Foregone Conclusion At The House Of Tata

Foregone Conclusion At The House Of Tata

Cyrus Mistry likes using the phrase ‘foregone conclusion’, and well he might, because his is a battle between youth and age, one that the old cannot, by definition, hope to win, no matter how the initial chips fall.

He used it twice however, in the context of his unceremonious ouster occasioned by the Tata Sons’ brute majority in companies Tata Computer Services (TCS), and Tata Teleservices, recently.

But it is increasingly clear, that when Ratan Naval Tata (RNT), suddenly sacked Cyrus Mistry (CM), just 4 years into the job, at the end of October 2016, he not only further besmirched his own legacy, and threw Tata Sons up for grabs, but sealed his own fate at the helm of the Tata Trusts.

The shock decision immediately cast fresh aspersions on the 79 year old patriarch’s judgement. The construction ‘A’ lister Shapoorji Pallonji’s younger son Cyrus, is, after all, not only a familiar, but an insider.

He has been a director in Tata Sons from 2005. That was when CM succeeded to his father Pallonji Mistry’s board seat on his retirement, after soft-spoken decades as the legendary ‘Phantom of Bombay House’.

CM was, ironically, both a member of, and the selection committee’s unanimous hand-picked successor, after a global search that took it three  whole years. And this selection committee was chaired by none other than RNT himself.

But all this seems academic now. The coup-like nature of CM’s sacking, and the acrimony that has followed, has had several unprecedented consequences for the Tata Group.

Not the least of which is the likelihood that nobody worth his salt is going to take on Cyrus Mistry’s mantle, with a glowering 79 year-old, but far from retired RNT.

Nominally Chairman Emeritus till lately, he’s put on the gloves again, overseeing the Tata Group’s day-to-day activities, fighting pitched battles with CM and friends, all this in his dotage.

RNT pulled this caper off successfully in his first decade at the helm, forcing out satrap after JRD-era satrap, aided then, by friend-turned-foe Nusli Wadia. But, he may find, this time, his victories are pyrrhic, at best.

It is clear now that RNT never really let Cyrus work in an unfettered way. This partly because of a lack of trust that developed quickly between them. And partly because, he did not want the embarrassment of having some of his latter-day, less than financially sound acquisition and funding decisions, as it has turned out, to be reversed - the loss-makers hived off, and sold.

The irrationality of it is in that RNT still does not want the financial haemorrhaging to be stemmed, despite all the washing of dirty linen in public.

He rather wants to see that the distressed units are helped back into health, with fresh capital injections as necessary. RNT calls this the Tata way.

CM, perhaps not being a Tata, sees things differently, with less sentiment, and has been quite effective in improving the bottom-line over the last four years. 

This is pointed out also by several of his eminent supporters, for example  on the board of Indian Hotels. But it has involved some RNT era men, even favourites, being let go, and ‘peripheral’ concerns, some acquired by RNT, to be sold.

But now it has gone beyond philosophical and ego differences, with the decision of the sacking, and its contentious aftermath.

As CM has been ousted from the holding companies- Tata Sons and Tata Industries, it is logical that the aged RNT too must go, giving up his much too hands-on demeanour, and from the Tata Trusts too, so that he does not overwhelm the new inductee afresh.

So it is hardly surprising that six weeks on, on December 16^th, after weeks of  damaging headlines and TV panel discussions, the media prominently reported that RNT would step down, by mid-2017, from all the Tata Trusts.

This, after inducting a successor in the interim, not necessarily a Tata, or even a Parsi.

RNT, along with his closest aide ‘Venkat’, and by implication, most of his other staunch loyalists, both on the trusts, and in the holding companies, will all have to go.

This, even as his predecessor JRD Tata had controlled the trusts for the two years he lived after handing over the Tata Sons mantle to RNT in 1993.

RNT promptly denied the media reports, though he conceded that moves are afoot to put in a succession plan.

But the motivated leak shows division and cracks, even in his internal ranks, for the first time since the fight began. This suggests his support from within is slipping away, in the face of behind-the-scenes pressures.

The Tata companies have lost nearly Rs. 100,000 crores in shareholder value.  In the fight, it is a clear divide between RNT and his mostly ageing cohorts, and the much younger Mistry camp.

And while neither side is shying away from a prolonged and expensive series of legal battles, there is just so much the aged patriarch can hope to achieve.

When RNT dies, since there are no obvious heirs, in this not obviously family conglomerate, it is possible, even probable, that the Tata Group and the Tata Trusts will metamorphose into a post Tata, post- Parsi-led avatar.

That the induction of Cyrus Mistry in 2012, was an effort to at least keep the group Parsi in complexion at its apex, makes this falling out all the more ironic.

But while RNT must inevitably lose out in the bigger scheme of things, Cyrus Mistry with his family holding of 18% in Tata Sons, and the ability to acquire more stakes in the key public operating companies, will not let go in the post-RNT future.

Mistry’s side has been joined by several independent directors in key operating companies, most minority shareholders, and the formidable Nusli Wadia.

Nusli Wadia was reportedly JRD Tata’s first choice, to succeed himself but Wadia turned it down. He is the authoritative long-standing independent director in three important Tata companies, and Chairman of the Bombay Dyeing Group.

Wadia, outraged at Mistry’s ‘unjustified’ ouster, and the effort mounted  to dismiss him from  his directorships in key operating companies for supporting Mistry, is fighting back. 

He has filed a defamation suit with massive damages sought against RNT and several other directors of Tata Sons. In addition, Wadia has written to the institutional investors, like LIC, which control most of the Tata operating company shareholding, and addressed the small shareholders/media too.

All this, prior to the series of ongoing extraordinary general meetings (EGMs), called by RNT.  

Wadia and Mistry both have pointed out many of RNT’s allegedly wrong decisions,that they both disagreed with, and have tried to remedy.

These include continued funding for the failed Nano small-car project, pouring money into very expensively acquired Corus Steel in UK/Europe, with little hope of seeing a near-term profit, when  the money would have been better spent  on Tata Steel, in India, and so on.

Other charges include violations of company law and foreign exchange laws in the joint venture with Air Asia, yet another aviation venture unlikely to turn a profit.

The Tata Trusts control 66% of the Tata Sons shareholding, and have been exerting executive control  over both the holding companies,  and the operating ones, in a manner unsuitable for charitable trusts and their tax-free charters.

This complaint has been noted by the government, because of detailed representations made by the CM faction; and it has raised various questions of propriety.

This more so, because the Tata Group is now a multi-national, with joint ventures abroad, foreign managers, involvements with foreign governments, even as it is the premier private sector group.

While the government and the institutional investors owned by the government have officially adopted a neutral stance for now, they are working behind the scenes to set things right. This means that RNT’s personal hubris and sense of entitlement will not be allowed to take things too far.

This most particularly in terms of the succession, both in the holding companies, and the trusts.

In hindsight, RNT ignored the fact that in summarily sacking Cyrus Mistry, he was humiliating and attacking not the usual company executive, or even a corporate satrap as of yore, but a man with a family fortune in excess of $8 billion, an eminent lawyer for a father-in-law, and RNT’s half-brother Noel, for a brother-in-law.

A man, who has inherited 18% of Tata Sons, the single largest holding after the Tata Trusts, along with his brother Shapoor.

A man, who’s family has been associated with the Tata Group for over a 100 years. One who is a leading light of the tiny Parsi community,  just as prominent as RNT himself, and with powerful mutual friends.

In the medium to long term, this current turmoil in the Tata Group, will probably benefit its millions of shareholders, by shaking off the old guard, and cutting out the pre-1991 era deadwood.

But there is no doubt, that the entire matter could have been handled very much better.

For: SirfNews

(1,498 words)

December 16^th, 2016

Gautam Mukherjee

Windfall Profits In Debt Funds To Continue

Windfall Profits In Debt Funds To Continue

One happy side-effect of demonetisation, is in the engendering of windfall profits in 100% Indian Debt Mutual Funds. The Economic Times called it an injection of ‘adrenaline’.

Many of these returned 30% annualised, in funds holding medium-term securities, with maturities in 1 to 3 years, and even some maturing in 3 to 5 years. The Gilt Funds holding 100% government paper, some with even longer durations, did just as well.

Others, shorter-term - bonds, debentures, government securities, for periods ranging from 3 months to 1 year, also performed. And the absolutely ‘liquid’ funds, that are used to park overnight funds etc. returned an unprecedented 12% in November 2016.

Going forward, RBI Governor Urjit Patel, chose not to reduce the repo rates in early December, against expectations, but reportedly fearing inflation topping the target of 5%.

Even so, the debt funds at the top-end are still expected to return 25% annualised for December 2016.

The RBI Governor did cut 25 bps in September, soon after taking over, but the high street banks were slow in passing on benefits to their customer borrowers. This might have influenced him this time.

Because, now, with such a wealth of money, banks are cutting fixed deposit rates on their own, if not the lending rates too. Bank fixed deposit interest rates are bound to see further declines in the near term. 

Cuts in the repo rate of 25 to 50 bps, are expected early in 2017. This, as a measure to revive demand for loans, if the banks haven’t managed to pump up their portfolios at self-motivated and cheaper rates of interest.

The banks  have no reason to hoard money now, nor refuse to lend to good prospects, because their NPAs and bad debts, all less than 10% of assets anyway, are not nearly as burdensome.

Also, to date, over Rs. 12  lakh crores, of the  estimated cash held in Rs.500 and Rs. 1000 currency notes, has now come in.

Some of the sudden excess liquidity has also been sucked up by the RBI  via raised CRRs ( cash reserve ratios) towards system stability.

With a slack loan portfolio however, banks have been buying government securities ‘aggressively’,  also contributing to a rise in bond prices.

The bench-mark ten-year yield, for example, came down to 6.43% by the 21^st of November, from 6.80% on November 8^th.  

The yield on 3 month bonds also declined from 6.40% on 8^th November, to 5.94% on the 21^st of November.

Long-term bond holders gained 2.8% in days, the amount normally earned in 3-4 months.  Long–term Gilt funds too garnered more than 3% in absolute returns in November.

The pace of depositing the old cash has now slowed considerably, suggesting it might run out soon. If it does, any amount short of the estimated money in circulation, even if it is just Rs. 1 lakh crores, will be a bonanza to the RBI, and the government.

So how much will be in by year-end? And then, how much more, directly to the RBI by March-end 2017?

How will the budget announcements of February 1^st, 2017, the Finance Minister hinting at a reduction in direct taxes, affect the equity and debt markets?

The Indian equity market has been hit since Trump’s election and the demonetisation.  But the debt market seems detached from the  tumultuous front-page goings on, and confident  of the future trends, both based on the fundamentals of the economy, and the massive pseudo-recapitalisation of the banks.

Of course, deposits into the bank by customers is not the same as equity injections by the promoters and the government, but still.

There have been scattered reports of even more demonetised currency notes being out there than the current government and system is aware of.

Figures of a ceiling of 15 to 17 lakh crores have been mentioned, which constitute 86-87% of the currency in circulation. But the vagueness suggests nobody quite knows for sure.

And now, reports suggest, that there may be as much as Rs. 20 lakh crores out there, the excess clandestinely issued by previous governments, ‘off the books’.  

If this is so, it would raise a number of serious questions with regard to the authenticity of the country’s erstwhile fiscal management.  And produce the need to come up with unprecedented confidence-building remedies.

Meanwhile, some Rs. 19,000 crores of the smart money has been invested into debt mutual funds in November, and more, retail, domestic institutional, and foreign institutional investment, is bound to follow.

This, to take advantage of the mouth-watering returns at minimal risk and volatility, compared to bank FDs, or even other debt markets around the globe!

However, over Rs. 17,000 crores in FII investment, from a total of over Rs. 30,000 crores  of their money, has departed our debt markets simultaneously.

This is a safe-haven manoeuvre, versus the risks of emerging markets (EMs), and might continue, particularly from the higher risk equity markets in India, which have also seen steady outflows ever since the steady US economic recovery.

This is spurred by the 3rd modest increase of 25bps effected by the US Federal Reserve Bank recently, bringing their interest rate up to a magnificent 0.75% p.a., after nearly a decade of near zero.

Also, the decisive election of billionaire businessman Donald Trump has set off a boom in the US stock market, if not their debt market, to the same extent. But since the US stock and debt markets are the biggest in the world, at many multiples of ours, every blip makes a volume difference.

But still, the returns in our Indian debt market now, should entice FII money to return, perhaps in larger absolute terms, if not in EM allocation percentages, than before.

Some would argue however that this kind of outsized return is a happy aberration, that cannot be sustained.

And yet, some fundamentals are changing that may keep the good times going for at least six months going forward.

Demand for debt instruments from investors will drive up prices. Offtake by the government for development/infrastructure projects and welfare is likely to increase. The private housing loan providers, that have been languishing because of high rates, are likely to see a gradual uptick as they shake off the housing sector recession. Other private sector borrowing too may help buoyancy.

Banks may become far more aggressive in the effort to recover their non-performing assets (NPAs), including the liquidating of defaulter collateral in their possession.

And lastly, the drive towards a digitised and much more cashless economy may be succeeding, with a slew of follow up measures and fine tuning of  alternative delivery systems.

Items like the value of the currency against the US dollar, foreign currency reserves, expectedly renewed growth, lowering inflation, fiscal and current account deficits, reduced counterfeiting, are also of benefit.

In the absence of the major headwinds from higher petroleum product prices in the near future, this benign scenario for the debt funds may continue.

In the context of most household savings, ranging from 94% to 98% of the total, always steering clear of both the stock and debt markets, the time may have come to make a change.

The lamentation on declining bank fixed deposit rates is now useless for the medium term.

The open-ended debt funds are just as safe and liquid as the banks. An investor can deposit or withdraw funds on any working day, receiving proceeds into his or her bank account within 3 working days.

While the current tax treatment is at the marginal rate for three years, followed by 20% and indexed, the returns justify the effort, even if they settle down in the long run, to the 8 to 10% per annum range, as before.     

For: The Sunday Guardian

(1,281 words)

December 15^th, 2016

Gautam Mukherjee

Single Party Rule By Default: Has The Public Begun The Beguine?

Single Party Rule By Default: Has The Public Begun The Beguine?

And now when I hear people curse the chance that was wasted

I know but too well what they mean

From: When they begin the beguine- Cole Porter

The Beguine is a ‘couples’ slow-dance’, and the unlikely metaphor here, is in terms of a gradual, but not interminable, build-up, towards general elections in 2019, and beyond.

Is India moving on philosophically, democratically, but disgusted with their elected representatives, spurred-on by disillusionment, with near filmy, feudalistic, interpretations of imported ideologies; of a constitutional intent subverted, of parliamentary  procedure thrown overboard by a roomful of boors?

Is it fed up of being taken for granted,  taken for fools?

Moving on, towards something more home-grown, more willing to be accountable, that it can call its own, as its self-image matures?

Is the RSS, re-dressed in long trousers, less sinister and ridiculous now, than was assumed before, off-hand, almost axiomatically?

Has it morphed in the public eye from anachronistic neo-fascism, into a patriotic, disciplined, honest, and benevolent force for the good?

Can it be banned again, or dismissed as the killers of MK Gandhi, being challenged in court, even as the dim-witted Congress scion refuses to retract?

Thing is, more and more people, in these days of interactive social media, have realised that it was the long-ruling Nehru dynasty, that killed many parts of the Gandhian legacy, replacing it with their own hagiography, with their near divine right to rule.

And it was this same Nehru dynasty, that planted the seeds of many needless but seething conflicts, having to be endured to this day.

But despite the body politic being long spoiled from the pampering of a destructive, neo-colonial kind; a new consensus has been already built.

This is not entirely in favour of the once chai-wala, turned RSS pracharak, turned CM, and now PM; because of some obscurantist fringe elements vitiating the atmosphere.

But it is a consensus, that is definitely against the pseudo-secularism cum faux socialism, relegated to the past.

Is the carping over the Supreme Court mandated, having to stand up for the national anthem before movie shows, for example, a hollow bleat from yesterday men?

People lost in denial, and disbelief, like the Hillary Clinton supporters in America, long permitted, and used to, trashing everything patriotic here, in the name of modernity, ‘tolerance’, and personal freedom?

Are all of Macaulay’s half-baked and  chi-chi children, and their cousins of  Marxist, Fabian, and Lohiaite extraction, who have collectively kept the masses of India miserably poor and backward, really headed for the dhalao now?

Do the post-independence, post 1991, far more switched-on generations, regard the rootless internationalism of the Congress Party, essentially, as traitorous?

These people constitute more than 65% per cent of the population, many aged between 15 and 35, and form our vaunted demographic dividend. Resulting, inadvertently, from our soft attempts at population control,  after correcting the initial excesses.

China, simultaneously, was hard about it, and is changing into a country of old people, notwithstanding their recent reversal of policy. Demographic shifts take at least three decades.

The reactionary and old amongst the Indian Liberal-Left, harking back to self-serving interpretations of ‘The idea of India’, need to drop their hectoring, and understand what the young people want now.

These people are the present, and they have decisively voted for Modi, and they are the future of India, wanting to give him more time.

Regarding much of the Congress-speak as sedition, these young voters are in resonance with the prevailing wind around the world, grown disillusioned with making too free with core values of identity and inspiration.

People, young and old, rich, poor, educated and not, in the West, are grown disillusioned after more than a half century of broad world peace, from being pauperised by economic prescriptions, that have nevertheless failed.

Politically, taking on Islamic angst, at last, that blames the nominally Christian West for its pain, asserting it to be errant nonsense. Why do Muslims, members of a hugely populous religion, refuse to reform its medieval tenets?

Instead, sections within it, have forced bloody outrages, on the everyone ‘other’. This other, is inclusive of even those, amongst Muslims themselves, who have the temerity not to agree with this neo-savagery.

Globally, there is a move towards the right then, not just in protest against these marauders, but towards nationalism in its various manifestations.

This is what Communists and Left-Liberals are calling a primeval ‘irrationalism’, a narrow and vicious close-mindedness, even a madness, they hope, will pass.

But, it is an ironic moot point; where does the obsolescence truly lie?

Is the intolerant ‘liberal’, frequently reduced to an electorally vanquished minority where people vote, or summarily pushed aside, where they don’t, confronting extinction?

Viewed from a macroscopic perspective, it has been a long run indeed, for the Liberals and Communists; a few recent centuries worth, as authoritarian and monarchical constructs unravelled in the face of the new egalitarianism.

Today however, it is widely felt that the Left-Liberal has bamboozled and lied for too long. So now, there will be no more putting upon people, without delivering the prosperity they promised!

The Left-Liberals won’t get another turn at the wheel however, till, and if, the new Right fails too. Can their gravy-training hearts hold out for that long, or will they cravenly jump ship?

Will the Right become an amalgam of erstwhile liberals, now turncoat, and the more extreme alt-right, going forward?

 The run of regional parties, and their oversized influence in national politics, that ebbed and flowed for the entire 30 years that India saw no majority government at the centre, seems to be firmly on the skids.

If the NDA win again in 2019, with a majority at the centre, it might put paid to the mostly pernicious regional party influence in national affairs, more or less, conclusively.

With the reported dissensions and infighting, the break-aways, the lack of succession planning, and continuity, in some of them; as a collective, they are likely to put up a poor challenge to Narendra Modi in 2019.

This, irrespective of the fact that every initiative, or even the lack of it in some important instances, of the NDA, has not always been a qualified success.

This piece, written while we are roiled by the demonetisation turmoil, with the GST roll-out and further necessary financial measures as yet uncertain,  is here on the  threshold of new year 2017.

Not only has the private limited, me-and-my-extended-family, on a tax free jamboree, nature of the beast, grown tiresome to people, but the regional credibility too, is gone.

No one believes that these entities are there to help their aspirations. They do not seem to follow any ideology other than self-aggrandisement. It has turned off the voting public, after a long period of gaining nothing by believing in their false promises.

Adarsh politics, is seen to be present today only in the much maligned RSS, and their political offshoot, the ruling BJP, to some extent.

The other two nominally national parties, namely the Congress and the CPM, are mired in end-of-life contradictions, and have shrunk in stature, to controlling less, than some single state regional parties, who at least  still hold tenuous sway in their own bailiwicks!

Meanwhile, it is the public in India, 30 months into this Modi administration, that has apparently begun the beguine, the slow couples’ dance, setting in motion an enormous juggernaut of change, that will ostensibly not tolerate obstruction or attempts at reversal.

When the song finishes, there may be no more to be said about a viable opposition, because it would have killed itself with its own irresponsibility.

A single party democracy in India, to all intents and purposes, is what we had for the first 50 years, except that the shoe was on the other foot.

Today, if it comes to it, India’s second go at it, could rival China’s growth of the thirty years between the eighties and the first decade of the 21^st century.

Cole Porter wrote the song ‘When they begin the beguine’, in 1935, on a Cunard cruise-ship, travelling between Indonesia and Fiji.

It celebrated a Caribbean dance form, mostly from Guadeloupe and Martinique, adapted from earlier French ball-room ideas, becoming a slow rhumba in the sun, involving a rolling of the hips.

Porter’s song, on the B side of a single, with its complex construction, took time to become a hit. But when it did, it migrated the dance-form, though transformed, via various musical arrangements, into swing, tap-dance, and a very long list of standard balladeering.

The Beguine, even has a further, cultural back-story. Beguines were women, in no-vows Christian communes, during the 13-16^th centuries, in Northern Europe.

The song and the dance Porter’s lilting song inspired, travelled, from ship to shore, firstly, of course, to America, New York’s Broadway, and Hollywood. And later, to Europe, particularly, Paris.

It was even a favourite of our own Meher Baba, who asked for it to be played seven times, at his funeral in 1969.

For: Sirfnews

(1,496 words)

December 11^th, 2016

Gautam Mukherjee

Demonetisation Imbroglio: Chronic Inadequacy Of Scale

Demonetisation Imbroglio:  Chronic Inadequacy Of Scale

School blazers in stout serge, were, at least in India’s socialist heyday, usually given out to young senior school boys in hill schools, always a size too large.

That way, the expensive garment could last the hard-wearing for two years, instead of being outgrown in one.

If only our doughty government planners - political, bureaucratic, and expert, knew how to plan for tomorrow’s needs likewise.

In this, it is the Americans who have a feel for scale, followed, by the Chinese.

But reviewing the commentary on our inadequate little currency note presses at Nashik, Devas, Mysuru, and Salboni, is downright embarrassing.

Thank God we are not presently at war with anyone, because the state of our ammunition reserves, for any and all of our shooting devices, is also just as precarious!

Not that our military equipment, for land, sea and air, neglected, and mostly unreplenished for thirty years, is in better form.

But fortunately, it is only the war against counterfeiting, black money and the cash economy, unleashed last month, that occupies most of our mind-space at present.

That this demonetisation has caused hardship for many ordinary citizens, urban and rural, and unprecedented turmoil in their affairs, in what is, after all, a peacetime situation, is undeniable.

The ongoing narrative only persists in highlighting the glaring capacity and logistic inadequacies. The government argues that secrecy precluded adequate preparation, but this is certainly not the whole story.  

But, ordinary people, if not the privileged set, put upon as they are, still largely agree that there could be a silver lining to the chaotic mess it has engendered. To them, it is worthwhile pain for a cleansing of the corrupt system.

Underlying this objective however, is the certainty that the government’s capacity constraints will be challenged, in terms of catching money launderers, and penetrating the arguments and explanations of black money depositors, who insists they are not. 

How many policemen, IT inspectors, ED officials, and judges, are there, to take on this mammoth cops and robbers game?

Capacity constraints are indeed everywhere, and will only get worse, unless the Government of India (GoI), changes course on our chronic and mean under-provisioning in all things.

The demonetisation per se, if followed up by a number of measures to go digital, and incentivise a cashless economy, the latter being done already,  but including, and crucially, the abolition of direct taxes; could be revolutionary in its benefits, both for the public, and the economy.

It is futuristic in concept, because this time, the notes cancelled, unlike in 1978, are in every hand, and not just those of the rich. Also, the official economy itself is at $2.3 trillion, and not at a mere $180 million.

It is Prime Minister Narendra Modi’s visionary dare, and could lead the world by the sheer scale of it, for once - as Microsoft’s Bill Gates was quick to realise.

Executed properly, and seen through, though it may seem improbable at this juncture, despite the recent induction of Nandan Nilekani of Aadhar card and Infosys fame; it will skip quite a few steps in our ponderous development cycle. 

This, to the long term benefit of our gargantuan population of 1.3 billion.

But meanwhile, the currency presses, are floundering, mis-printing and breaking down, from their three-shift operation.

They are furiously cutting corners on important things like currency thread and drying time. Their personnel are probably in a state of panic, pressurised by their superiors in the Ministry of Finance (MoF), and the Reserve Bank of India (RBI).

Their personnel, still dependent on imported everything, 70 years since independence -machinery, paper, ink, security thread, are also used to a stately pace of work, and not this kind of frantic non-stop operation, seven days a week.

And, despite this, a month down the road, from the demonetisation announcement of November 8^th, it is clear they will take at least another six to replenish the notes that have been trashed.

But would this have happened if we had mints and currency presses that were big enough to replenish the Rs. 15 lakh crores or so, in a week flat? And if we had  the appropriately massive stocks of currency paper, ink, security thread, design expertise and ink masters; all available from indigenous sources, close at hand.

At the delivery end, the PSU banks used to being insouciant with customers, don’t seem to know what has hit them.

It isn’t only the unfit, standing in line, who are dropping dead. Quite a few startled and stressed bank officials, have also martyred themselves to the cause.

PSU banks, non-performing asset(NPAs) ridden, with all shades of colluding bank officers, hundreds of branches, lakhs of account holders, plus the private Indian banks, also with vast numbers of accounts, are handing out tokens, and disbursing to as many as they can.

That many of these bankers have been caught handing out large sums from the back door, to crooked customers after banking hours, is just another set of challenges for the government to confront. Fortunately, they are not all getting away with it!

For the straight and narrow however, these PSU and private Indian banks, get daily feeds of currency notes worth Rs. 6 lakhs, or less, per branch, even now.

They can’t even hand out the declared Rs. 24,000/- per week to account holders, and ration out Rs. 10,000/- instead, to the first 60 that have taken tokens at 8.30 am, and come by when the cash arrives at 10.30 am.

The foreign banks, with fewer account holders, and branches, are able to disburse Rs. 24,000 per account held, per week, but either in Rs. 2,000 notes, or in stinking, torn, marked, hundred rupee bills, recalled from the condemned bins of the RBI. The Rs. 500 new note is mostly unavailable, except in some branches of the State Bank of India (SBI). Smaller denomination new notes, the Rs. 50, Rs. 20 and Rs. 10, bundled out at first, have now stopped coming through.

And so, this demonetisation roll-out can be seen as a microcosm of the state of affairs in this country. One that is unable, as yet, to meet the needs of its population because of its chronic lack of scale. And indeed to meet its aspirations, due to the backlog of smallness and socialism inspired, povertarian neglect.

So now, if good intentions are not to pave our collective path to Hell, this narrow planning mindset, above all, must be changed.

We need to think in huge over capacity terms, and make ready for a population of 2 billion, in all that we conceive of. We should pitch to provide infrastructure for a GDP of $ 15 trillion, and this not in  purchase power parity (PPP), terms either.

After all, just amalgamating the black economy with the white today, easily done if direct taxes are removed in favour of a universal banking transaction tax, will give us a GDP of anywhere between $ 3 trillion to $4.6 trillion instantly.

And this is not counting the flow of clandestine money that will return to our shores, should this move be undertaken.

Pain undertaken to catch and punish the corrupt  is  laudable, but it can be dwarfed by a reform that abolishes black money itself, and makes the bank the best possible place to hoard cash, both productively, and freely.

For: Nationalist Online English

(1,221 words)

December 9^th, 2016

Gautam Mukherjee

Obituary: The End Of A Political Icon-From Screen Siren To Amma

Obituary

The End Of  A Political Icon: From Screen Siren To Amma

From the political rib of the formidable  K. Kamaraj, early Chief Minister of Tamil Nadu, President of an undivided Congress; came a young Telegu screen-writer, M. Karunanidhi.  It was Karunanidhi who gradually rose to spearhead the Dravidian movement that transformed the politics of Tamil Nadu.

Kamaraj, the mundu-clad , literally tall southern leader, a Cardinal Wolsey-like figure, crucially steered the Congress Party after Nehru died. But this was only till Nehru’s daughter, Indira Gandhi, the assumedly demure ‘gungi gudiya’ whom Kamaraj sought to control, revolted.

Indira Gandhi  vanquished ‘the kingmaker’s’ grip, sending Kamaraj and his rump of the Congress Party, into oblivion.

Indira Gandhi, whom J Jayalalithaa echoes in her later political career, with her decisiveness, authoritarianism, and welfarism, more or less inherited the Congress government, and its vast canvas, at the centre.

This, just as an obedient J.Jayalalithaa Jayaram inherited the political machine of the AIADMK in Tamil Nadu, from her mentor MG Ramachandran, after a brief period of initial turbulence.

Once firmly ensconced, Jayalalithaa’s AIADMK alternated in polarity and power with Karunanidhi’s DMK.

Dark-glasses clad M,Karnunanidhi,  rising from behind the legendary Annadurai, champion of  the lower castes, has now outlived Jayalalithaa.

Eyes forever shaded,  in his wheel-chaired nineties, the writer and poet in him is shocked by Jayalalithaa’s early departure at just 68.  Quite evidently, he misses his actress cum consummate political rival, whose abrupt departure has left no obvious political or biological heirs in place.

Despite their rivalry, it was the DMK and AIDMK together, that chased away the  all-pervasive  Tamil Brahmin presence, forcing an exodus similar to the banishment of the Pandits from the Kashmir Valley, sending most of them scurrying, all the way to distant New Delhi.

And it was Karunanidhi’s rib, in turn, that begat MGR, a fair and lovely, cleft-chinned, movie idol, with even more stylish shades, Elvis puff, and Madras chic pencil moustache.

The matinee superstar turned politician, with his very own alternative DMK, the offshooting  AIDMK.

MGR initially chose his well-spoken and polished Tamilian Brahmin co-star of 27 jubilee hits, to speak for the AIDMK, not just in Madras, but at the Rajya Sabha, in the nation’s capital.  And fatefully, a young Indira Gandhi came to the house to witness Jayalalithaa’s first Rajya Sabha speech.

Jayalalithaa Jayaraman maintained both her highly successful careers were involuntary.

She was ‘propelled by fate’ she said; first by her character actress mother to star in the world of southern films, beginning at just 15, and later, by co-star and mentor MGR, into politics.

It was when Jayalalithaa emerged from MGR’s shadow, that she began, at last, to live her own life and become a political titan in her own right.  

Her political career was catalysed, at the very start, by savage attacks from MGR’s lawfully wedded wife Janaki, and her followers, which informally split the party, but in Jayalalithaa’s favour.

And then the infamous, Draupadi-like physical humiliation at the hands of DMK MLAs, her roughed up and dishevelled appearance plastered across the next day’s front pages. And this, in full view of Chief Minister M.Karunanidhi, his wife in the viewing gallery, and all others on the floor of the Tamil Nadu Assembly.

Jayalalithaa consequently grew a strong female backing in Tamil Nadu, akin to the fervour aroused by Evita Peron, and never had to look back politically after this.

And gradually, as she grew in stature, she outdid  all the populist measures ever undertaken, not only in Tamil Nadu but the country, offerin g up a template on how this is done. This secured her place in the hearts of all her AIDMK cadre and the people of the state at large.

In the latter day, the intensely private  Jayalalithaa became a universal ‘Amma’ to the people of Tamil Nadu. But, through it all, the power, the glory, the spells in jail for the corruption scandals to follow, there was no heir to her growing legend.

Though adoptive efforts via confidant and caretaker Shashikalaa, a nephew of the latter, was attempted, it had to be abandoned when secret manipulations of the Sashikalaa family came to her notice.

Jayalalithaa is also estranged from any of her own blood relatives, a situation that has persisted till her death.

After Jayalalithaa died, near midnight on the 5^th of December, all of Chennai has shut down for a week’s official mourning.

But one symbol of her legacy, the ubiquitous Jayalalithaa canteens, set up in 2013, where Idlis are sold to the poor for Re. 1, have wisely not been closed by her successors.

In retrospect it must be said however, that Jayalalithaa combined the competitive populism, with firm administration, strict law and order, and a formidable, steely grip on her party.

And this, for all the three decades of her political life, coming to the Chief Ministership of Tamil Nadu multiple times, and finally dying in harness.

Jayalalithaa also played a significant supporting role at the centre, both propping up and withdrawing support to the NDA government of AB Vajpayee.

While she did send emissaries to participate in central politics, she never left her base unattended in Tamil Nadu.

She knew instinctively where she belonged, throughout her first career in films, when there were only brief forays into Hindi and English projects, and her second, in politics.

Buried, like the political titans of Tamil Nadu before her, at the mausoleum created for mentor MGR on Marina Beach, the immortalisation of her legend has possibly just begun.

Much married rival M. Karunanidhi, by way of contrast, does have heirs, but it is unlikely that his chosen successor Stalin, will go unchallenged by his siblings.

As for the AIADMK, despite alleged efforts by friend and caretaker Shashikalaa and her family to inherit her political mantle, the party is probably in for a long spell of rule by consensus. This, till another charismatic leader is thrown up.

A single point of focus seems to be essential in personality-based Tamil Nadu politics.

To illustrate this, let us note that the only spontaneous cheer that went up  while the mortal remains of J Jayalalithaa were lying in state, was not for the president or prime minister, come to pay their respects, but for cine-superstar ,and Poes Garden neighbour,  Shivaji Rao Gaekwad.

Gaekwad, beloved of the people, and known to them as Rajinikanth.

For: SirfNews

(1,048 words)

December 7^th, 2016

Gautam Mukherjee

Modi's Existential Challenge: The Demon In Demonetisation

Modi’s Existential challenge: The Demon In Demonetisation

If  demonetisation is not followed up with additional new moves, black money generation is going to come back redoubled.

Tinkering with the Income and Corporate Tax rates won’t do. After all, direct taxes account for roughly a third of the taxes collected, mostly from hapless middle class salary earners, plus the prominent listed companies.

Only three individuals out of 1.3 billion have paid more than Rs. 100 crores in income tax recently, and the tax-payer base accounts for just 2% of the total population.

As long as 98% pay no direct taxes, and exempted ‘agricultural income’, runs into trillions, in just a few hands, the cash economy cannot be vanquished.

The 98% must join the 2%, or clearly, the 2% must join the 98%!

And yes, all those who have lost money in the laundering of their cash, will be seeking to recoup their losses. Bribe rates demanded will go up, doubling in many cases, as will all kinds of facilitation and service fees.

And the ostensibly untraceable, mint-new Rs. 2,000 notes, in their smaller, shocking pink glory, will prove much easier to stack.

 Meanwhile, nearly Rs 9 lakh crores of the demonetised currency notes have already been deposited, in under 20 working days. 

There is some consternation, as the tank fills up nearly to the brim, that large tranches of laundered black money, is part of the haul.

How much of the value will finally be extinguished is a point of conjecture, because even the part that has found refuge in mosques, churches, gurdwaras, temples etc.; in gold, or US dollars, is coming in via their trustees, the jewellers and currency cum hawala dealers.

 This money has also swelled Jan Dhan and lakhs of dormant accounts, sometimes, with the collusion of bank officials, before moving around again, all for an alleged facilitation fee of between 30-50%.

This, before it was known that the government proposes to tax the unaccountable  money at 50% per the amendment to the Income Tax Act just passed.

The 50% looks so much more reasonable than the early threats of 200% penalty on the top marginal tax rate, then doing the rounds, taking the hit to about 90%.

Other objectives, that of disrupting the flow of counterfeit currency, black money generation and use in the distribution of ‘tickets’ and election war chests, of moving towards a digital, cashless economy, have gained traction, and indeed succeeded for the moment.

But, they all threaten to resume, with the ‘parallel economy’ coming back with a vengeance, unless more is done.

The choices are fairly stark. Either bring in all the rich farmers and various other questionably exempted entities and tax shelters, such as wealthy political parties, Trusts, NGOs, religious institutions, and so forth, into the direct tax net, or abolish direct taxes altogether, in favour of a minimal bank transaction tax.

The former will take multiple legislative amendments, time, and enforcement, prone to corruption afresh.

The latter option is better, not only because it will it yield more money for government coffers, but because it makes tax-dodging, and even hawala borne capital flight, unattractive.

If there is no tax to pay, except for those that are embedded in the indirect taxation system via GST, why would anyone want to hide the money in cash?

GST, administered digitally online, is expected to plug evasion and increase the bottom line of the two-thirds of the total collected via indirect taxes.

And merging the unofficial economy with the official one will result in gains of anywhere up to double- taking it from $ 2.3 trillion to  $4.6 trillion, with its better corpus to leverage.

The vast unorganised sector, both rural and urban, will take to banking for its safety and security, and prefer cashless digital transmission for its cost savings.

Future moves towards a fully convertible currency, always resisted because of the fear of capital flight, could, on the contrary, see a voluntary reverse flow of hoarded money abroad, keen to seek better returns in the world’s fastest growing economy.

It is a general canard that people would rather continue working the cash economy, than put themselves to the expense of 1-2% on every bank transaction.

But to prevent those who would grudge even this paltry amount, strict ceilings on cash transactions under GST, will persuade them into entering the consolidated big tent of the economy.

As for those activities that still must be conducted in cash, there is little difference in taking it out from the bank, as opposed to from under the mattress.

For: The Quint

(754 words)

December 1^st, 2016

Gautam Mukherjee