Our topsy-turvy money market needs a remedial plan: Mint 28th November 2023

 

Evaluate E, S, and G separately: Financial Express 27th November 2023

ESG (environmental, social, and governance) is the latest buzzword in the corporate world, and all companies worth their salt are trying to do well on environment, social responsibility and governance. There are several pages dedicated in the annual reports elucidating what is being done on all three fronts by them. Hence, going paper-less, using less power, growing trees are some manifestations mentioned in the Directors’ Reports. Similarly, donating water coolers to schools is depicted as companies doing social good; and, of course, there are best governance practices reiterated over a few more pages. Hence, all companies do tend to show they are ESG-conscious.

Regulators over the world are also trying to put in place systems to grade companies on ESG performance and, hence, there is a lot of work going on here. The idea is to score companies regularly on ESG so that the progress can be gauged. This is useful for various investors who believe in funding ventures that are ESG compliant. Hence, getting good ESG scores have become a must for companies in order to catch interest of these investors, many of whom have set up dedicated funds. This is one reason why companies are striving to score on these issues. But, does this concept really make sense?

While the three concepts are relevant and, without doubt, need to be pursued by the companies, they capture three different facets of a business’s running which are not related to one another. Protecting the environment is a tricky concept considering that progress made by a country involves negative externalities for the environment. Highway projects, for example, involve cutting of trees and other vegetation and changing patterns of land use, be it farm land or even mountains, to make travel easier. This has no doubt enabled commerce, but the recent episodes of crumbling hills in Himachal and Uttarakhand highlight the broader issue of whether we are doing the right thing in these vulnerable geographies. The Mumbai metro-rail, which will ease a lot of traffic congestion, has already led to the cutting of thousands of trees and can have a deleterious impact on the city in terms of flooding at some point of time.

Then, there are some industries that are inherently environment-unfriendly (a rather obvious instance of this would be the entire petrochemical chain). The question that arises here is whether, by pursuing an activity that is dangerous in the long run and planting trees to offset this impact and become ‘net zero’ by a certain timeline, amends can be considered to have been made. It is worth recollecting that when the wide-scale use of paper gave way to plastics, it was considered to be a major paradigm shift in the way in which society operated, as it meant “saving trees”. But, the proliferation in use of plastics has created a new problem for civic administration in terms of disposal. One never can tell what the sudden shift to EVs can mean in the medium term in terms of negative effects. That said, these issues are completely different from social responsibility, which the government has addressed already by making companies spend a certain portion of profit on CSR (corporate social responsibility).

This has no linkage with what a company does to the environment. Hence companies can be polluting the lakes or rivers with effluents on the one hand but contributing significantly to schools, hospitals, orphanages, etc. Therefore, while finalising any score or rating, can one really put the two on the same plane? The answer is no as the objectives are very different. Further, often only a formal obeisance is paid to such expenses and there may be no real commitment, as companies end up spending exactly 2% of the net profit that is mandated.

The third concept,, that of (corporate) governance, is more of an internal issue where companies are to adhere to rules laid down by regulation. Hence, they need to have a certain number of directors, and a certain number of these directors have to be independent members of the board and there have to be an obligatory female members. A quorum (minimum attendance) of the directors have to met for the Board meetings and there have to be committees to address different issues. These could just mean ticking all the boxes, given how rarely there are deviations from the prescriptions. But, it is well understood that governance cannot be linked with either environment or social responsibility, though companies often have a special committee that looks at the same.

Given this backdrop, it is pertinent to ask if the three can be clubbed together when assigning ratings or scores. Will the three aspects have equal weights or will they vary? A very good score on one of these objectives can go with a low one on the other. Quite clearly, this has become a jumble, because the issues are so different.

While having green bonds make sense as they target just one aspect of ESG, combining the three for any purpose makes the concept fuzzy. It can be argued that environment affects the society at large, but social responsibility is more of doing good for humanity. Here, too, companies that espouse CSR may see nothing amiss in laying off workers on grounds of protecting shareholder value while at the same time spending on social good, quite like what happened during the Covid times. Governance is more of a mandatory compliance that has to be followed, and hence almost all large companies would be fully complaint.

An important question to ask here is how would investors who take decisions based on ESG scores evaluate this puzzle. Ideally, the three issues need to be evaluated on a standalone basis so that it can be seen as to how the company fares on these parameters. Besides, while environment is certainly a national and global issue, social responsibility is more in the realm of ethics, and, ideally, can’t be merely related to any economic activity undertaken. Lastly, governance is again a habit of the boardroom that gets reflected in neither of the other two objectives. 

The Truth About The $4-Trillion Economy: Free Press Journal NOvember 25th 2023

 

What matters for growth in any economy is real GDP growth which is expected to be 6.5% this year. Nominal GDP does not indicate the same because high inflation can push up this number and make things look very good

Even as the nation was shocked on November 19 when Australia overwhelmed India in the World Cup cricket finals, there was an interesting bit of news on social media which claimed that it was time to rejoice as India had crossed the $4 trillion mark in GDP. This news circulated quite widely and it was believed that the economy was truly accelerating, more so as there has been talk of India becoming a $5-tn economy with various timelines being put about.

Unverified Social Media Buzz

The news was evidently incorrect and was never verified, though the chart put made it look like a live ticker. There was some reference to the IMF to make it sound credible. It is hence necessary to put in perspective the numbers relating to GDP.

First it needs to be understood that GDP is not a market quantity like share or currency or bond where there are live tickers. It is a comprehensive calculation which is painstakingly carried out on a quarterly basis based on information feeds from various sources and a large number of imputations. Therefore, a real-time knowledge of GDP is impossible. This holds not just for India but all countries in the world.

Second, this information comes out on a quarterly basis two months after the quarter ends. Hence the information for Q2 of this year will be out on November 30. The annual number is announced on May 31 and hence the actual GDP number for FY24 will be known on that date only.

Official GDP Data and Forecasting

Third, no external organisation ever calculates the GDP of any country independently as they do not have the capacity to do so. They make forecasts or arrive at certain numbers by using official data and then making some changes based on their assumptions. Hence it would be incorrect to say that the IMF has similar numbers for India’s GDP at any point of time because it uses data that is provided by official sources.

Fourth, the National Statistics Office which comes under the Ministry of Statistics and Programme Implementation is the sole organisation that publishes this information and this is done four times a year. Therefore, any other number which is presented could at best be private forecasts but not the official position.

Now as to the number of $4 trillion of GDP, it would translate to roughly ₹332 lakh crore assuming an exchange rate of ₹83/$. In this context it is pertinent to state that this would be the nominal GDP, which is different from the real GDP which is reckoned at constant prices which means that inflation effects are removed. Therefore for FY23, real GDP was ₹160 lakh crore and nominal GDP ₹272 lakh crore. Hence when one is speaking of GDP crossing the $5 trillion mark (which is ₹415 lakh crore) or the $4 trillion mark or ₹332 lakh crore mark as was stated, it is the increase of nominal GDP of ₹272 lakh crore going up.

Official GDP Forecast for FY24 in the Budget

The official forecast made by the government on nominal GDP for FY24 is in the Budget for FY24 as this serves as the basis of all calculations. Here it was projected that growth would be ₹302 lakh crore. The numbers projected in the Budget are normally never off the mark and hence this would be the number attained by March 2024. This is ₹30 lakh crore short of the $4 trillion mark. Therefore, this number should be ignored.

But this will also bring into focus the $5 tn or $7 tn numbers being spoken of in various forums. Under normal conditions the nominal GDP grows at 12-13% per annum though there have been exceptional years as in FY22 and FY23 where growth was 18.4% and 16% respectively. This was due to very high inflation which hopefully is behind us. This means that assuming growth of 13% per annum we will take 2.5 years post FY24 to cross the $5 trillion mark — which is in FY27.

Real GDP Growth and Its Significance

In this context it is also necessary to reiterate that what matters for growth in any economy is real GDP growth which is expected to be 6.5% this year. Nominal GDP does not indicate the same because high inflation can push up this number and make things look very good as it was in the last two years. It is the real GDP growth number which leads to job creation and spending which is necessary to keep the tempo up. Therefore nominal GDP is more of a theoretical concept with limited use to describe what is happening in the economy.

However, nominal GDP becomes relevant when any economic ratio is calculated. This holds particularly for fiscal deficit and current account deficit. The former is a very critical ratio for all countries as it throws light on the fiscal situation as well as future buildup of debt. This ratio has to be controlled by all governments and as the fiscal deficit is denoted in current prices, the denominator also needs to be similar. The same holds for the current account deficit or any other external sector ratio like external debt or exports, where the nominal GDP matters.

Importance of Distinction Between Real and Nominal GDP

Hence the distinction between real and nominal GDP is essential. Further, these numbers are published only by the government department and no one else. This comes out four times a year with a two month gap. Any number on GDP during the course of the year is at best a conjecture based on subjective judgments. For sure, no one can give this number on a real time basis as it is never known!

Leaning towards optimism:Indian Express 22 November 2023

 

India wants gold, not gold bonds: Businessline November 20, 2023

 

Words Worth: Profit & performance: 12th November 2023 Financial Express (book review)

 

The story of former GE CEO Jack Welch is a grim reminder for many corporates taking a similar direction today

The video clip of the now infamous Zoom meeting where the boss abuses his team for not meeting targets is now a template used to show how capitalism has degenerated and become toxic in terms of work culture. What matters most is profit and nothing else. The end, which is seeing the company price going up, is important and the means not really that relevant.

The genesis of this behaviour goes back decades back in the 1980s when Jack Welch, then chairman and CEO of General Electric, became an icon for a different work style. What was important was shareholder value which could be driven up by making higher profits at any cost. Welch understood this and was quite unabashed about this goal; and the means used to attain it were not relevant. This is the core of the book written by David Gelles, titled The Man Who Broke Capitalism.

Welch was the most revered corporate head who knew ‘how to kick’ to get the desired results. There was no case of emotion coming in the way and it was only performance that mattered. The Friedman theory of markets was embraced by the government; and presidents like Ronald Regan were a true believer in this ethic.

There was a three-point formula assiduously pursued which not just won plaudits to begin with but also became examples for others to follow. He had become a role model. The first was downsizing; and he brought into American capitalism the concept of retrenchment in the name of fostering efficiency. This held not just for GE, which was an electrical company that provided products for the households, but the several other companies that he acquired through takeovers or mergers. The starting point of such ventures was large-scale ruthless layoffs. The shareholders did not mind as profits rose as did the share prices.

The justification was that if profits had to increase, costs had to be curtailed along with growing sales; and this meant cutting down on the labour force. The concept of outsourcing caught on where jobs hitherto done in the company were given to outsiders. This fell in well with the tenets of capitalism where there had to be creative destruction along the way. This model may sound familiar in India even today where several companies think nothing amiss about terminating services of labour based on the efficiency argument. Welch became a hero and for those who worked in the Eighties, Nineties and first decade of the 21st century. Almost every CEO loved to display his book, Straight from the Gut, on their shelves.

His behaviour was outright abusive and one had to fall in line to survive in the company. Employees were too scared to walk close to him as they expected him to be nasty. Whenever he lost his temper at anyone he would say: shoot him, which meant getting the sack. He had become such an icon that the media loved him and with all the interviews on TV channels and columns in magazines, he became a role model for success. In fact, buying a company that ran the NBC channel helped in this image building. This was American capitalism at its macho best.

The second was deal making, which was part of the package. The number of deals of buyouts and sales reckoned in this two decades of rule was amazing and each deal spelt trouble for the staff as the Welch paradigm was adopted. Once deals were done they would be headed by anyone he liked.

The third was financialisation, which meant making profit at any cost. This did not preclude braking laws and fudging numbers. It did not matter as long as it was not found out as every quarter mattered when it came to convincing shareholders that things were just too good. And as he delivered returns exponentially, everything worked in his favour.

The book goes into details of how companies were run under his aegis and the absolute power wielded by him. The unions were made non-existent and cultural centres turned into fancy clubs meant for elite groups. The performance-driven culture meant that those who did very well prospered and the infamous Bell curve which meant sacking employees every year took shape under his regime. Corporate America just loved it as it spoke a tough language of success. His close colleagues, including Immelt who took over the reins after Welch moved out, continued on the same path to maintain continuity. Fortune wrote that when any company was looking for a CEO they would poach on the stalwarts of GE.

Gelles does lament this extreme state of capitalism not just because of the human factor but also the use of immoral techniques to keep the accounts looking very good. He also points out that nothing much has changed as seen even in recent times when Microsoft and Meta have laid off a large number of workers. Elon Musk has now earned the title of Neutron Mush which was first given to Welch, as he resorted to sacking 50% of Twitter staff after taking over the company.

The reader would have to take a call on whether she admires this kind of culture or not. To the normal person this sounds repugnant, but such a model has made many shareholders richer and happy. He changed the way in which companies are run. It is no longer a case of preserving family values, but working as a team all the time. Companies are now moving away from such extremism, but as seen in India, too, the culture of Welch has already gotten ingrained and one needs to look through the windows to smell this.

Subsidies Galore For Election Time, But Not To Worry: Free Press Journal 11th November 2023

 he decision of the government to provide free food to the needy for another five years needs to be welcomed, notwithstanding the concerns that are there on the fiscal side. The scheme is targeting 800 million poor or needy people, which is commendable given that the levels of deprivation are still high in the country. The issue surfaced during the lockdown where the initiative was taken to ensure that the poor had access to food which was provided at zero cost, which has been finally merged with the PDS scheme that imposed nil cost for the beneficiaries. By extended the scheme for another five years, the stage has been set to ensure that people will be better positioned to lead a better life.

This has to be seen in the context of two important issues – one factual and the other theoretical. The recent data that has come out on hunger and nutrition needs to be brought in here. The Global Hunger Index placed India at 111 in a set of 125 countries which however has been contested in several quarters. The report has placed the level of under-nourishment at 16.1% for the period 2020-22. Now Niti Aayog has in its report on multidimensional poverty provided data on various aspects of this concept. For population deprived of nutrition, the ratio provided for 2019-21 was 11.9%. Therefore, the justification for such action is strong as there is a large section of population which requires support.

In terms of cost of the programme, it would broadly be in the present range of ₹2 lakh crore of food subsidy which is the payout for the fiscal. The fact that this will remain free for the next five years means that the food subsidy bill will continue to increase in proportion to the higher MSPs that are being paid to the farmers. But the pace of growth will not be very significant and can be absorbed well in the Budget.

The broader issue which is raised is more on the theoretical front. The primary role of the state is to ensure that the needs of the poor are met. This is why the subsidy on food is still important. Two years post the lockdown, it has been seen that the levels of employment have remained shaky which has necessitated a larger section of the rural folk seeking recourse to the NREGA programme. In fact, the funds do tend to get exhausted when the demand for labour goes up, which has been the case in the last couple of years. Therefore, until such time that the economy is able to generate sustained growth which keeps the employment rate ticking, help will be required from the government.

Hence, the high levels of deprivation in society has been the reason for governments to offer sops in the form of free food, subsidised cooking gas, free water, electricity and so on. This has helped to improve the standard of living of the people. Intuitively it can be said that in case there is any reversal of policies in these areas, the targeted beneficiaries would slip down the ladder considerably. With the state elections having commenced, the manifestoes of all parties have been focusing on social welfare. The free food scheme extension by the centre will enthuse more states to also keep their programmes ticking while looking to launch new ones. Given the limited resources that governments can raise, such programmes would necessarily absorb a larger part of the available funds in the budget. Add to this the fiscal constraints imposed under the FRBM laws and it becomes hard for states in particular to meet their fiscal targets.

So how does one analyse the manifestoes of parties in the ongoing elections? Manifestoes are always about giving sops to the public, and never speak of any additional cost imposed on society. Also often it has been seen that states are not able to fulfil most of the promises because there are fiscal constraints all the time. Low-hanging fruit – the existing schemes – can be extended as they are part of the budget. But major policies like farm loan waivers have had a mixed outcome. While there are promises made at the time of elections, very often the amount promised is never utilised going by the actual budgetary numbers. This is so because it gets challenging for farmers to claim the same as the criteria set are quite stringent. For example, the size of the farm is the criterion to begin with, and there has to be proof submitted to show that the crop failed due to weather conditions in the region. The normal disbursement is around 20% of what is promised

Hence while such promises may tend to give the impression that the budgets would be under severe pressure, the fact is that governments often substitute programmes or make a limited allocation for the same so as to ensure that the fiscal numbers are in order. This has been the major benefit of enforcing the FRBM rules on states as it ensures that there is a cap to borrowing. The result often is that states do cut back on discretionary expenditure which is capex. But the variations have not been very significant and can be in the range of 5-10%.

While critics may like to pontificate on how governments should draw their budgets, the truth is that they work for the people and hence cannot be driven always by economic principles. It is the political economy which is important all the time. The idea of having the FRBM is to ensure that the boundaries are not crossed. This is a pragmatic way of handling government expenditure where a balance is drawn between political compulsions and fiscal prudence. Hence, announcement of sops by the governments should not be taken at face value as the overall fiscal contours fix act as inbuilt constraints.

The Old Pension Scheme is fiscally risky but there's a case for it too : Mint 10th November 2023

 The majority view on the Old Pension Scheme (OPS), at least in opinion spaces, is that it’s detrimental to public finances. Simply put, the OPS, which has been largely disbanded but is slowly coming back, involved paying retired personnel a pension from government revenue as long as they lived. The amount was 50% of the last pay drawn. This held for all employees who joined government service before 2004. Therefore, the government’s liability extends for a prolonged period of time. Those who joined after 2004 contribute from their salary to the new pension scheme (NPS) instead of the provident fund (PF), with the government contributing a similar amount, as with PF. On retirement, one gets payouts from the pension fund in perpetuity. But the government bears no liability. Theoretically, the pension fund cannot guarantee a return, unlike the old scheme which assured payments linked to the last drawn salary, with periodic adjustments made for inflation-based changes in dearness allowance.

The OPS is of disadvantage to the government, while the NPS disfavours the employee. That’s why some states have been looking to go back to the OPS, which critics term populist. There are arguments on both sides if populism is kept aside.

The crux is the ability of budgets to support such expenditure. Going by Reserve Bank of India (RBI) data, in 2021-22, all states had a salary bill of ₹9.74 trillion and a pension bill of around ₹4 trillion; numbers for 2022-23 are not yet available. Hence, pensions would be around 40% of the salary bill and will keep increasing for two reasons. First, there would be more people retiring every year; and second, pension is indexed to the dearness allowance twice a year, and the payouts will be progressively higher for every pensioner. The argument goes that as the payout burden keeps rising, states will have to commit more of their funds to pensions, leaving less for capital expenditure and other development efforts. There can be no dispute on this point.

However, if one applies the Rawlsian theory of justice to public finance, which was originally used more in the context of freedom (to ensure every citizen is entitled to the same rights), then the argument for not reviving the OPS is flawed. This is so because switching to the NPS discriminates between old and new government employees.

In the same organization, employees who do the same work cannot be treated differently in terms of pay packages because of an arbitrary cut-off date.

This is significant because in the government sector, salaries and perquisites get linked to one’s designation, but there is silence on post-retirement benefits. Proponents of the OPS may have a convincing argument here. In fact, there was the concept of OROP (one-rank, one-pension) which was adopted for the military, which follows the OPS to a greater extent. So, why not have this for all government employees?

Critics may aver that a high pension burden can jeopardize public finances if the OPS is re-adopted. Here, we must understand the ethos that drives private and public sector compensation packages. The public sector under the government offers smaller pay packages than the private sector, but throws in perquisites such as generous pensions. The private sector usually offers few if any perquisites, but follows the concept of cost-to-company (CTC), which subsumes all benefits in the pay package. Even the employer’s PF contribution, which is mandatory, is counted as part of the employee’s CTC. A logical response would be to have the government follow a similar CTC policy.

But if the government takes the CTC approach, then its salary bill would get inflated, which would again attract the attention of critics. These structures are a legacy of past decisions and correcting them is a challenge, as it creates a disequilibrium in some other area. The idea of deferred payments in the form of pensions from the exchequer was a way to offer old-age social security as well as control immediate government expenses. In a way, this is analogous to the government issuing extremely long-dated paper to stretch out its debt payments over an elongated span of time.

A broader issue is the role of the state in any economy. Principles of public finance focus on redistribution of income, which is done through a progressive tax structure and spending on schemes for the poor as well as investments in infrastructure, where private enterprise does not venture. Over the years, this line of thinking has changed and attention has shifted to making government revenue work better. This has led to the onus of capital formation falling on the government. Facilities that were free are now being priced based on market principles. Subsidies are being scorned at, and with the spread of capitalist principles, there has been a tendency for state spending to get aligned more with private interests. One could even say we have seen a capitalist capture of public policy all across the world. The last area which is now being looked at closely is the ‘committed expenditure’ of governments, of which salaries and pensions are a significant component. In the West, health-care is another issue that is often brought up for discussion.

There are evidently strong arguments on both sides. A way out would be to go back to the drawing board and balance compensations by raising the salaries of those under the NPS to assure them parity. Perquisites can also be reworked so that within the same government department, there is a similar compensation structure. Also, we should recognize that pensions have a strong spending multiplier value for the economy as people with few alternative avenues of income tend to spend their pensions, which helps even out demand across all age groups.

India’s Pay Commission could consider this proposal and rationalize structures in its next set of recommendations.

Will Demand Pick Up This Season? 7th November 2023

 Consumer demand has been one of the missing links in the India growth story and it is not surprising that the progress on this front in the period - October-December merits interest. There is a lot of buzz in the market of things looking up and there are several indicators to vindicate this optimism. At the same time there are some other factors working in the background that can blunt the story line and cannot be ignored. What is one to make of this?

To begin with one cannot miss the positive signs. The newspapers are overflowing with advertisements of festival sales which range from the lower end groceries to high priced jewelry and hence covers all income groups. The high number of pages devoted to such advertisements is testimony to the optimism of India Inc., in both manufacturing and services which gives a feeling that all is well. Second, this sentiment is echoed by the GST collections which are rising at a steady rate. GST is a consumption based tax and steady increase indicates that consumption must be increasing.

Third, the PMIs for both manufacturing and services have been elevated at above 55 in all the months of this year. There has been a drop in October to 55.5 and 58.4 respectively but is not really significant in the larger scheme of things. Fourth, industrial growth as per the IIP has increased by around 6% for the first 5 months of the year with consumer durables registering growth of 5.7% for the first time in August after very low or negative growth rates in the first 4 months.Fifth, the growth in air passengers flown has been 20.4% on the domestic segment and 31.4% on the international routes for April-August. These high growth numbers come over very high base numbers of 134% and 347% respectively. All these pictures do indicate that demand is on the right track and that there are good times ahead.

This is the good part of the story. There are however some concerns on how the plot may develop in the next two months. First, the commentary posted by several companies in the consumer space while announcing the second quarter results borders on being cautious. The general drift of the companies is that they would be keen to see how rural demand plays out in the third quarter as this has been the Achilles heel even in the past. Also they have pointed out that there has been buoyancy in the premium segment while the demand in the general category remains subdued. Second, the phenomenon of pent up demand has ebbed to a large extent after two years of ebullient growth. Post the lockdown there was a tendency for a lot of revenge spending to take place where consumers spent money to make up for what was not accessible in 2020 and 2021. This led to a phenomenal growth rates in sales in 2022. The question is whether or not it will be sustained. On the services side it has still be seen in travel and leisure spending with the World Cup cricket contributing to the acceleration. But the question being asked is how long it will last? On the manufacturing side there has been a slowdown in most consumer products and in the auto segment for instance, two wheelers and entry level vehicles have shown subdued momentum.

Third, the first advance estimate for kharif production indicates shortfalls in almost all crops relative to last year. This means that rural income will be affected for sure that can come in the way of revival of demand this time. Last, inflation has been a nagging problem all this while. For the past 3 and a half years, it has cumulated to 25%. In the past, inflation has been overwhelmed by the pent up demand phenomenon which kept consumption ticking. There is hence question mark on whether households will continue to spend with such high levels of inflation. While prices of manufactured goods have plateaued, inflation has lowered the real income of households which can affect consumption decisions. It is true that the higher consumption levels in the past two years have been at the expense of savings. Further, households have been using leverage to finance such spending as reflected in a sharp increase in the component of 'other personal loans' of banks which has been rising at a steady rate this year.

Therefore, the overall spending prospects this season is fuzzy when both sides of the story are juxtaposed. Growth numbers look good as of now. However, the factors that can slowdown the process look real and will be of concern to companies. Rural demand this time is under a bit of shadow and hence urban demand will be the driving factor. One can still be sanguine that demand will remain stable, but an acceleration in a broad based manner still looks a bit distant.

Conscious capitalism: Profit needs to be seen beyond numbers too, in values and ethics: Book Review Financial Express 29th October 2023

 There are lots of business leaders who make a mark that goes beyond profits. Profits are evidently rewarded by the stock markets. But some of them have made a difference with their work that is outside these contours and can be towards inclusion or promoting gender equality or education. We need to hear more of such stories.

In the book Leadership to Last, Tarun Khanna and Geoffrey Jones take us through several interviews with these leaders. It is not restricted to only businessmen and businesswomen but also other leaders in the social field. These interviews are clubbed under different heads like managing families, preserving values, contesting corruption, gender stereotypes, etc. The leaders chosen are from the Indian subcontinent and countries in Latin America and east Asia. Hence, there is a kind of homogeneity across them. Western countries have been left out, as the socio-economic structures are quite different and cannot be compared with those of the emerging markets. Besides, the activity of big business outside the perimeter of profit, especially in the area of philanthropy, is well documented and known.

These interviews have been conducted over the years, and hence could have a drawback in terms of their relevance today. For example, interviews with Adi Godrej and Rahul Bajaj were in 2013 and 2014, respectively, and relate more to managing family business. Things have changed in this period and hence could have been updated, though these snippets would still have theoretical significance.

The stories that will surely inspire are those with leaders like Shabana Azmi and Ela Bhat which pertain to gender stereotypes. One gets to see how difficult it is for women to rise in the echelons of our society. But it can be done and requires perseverance. There is a short one with Naina Lal Kidwai which can also inspire girls who are out to make a career, though admittedly things are very different today. Zia Mody takes us through what she does in her company to ensure that women do not drop out after maternity. This is something which all companies should try and follow because the way forward is to make sure they continue working with the same respect even after childbirth.

Mahindra Group has traditionally been the frontrunner in furthering education of girls which is also being done by other industry houses. But the crux really is that all these efforts are being done independently and hence impact is more at the micro level. Ideally, if there is collaboration, there could be a deeper impact.

Anil Jain’s story of Jain irrigation is again amazing. His company has been the frontrunner in drip irrigation. But it was not easy to sell the concept to farmers as there was too much of suspicion on their motives. There is always a feeling that any interference of corporates in farming must have an ulterior motive of finally taking over the land which is completely incorrect as almost all such measures are win-win situations. This gives us an idea that even if we want to bring about change in agriculture, there will be resistance. It also throws light on why farm laws have been opposed because no one wants to change.

The other interview which will touch you is the one with Devi Shetty. There is a lot of good that is going on in the country on the health front, with costs being brought down and people being encouraged to get themselves tested and operated for cardiac problems. The advances made in rural India have been amazing and Shetty’s story deserves an applause. The authors have also put the Tata story on Nano as one which brings in inclusion, though one can debate whether this really worked. While the car was on the roads, the price was not sustainable and hence a car for the common man is still a tall dream. But the effort surely should be commended.

Vaghul’s interview under the banner of corruption is amusing. His tenure in the public sector and his take on Air India in those days does tell us the rot that is there. Today, we may revel in the sale of Air India but truly it may be argued that the achievement of the government was more in terms of getting the company off its hands. The recurring losses, however, would not have to be taken on by the government. Vaghul’s take was that the government never wanted to let go to ensure that the privileges which the bureaucrats got when travelling would disappear.

On this theme, Anu Aga’s view that the onus is really on corporates to ensure that they do not indulge in corruption is significant because once when a company starts doing it for business as a ‘giver of bribes’, it just adds momentum to the system of corruption in the country. She calls for zero tolerance. But most companies may not follow this rule, as often paying bribes in the Indian system is defended as being speed money to ensure that work moves faster across various government windows.

This is quite a good book in terms of providing a rather detailed view on how various business leaders have moulded the compelling objective of profit with larger social goals and provided clues for other companies to follow. This is something that should be pursued with earnestness when dealing with their CSR plans, which tend to be more perfunctory rather than have any commitment. It will be interesting if the authors repeat this effort after another five years or so and do a reality check on whether there are more stories to tell. Given that there is a lot of emphasis on ESG these days and several leaders talking of giving, one can take an optimistic view going ahead.

Title: Leadership to Last: How Great Leaders Leave Legacies Behind
Authors: Tarun Khanna, Geoffrey Jones
Publisher: Penguin Random House
Pp 328, Rs 599

Elections: Another Booster For The Economy? Free Press Journal: 28th October 2023

 It is said that in India people love a ‘tamasha’. A tamasha can be an IPL match or any celebrity being spotted in a public place, or even an accident anywhere on the road. People just like to come together and watch and talk even if it does not lead to anything of material value. Therefore, when it is elections time, the buzz is already there. Everyone gets involved in following what is happening and what is said by various candidates which triggers debates across the spectrum. In short, no one like to be left out.

There are five states that go for elections in November and this will be followed by the general elections next year. It has a lot of economic value not because there will be budgets formulated by the parties that come into power but because of the expenses that will be incurred for the same. The ruling governments already have buffered in certain expenses on various schemes that appeal to the masses which are there in the Budget. When it comes to the general elections the Budget in February, though an interim one, will have something to allocate on welfare. These are known expenditures which may be existing schemes disguised in new cloth. But what goes on behind the curtains is more important from the economic standpoint.

Officially there are some covenants laid down by the Election Commission on expenses that can be incurred by candidates. For the Lok Sabha it is between ₹75-95 lakhs depending on the state, while for the Assembly elections it ranges at ₹28-40 lakhs. The difference is because of the pecking order of importance in the federal structure. But at the ground level, states are closer to the masses than the centre as they have the last mile connection. Ironically citizens point their fingers at the centre when there is inflation instead of the state, even though the inflation numbers vary across states in a significant manner. But then that is how the voters behave.

While the Election Commission has set these ground rules, the amounts mentioned are what is officially permitted and has to be audited which means that there will be cheque payments made. But at a realistic level, the expenditure incurred will be at least three times what is allowed. Hence if a mid-value of ₹85 lakh is taken for the Lok Sabha elections, there would be an amount of ₹5500 crore spent assuming there are four serious candidates per constituency who would be putting in this amount to make a difference. In case of these five states there are around 680 seats which on a similar basis would entail around ₹2750 crore. If the expenses of the other candidates are added it can take the candidate expenditure to close to ₹10,000 cr.

Now it was estimated in 2019 that the Lok Sabha elections in India entailed an expenditure of $ 7-8.5 bn which worked out to over ₹50-55,000 crore, and was even higher than the outlay for the US elections which was officially put at $ 6.5 bn. If this were so then the amount this time should be even higher considering that cumulative inflation has been closer to 30% over these five years. But this expense includes not just what the candidates spend but also the administrative costs of the government which entails using services of government officials at all levels, transportation, setting up election booths (there will be upward of 10 lakh booths to cover 900 odd million voters), security, refreshments for the staff, voting machines (they have to be serviced to make sure they are operational) and so on. But all this will be accounted for under various heads across ministries. Similarly when parties spend money from what is received as electoral bonds, the money is accounted for and there is a trail.

The unaccounted part is a matter of conjecture and the multiple of three mentioned here is a conservative one. Based on estimates made by various agencies and institutions on the expenditure patterns, the following can be surmised. The middlemen used to garner crowds for a rally get paid around ₹10,000 for every 50 people brought, which is counted by the number of buses that ferry the passengers. Then the people who are brought could come without any cost, but have to be provided with meal boxes and water besides cold drinks, where the outlay can be upwards of ₹200 per head. If musclemen are involved, the people have to come while there could be a cash component inducement otherwise. In some states, liquor is also provided besides physical gifts like clothing articles. Once the campaigning goes into urban areas the payments for leaders of ‘mohallas’ (community) have to be paid ₹2-2.5 lakh for garnering people.

There is big business for MSMEs here. Almost all the cash expenses which are not accounted for would be to these outlets. Therefore tent houses, tempos, tractors, buses, refreshment centres, props like flags, etc. would see business rise in both rural and urban areas. The expenditure on fuel would tend to increase as campaigning takes off in a big way. While vehicles are rented from agencies, there could be fresh purchases too of SUVs for this purpose. As this comes along with the festival season in 2023, these units can expect very good demand. In fact, informal employment will also receive a boost. Volunteers who move around with party members are paid between ₹200-400 a day besides food and refreshments.

All this put together means that there will be a boost for spending which is good for the economy. It has been observed that the currency in circulation has increased effectively by around ₹2.25 lakh crore since March as the withdrawal of ₹2000 notes resulted in currency falling by ₹3 lakh crore while the present position is deficit of around ₹75,000 cr. People have been accumulating currency for use during this time. The irony of course is that given the concept of secret ballot, no one can be sure on where the die will be cast and who gets the final vote.