Thursday, July 19, 2012

If The Oracles were to be True...

Goldman Sachs Economists have cautioned The World against investing in India in The Short-Term. With high Inflation and Record current account Deficit, has Indian Economy Deteriorated so much?

IIn the summer of 2007, when the subprime crisis was yet to unravel and the world was still living with a happy boom mindset, two effervescent traders from Goldman Sachs, Michael Swenson and Josh Birnbaum, noticed something really strange going on in the global securities market. Whatever they saw, was enough for them to immediately call up their headquarters to urgently request the bank to short its mortgage-related securities. For a bank to take such a huge step based on the advice of just a handful of traders is rare; but not in Goldman, which puts its pound of flesh directly into the hands of its front line bankers. Goldman followed the duo’s advice to the tee. And the result – Goldman made a whopping $11.6 billion profit in the financial year 2007 with $4 billion emerging from its bet on the subprime collapse.

Three to four years down the line, Goldman Sachs again seems to be standing on a similar platform with another equally effervescent quasi-economist, their Asia-Pacific Chief Strategist Timothy Moe, putting forth another radical outlook. Leading a team of the bank’s strategists, and sitting plum in his ubér plush office at 85 Broad Street, New York, Tim portends that the bank is not going to be “tactically positive” on BRIC economies and that the “longer-term picture of Asia outperforming the US is taking a breather.” When Goldman Sachs’ strategists mention terms like “not tactically positive”, that is equivalent to “the nukes have exploded” in common parlance. More worrying from an Indian perspective, Tim has pointed out that India is a bigger issue for investors than China; and that both these nations would and should see a lower preference from investors than even nations like Singapore, Taiwan or South Korea. The problem is, when Goldman economists take out a forecast, the resulting melee is much like the who-came-first-the-chicken-or-the-egg situation. It doesn’t matter whether their forecast comes out correct; what would necessarily happen is that billions of dollars would see market shifts out of these two nations.

Lynch mob criticism aside, India itself has much to blame itself on. Owing to a resurgence in the wholesale price index for food articles (2.5% for the week ended on December 25, 2010), inflation has again hit the headlines in the country. Yet, beating worst of the expectations, year-on-year growth in over all WPI in India accelerated from 7.5% in November 2010 to 8.4% in December. Though a mind-boggling 70% rise in onion price and surging fuel prices were blamed to be the key reasons for the December inflation, there is no denying that the country has already been facing some of the strongest inflation in the Asia-Pacific region as surging output and soaring demand bump up against capacity and other constraints, fanning price pressures. RBI is certainly on its mis-foot toes to curb the pressure by clearly wrongly resorting to tightening of monetary policy.


Wednesday, July 18, 2012

Nordic brings back the old ghosts

Tighter Monetary Policy has not only Weakened Domestic demand in Nordic’s biggest Economies, but has also put a Brake on Region’s overall Growth Momentum. Is Nordic slipping back into recession?

Several investors in western Europe, particularly in the Nordic region (comprising countries like Sweden, Denmark, Norway, Finland, et al), are busy rejigging their portfolios these days. Raison d’être: Ghosts of a double-dip recession, which had disappeared as green shoots of recovery started popping up, have once again started haunting the region.

Tighter monetary policy has not only weakened domestic demand in the region’s two biggest economies, Norway and Sweden, but has also put a brake on Nordic’s overall growth momentum. While Norway’s real GDP contracted by 0.5% during Q1 2010, Finland too remained in a full-blown recession in H1 2010 (Finland’s GDP contracted by 5.4% in Q4 2009 and by 0.6% in Q1 2010) as firms pulled back fixed investment spending on the back of falling export demand. Even Sweden’s economy, which was the first to rebound in 2009, has lost its winning momentum. GDP growth in Sweden is expected to slow down from 4.2% in Q2 2010 to 2.1% in Q3 2010. What’s more? Unemployment has also risen in Denmark (from 3.9% in Q3 2009 to 4.3% in Q1 2010) and Norway (from 3.2% in Q3 2009 to 3.5% in Q1 2010) while staying at record-high levels in Finland (at 8.8%). So, is Nordic slipping back into recession or is it just a halt before the growth finally picks up in the region?

Though Eszter Miltenyi, Senior Press Officer at European Central Bank finds an excuse to get away from bringing in the real picture of the region by saying to B&E, “We do not comment on particular countries’ economies of the euro zone,” there are still many who are bold enough to speak the truth. “The region will tip back into a shallow recession in early 2011. Growth momentum will fade as the recovery stalls in key trading partners. Although Denmark, Finland & Sweden have strong trade links with each other, most of their trade flows outside the region to Germany, US and UK. And as Germany and UK are expected to see mild recessions in the first half of 2011, things would really weigh heavy on the Nordic region’s exports,” Christine Li, the London based economist at Moody’s Economy.com tells B&E.

Further, if Europe’s sovereign debt crisis deepens, the demand from Nordic’s trading partners could suffer longer than expected. Dismal economic news from US and western Europe too implies that the global recovery continues to be fragile and growth remains inconsistent. This means a lot more trouble is on its way for Nordic countries in the near future. No doubt, public finance was strong across the Nordic when it entered the 2008 financial crisis, but the situation has changed today with the region’s major economies like Denmark, Sweden and Finland struggling with massive budget deficits. But then, are policy makers really aware of the financial storm that might hit them anytime soon? If yes, what are they doing to avert the danger?



 

Tuesday, July 17, 2012

The first real test for Congress after the Anna Hazare movement

There is already a buzz around as Hisar district in Haryana goes to poll on October 13. As speculations mount over who will fill in the shoes of Late Bhajan Lal, these by-elections will be the first real test for Congress after the Anna Hazare movement. 

As optimistic and relaxed as he may sound, the going is unlikely to be easy for the Congress on this seat, even history vows for the same. The party has won the Hisar seat only five of the 12 times in the Lok Sabha elections held in the state. Congress candidate and former MP Jai Prakash has won the seat three times, in 1989, 1996 and 2004, with tickets from the Janata Dal, Haryana Vikas Party and Congress tickets respectively. In the last Lok Sabha elections, Jai Parkash had to be contended with the third spot in the ballot tussle won by Bhajan Lal. Even otherwise, Hooda needs to prove that his government is popular after having come to power in the October 2009 Assembly elections backed by the support of independent legislators.

In the May 2009 elections, Bhajan Lal had won the Hisar Lok Sabha seat as a Haryana Janhit Congress (HJC) candidate by a margin of about 7,000 votes, beating the Indian National Lok Dal (INLD) and the ruling Congress nominees. This time around, the stakes for the three main players on the Hisar seat – the Congress, INLD and the HJC-BJP combine – are high as all parties are fielding their stalwarts who shall now try to fit into Bhajan Lal’s shoes. The seriousness of the contest can be gauged from the very fact that the main opposition INLD has announced the name of its leader Ajay Singh Chautala for the by-poll. Chautala, the son of former Chief Minister and INLD supremo Om Prakash Chautala, is a sitting legislator in the state. For HJC, & its new candidate for the seat – Kuldeep Bishnoi (who has been supported by the BJP) – the stakes are high – not only politically, but on a personal front as well. Bishnoi would definitely want to win this by-poll and retain the party’s hold over the area. However, his drawback is the fact that, it will be his first election without his mastermind father – his character will also be tested thoroughly.

If the HJC-BJP candidate Kuldeep Bishnoi defeats Ajay Singh Chautala of the INLD and Congress candidate Jai Prakash, the alliance would be cemented firmly for the 2014 Lok Sabha elections and the subsequent assembly polls in the state. In a way, the Hisar Lok Sabha by-election could well be an indication of the new change in state politics.

More than anything else, the Hisar polls are only a beginning of the test that Congress has to face in coming times. With elections approaching in Uttar Pradesh, Uttarakhand and Punjab within the next one year, the possibility of Hisar results reflecting upon the subsequent verdicts too cannot be totally ruled out.


Monday, July 16, 2012

Is there an alternative?

To meet the growing demand of electricity in the country, the approach paper of 12th Five year Plan (2012-2017) targets to set up 100 GW of capacity. However, if the government wants to achieve this desired growth, it certainly needs to undertake immediate reforms to augment domestic coal supply.

At a time when over 50% of the country’s energy demands are met by coal, India is still struggling with issues related to its production and supply. Every year, the Planning Commission comes out with an estimated target of coal production and, interestingly, every year the figure is scaled down considerably. Even the final output lies nowhere near the revised estimates. What’s more? Coal or black gold, as it is often called, is about to become dearer and the ramifications are certainly going to be felt all around. The reason is simple. A risk of shortfall in production targets, the proposed pay revision in the sector, and an increased share of washed coal may put an upward pressure on coal prices and place energy companies at the losing end.

When it comes to a change in policy regime, there have been visible attempts to liberalise the statutory & regulatory framework in order to promote investment in the coal sector. These policy initiatives have come in the form of allowing captive mining by power, steel & cement industries; allowing foreign direct investment (FDI) of 100% for the power sector, 74% for the steel, cement & coal washing; creating a competitive market for sale of coal; progressive reduction of customs duty on coal & the import of Heavy Earth Moving Machinery (HEMM); and the introduction of contract mining. Despite all this, there really hasn’t been too much forward movement in the sector. In fact, since 1993, over 208 coal blocks holding around 50 billion tonnes reserves have been allocated for captive users. However, still only about 30 blocks have started production, mining just about 40 million tonne (MT) of coal against the potential of over 200 MT. This indicates that the domestic production has never been able to meet the industry demand. Even for the current Plan (2007-12), the Commission had earlier estimated that coal production will reach 680 MT by 2011-12, but the figure was later revised to 630 MT in a mid-term appraisal, and was further scaled down to 554 MT. In fact, production shortfall in the current fiscal is projected at 142 MT, with domestic output likely to touch 554 MT.

No doubt, as per Planning Commission estimates, domestic coal production will grow to 770 MT by 2017 (on the basis of projected annual growth of around 7%), but by then the demand too would soar to 1,000 MT, requiring companies to import 200 million tonnes. For the uninitiated, over 60% of India’s commercial energy need is met by coal (India’s proven reserves of coal currently stand at 110 billion tonnes). Although, as per estimates, the share of coal in terms of India’s total energy needs would drop by 2024-25, the fall would be marginal 4-5%.


Saturday, July 14, 2012

Responsible leaders are by design, not destiny

Leaders have to give the employees confidence that they will always be there for them under any circumstance provided they perform with complete dedication. Responsible leaders have to also look at comprehnsive stakeholder engagement and look to give back to society

The business environment can continue to evolve from one cycle to the next, new technologies can relentlessly enter into the market to replace the old and business curriculum as well as the management thought process may be upgraded several times over to keep pace with the times. But the essence of great leadership, to my mind, would remain more or less the same.

And great leadership starts with the realisation that while you can potentially achieve outstanding results if you are able to provide your business the leverage of having the best of technologies and processes in your industry on the day, but it would all prove really futile and in vain if you cannot have employees with the right mindset. In my experiences at Tata Steel, I realised that a critical part of this mindset has to be the ability to stay out of any comfort zone.

When we abandoned the cradle to grave culture in Tata Steel, it was a difficult process of transition, but it was identified as an unavoidable necessity. Managing a company through crisis can be compared to treating a patient in an Intensive Care Unit (ICU). The patient may have to go through numerous painful medical treatments and tests, and similarly, an organisation may have to go through a period of painful transition if it has to make that spectacular turnaround. Such a turnaround is incomplete without the will and the passion of the people involved. If people realise that they have to win their own battles and that no one is indispensable in a company, they are the right kind of people to deliver on your objectives. Creating a sense of ownership and responsibility across the organisation is the key to hold your own and grow in today’s highly competitive environment. Once people realise that they are mutually dependent for their individual good, they will prove to be highly productive.

Having said that, our endeavour at Tata Steel was not about giving up on the traditional philosophies on employee management altogether. Motivated people without the right sense of direction at the top would be certainly setting themselves up for failure. They are akin to poles that are all randomly oriented in an un-magnetized iron rod. But when it is subjected to a magnetic field, they (the poles) all get aligned in the same direction due to the process of magnetisation.

A leader has to play the part of the coil carrying the current so that the entire team gets aligned. The role of a leader is to inspire and lead them for the larger good of their organisation, and ultimately their own as well. A true leader never gives up on personal touch. He has to constantly communicate with his people, be an integral part of their lives and also ensure that they always feel that he is there to stand for them through thick and thin, as long as they are doing their job with complete dedication. Leaders who prefer to stay in the cool comfort of their cabins are not really leaders. In a similar vein, leaders who have expectations from their followers that they themselves cannot meet will not go very far. And that eventuality would be by design rather than by destiny.

In addition, the CEO is the best advocate for the company in the outside world. It is very important for him to communicate with all the stakeholders outside the company on a continuous basis and ensure that the business has a thriving ecosystem, besides looking for growth opportunities as well as potential threats in the task as well as the broad environment. And if he manages that, his subordinates will automatically follow his lead. Communication is like the life blood of an organisation, and if a leader falters on that critical front, his ‘magnetic’ force will remain largely ineffective and lude him.

Of course, the manner in which people express themselves as leaders has a lot to do with their individual character traits. But all leaders have to be prepared to accept that people under them are also individuals in their own right and can often have differing views. Consensus is a valuable thing to have in theory; but in the real corporate world, it would be inane to expect too much of it. Harsh decisions can often lead to acrimony within the ranks, but it is a leader’s privilege, as well as his prerogative and responsibility to take such decisions whenever required, rather than putting them off for want of a more democratic solution. Some of the dissenters will fall in line ultimately, and you have to look at ways to ensure that the rest of them are unable to do any damage. If your employees trust you implicitly, these issues will hardly crop up. Therefore, it is also extremely important to maintain your credibility in the organisation and go by your very last word. There is also a significant amount of skepticism and cynicism in the organisations of today.

Without removing the trust deficit that exists in your followers, you cannot build or even, for that matter, sustain a great organisation. Remember that if you do not have people to stand up for you in difficult times, there can be no greater failing for you as a leader. The delicate part of credibility is that it can take years to build, but it can be destroyed in an instant. The Tata corporation has thrived in letter and spirit with its motto, “Leadership with trust”, and this is why the group remains an iconic benchmark for India today.