Tuesday, 17 January 2017

Indian Economy : A Question of Revenue

Indian Economy : A Question of Revenue

Source Data for this article is from a LiveMint article of today, link given at the end of this article

LiveMint today has carried an excellent article on The Indian Economy vis-à-vis the global economy, comparing our Fiscal Deficit, Revenue-to-GDP,      Government Expenditure-to-GDP, Gross Debt-to-GDP ratios with the G-20 group of nations. The Group of Twenty (G20) is an international forum that brings together the world's leading industrialised and emerging economies. The group accounts for 85 per cent of world GDP and two-thirds of its population. That is what makes the comparison a stroke of genius, as it immediately benchmarks us against all the relevant nations – {Definition From Telegraph.co.uk}.

1) General Government Overall Balance / GDP %

2) India's Government Revenue / GDP in %

3) General Government Expenditure / GDP in %

4) General Government Gross Debt / GDP in %

What emerges is a most interesting situation – our Fiscal Deficit is indeed among the highest in these nations; the Expenditure and Debt charts also show a similar trend, But, and this is interesting, the revenue chart shows us around middle of the group. The article also states, and I quote : “Yet, in spite of lower expenditure, these countries mostly have higher levels of social welfare indicators than India. That would seem to indicate that our expenditure is wasteful and not targeted well…

A few clear points emerge from this interesting comparison – particularly our Expenditure Pattern & heads, implementation culture and inadequate revenues. Let us look at the Expenditure aspects first in a short note. From the italicized segment in the above paragraph, it is evident that we have higher expenses than others, more so as we are not doing too great on Social Development indices. How can you prune your expenses – under what heads? Subsidies? Which do you prune, and how much as a %age of GDP can you save from that exercise? Is it plolitically, socially implementable?

The major subsidy bills of the Indian Economy are courtesy Food Security, MNERGA, Fertilizer and Oil. A simple reading of this list tells us that while rationalization & proper utilization of funds, controlling leakage can be done in these areas – the scope for pruning does not inspire much hope. The rural sector, with its turbulent past few years as well as the ground reality in terms of current income levels means that you will have to provide support to these areas. Neither is there much scope for tinkering with the respective allocations provided to these segments, as we saw in the preceding budgets of NDA2 and the impact It created. Here we run into a dead wall. Furthermore, as an amateur economist I am not too convinced controlling the Fiscal Deficit beyond a certain level is healthy; emerging economies require infusion of funds to realize their potential...

As far as cutting waste is concerned, that is firstly a long-term project, requiring complete digitization {which is admittedly underway as far as I am aware} since identifying the leakages is a matter of records and investigation. Second, corruption is also a serious matter  of contemplation, making achievable targets in this area a tough ask. Furthermore, given the the political problems associated with excess flab in government as well as other issues, you cannot realistically expect genuine fast action on that parameter; this area will take time, to be honest.

The second aspect that jumps at you is our implementation culture : if we are spending among the highest, if our expenditure has a clear and high social sector component, and if then we have social indices among the worst in the world, then this is an area of serious concern. It straightaway means that either we are spending in the wrong areas, or that there is high leakage – or both. I don’t think that there can be much doubt that the issue is simpy – both.

The scepter of corruption is too well known  to us now; add to this the lack of adequate support to education and health – and it adds up to the scenario we see today. Again, this is ciomplex; both education and health are on the concurrent list of the Indian Constitution – meaning that they can be legislated on by both the states as well as the center. Second, given the rampant around us, there is a felt and dire need for social support as well, making prioritizing expenses a tall task, and a proper examination of this a subject unto itself!

This brings us to what is perhaps the only realistic way forward – Revenue. Our revenue is middle of the road in comparison to other economies- meaning we are not getting maximum bang for the investments we are putting into our nation. The question then arises – how can we increase the revenue we generate? It isn’t a simple matter of Make In India alone; the internal combustion engine also has to generate adequate demand to absorb the increased production! And here, in my observation, no one in India is even asking this question, including the Pink Media – which focus on Plan and non-Plan Expenditure. Subsidies, Fiscal Deficit and what-not. To me, the most important question should be- how do we generate revenue?

Generation of revenue requires an increase in the level of economic activity. Sample the developed nations in the world : which have far higher revenue-to-gdp ratios. That tells us the full story – development isn’t a matter of infrastructure or other such issues; these are the factors that go into development. The only true barometer can be a full macro-economic analysis, including the revenue parameter. For, a higher ratio of revenue to GDP simply implies a higher level of economic activity, a far higher rate of revenue-generating transactions taking place

picture 1e

A nation earns revenue through various means : Tax, Non-Tax and Capital Receipts. That again tells us one thing – {sample chart for 13-14 above} you have to grow the Tax portion, for Non-Tax revenues include interest, dividends, profits, social services earnings etc. Capital Receipts can logically only be an additional source – for a receipt has to paid back. The level of economic activity determines the tax revenues – which are direct plus indirect taxes. And unless the base –the number of taxable transactions increase – you cannot grow revenue.

That brings us full circle – we can see one effort of the Govt in increasing Tax Revenue, in increasing the taxable  base. The need for increasing revenues is why we need to control corruption; large numbers of untaxed transactions mean a loss for the nation. The second aspect is what has not been properly highlighted, being limited to only Make In India. MII along will  never be sufficient; it has to be a wholesome package basis the Indian Economic Realities on the ground… this forms the second part on this analysis, wherein I look at the steps that can be taken…

Sunday, 15 January 2017


Parthajeet Sarma & Sibani Sarma

Image result for THE RICH LABOURER by parthajeet sarmaI have been reading a series of books from Western sources on Management thought, strategies and economics – some reviewed on this blog as well, like Capitalism by Raghuram Rajan, HBR Top 10 Series and others; but sadly most consistently fail the applicability rule; as an Indian, I find them totally theoretical, unimpressive and / or biased most of the time – something which I have been at pains to point out in my reviews with proof. Each time I read some imported stuff, be it from the Chicago School of Economics, or be it from Harvard – I would always feel the lack of Indian Material…

This is where the current book, as also to be honest others reviewed here, like Anisha Motwani’s Storm The Norm, or Vanita Kohli-Khandekar’s The Indian Media Business, Anuradha Goyal, Ruchir Sharma or any of the others reviewed – come in as very valuable additions, giving me confidence that the coming decade belongs to India in terms of thought as well as development, as more and more good research comes into the open. Without exception, these books are powerful, fully applicable, and must-reads for any serious student of Indian Industry. This current book is one such, despite its heavily strategic tone that has universal applicability

This book proposes a very interesting, thought provoking concept; if I may summarise in a few words – look, and look hard, before you leap; think it through. That is the entire book from start to finish. To those who may find this surprising, Corporate India is littered with examples of people who didn’t do just that; look before leaping. I personally call it my 360-Degree style of analysis, which I visited for the first time in my first article, which was on Tablet Devices, as also in my interactions during my Advertising and Brand Management Visiting Faculty experience

The Book calls it the 3Ps approach – Probe, Ponder and Prove. The best as well as the worst part of the book is identical : it is a short, rapid and fast read, written in easy prose, simple to assimilate, understand and absorb. There is no beating around the bush here. Curiously, for serious readers like self, this is also the biggest issue : you are left wanting for more, deeper analysis, contents and a far deeper development of the concept. To be fair, this one in my hand is a prototype; it will be expanded in the coming versions of the book…

I would rather you read the concept for yourself; far too many excellent strategies have been wrecked by summary presentations and paraphrasing without deep study. That said, to give an idea – the concept is {or should be} simply to look in detail at all underlying parameters through a process of analysis; study the problem in all its dimensions, not just the dimensions you can visualize – but all the dimensions as can be seen by every stakeholder – including the customer. Similarly, the solutions should also be thought through, tested and analysed before launch..

The nutshell summary above may sound very uncool, un-sexy; well, to that my only observation – welcome to the real world of business. That is business in all its resplendent glory; business is a matter of attending to the minutiae, and not about grand sweeping plans and vision statements. Far too often, basic problems are overlooked; like in the Tablet market for instance, wherein the problem the interface presented to customers was ignored, or the Nano, or perhaps the most famous of all : the textbook case study for doing a proper customer study – Kellogg’s…

Far too often, business plans are based on unwarranted assumptions; please note my words here. Any business plan or strategy, any plan in fact {as the book proves}, will have assumptions. That is basic; the problem is the underlying hypothesis should stand true to a hard scrutiny from all POVs and Stakeholders : Shareholders, Employees, Resources, Customers, Uses, Benefits, Competitions, Objections etc. Then and only then is an assumption a successful hypothesis. Tablets collapsed as a mass market product due to this, as an example : unwieldy large user interface, combined with developments in Mobile Technology making larger displays affordable and superior. Both these could and should have been foreseen; that they weren’t is mute testimony that deeper thought was needed.

As I said, it is that lack of detailing and further development of the concept leaves you gasping for more. This is, in its current version, a powerful and hard-hitting management thought that will redefine the way you think. This is in reality a framework, around which you will have to devote a lot of thought and tailor it to your specific needs. The demands of a social project, for instance, will be at divergence with those of a business venture and this theory is applicable to both in equal measure.

Let me take an example. In a business plan, the first P – Probe will need to be properly defined in all its parameters. Take my industry, Mobiles Devices, or Music Earphones. Why does a customer by a smartphone? Ask a sales person, at any level most times., and the answer will be internet+calls. Now this fails at the first hurdle itself – I, Me, Myself. I use one because

a) Staying Connected
c) Great and Loud Marathi & Hindi Music
d) Marathi Movies
e) Games and Entertainment

Note that calling does not even enter my list; I assume it as a given. Now if I probe deeper, I prefer Brand A over Brand B due to several reasons., one of which is call clarity, and a silk-smooth user interface! My wife, well – she doesn’t value most of the above, for her it is size, internet and staying connected. See how the parameters change. Let me further complicate matters – I have two clear major preferences : Display. Games & Music. All are non-negotiable, and one phone cant provide both at my price point. Ergo, I keep two. If you don’t track that, you miss my sale – which is what one brand did do,, as I went to the competition! That is the level to which probing needs to be done; this will have to be industry-specific, beyond a shade of doubt.

That said, it is feasible to evolve a basic set of broad parameters that will need probing. I touched upon some of these; Customers – Usage Purpose, Usage Pattern, Usage Occasion, Usage Style, Desired Features, Non-negotiable minimum features required, Pricing Band, etc. Then you will have to go deeper from this framework for each industry you are in, and will have to be re-created and re-crafted for each solution. But the broad set of parameters could have been done, which is what I hope to read in the final version of the book, among other things… despite that, this is a treasure and a must-read… 5 stars!

JIO – An Analysis of Prospects and Challenges

JIO – An Analysis of Prospects and Challenges

A common refrain, question, discussion point among at least us Telecom Professionals {those outside Jio at least} centers around what it is doing, what it plans to do, what disruptive impact it will have on services as well as devices and whether it will achieve whatever objectives it has set out for itself. My humble submission here is one simple statement: the key question is not among the points being pondered above; the real question is whether it, or indeed we as a nation, can afford it to fail? Indeed, does Jio have a choice in the matter except do what it is doing?

Before we move into details, just look at the numbers involved: as per Telecomtalk & Economic Times articles dated January the 14th 2017, it has infused 1,71,000 Crore into this venture; another 30,000 Crore is being planned. That brings the investments to 2,01,000 Crore. Its current subscriber base is between 67-73 Million Customers as on date, and is expected to touch 100 Million subscribers as per the news articles above. That means Jio will have to rake in 600 Rupees per month per customer just to recoup this {what I think is} Capex assuming a payback period of 10 years for the same. This does not account for Opex and other expenditure, system ugdrades that will be needed in future…

But, increase this subscriber base to 100 Million, and the required ARPU rough estimate falls drastically to Rs. 434. At 150 Million, this falls even further to a much more realizable and realistic 289 Rupees, which is far nearer to what the current ARPUs are today. Thus, it doesn’t have a choice… and neither do we.

Rather than worry about the disruption – and there has been, & will continue to be, disruption – let us welcome it. It is a harbinger of better services to the customers. Yes – for the industry and the employees, it does mean a very challenging and yet rewarding time; yes – it does involve, pain in the short term, perhaps medium term for the employees into this industry as well as for some companies. But for the customer, the future is exceedingly bright, as this disruption and ensuing competition will not just depress prices {sadly}, but also, hopefully, unlock innovation and development of

Disruption is not always bad, though it is always and nearly without exception, painful. It forces industries to introspect, set things in order, cut the wastage and the incorrect steps, and move forward. Added to this is the impetus it gives on giving a better end-customer experience. Let us take the Jio example. I have not used Jio services, but have used others, and on 3 handsets. The experience is very revealing, if you consider from a customer usage experience

I have tested the 4G as well as 3G speeds for the past 2 odd years nearly half-a-dozen cities in Western India as well as on journeys. The average 4G speed I register is around 5mbps, and highest I have ever experienced is 14mbps {once only} and the lowest 4mbps. Now these speeds are 3G speeds or 3.75G speeds; 4G experience should be at least 7-8mbps, ideally or optimally above 10mbps for a superb 4G experience, perhaps higher. Let us not get too specific or technical here.

Now the entry of Jio will cause, or rather force the competitors to invest in upgrading their networks in order that the customer gets a superior experience; they need to do this – as indeed they already are beginning to do. This is the first positive impact of competition induced disruption. Second, it will expose customers to a superior service along with all its advantages, unlock greater uses and scope of usage, open up new usage avenues that the greater speeds will bring,. It will also further develop other nascent markets – like the online video and content space, as an excellent example. As market size increases – as seen above – prices crash, further creating new market space…

This brings us to the core ground reality+: currently, 4G phones are available starting around 4K; how many customers can afford that range, given our per capita income? How do you pull in new customers? You have to give a value offering; thus – the focus on a 4G experience at cheaper rates of devices. This will open new markets, as well as improve viability for Jio.

In one word – it has no choice either. Both in services and in devices, there is a felt need for new innovative thinking in terms of a variety of areas. Companies, though currently hamstrung due to earnings issues, will need to find the space and the capital to innovate and improve their offerings. Fact of the matter is neither wing of this industry is making bushels of money – services or devices. And I order to maximize stakeholder values, they need to solve this conundrum – Jio or no Jio… namely, how to get more customers into the 4G fold….


Economic Times - Jio      

Monday, 9 January 2017


This is the second and concluding part of the article on Ethics

Ethics in a business atmosphere is extremely hard to understand, and is in reality highly situational – which is part of the reason why people refuse to be drawn into open conversation and comments even in personal one-on-one communications and discussions. One part of ethics is actually quite simple – cheating, fraud and other such actions that are either illegal, or wrong  - or indeed both. Bumping up TA Bills, collusion with the partners and vendors, and many other minor transgressions are also part of this. Frankly, these are minor irritants to companies, though they can grow in scale in times of stress.

These don’t impact business performance, inasmuch as they don’t have any connection with strategic or major tactical strategies, neither do they interfere with organizational goals. However, for some reason these are not discussed openly within companies. That is an entirely different matter, so let us leave it at that; we are on a hunt to determine the foundations, and such tangential aspects need not concern us regardless of the scope they are prevalent on. That said, these minor transgressions can get out of hand; and ensuring compliance is and should be a matter of company policy with zero tolerance.

Similar is the case with Gender related issues in some aspects; the gender mix in any company, for example, is not a matter of ethics. This is related to gender equality in a society, and is largely independent of ethical considerations. Reactions and response to such sociological factors depends on the prevalent societal modes and public direction, as well as the concept of right or wrong. Thus, while deliberately not hiring ladies {for example} may be an ethical issue, but again, this is something that is tangential to us, as in most cases it does not impact the bottomline and topline.

What are the aspects that are truly unethical? These are such practices that have a direct, provable causative link with business performance; aspects that need the focused attention of responsible managers. These habits can break markets, impact profitability, destroy brand reputation, destroy internal structures, and are born out of the managerial style, laxity in control structures, unhealthy unchecked business practices, and at times even a Performance Management System that is out of tune with the on-ground business scenario. There may also be other aspects; that will require deep study in the institutions and management colleges of India. Question is, are we doing that research?

This can take the shape of a powerful senior manager promoting, supporting and listening to favourites to the detriment of the organization. Now take a minute here; not all cases of the seniors supporting juniors are matters of ethics – these matters are, as I pointed out above, highly circumstantial. But if someone is aiding the rise of a manager who is operating on business practices that are not the core operational strategy adopted, then you have a major issue. This is not understood as a matter of ethics – but if your words are saying one strategy to one set of employees, and communication of a different,at times opposite, strategy to a select few- this is a lack of transparency, and maybe unethical. As I said, these matters are extremely hard to judge.

Another example is of a business negotiation; you ought to have complete transparency in operation and discussion. That, however, does not mean that you share everything; that would be stupid. The point is to share everything that is ideally or optimally required  for the other party to make a proper decision. In some cases, this does not happen – which is why quite often the relationship breaks down very fast. Given that incomplete disclosure has happened, this was a foregone conclusion, almost. And in 100% such cases, it represents a business risk that needs to be controlled.

These are just two examples I have taken to drive home my point; the focus of ethics in our Media, Organisations and Academia has always been the big-ticket issues that can drive companies asunder. These sporadic occurrences, though clearly unethical in nature, are just one aspect of the coin. The side of the coin we need to focus on is the other one – the daily operational aspect, the ones that are concerned with Human Nature, Business Processes, Core HR Functions… these  can destroy operational effectiveness, erode productivity and lead to a quantifiable business loss. These represent the foundation inasmuch as they are linked to core organisational processes that drive the daily operations, Balance Sheet and the Profit and Loss Account…