Good Intention, Bad Outcome

Overseas M&As are providing Indian companies with a new competitive edge. The Competition Act, instead of adding teeth to this new-found competitive advantage, might end up debilitating Indian industry

JUST when you thought India Inc had acquired the muscle to play the global sweepstakes, Indian lawmakers have struck back with attempts to rein in the corporate sector’s worldly ambitions. Prima facie, it seems to be the handiwork of a bunch of people who were nourished on the economic rent built into the licence raj system and are now desperate to restore their cash flows to the pre-reforms era.

They may have just hit upon the perfect system. The new Competition Act — first passed by Parliament in 2002, then amended in 2007 after going through a parliamentary standing committee on finance, but yet to be notified — might be their ticket to the gravy train. As things stand, once the amended Competition Act is notified, industry is scared that this will signal a return to the nightmarish days of Monopolies and Restrictive Trade Practices Act, which required every company, industrial group, entrepreneur to seek approval for every step they took, every move they made. In some ways, it was the MRTP Act of yore which not only stifled competition but also gave birth to the unholy industry-politician-bureaucrat nexus and provided India with a high-ranking berth in the global corruption league tables.

The intentions of the Competition Act are actually honourable. The Act aims to protect citizens from the ill-effects of concentration of power in any company or industrial group and their ability to influence market outcomes, through pricing muscle or market domination. The Act’s opening lines are: “An Act to provide…for the establishment of a Commission to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India…” Every developed country has a similar legislation in some form or the other. But, it is the design and the purport of this Act that promises to incapacitate industry. Here’s an example: had the Act been notified, the Idea-Spice telecom deal might still be languishing in bureaucratic muddle.

The Act has several grey areas, and the purpose behind leaving these gaps in the drafting is anybody’s guess. Given the country’s abysmal judicial and regulatory infrastructure, the first question that arises is whether the country is ready for it. The Competition Commission of India (CCI), a quasi-judicial body entrusted with enforcing the Competition Act, has no wherewithal to adjudicate on any of its mandates. It has a paltry budget, skeletal staff, a crummy office and none of the knowledge base that’s de rigueur for any regulator.

Let’s look at some of the trip-wires left in the Act. First, any M&A deal has to mandatorily notify the CCI. Then, under the Act, CCI gets 210 days to give its assent — a rather long period in today’s competitive environment. Assume the commission feels the deal is not inimical to any of its stated objectives and gives it a green signal. Now comes the fun part — any person can go on appeal to the Appellate Tribunal, which does not have any mandatory time limits. Imagine the scope for mischief. The Act states: “The appeal filed before the Appellate Tribunal…shall be dealt with by it as expeditiously as possible and endeavour shall be made by it to dispose of the appeal within six months from the date of receipt of the appeal.” What if the “endeavour” does not result in a verdict in six months? The Act is silent on the issue. But, that’s not the end. Even if the tribunal overturns the appeal, the appellant can still approach the Supreme Court which will then, in keeping with the tenets of natural justice, need to hear all sides before reaching a verdict. Which M&A deal can wait for so long?

The amended Act also requires all Indian companies bidding for overseas acquisitions to obtain a pre-deal approval first. In fact, all sellers will henceforth require that bidders get all their approvals in place first even before considering their bids. However, many sellers might not be willing to keep the deal in abeyance for 210 days. In addition, there is the issue of confidentiality. Government offices are notorious for leaks — not only to the media but even to business rivals. In comparison, many Indian companies which acquired European targets in the recent past, including some marquee names, not only obtained a pre-deal approval in less than 30 days, but also claim that not a word leaked from the European competition authorities.

Then, there is the threshold level of assets or turnover which is used to decide whether the Act should be made applicable to any company entering into an M&A deal, whether in India or abroad (it will also include two foreign companies merging overseas, if they have operations in India, subject to a threshold level as well). Section 20(3) of the Act requires the government to increase or reduce the threshold levels every two years, on the basis of either the wholesale price index or the foreign exchange rate.

There is a whole range of other contentious issues that is exercising industry, such as the large tracts of ambiguous drafting or the powers granted to the government. For instance, the government has reserved for itself the right of exemption: “The central government may, by notification, exempt from the application of this Act... (a) any class of enterprises if such exemption is necessary in the interest of security of the state or public interest…” While it is strange that the commission, as regulator, has been deprived of this power, the Act also does not include any provisions for exempting “any class of acquisition”, such as creeping acquisitions.

Of the three issues that the Act is expected to tackle, we have touched upon only one here, namely M&As. The other two — preventing cartelisation and abuse of dominant position — also contain enough landmines to trigger off a raft of disputes. But, all this raises one fundamental issue. Overseas M&As were providing Indian companies with a new competitive edge. Legislation, instead of adding teeth to this new-found competitive advantage, might end up debilitating Indian industry.

Published as as an Op-Ed in The Economic Times (August 20, 2008)

Agriculture, The Engine Of Growth

The structural deficiency of the agricultural economy as a whole and the slipover impact from the rise of crude prices on fertiliser prices as well as on transport costs for ferrying food items need to be tackled urgently

THE meeting of heads of state from G-8 and eight other economically important nations (which included Indian Prime Minister Manmohan Singh) in Japan this week got headlines in the Indian media for all the wrong reasons. While the PM’s presence there provided the focal point of all political action in Delhi, the conclave wound up on Wednesday without reaching any meaningful action plan on the two most contentious issues: combating climate change and controlling global inflation caused by rising food and fuel prices. Preoccupied as he might be with all the political drama, Manmohan Singh should also be worried about food security. Especially, since Maharashtra faces a drought-like situation this year.

The greatest disappointment of the G-8 meeting, however, seemed to be the failure of global leaders to come up with a concrete plan to tackle the food crisis. News agency Reuters filed this report: “The G-8 leaders also acknowledged the economic threat from surging oil and food prices…but came up with no fresh initiatives to tackle what they said were complex problems requiring long-term solutions.” What’s strange is the absence of any acknowledgement from the G-8 leaders that the major reason for the rise in food prices is increasing bio-fuels production in the US and, to some extent, in Europe. The rich countries made no promises to remedy this structural issue, which promises to pull another 100 million people below the poverty line this year, but shifted the responsibility to other big emerging countries. Reuters also filed this report: “The G-8…called for countries with sufficient food stocks to make available a part of their surplus for countries in need.”

The World Bank says this upfront in a position paper (Rising Food Prices — Policy Options and World Bank Response): “Concern over oil prices, energy security and climate change have prompted governments to take a more proactive stance towards encouraging production and use of bio-fuels. The has led to increased demand for bio-fuel raw materials, such as wheat, soy, maize and palm oil, and increased competition for cropland…Other developments, such as drought in Australia and poor crops in the EU and Ukraine in 2006 and 2007, were largely offset by good crops and increased exports in other countries and would not, on their own, have had a significant impact on prices. Only a relatively small share of the increase in food production prices (around 15%) is due directly to higher energy and fertiliser costs.” On a more pessimistic note, the World Bank’s note prepared for the G-8 meeting — Double Jeopardy: Responding to High Food and Fuel Prices — states clearly that food prices are likely to remain above the 2004 levels till at least 2015.

All this raises worries about India’s food situation, particularly since repeated studies have shown that any rise in food prices, rather than fuel prices, is seen to have a greater impact on the common man’s inflationary expectations. This assumes greater importance in the case of the urban poor and the rural landless workers, where food has the lion’s share of the total consumption basket, compared to fuel which is either subsidised or almost free. What is likely to exacerbate the situation is the structural deficiency of the agricultural economy as a whole and the slip-over impact from the rise of crude prices on both fertiliser prices as well as on transport costs for ferrying food items from production centres to consumption hubs. Here are some of the urgent issues that need tackling immediately.

THE first anomaly lies at the macro level. Over 60% of the country’s population is today dependent on agriculture, which contributes to only 20% of GDP. This translates into low income per rural family, which then makes most of them vulnerable to debt traps and pushes them into distress every time there is an exogenous shock. The need is to wean away part of each family into skills-based training, without necessarily alienating the entire family from its agricultural roots. The solution is not to provide them with only urban-based jobs, but to create a talent pool for rural industry, whether it is manufacturing or services-based. Such an industrial base, through linkages, has the potential of bringing about qualitative changes in agriculture as well.

• As a result of so many people depending on agriculture for income, land holdings are exceedingly fragmented, leading to falling crop productivity. According to official statistics, close to 60% of all land holdings in the country are marginal holdings (where land ownership is less than 1 hectare). Consequently, the average size of operational holdings is not even half a hectare, or about 1 acre. Average foodgrain yields, therefore, have been almost stagnant.

• Diversion of crop land into non-agricultural use is growing and could be another cause for worry in the long run. New ways should be found of converting non-agricultural land into agricultural land (without actually reducing the forest cover) and employing technology to increase the productivity of these tracts. Antiquated legislation regulating sale and purchase of agricultural land also needs to be updated, with adequate safeguards, to allow for consolidation of farmland.

• A solution for improving the income and the yields would be to introduce contract farming in a big way. This allows a large corporate to tie up with a large number of farmers with contiguous plots. Both win: while the farmer does not lose his homestead and is assured of an income at the end of the harvest, the corporate is ensured a steady supply of output, which takes some of the uncertainties out of his supply chain.

• Finally, the government has no choice but to rise above petty vote-bank politics and take a hard look at all the handouts (such as loan waivers or cheap credit) and the subsidy structure. According to the World Development Report, 2008, 75% of India’s agricultural budget is spent on such private goods, instead of investing in public goods (such as rural roads, or increasing outlays for agricultural R&D).

In short, agriculture has the potential to become the engine for future growth in the economy, but only if the right cards are played now.

Published as an Op-Ed in The Economic Times (July 11, 2008)

Managing Business Cycles

Indian companies bulk up their investment just before the slowdown starts, aggravating the pressure on their bottom lines, rather than being ready with new capacities just when an upswing is taking place 

INDIA became a reluctant devotee of open markets ever since its close brush with bankruptcy. As a result, the country and its policymakers had no choice but to enroll for continuing lessons on the advantages and perils of open markets as well as global linkages. Even Indian businesses had to learn some hard lessons. But, without prejudice to the nature of the economic agency — whether it is the government or the private sector business organisations — the process has been like baptism by fire.

However, the Indian corporate sector has been unable to come to terms with one intrinsic open market phenomena, which is largely episodic in nature but has a close bearing on the future growth prospects of almost all companies. It is called a “business cycle” and impacts bottom lines directly. It is an unavoidable consequence of open markets and free competition. Most developed markets around the world have gathered years of experience about it and have geared many parts of their business activities to forecasting it and then taking action to either minimise its deleterious impact or to capitalise on its salubrious influence. But, most companies in India seem to be getting acquainted with this unique change process only now.

Examples bear out India Inc’s inability to spot this big trend. The Indian corporate sector’s genetic architecture still seems to suffer from a passive disposition to floating along with the tide. Sure, there are some exceptions to this languid and helpless approach, but these are only a handful. Part of the reason for this lassitude lies in history and partly it is also due to structural deficiencies in the market, over which most companies do not have any control.

Here is one example of how companies miss the timing. If one goes by the chronology of business cycles drawn up by Pami Dua and Anirvan Banerji (Business Cycles in India, August 2006), then the period between September 1991 to May 1996 is shown as an expansion period, indicating increases in output, employment, income and sales. But, data shows private sector savings quite placid during the expansionary period (1991-92: 3.1% of GDP, 1992-93: 2.7%, 1993-94: 3.4%, 1994-95: 3.5%), but peaking to 5% only in March 1996, just when the business cycle is about to contract. The story’s the same for private sector gross domestic capital formation, averaging around 13.5% of GDP, but suddenly peaking to 18.4% by April 1996, just as the slowdown begins. Predictably, the savings and the investment rates fell the next year. This seems to indicate that Indian companies bulk up their investment just before the slowdown starts, aggravating the pressure on their bottom lines, rather than being ready with new capacities just when an upswing is taking place.

Research shows that most Indian companies rely largely on external financing to finance expansion (Financial Development & Growth in India: A Growing Tiger in a Cage, Hiroko Oura, IMF, March 2008). The trend is greatly emphasised in firms younger in age and smaller in size. The paper provides pointers to another systemic challenge — dependence on external financing (including equity) is inversely proportionate to a company’s growth prospects. However, Oura also concludes that despite all the shortcomings in the economy, India’s recent growth spurt was largely due to productivity growth. Typically, most firms have two sources of financing — external and internal. Again, external can be divided into domestic and “overseas” finance. If one leaves aside equity, then the sources of financing in the domestic market are characteristically bank funding, trade credit and capital markets (for issuing bonds and a host of other short-tenure instruments, such as commercial paper).

According to studies done over time, it is shown that most Indian companies historically did not generate enough savings. For example, in the ’80s, private sector savings hardly amounted to 2% of GDP — it touched 2% in 1988-89 and reached 2.4% in 1989-90. Given this low rate of savings, the corporate sector had to depend largely on external financing, including equity financing. Over the years, as markets opened up and tax rates came down (diminishing the incentives of high leveraging), the corporate sector’s propensity to invest was then directly related to its ability to generate enough surplus so that a judicious blend of own funds, borrowed funds (which largely meant bank financing) and equity could be used as the optimum, lowrisk combination. However, to generate the kind of internal surplus, most companies had to wait for their savings to touch a critical mass. Ordinarily, by the time most companies could make use of the good times and generate enough bulk on their books, the business cycle would turn. Companies then tended to save their surplus — instead of spending it on capital expenditure — for seeing them through the tight periods.

One alternative could be then to use bank credit for the planned investment expenditure. But, that’s a non-starter given the corporate sector’s inclination to spend only when the cycle starts heading downwards. The April edition of IMF’s World Economic Outlook (aptly titled Housing and Business Cycle) mentions: “Bank credit cycles arise naturally as a result of business cycles. Specifically, bank lending typically rises during an expansion and declines during a contraction. In a downturn, firms’ demand for credit normally declines, reflecting a curtailing of investment plans in response to weaker economic prospects and greater spare capacity...The price of bank credit also varies with the business cycle because it incorporates a risk premium. During a growth slowdown, the risk of insolvency increases in both the corporate and household sectors. Banks typically respond by charging higher risk premiums and tightening lending standards, particularly for riskier borrowers. Hence, expansion of bank credit is typically procyclical, whereas risk premiums and lending standards are countercyclical.”

The only alternative left then is either the equity markets or corporate bond markets. Undoubtedly, the Indian equity markets have reached some degree of global sophistication and efficiency. However, the same cannot be said of the corporate bond market. Also, the efficiencies of the equity market are not enough to compensate for the deficiencies in debt financing. In the end, if we give allowance for the fact that the corporate sector has been maturing over the years, then the only impediment to an efficient corporate sector is the absence of a well-functioning bond market.

Published as an Op-Ed in The Economic Times (June 11, 2008).

Right Fuel For Economic Growth

The government should have devoted a good part of its spending in building infrastructure. This would not only have alleviated pressures on the price line but would have also boosted investment growth

IT IS time that the government steps up to the plate. With the global economy slowing down perceptibly and policy advisers in the government trying to figure out how the ripple-effects will impact India, there is a need for the government to act now, in a meaningful economic manner that provides the right fuel for the economy’s tank. This is not to suggest a return to the old ways of command and control but to provide the right growth impetus to economy. The urgency has got somewhat heightened by the latest inflationary figures.

The government has so far relied on the central bank to sort out some of the large and pressing economic problems, but it’s now time to shoulder some of that responsibility too. Many commentators have been speculating about the action expected from the Reserve Bank on April 29, when it announces its annual monetary and credit policy for 2008-09, and some have even gone to the extent of suggesting what the central bank should be doing. But the onus for squelching inflationary expectations cannot lie with the central bank alone. The reason for that lies in the nature of the problem and the prolonged frailty of the structural deficiencies.

The superior quality of economic growth in the Indian economy for the past 48 months or so has been fired largely by investment in industry. Prior to that, it was consumption that was driving the Indian economy. It is now being increasingly felt that fresh investment by Corporate India into new capacities may slow down, thereby imperilling the very foundation of the sound growth experienced over the past few years. Real investment has grown at an annual average rate of 17% since 2002-03. Or, in other words, investment has been contributing to over 35% of GDP every year. While consumption was earlier the main driver for growth, the contribution of investment to growth over the past four years has been outstripping that made by consumption. However, recent data on investment growth does show some softening from the previous growth levels.

For instance, bank credit to the commercial sector, as reported every fortnight by the Reserve Bank, has been showing a declining trend. Bank credit to the commercial sector (food plus non-food credit) as on June 22, 2007, over March 30 was down 1.7% compared to a growth of 0.9% in the same period in 2006. At the end of the second quarter, bank credit in the first six months was up 5% compared to 10.2% in the first six months of 2006. For the first nine months, bank credit grew only 11.3% compared to 17.2% in 2006. And, finally, bank credit on March 14, 2008, was up 17.8% in 12 months, but far lower than the 24% recorded in the 12 months of 2006-07. It also seems that there is some tapering off of the volume of investments announced as well as the volume of investments implemented.

The government seems to have anticipated this trend. In the budget, the finance minister cut personal income taxes in the hope that some of the resulting increase in disposable income would find its way into additional consumption. Also, the sixth Pay Commission’s recommendations are expected to kick in from the third quarter — the government also seems to be banking heavily on the resulting consumption surge to work some wonders for the economy. Add the additional push from the states, and some economists expect the consumption party to continue till March 2010.

BUT that still does not take care of the deeper problems that are simultaneously plaguing growth as well as stoking the inflationary fires. One of the core issues is the supply-side afflictions. True, part of the push to the WPI has emanated from global food prices. But then the contribution of domestic supply-side problems has neither diminished nor can it be wished away summarily. And, it is here that the government seems to be failing in its role.

Take a look at the capital expenditure (plan plus non-plan) budgeted for 2008-09. Total capital expenditure during 2007-08 amounted to Rs 1,20,787 crore (revised estimates). If the one-time expenditure of Rs 35,531 crore incurred on acquiring the RBI’s stake in State Bank of India is deducted, the comparable figure works out to Rs 85,256 crore. When compared with the actual capital expenditure of Rs 68,778 crore for 2006-07, this is a good 24% higher. But, against the Rs 92,765 crore budgeted for 2008-09, the growth under this head is only about 9% this year.

That is a sharp drop in government’s spending for building assets. One would have expected that in times like these, the government would have devoted a good part of its spending in building infrastructure — such as roads, bridges or power distribution networks in rural areas — to sort out some of the supply-side bottlenecks. This would have then taken care of not only alleviating some of the pressures on the price line but would have also continued to provide the required impulse to investment growth. Two issues arise hereon.

• Prima facie it seems corporate investments into fresh capacities do not seem to be strategic about business cycles. Fresh research might be needed on whether companies wait for sufficient internal accruals before embarking on capacity-creation, primarily because the trust on external sources — particularly the bond markets — could be low. That threatens to then impinge on another acknowledged source of GDP growth — overall productivity growth in the economy.

• Given that the government’s expansionary fiscal measures could be feeding the demand-supply gap for some more time to come, the RBI’s task in managing the price line becomes that much more difficult. The question that arises then is: will the next policy, therefore, follow the predictable path of demand suppression or selectively ease funding of fresh capacities to step up supplies, especially to the rural and SME sectors?

Admittedly, walking the fine line between growth and inflation is becoming increasingly perilous.

Published as an Op-Ed in The Economic Times (April 11, 2008)

Will RBI Join The Give-Away Party?

With a fiscally expansionary budget, the RBI will once again have to keep a close watch on the monetary situation. So expecting interest rate cuts at this point seems counter-intuitive

It’s odd, but somehow the heart goes out to RBI governor Y V Reddy. Yet again, the bill for the party will end up on his desk. Given the pile-up of other issues that require the governor’s full-time attention, the additional cost of reining in the after-effects of finance minister P Chidambaram’s budget jamboree is sure to extract a heavy toll.

Sure, the FM has done what he had to, given the circumstances. Some may even argue that his hand was probably forced to a certain extent by a party diktat. The Rs 60,000-crore farm loan waiver and his petulant response to repeated questions about it betray some of the occupational hazards of framing a budget during election times. But, to his credit, he has still tried to focus on the larger issue at hand — keeping the economy humming and trying to insulate it, as far as possible, from the shock waves of an impending global slowdown. This he has tried to achieve through two measures — trying to ensure that consumption growth in the economy continues apace and that the engine of industrial production does not slow down. At this stage, he is keen to achieve these ends with the help of some fiscal stimulus.

Look at what the FM is up against — the average growth of industrial production has dropped from 11% at the end of the last fiscal year to a monthly average of 9% till November. In December, it was only 7.6% and, if the average industrial production growth rate tends to stay between 5-7% in the second half of the year, the average rate for the year is likely to be below even 9%. That’s a sharp drop from the previous year. The main items dragging the index down have been consumer durables and the auto sector.

The Economic Survey also forecasts that the year is likely to end with an overall real GDP growth of 8.7%, a full 100 basis point lower than the previous year’s 9.7%. Add to this the fear of the unknown — no fix on the extent of the sub-prime damage in the western economies and the resultant economic slowdown, or the degree to which this event will impact the Indian economy.

So, how will the finance minister achieve the twin objectives? For the consumer, he has done two things — made goods cheaper by cutting excise duty and providing them with more spending power by restructuring income tax slabs. With an eye to the industrial production index in particular, he has reduced excise duty on small cars and two-wheelers (sales of which had been hit the hardest). He has also cut the median excise duty rate to spur consumption of daily household items. Given that a large part of the growth impetus during past few months, in the face of slowing down consumption, has been predicated on investment, the FM has introduced some policy changes in the budget to keep the momentum going — removed some long-standing glitches to facilitate higher trading volumes in corporate bonds, promised to develop a bond and currency derivatives market, extended tax breaks for construction of hospitals and hotels.

It’s too early to figure out whether this combination will indeed work in spurring higher consumption levels and therefore keep the industrial shop floors buzzing. But one thing is certain: not addressing the real issues is unlikely to sort out the inflation issue or immediately bring people back into the consumption mode. Take the pressures on the food economy. Is it going to go away with the Rs 60,000-crore farm debt waiver?

Unlikely, since the farmer still has no solutions on sourcing improved inputs (such as seeds or fertilisers) or even an efficient and reliant system for selling his produce. There is also no appreciable investment in improving the infrastructure which delivers agricultural produce from the farm gate to our plates. Therefore, despite the FM’s pious statements about inflation in his budget speech — “Keeping inflation under check is one of the cornerstones of our policy” — food inflation (spurred on to some extent by global factors) is likely to continue to haunt the economy for some more time to come. The Economic Survey observes: “The behaviour of agricultural prices, including essential consumption items, will be critical, given falling poverty and rapidly rising per capita income…Domestic supply management is…critical to stabilising inflation expectations, moderating pressures for upward revision in wages and prices, and containing pressures for cost push inflation through monetary and fiscal accommodation.” 

Second, will lower car and two-wheeler prices (assuming all the auto producers do agree to pass on the duty cuts) really inspire consumers to be liberal with their wallets? Again, doubtful. A careful look at the auto industry sales figures reveals that it was actually lower interest rates that catalysed record sales of the past couple of years. Once rates hardened, sales also dropped. Therefore, to get those motorbikes and tiny cars rolling out of the shop once again, what’s needed is not only a firm control on current inflation, but on expectations of what it’ll be in the future. Since the fiscal design does not explicitly state how it will lower inflationary expectations — and hence interest rates — in the next few months, the efficacy of the entire package is on test.

But, beyond that, the RBI will have its own set of headaches arising out of the budget and other public policy. For one, its authority as an enforcer of credit discipline in the banking system seems to have been undermined once more by a trigger-happy government. Second, the pay commission’s award is surely going to add another little twist to the on-going inflation story.

In addition, the RBI has used monetary policy in the past few months to bludgeon runaway demand and bring inflationary pressures under control. With such a fiscally expansionary budget, the RBI will once again have to keep a close watch on the monetary situation. So expecting interest rate cuts at this point seems   counter-intuitive. Unless, of course, the RBI also decides to join in the pre-election giveaway party.

Published as an Op-Ed in The Economic Times (March 6, 2008)

India Fakes Its Way To The Top

When the Moon is in the seventh house, 
And Jupiter aligns with Mars 
Then peace will guide the planets and love will steer the stars 
This is the dawning of the age of Aquarius 
The age of Aquarius
    — From the musical Hair 

The past few months have been probably India's best time since Independence. Praise, hope, adulation, honorary designations (superpower, et al) and an invitation to sup at the global high table have all been heaped upon the country by a world that's watching the resurgence of an ancient civilisation. Probably, with a mix of grudging admiration and a dash of envy. So, has India's time finally come?

Before we get around to answering that question, here's the central point: India has been trailing China in almost every development parameter by about 10 years. The only exceptions are probably IT and foreign portfolio investments where India has the lead. But, in almost everything else, India is playing catch-up — reforms, infrastructure, trade and foreign direct investment. The betting is that it will take India another 10 years to reach China's current level of prosperity and state of infrastructure, unless, of course, India resolutely decides to crunch the gap.

The list also includes one rather unsavoury attribute: faking it! India trails China even in the counterfeit and fake products race, but looks set to draw level pretty soon. Sooner than even the 10-year standard in other areas. Take a look at the list of India's dubious distinctions in this field. The one example topping the list is counterfeit pharma products. Assuming that the Indian pharma market is worth Rs 50,000 crore, the private sector feels that the bogus segment is as large as Rs 15,000 crore, while the government feels it's only about Rs 250 crore! Only five years ago, the industry had estimated the fake pharma market to be around Rs 10,000 crore. According to a European Union study, based on customs data, 30% of all seized fake medicines in Europe during 2006 originated in India. According to another paper, India tops the world's counterfeit pharma production, with close to 35% of the world's supply originating here.

The counterfeit market does not exist in pharma products only. In 2004, Mattel Toys got the Mumbai police to raid various hole-in-thewall manufacturing units across the city and seized Barbie stickers, Tshirts, printing screens and swatches. These swatches would have been used to sell a wide variety of goods — such as, bags and stationery — bearing the Barbie logo and trade mark. Earlier in the same year, Gillette had got the Mumbai police to raid and flush out large quantities of shaving products bearing a counterfeit Gillette brand. The haul was said to be quite handsome and included not only fake Gillette products but smuggled ones as well. According to various surveys, over 35% of the automotive parts sold in India are fake. The value of counterfeit and pirated software is believed to be over $1.5 billion. In all, the total value of the sham market is believed to be around $5 billion.

This has a direct impact on not only government revenues but can have dire consequences for the consumer as well, especially in the case of pharma products. It also has a bearing on India's position in the global market and the trust that customers repose in products bearing the legend 'Made In India'. Already China has shown its resolve to the world: a bureaucrat was recently sentenced to death for his complicity in allowing shady units to manufacture sub-standard drugs.

Given the average Indian's incredible and indomitable entrepreneurial spirit, it was only natural that a section would seize on this opportunity - as long as the market perceives the premium on a product to be high, IPR or no IPR, there will be an incentive to create an assembly line of fake products. Walk down any street in a big Chinese city and you can buy cheap knock-off versions of Mont Blanc pens, Louis Vuitton bags and anything else that positions itself as a premium, luxury product. But, different entrepreneurs see different prospects differently, some of which does not necessarily mean walking on the dark side. Here's an example of that. A detective agency has been set up in Delhi to tackle the counterfeit problem. Its website reads: “XYZ is an exclusive agency which provides complete solutions relating to all the Intellectual Property Right matters. We have been working for many prominent manufacturers of different branded items and have organised successful raids across the country.”

Innovative ideas anybody?

You’ve Not Heard The Last Word Yet

SCOTSMAN James Murray, a member of the Philological Society and a teacher at London’s Mill Hill School, embarked on a fateful journey in 1879 that’s reaping dividends for all of us even today. No, he did not discover any new continent. He was the chief editor of the first edition of the Oxford English Dictionary, which could be completed only by 1920, five years after Murray had passed away, and was issued in 10 volumes. The dictionary today is available in 20 volumes, on CD-ROM and online as well. 


That’s part of the inimitable quality of the OED, as it is popularly known. Its ability to assimilate and grow, in step with the changing times and evolving linguistic trends, has become its distinguishing feature. The dictionary, which is updated every quarter, has been including many new words — from different languages and from street patois — over time. For instance, the June 2007 update includes the new words “mahurat” and “mahasabha”! It also includes the word “chill pill”, which is a derivative of another slang term “chill”. 


There’s another place where a thin line exists between slang and jargon. It’s called the modern-day workplace. Industries have routinely thrown up language and new words closely associated with their undertaking and peculiar to their occupation. The software professional, for instance, has the special ability to string technical terms into perfectly comprehensible sentences. In March 2007, OED included the word “virtualize”, it seems, as a passing nod to the growing tribe of software professionals. In the 1980s, the securities firms of Wall Street issued paper with funny “feline” names – LIONS, CATS, TIGRS. These were names of special kind of securities -- CATS stood for Certificates of Accrual on Treasury Securities (invented by Salomon Brothers), TIGRS was shorthand for Treasury Income Growth Receipts (introduced by Merrill Lynch) and LIONS meant Lehman Investment Opportunity Notes. 


Even on Dalal Street, there’s a new, exclusive kind of language being coined by business television channel anchors and equity research analysts employed by securities firms. Interestingly, this same language can now be found creeping into the usage of other professionals. In many ways, this is also how new words find their place in the OED. In any case, here’s a look at just a few words, selected randomly, that seem to have gained considerable currency and velocity: 


    * De-growth: This word does not exist in the dictionary. At least not in the OED, since that’s the point of reference for today’s column. In short, this word has been conjured up by analysts to convey a certain sense which, otherwise, would have used up more than one word. It typically means when growth rate is slowing down – for example, if a company’s sales grew 24% two years ago (over the previous year), 20% last year and 18% this year, then instead of saying decelerating growth (awkward actually), the market has found “degrowth” more convenient. 
    * Going Forward: Simply means ‘in the future’! The reason for the popularity of this phrase is unclear, though one can hazard a guess that ‘going forward’ probably sounds more energetic, summons up a sense of motion and generally sounds more officious. 
    * Space: Usually means ‘sector’ or ‘industry’. When a TV anchor usually asks an equity analyst, “How do you see the engineering space”, what he actually means is: “What are your views about the prospects of companies in the engineering industry? Will their share prices move up?” 
    * Underweight: No, this has nothing to do with the perils of investing in the Indian stock markets. It is an euphemism as well as a clever device employed by equity analysts for indicating that it’s time to sell a particular scrip. By indicating “underweight” in a research report of a company, the analyst is able to achieve two things simultaneously. One, he manages not to upset the company management by avoiding the word “sell”. Also, at the same time, he is able to indicate to his clients that the time to sell has indeed come. 


Verbal communication has evolved over time to include many new words and sounds. In many organisations, the vehicle for communication too has changed over time. Many offices took time to adjust from lengthy letters and inter-departmental memos to emails. Once that happened, instructions through cellphone messages are now slowly gaining acceptance. These new channels have now spawned their unique language. wot nxt?

Communication Is The Key To M&As

Do we have problems of communication? 
There's something I don't know and you can't explain it to me 
Let's talk the secret language of birds    --- The Secret Language of Birds, Jethro Tull

AS COMPANIES conduct cross-border courtships and inter-marry, the one glue needed to hold all the pieces together seems to be missing. Language and communication skills seem to be the one major casualty of the technical education pursued by most managers and coveted by most employers. However successful an organisation, the lack of proper language skills can derail the most audacious merger or turn the most breath-taking innovation into an ordinary process shift. 

That’s probably why Astra-Zeneca, Boeing and Citigroup have all hired well-known poet David Whyte to figure out how to conduct conversations within their organisations. A poet seems to be a strange choice for a corporate coach! The official website of Whyte - who is an associate fellow at Templeton College and Said Business School at University of Oxford - claims that he “.is one of the few poets to take his perspectives on creativity into the field of organisational development, where he works with many American and international companies.In organisational settings, using poetry and thoughtful commentary, he illustrates how we can foster qualities of courage and engagement; qualities needed if we are to respond to today’s call for increased creativity and adaptability in the workplace.” 

Even though judgements about the quality of Whyte’s poetry are best left to individual taste, corporates nevertheless see huge value in hiring him. Apart from the three names mentioned above, Unilever, Procter & Gamble, AT&T, Shell Oil, WPP Group, Merck, Lucent and Motorola are some of his regular clients. In a recent interview to Harvard Business Review (“A Larger Language for Business”, May 2007), poet Whyte is quoted as having said: “A real conversation.can tackle great universal questions, or it can be about your work group’s puzzling lack of respect for you or why a division of your company is refusing to go in a previously agreed-upon direction. At the executive and managerial levels, work is almost always conversation in one form or another, and yet we spend almost no time apprenticing ourselves to the disciplines necessary for holding real exchanges. That’s partly because they involve a great deal of selfknowledge and a willingness to study how human beings try to belong - skills we hope our strategic abilities will help us get by without.”
But why poetry? Says Whyte in the same interview: “Poetry is a way of getting at the phenomenology of conversation - that is, what happens along the way when you’re trying to have a real meeting with something other than yourself: a meeting with your customers, with your colleagues, or with a new field of endeavour.Good poets throughout history have looked at almost every stage of the process of creative confrontation.”

Many mergers in corporate history have come asunder because the partners, after exchanging their vows, did not know how to tackle “the process of creative confrontation”. Morgan Stanley chief, Philip Purcell’s dreams of building a financial supermarket after merging with Dean Witter came crashing down and forced him to leave. The Morgan Stanley board, which was initially backing Purcell to the hilt, finally showed him the door after the bank was convulsed by a series of high-profile exits. Take another example: Compaq buying out Digital Equipment Corporation (DEC), the world’s second largest mainframe/ mini-computer manufacturer at that time. This was clearly a marriage of unequals. DEC was a large and bureaucratic organisation while Compaq was exactly the opposite. In addition, the smaller company had acquired the larger company, leading to inevitable complications. In the end, indigestion from the DEC purchase pulled down Compaq as well. 

These, and many more such painful mergers, could have been turned around with proper communication. But even if we were to ignore mergers for a moment, the ability to use language has immense benefits for any company. For example, any organisation wanting to change its way of working has only one way of making sure that the message goes down the layers effectively: talk, talk and then some more talk! And, to ensure that the wires don’t get crossed and that employees get the right cues, language plays an important role. Many organisations have, therefore, started looking at creative writing workshops to help staff members acquire the correct language.

Interestingly, IIM (Ahmedabad) conducts a leadership course called “Leadership Vision, Meaning and Reality” with the help of classics, which is very popular. In fact, most B-schools do provide some stress on communication skills as part of their curriculum. But quite often it turns out to be limited in scope - either how to make powerpoint presentations or how to use words without meaning anything.

Are Celebrities Worth It?

CELEBRITIES too have timers attached to them. The catch is: it’s not so easily visible. Especially, when they become immensely indispensable to the advertising industry. It takes special skill to realise that every so often, there comes a time, when after a successful run, many celebrities run out of steam. It requires extra-sensory perception to realise that their presence alone is not enough to empty out shop 

Is superstar Amitabh Bachchan facing such a crisis? If you look at the iconic actor’s career graph outside Bollywood, using KBC-1 as the starting point, Mr Bachchan has put his considerable influence behind a number of products — colas, over-thecounter medical products, chocolates, pens, financial institutions, suitings, and so on. But, when he tried his hand at political advertising during the recently concluded UP elections, Mr Bachchan faced a barrage of derision. Besides, probably for the first time in his advertising career, Mr Bachchan’s appearance alone was not enough to ensure the success of an idea, service or a product (Mulayam Singh Yadav in this 

So, should we write off Mr Bachchan or treat this as a one-off debacle? Intuitively, it seems Mr Bachchan will continue to remain at the crease for some more time to come, but a host of lesser celebrities may have to bid farewell to the greasepaint. The current spree of celebrity advertising has refocused attention on an issue that keeps rearing its head time and again: is the advertising industry bereft of ideas and exhibiting over-reliance on the tried and tested? In fact, it is believed that the practice of using famous personalities in advertising started more than a century ago. But, the moot issue here is: has the industry been overdoing it? 


Some of the biggest brands in the world have never used a celebrity. Interestingly though, the models they used became celebrities overnight. For example, the Marlboro man has been subjected to several studies and newspapers have carried detailed stories about his personal life, including whether he is a smoker or not. In simple terms, a myth grew around an ordinary man only because smokers saw him as an aspirational character. Closer home, Surf was able to stave off competition from pesky neophyte Nirma with a little help from Lalitaji, a non-celebrity who came to epitomise the ideal housewife — truckloads of common sense, ability to bargain and, ultimately, an innate idea of how to wrest the best for home and family. The trick in this kind of non-celebrity advertising was selecting a proximate proxy for the demographic profile of the target consumer. 

But then non-celebrity advertising can be of many kinds. Many products, such as Chrysler, even used its chief executive Lee Iococca to endorse the high quality of its products. Interviewing consumers and getting them to endorse the product on screen (think Dove) is another commonly used device as well. 


There have been many other successful non-celebrity icons too, some created especially for a particular brand. For example, Joe Camel became a successful poster-dromedary for Camel brand of cigarettes, Ronald as a kid magnet for McDonald’s, the Dough Boy used by Pillsbury. Fido Dido worked wonders for Pepsico brand 7-Up. An illustration of a naughty boy — called Gattu — by famous cartoonist RK Laxman mysteriously powered the success of Indian paint MNC, Asian Paints, for over 40 years. The boy became an icon, a mnemonic reminder of whatever the brand Asian Paints (and its sub-brands) represented. Then came a time when Asian Paints had to reconfigure itself and its strategy. That entailed a tough decision - Gattu had to be retired. He went gracefully but left behind an interesting thought. 


Marketing strategists must know exactly when to reduce their reliance on superstars. These icons can be extremely helpful on occasions, especially when there seems to be some convergence between the brand values and those personified by the star himself. But, they can spell trouble for the brands as well — as Pepsi found to its chagrin with Madonna, Michael Jackson and Mike Tyson. Or, when a cola company found out that while Britney Spears was publicly endorsing their product, in personal life she was consuming the product of a rival company. Or, when the celebrity spreads himself thin over too many brands simultaneously. Those wanting to figure out the right timing could probably keep an eye on the Davie-Brown Index, created by Davie Brown Entertainment, a part of the Omnicom network. The index helps measure a celebrity’s sway over consumers’ buying intention as well as his influence over the brand. But whatever index you use, the message is simple: you must know when it’s time to let go. And, when that time comes, let go you must.

Ageism At The Workplace

JUST when Pierce Brosnan thought he had hit upon the perfect anti-ageing device, it got snatched away from him. As James Bond of the silver screen, he managed to defy all the usual signs that betray old age – wrinkles, thinning hair, sagging muscles and a flagging libido. But then what Hollywood giveth, it can also taketh away. The man with the licence to kill lost his privilege to a younger actor called Daniel Craig. Poor Brosnan, with no Moneypenny shoulders to cry on, opted for Playboy. He apparently told the magazine in an interview that age discrimination – popularly known as ‘ageism’ – had done him 

Here it is then, a new kind of discrimination. After gender, class and race discrimination, now comes prejudice against age. And it cuts both ways – whether the applicant is too young or too old. But then the most virulent form of this is the visible bias in the workplace against those who are perceived ‘old’. In fact, some studies show that intolerance against older men is far higher than gender or race discrimination. 

The term ‘ageism’ was coined by Robert N Butler, a physician who won a Pulitzer for his work on ageing. The International Longevity Center, in a brief biography of Dr Butler on its site, says this: “Dr Butler was a principal investigator of one of the first interdisciplinary, comprehensive, longitudinal studies of healthy community-residing older persons… It was found that much attributed to old age is in fact a function of disease, socialeconomic adversity and even personality. This resulted in a different vision of old age… This earlier research helped establish the fact that senility is not inevitable with aging, but is, instead, a consequence of disease.” 

All organisations probably have, at some point or the other, discriminated against candidates because of their age. It is natural, since without proper research on ageing or the effects of ageing, popular perceptions hold sway. This is a bit like notions in the past, when women were found unfit for a certain kind of job, or a man from a certain race untrustworthy for a certain profession, because of deep-rooted beliefs which had no basis in real life. In fact, ‘affirmative action’ is exactly what was supposed to remove such biases. 

This inequity manifests itself in many ways. There are some jobs which have a mandatory retirement age, where it is felt that the nature of the work – such as airline pilots — requires high level of mental and physical skill, which atrophies with age. There is nothing to prove that yet. Interestingly, it is felt that the concept of a fixed retirement age is an invention of the modern age, corresponding with the implementation of the pension system. In olden days, most people worked till they had a disability or till they died. To be fair to the employers and other job aspirants, with a growing number of younger people queuing outside the office doors for a job or for a promotion, most companies feel that older people should make way for the younger lot. 

In the US, at the federal level, there is legislation to ensure that those over 40 are not overlooked by employers or given a raw deal in the workplace – The Age Discrimination in Employment Act of 1967, under which it is “unlawful to discriminate against a person because of his/her age with respect to any term, condition, or privilege of employment — including, but not limited to, hiring, firing, promotion, layoff, compensation, benefits, job assignments, and training.” 

The US, and many other Western economies, probably has to enforce this law because retirement would mean pension and that spells a huge drain on the economy. Many old-time corporate icons have had to perish or sell parts of the organisation because of the mounting pension liabilities. It is well-known that the lumpiness of over-60 in the demographic profile of most Western economies is worrying the hell out of them. According to an UN study, over two billion people – or about 22% of the world’s population — in the world will be over 60 years of age by 2050. 

In India, while companies are waking up to the complexities of gender and race discrimination, there seems to be little awareness about ‘ageism’. One of the reasons could be the army of young people constantly knocking on the doors of companies. A substantial portion (around 50%) of India’s population will be below 35 in a few years. But then, all these guys will also be touching 60 some day. To avoid a crisis then, it might make sense to implement affirmative action against ‘ageism’ today.