and the like against police action to restore law and order. Not unless the violence and wilful destruction stops first. The government has also been quick to tell international commentators to mind their own business.

Bangladesh has offered to take back its citizens living here illegally. France has said the CAA is India’s internal matter.

At first glance, the SC has also refused to find fault with the constitutionality of the CAA, though it will hear petitions against it in January 2020.

This judicial clear-headedness follows on from the historic judgement on the Babri Masjid-Ram Temple imbroglio in Ayodhya. To underline its conviction on the judgement, the SC collectively dismissed as many as 20 review petitions filed since.

There was also no judicial disapproval or censure against the discarding of Article 370 and article 35A regarding Jammu, Kashmir, and Ladakh, before that. As well as various corollary actions taken and promulgations made since.

And all this has happened since the Modi government won its second term in May 2019.

 It is often stated that Prime Minister Narendra Modi and Home Minister  Amit Shah at the pinnacle of this government, are running an authoritarian NDA. That it is a very different, it is said, compared to the one run by Atal Bihari Vajpayee nearly two decades ago.

But it must be remembered also that the Vajpayee government was a large multi-party coalition, with sharp differences in ideology. It had no political elbow room to take action on the BJP’s long standing positions.

Vajpayee and his Home Minister L.K. Advani, depicted almost as liberals by the Opposition, particularly when the Vajpayee era legacy is under discussion, may have played it very differently if they had  a majority  in government.

Even then, some called Vajpayee a “mukhouta” or mask. And Advani was seen once as the hard-liner that led the Rath Yatra that brought the BJP into contention for national power - up from just 2 seats in parliament to 162. But despite this, the ruling dispensation of the time and later did not take the rise of the saffron forces seriously and made no course corrections.

Nevertheless, despite the pressures of coalition politics, Vajpayee pushed through India going nuclear within a fortnight of coming to his full term in power. He was also the architect of the BJPs trademark emphasis on infrastructure, with the massive Golden Quadrilateral Highway projects.

The critics have taken up a propaganda position that is undemocratic, even as they point fingers at the most popular government in over 35 years.

It is perhaps little use to suggest that the old order and its supporters will  never get their way going forward. The change in India is irreversible and  as substantial as the ones wrought by Lenin-Stalin in the October Revolution of 1917, or that brought about by Mao in 1949. But, it is without the bloodshed and the massive purgings of those upheavals.

The people of India are no longer willing to repose their faith in corrupt regimes that never walked the talk. A Hindu Rashtra may nevertheless be blasphemy to those who hang their hat on a very hypocritical interpretation of secularism. After all, it has served them very well for decades.

But turning India inexorably into a Hindu Rashtra is neither a betrayal of its founding principles, nor likely to destroy it. It is a natural and just development to right the wrongs of our early decades. The Indian Constitution may have to be amended in a few articles to stop it being a rod for our own backs in the hands of those who want to turn the clock back.

 The minorities however will have nothing to fear, but won’t be allowed, as before, and to an extent presently, to bully the Hindu majority.  The intelligentsia will have to stop its thinly veiled abuse of the government when it makes changes using legitimate democratic processes. No country should permit this, and almost all do not. And in time, neither will India. Elements in the permanent bureaucracy will have to change their attitude or be shunted out. It is better for many leftist students and thought leaders to see the writing on the wall and not let it come to this.

The government is not saying any of this yet, but perhaps it will.  But for now, if this must still be a war of the worlds going forward, the victors seem preordained, and not the least bit alien. On the contrary, what is being rejected was imported and distorted to suit.

(1,395 words)

For: SirfNews

December 18^th, 2019

Gautam Mukherjee

Capitalism Only Works On Low Per Capita Income

Capitalism Only Works On Low Per Capita Income

When Comrade Sitaram Yechury rails against GDP being a true measure of progress, he is not supporting the Modi government in its hour of need.  

Quarterly GDP is presently at 4.5%, and the fiscal is not expected to return much better than 5%. This is a low-ebb measured by some new markers, as according to the old ones, the prognosis is much worse. But of course, the worm is already beginning to turn, in a cyclic sense. Green shoots of a recovery are beginning to show, and the economy in 2020 is expected to do much better.

The reason why Comrade Yechury is not impressed by robust GDP growth, even if it was to return, is because our per capita income is about $ 2,000 per annum. This is approximately Rs. 140,000/- in round figures. But this is only a division of the income of the country by 1.3 billion people. It is askew. And it might be seen as rather good if one imagines the most destitute Indian making Rs. 11,666.66 per month. 

Of course, this is not true, because the rich own the universe, and the poor don’t have anything. A simple sum of division can’t change that.   

At the same time, in recent years, since the mid eighties, we have lifted over 400 million people out of abject poverty. Another 400 million of the population is, and has become, broadly middle class –more, as it happens, than the entire population of the US. Some 50 million of us are rather rich by any yardstick. The rest, unfortunately, are very, very, poor.

We add some 15 million people to our number every year, most of them are, ironically, children of the poor.

But, even if we power on at 8 to 10% of GDP per annum in the coming years, and take our economy, first to $ 5 trillion, and then to $ 10 trillion, at the present rate of population growth, our per capita will not rise very much at all.

This, even as most demographics show that we are producing more or less “replacement” quantities of babies now, except for some fecund pockets in certain states, and more properly, districts within them.  

Most people in the middle class and above have many aspirations. They are not satisfied with just providing a full belly to their children. This has brought down the number of children people are having amongst this section, irrespective of caste and creed. But the per capita is another matter.

To understand this better, we must recall that our population in 1947 was at under 400 million. If we were still holding the line at that number, even with the vastly better life expectancy of these days, our per capita would have risen dramatically with the present size of the economy at some $2.8 trillion.

But, the thing is, could we have grown as much as we have since?  

What would happen if we had a much higher per capita than we have at present? Remember, in 1958, when we first started reckoning it, it was just $70. We had a tiny economy, despite a much smaller population then, attended by miniscule growth.

For growth to compute, you need low wages, and reasonable efficiency to deliver high returns on investment.  We are not much good at productivity per worker either. A high per capita, on a low efficiency base, would make for a picky, entitled, but not very good work force. Rather like the many in Europe or America, as opposed to those in China.

Combined with many Indian infrastructure bottlenecks and expensive land/ utility costs, we would not be competitive, even with generous government subsidies for the domestic market, let alone the export ones.

The growth in the Indian economy truly began around 1985, when the licence-permit raj started to be dismantled. These were multiple chokes and fetters that saw capitalism as something to be kept on a leash.

Initially, and even nearly 35 years on, we are still reaping the harvest of first stage economic reforms, with approaches to labour and land yet to be revamped. A socialist, unionized, anti-technology labour force can’t expect much of a rise.

Most industrialists are afraid to expand, and certainly don’t want permanent staff with onerous commitments and near unsackability. And a contract universe is not, inherently, particularly well-trained. Developing their skills is expensive, and there is little stability in a contract worker’s outlook.

But still, the Indian economy, powered as it is by substantial domestic demand, in one of the biggest market places in the world, trundles on. Others in the developed world with small populations and high per capita income, see even our 5% growth rate as enviable.

We can, and will, become the 3^rd biggest economy in the world in due course depending on how fast we grow. But, the growth here, as in China, is because we have a large population and immense amounts of people joining the labour force at the bottom. This, even as huge numbers move on up to the middle class.

It is true that GDP is not everything, but neither is per capita. The Victorian Industrial Revolution could have never happened without an ill-paid labour force with next to no benefits. In colonial times, it was the use of slaves and indentured labour than fuelled the success of many enterprises. It wasn’t fair or equitable. It was capitalism.

(901 words)

For: WIONEWS

December 11, 2019

Gautam Mukherjee

The Economy Is Down: Bring Back The Primacy Of Cash

The Economy Is Down: Bring Back The Primacy Of Cash

Even as a cyclic upturn is starting to send out green shoots to revive India’s slowing economy, we need to take a few lessons to heart before the next downswing. A cyclic rescue is not the same, after all, as one engineered by good economic policy. But for the year ahead, we can expect much better times. Call it luck if you like. A cycle swinging upwards has a way of compensating for all the pain of the stagnant years.

The stock market has begun to revive. It won’t be surprising if by this time next year, the Sensex is at 50,000 and the beaten down midcap and smallcap stocks have returned over 50% from their lows. Rural consumer demand, tired of its self-imposed austerity, has picked up. The automobile sector showed some spirit over Diwali, and the new launches are doing well.

Gold, expensive at Dhanteras, even as its prices are declining now, sold in several tonnes countrywide. We have more gold in our homes than all the bank vaults of the world put together. But the government’s reported plans to get hold of it is a bad idea. Indians hoard gold precisely as a hedge against instability and bad governance. And for traditional, cultural, reasons - besides crafting exquisite jewellery from it.

The telecom sector, hit by huge “frequency” rent arrears after it lost its lawsuit against the government, has decided to raise tariffs. It has realised that over a billion customers collectively, many of them smart phone/internet broadband users, will not reduce or give up their phone habit just because there are going to be higher costs.

But what has been going on for most of these six years since 2014? Why is every Modi government union budget and economic incentive tentative?  How much of the  current slowdown is due to global recessionary winds and US-China tariff wars? What part of the downturn is the Indian economy doing badly because of its own misguided policies?

Is it time for the government to take steps to incorporate the cash economy by mainstreaming it? For this, it will have to remove most of the taxes and laws that make it profitable to cheat. Gold also used to be smuggled when there was a considerable arbitrage opportunity. Similarly, the hawala trade,  till the differences in rates was eliminated,  was the preferred, efficient, and profitable way to send money back to India from the Gulf and elsewhere. India is, to date, consistently the No. 1 beneficiary of inward remittances in the world. It receives billions of US dollars worth every year.   

The government strategists tasked with the issue, as well as the finance ministry bureaucracy that advises it, spend most of their time on devising ways to maximise government revenue. This means ever increasing taxation. Albeit, the resulting revenue is to support various development and welfare programmes, pay interest on loans taken, return monies that have fallen due. But, these taxes also go towards supporting the very expensive and ever expanding government.

Perhaps these same people could benefit everybody by devising ways to fuse the bank and cash economies together. They may not get as much by way of direct taxes which would need to be abolished. A select few, compared to the overall population of over 1.3 billion, have to foot all the direct and corporate taxes even after seven decades since independence. This has built a certain natural antagonism into the system and attempts to enforce taxation strictly are bound to be resisted in inventive ways.

Does the government need to change the tone of its economic policies to become more inclusive of all the productive forces in the economy? It would benefit from much faster GDP growth if the entire economy was pulling in the same direction. 

Indirect taxes paid by all citizens and visitors to this country are also too numerous, but at least even-handed. Has the government ever stopped to think what excessive taxation is doing to growth?

A number of low yielding custom duties and others such as capital gains on shares and property should be abolished. These are routinely gamed by those affected, resulting in pools of black money formation and capital flight too. No taxes in this area would mean that people could put their profits to productive use beyond a cramped consumption. It would go a long way towards restoring the elusive animal spirits.

The government naturally aims its welfare programmes to benefit the very poor, both rural and urban, and this is laudable. But it is the middle classes and above, the rich, services, business, industry, that fuel these born-again socialist furnaces. It is these citizens that account for a country’s credit rating.

This aspect needs to be revisited and revamped. Rural India including the entire landed and landless farming universe, may contain 60% of the  population, and, no doubt, a high percentage of the voters, but it contributes less than 15% of GDP now.

Has the government also overdone its digital push? Is it, inclusive of the attempt to force fast-tag on every vehicle plying on our toll-charging highways, a kind of financial put-it-all-in-the-bank rape?

The well- intentioned idea of attacking black money, must be supplanted with new incentives that come out of new thinking. And not just the supposedly virtuous white money universe. Otherwise, you damage, if not take away, an engine of growth that is almost a parallel economy in size.

When you bravely flush out most of the rabbits from the underbrush in the banking universe, long used to evergreening bad loans,  it is bound to stand exposed. The public sector banks, as well as some of their racier private sector cousins, have reached this pass because they were pigs in the same  wallow along with their customers. As for the political overlords, it could not have happened, all 11% -15% of the bank funds that are NPAs, without the politicians receiving their cut.

And the answer cannot be just to top up these corrupt banks with fresh tax payer funds!

Real estate, highly leveraged at the best of times, cannot recover without the excitement of speculation. Speculation demands cash under the present system. If you suck it out, all you’re left with are the 10 to 20% of end-users. The office rental sector is reviving on its own, and this is good news indeed. 

However, to rescue millions of flat buyers stuck in unfinished projects, you need the speculators back. Rs. 25,000 crores offered by the government is much too little. The taxes on the sector must go, including the high stamp duties.

At its best, this much maligned real estate industry represented 12% of GDP, almost as much as farming. It supports at least 50 industries and millions of jobs in its wake. Can the government policy of housing for all by 2022, which is essentially low-cost housing for those who  currently live in hovels, be a substitute for the near death of real estate?

The synergy between a booming real estate market and Dalal Street is also gone. The only money coming in is from FIIs who invest according to their own lights. The Government of India cannot do much about how FIIs perceive their priorities. If it suits them, they come. If it suits them, they go.

The GST is a stream-lined tax, though far too ubiquitous for comfort. But it is easy enough to dodge if you make the sale below the radar in cash with no bill. This is why collections are declining. The answer is to make the GST tax low, with just one slab, applicable not to everything, but a selection of goods and services. It should then be frontloaded without the complexity of the present system. Even now, one can’t dodge GST in those instances when the person before your vendor has notched it up already.

Besides, every state keeps the juicy items out of GST. They profiteer on fuel and liquor, for instance.

The job of government is to facilitate growth in the economy, not make the whole country swim upstream, however laudable its intentions.Particularly, when it places no curbs on its own excesses.  

The primacy of cash must be acknowledged, and the government would do well to come to terms with it. Economics too has its own politics, and this highly political administration would do well to pay heed.

(1,393 words)

For: The Sunday Guardian

December 3^rd, 2019

Gautam Mukherjee