Book review: Monumental measures: Financial Express 29th September 2024

 It has become fashionable for experts to draw up models and templates for creating a successful organisation. While there is a plethora of books on the subject, there are two ways of addressing the issue. The first is to look at successful organisations and draw lessons from what was done. This goes in terms of lessons that can be learnt from such an experience. The other is to construct a model that outlines what all has to be done to be successful. Sandeep Chennakeshu, in his book titled Your Company is Your Castle, follows the second route. The title is eloquent as he draws analogies from the architectural parallel. This is a novel way of presentation of ideas.

The author has eight structural elements that are part of this framework or rather castle-building exercise. The analogy of a castle holds for a company because like any monument it has to be defended for all times. Therefore, there has to be care taken when defining the goals as well as processes. The latter are more important because organisations run not because of goals but the routes that are taken to continue generating value on a sustainable basis. A long-term view needs to be taken which also means that one has to anticipate change and react in an appropriate manner.

More importantly, one has to be constantly in touch with the real world and not get carried away when times are good. For this, the basic principles of castle building are important.

One of the elements pertain to culture of the organisation. This is critical because at the end of the day companies are run by people and they need to be aligned with the goals and strategies being adopted. Similarly, certain functions like customer service, for example, are part of culture where the standards have to be set and adhered to and monitored for any deviations. While sales is an immediate target, to maintain the momentum the culture of dealing with customers is critical.

This is where leadership is important because in all organisations this quality can make a difference. This person not only drives strategy after it is approved by the board, but also gets the right people to execute the plan. This is probably the distinguishing factor across companies in an industry. The top person may have the ideas that are right but executing could fail if the right people are not there. Leadership can fail if it is not able to execute the plan, which is why people are important. This is where organisations which reward meritocracy tend to be better than those which don’t.

Another part of the castle that he calls the ‘walls’ is strategy. Here the decisions taken have a bearing on another structure, which is the ‘foundation’ that he refers to for ‘growing cash’. Looking at the foundation, which is probably most important when there are multitude shareholders, is profit generation. To ensure that profits are generated it is essential that revenue has to grow and as profit is the difference between revenue and expenses, the latter needs to be optimised. These may sound rudimentary but once companies slip up here, there is only a downward descent. This is why the walls have to be strong.

This means having the right strategy in place that will have bearing on the investments made as cash is scarce. The need to study the market and competition is also important because all strategies are formulated keeping in mind the outside environment. Therefore, one has to understand changing market trends. In this context, it is necessary to keep differentiating products or services as the case may be. At times companies may just attain a high slack quotient when they feel they are comfortably placed and immune to such changes. Accepting changing market trends is also important or else one can be left with out-of-date products.

Here he uses some imagery again, calling the arsenal of products the ‘East Tower’. There is a to-follow-list which the author draws up. This has to be an integral part of strategy that will drive the quest to make profits. In a similar fashion, he draws up other templates that have to be adhered to when creating this castle. He calls the ‘castle roof’ the domain of the stakeholders. This is the ultimate entity to which all managements are answerable. Hence the model has to be robust and immune to shocks.

The author has evidently gotten all the pieces together for a successful organisation to not just survive but also grow over a long period of time. Stakeholders look for four tenets to be followed all the time. The first is sound financial health to be maintained for all time. The second is revealed execution capabilities that ensure that the first is achieved and not just based on promises. The third is being innovative as this gives comfort that the company is evolving with times. Last is constant engagement with the stakeholders. This is why the investor calls made by companies every quarter are important because there is a two-way conversation.

He ends on more a personal philosophical note where he talks of seven beliefs that individuals need to have in this journey. This can be more in the realm of self-help books. He talks of being curious, dreaming with conviction and leaving the comfort zone. These are always challenges for individuals who cannot really start off their careers keeping such tenets in mind. The same holds for dealing with adversity where reaction is more spontaneous than mature as one rarely has the level of maturity to deal with such setbacks even at the age of 60, when one is a CEO.

The book is full of advice and also philosophical at times. But several examples make it readable. The question is that when all the parts of the castle make business sense, why do companies not follow them? Clearly, most CEOs go by instinct rather than the book.

This Credit Policy Will Be Different, For A Variety Of Reasons: Free Press Journal 28th September 2024

 https://www.freepressjournal.in/analysis/this-credit-policy-will-be-different-for-a-variety-of-reasons

The credit policy to be announced on October 9 is going to be special and different for a variety of reasons. Normally what one looks from the policy is whether the repo rate is going to be changed or not. This is so because as a saver one is interested to know if the deposits opened will receive a higher or lower interest rate. This may not always hold because banks have their own reason for changing deposit rates depending on their requirements. But any cut in the repo rate will not be good news. From the point of view of a borrower, a lower repo rate will be beneficial as all retail loans are linked to what is called an external benchmark, which is the repo rate here. Hence if a housing loan is reckoned at say the repo rate plus 200 bps which is presently 8.5%, a reduction of 25 bps in the policy rate will bring the cost down to 8.25%. Therefore there would be an asymmetric impact on the customers depending on whether it is a deposit holder or borrower.

The present situation is quite different given the developments that have taken place. To begin with there would be new members appointed to the Committee. The Monetary Policy Committee comprises three members from RBI and three external experts. The Committee in the last term had a slight tilt towards a rate cut with 2 of the 3 external members voting for it in August. In the June meeting 1 of the 3 votes for a cut. With the new composition of the Committee, it would be interesting to see how the members view the situation.

Second the variable which is targeted is inflation which has been quite benign in the last 2 months at 3.6% and 3.7% in July and August respectively. The RBI is targeting an inflation rate of 4% with a two percent band on either side. Therefore, prima facie the number looks to be below the target. However, a point which has been made by the RBI in various forums is that the central bank cannot be looking just at the current inflation rate only but has to form judgments or conjectures on future inflation. This is necessary because the repo rate has been at 6.5% for a long time and any change will mean a pivot that should not ideally be reversed in the next couple of months. This can happen only if one is firm on the future inflation view.

The RBI’s current forecasts of inflation are relevant here. For Q2, the forecast is 4.4% which is to rise to 4.7% in Q3 before coming down to 4.3% and will average 4.5% for the year. The Q2 forecasts could come in lower than 4.4% given the inflation rates in the months of July and August. It has been pointed out that the low numbers so far this quarter are due to the high base effect which means that since inflation was high last year, on this base, the growth would optically seem lower.

But there is hope that prices would cool down once the kharif harvest enters the market. The rains have been good and bountiful and the crop is likely to be normal. The concern would be more on non-crops in the area of horticulture where prices are very high for onions, potatoes and tomatoes. This can skew the picture. Also as seen in the past, a late withdrawal of monsoon or excess rains in any pocket at this stage can impact output. As this picture will get clearer only by November, it would be pragmatic to wait and watch before taking a call on inflation trajectory.

Besides, some elements of non-food inflation also called core inflation are showing some signs of spiking up like telecommunication charges as well as consumer personal products as higher input prices are being transmitted by manufacturers. A clearer picture will emerge after a couple of months.

At a different level, there have been some interesting developments in other geographies. The US Federal reserve has lowered their target rate by 50 bps to 4.5-4.75%. This was a big cut and while some sections in the market did expect it, indications are that there would be more cuts in the offing. The ‘dot plot’ indicates that there could be another 50 bps cut this year followed by 100 bps next year and another 50 bps in 2026. What is important is that there has been a pivot in policy to lower rates and depending on the evolving conditions would glide downwards over time. The ECB and Bank of England have also lowered their rates earlier. The fact that rates are moving down globally also raises expectations that the RBI should be following suit soon. The question is how soon will this be done?

It has been maintained that the Fed action is not a primary motivating factor for RBI action as domestic conditions matter more. While Fed action is considered in the discourse as it has an impact on currency movements and forex flows, it is not the overarching argument as the direct impact on inflation is not significant. Right now, growth appears to be on the right path and it does look like that 7% plus is something that will be achieved. Inflation is the unknown though all indications are that it will remain lower. Crude oil prices have come down to the sub-$ 80 mark, which actually opens the door for possible lowering of duties on fuel products which can further bring inflation down.

Under these conditions there are strong reasons for lowering the repo rate. But waiting till November would bring more certainty in the policy stance as the inflation picture gets firmer. Hence with equally convincing arguments on both sides it would be of interest to see which way the MPC decides on October 9.

The economics of concert ticket prices....Livemint 27th September 2024

 https://www.livemint.com/opinion/online-views/concert-ticket-coldplay-ticket-prices-dua-lipa-taylor-swift-diljit-dosanjh-event-management-11727420304354.html

Inflation- the official and unofficial view: Businessline 27th September 2024

 

Reducing debt is the same as tightening the fiscal deficit: Mint 20th September 2024

 https://www.livemint.com/opinion/online-views/fiscal-deficit-debt-to-gdp-ratio-government-expenditure-inflation-government-debt-capital-expenditure-reserve-currency-11726715625294.html

Foundation for a robust pensioned society: Financial Express 19th September 2024

 https://www.financialexpress.com/opinion/nbspfoundation-for-a-robust-pensioned-society/3614987/

In India, around 150 million people are above the age of 60 and typically would have retired from their employment. Some could be working still as advisers, teachers, or consultants. But for all purposes, when one retires from employment, a regular flow of income stops. At the same time, life expectancy has increased greatly over the years. There are two major challenges for this section of society. The first is having an income which allows individuals to at least maintain the standard of living they had at the time of leaving service. The second is managing their health, as the probability of falling ill increases with age. It is true that healthcare systems have improved substantially to offer solutions, but the issue is having the wherewithal to bear the cost.

A social security network is relevant here to address issues of citizens. There is a need to have a regular flow of income post-retirement; and this is where pension funds have a critical role to play. The government has made it mandatory for companies to make certain deductions for pensions for employees, while the National Pension System (NPS) has been adopted by several organisations. In NPS, individuals contribute to the fund with the company contributing an equivalent amount. The corpus builds over time and upon retiring a person would be entitled to a combination of a lump-sum payment and a deferred pension payment.

This is important because the class of retirees is a fairly large section, which helps in generating consumption in the economy. And this number builds every year as people enter this age group. This will be subdued if there is dependence on younger family members or if their savings are not adequate. While working couples would find it easier to manage their expenses post-retirement, for a single working person the pension would be even more critical. 

Secondly, pensions combined with health policies would be very important instruments for maintaining health over the years.

In this context, the various options open to individuals are quite exhaustive. At one end is the Old Pension Scheme which is applicable to several government employees. It provides an assured amount post-retirement based on a fixed formula. The recently announced Unified Pension Scheme (UPS) is another pragmatic measure which takes contributions from the person and assures a pension to not just the individual but also their spouse after the pensioner’s death. Between the two is the NPS, where individuals have a choice when investing in a fund. Here, money that is saved goes into equity or debt, depending on the risk appetite of the investor. A corpus is created, which is then distributed over time according to the terms decided at the time of joining the scheme. At the other end is the provident fund, which provides a corpus to the contributors but leaves it to the individual to decide what to do with the money upon retirement.

The pension contributions have a dual role to play. While the final  corpus serves as the basis for pensions or reverse annuities to the contributors, the amount invested by the fund is also important. The investments made in debt could be government papers, which is where the  conventional funds channel their resources. 

Alternatively, it could be in corporate debt papers and other market instruments. This is important. Money invested in government papers helps fund the fiscal deficit, as the debt is partly subscribed by these funds. The money invested in corporate debt is normally channelled for investment. Either way, pension funds are investing in nation-building.

The NPS option of investing in equities has been another boost for the stock market, as the funds tend to invest in stocks of companies which are steady in terms of business and have been performing well over the years. Hence these investments are also helping in providing funds for higher growth in the country.

Given the demographic structure, where a larger working population is an advantage for India, it is necessary that this workforce actively invests in creating a pension fund at an early age. This will help in sustaining families at a later stage when they stop working. The government,along with the Pension Fund Regulatory and Development Authority, has provided the appropriate regulatory framework to provide various options to individuals so that they become self-sufficient at the time of retirement. As the working class invests in pension schemes, which is a fixed ratio of the income earned, the contributions tend to increase with the remuneration received. Hence, in a way, there is some automatic adjustment for inflation.

This is a social security network put in place by the government that is gaining a lot of traction. Creating a pensioned society would also enable the government to consider making changes to the labour laws, where the absence of such a social security network has held back reforms. Hence, having a strong pension system helps create a secure future, enhance savings, channel funds for nation-building, and acts as a precursor to more labour reforms.

Consumer Spending Is Likely To See A Revival During Festival Time: Free Press Journal 14th September 2024

 India houses a population of around 140 crore. Of this, based on the 2011 census, around 80% are Hindus which gives a potential consuming class of 112 mn. This class is important because for the festival season which has already started with Raksha Bandhan in August, and a more localised Ganesh Chaturthi in September, there would be two other big events of Dussehra and Diwali in the coming months. The 112 million group would mean around 28 million households.

The People Research on India’s Consumer Economy (PRICE) estimated that in 2020-21, 4% of the households were rich, 30% in the middle class, 52% in the aspiration class and 14% as destitute. Assuming that the top three income categories of population spend Rs 50,000, Rs 20,000 and Rs 10,000 on these four festivals on a conservative basis, this would mean a spending of Rs 3.75 lakh crore this season. Assuming people belonging to other religious groups also spend money on their festivals ending with Christmas, the overall kitty could be as large as Rs 4.0-4.5 lakh crore. A more aggressive number would be a multiple of 1.5 which can be Rs 6.75 lakh crore. This excludes homes and vehicles that would be purchased based on leverage and would not directly add to demand for consumer goods and services.

This is a very large sum that should be spent and would be typically on clothing, sweets, travel, amusements, donations in places of worship, decorations, fireworks, etc. There is a large circular flow of money because this is the time when individual households also pay a bonus for the domestic help which also help the “destitute” (earning less than Rs 1.25 lakh per annum) spend money on these occasions. Hence the festival economy has a far-reaching impact on the state of economic growth.

First, such spending is agnostic to location as both urban and rural economies get a boost as these traditions are followed across the country. In fact as the harvest of the kharif crop would commence during September and carry on till December, there would be an inflow of farm income to the cultivator homes. The monsoon has been good this year and it is expected that with a normal crop, the disposable income of farmers should increase. It must be pointed out that last year, this was not the case and a lower crop did impact farmer income. Another positive is that the reservoir levels have risen to higher levels than last year which will support the rabi sowing which begins towards the end of the calendar year.

Second, the demand for products and services would spread to all producing units. While the larger brands would have an impact on those in the urban areas where the population tends to have large spending capacity, the units in the MSME sector will receive a boost as a large part of the spending is on relatively lower value products. This includes paper products, lights, religious emblems and statues, savouries, etc. Therefore all the B2C or business to consumer activity would witness a boost this season.

Third, the spillover effects of higher demand for goods will be witnessed in the retail segment. The organised retail sector as well as kiranas will receive a boost during this season. The same will hold for ecommerce platforms which have grown manifold in the last five years. The volumes which are transacted on these platforms are impressive, and with deep discounts being offered during the festival time, will accelerate sales growth.

Fourth, the service sector involving tourism which includes both hotels and restaurants as well as transport services will witness an upswing. This is already being seen in the air fare rates which show a seasonal upward trait in the time period around the festivals. It was seen that post covid there was a tendency for such spending to increase manifold. To begin with it was “pent-up demand” but subsequently it appears to have become a habit in the middle class group too. Growing affluence combined with these festivals also coinciding with the holiday season for children make a perfect combination for higher spending.

Fifth, the FMCG sector is posed to display a sharp recovery this year. This is something the sector has been waiting for quite some time with lower disposable income and inflation coming in the way. It does appear that inflation is moving downwards which should help to restore demand that had ebbed in the last 2-3 years. Some of favourite gifting ideas at the household level are dry fruits, chocolates, cookies, branded savouries etc.

Sixth, the festival season is also the time when households enter into deals with real estate companies to buy a home. Hence it is normally a book time for the real estate business which sees an uptick in bookings for new dwellings. The same holds for the automobile industry where there is an increase in bookings of two wheelers and cars as festivals are auspicious occasions when such assets are purchased.

The next few months will be critical from the point of view of several industries which have the household as their target customers. The real estate and auto industries would be the larger segments where the value of business would be of high value. The others will be contingent on how widespread is this upsurge in demand. Given that there was a lull in spending in the last couple of years partly due to higher inflation, normalisation of conditions should help in reviving demand this year. With the monsoon being normal, the demand is likely to be broader based across regions. The price points should be more acceptable as companies get into the “festival discount” mode which is visible already for housing as well as automobiles. It does appear that all the prerequisites for a consumer boom are in place this time which will improve capacity utilisation in these industries which in turn should set in motion the virtuous cycle of investment.

Has the cash reserve ratio outlived its utility, and could it be dispensed with over time? Economic Times 18th September 2024

 In India, cash reserve ratio (CRR) is at 4.5%, and banks keep aside around ₹10 lakh cr in cash. CRR doesn't earn any interest, and is an accepted cost while calculating marginal cost of funds-based lending rate (MCLR). Some believe that CRR may have outlived its utility and could be dispensed with over time. From a central banker's perspective, it needs to be there as it is an important tool for monetary policy.

Theoretically, CRR is a reserve maintained in the fractional reserve system, which serves as a basis for credit creation. Reserves are necessary in a liquidity crisis as banks can dip into this any time. From monetary policy perspective, it's a valuable tool for controlling the ability of banks to lend. An increase in CRR will reduce lendable resources, while a reduction will free resources. Even on the cost issue, banks should not be complaining about idle funds not earning revenue as the system.generates almost 10% of stable levels of free-floating demand deposits on which no interest is paid.

On the other side, arguments include CRR practically never being used, as RBI takes over immediately in a crisis. So, dipping into CRR is a possibility, though not a probability. Further, when the crisis is big, the amount may be too small to provide any support, as has been the case with some cooperative banks that went under.

RBI uses the liquidity framework that involves variable rate repo (VRR), and variable rate reverse repo (VRRR) auctions, to ensure that liquidity is balanced. This is a stated policy. Therefore, tinkering with CRR isn't required. Also, given that RBI has resorted to open market operations (OMO), where government securities are bought and sold more often than changed CRR, it stands to reason that the former is more effective when balancing liquidity.

Both are permanent measures, and have similar impacts. Finally, theory always says that price adjustments are more efficient than quantitative measures, and CRR falls in the latter category regarding regulation.

It is useful to see how the global systems look at CRR. The US dispensed with CRR after Covid.

In Japan, it's 0.8%, while Euro nations have pitched for 1%. In the developing world, Brazil has an astonishing 21% and Turkey 25% CRR. However, the latter has several economic challenges and is so at this level. China goes with 7%, Russia 8.5%, while the Philippines is higher at 9.5%, almost the same as Indonesia (9%). Malaysia is down the scale by 2%, as is Sri Lanka, which has faced several economic challenges.

 

By emerging markets standards, India's 4.5% CRR looks reasonable, even as it's on the higher side when compared with developed countries. Can there be a compromise solution? If there is a sense that a certain part of the bank's net demand and time liabilities must be kept aside for some prudential purpose, then a way out is to remove CRR but increase SLR.

This special increase can be called a 'precautionary SLR', which currently takes SLR up to 22.5%. For banks, this is better than a zero interest-bearing CRR. This precautionary SLR can be kept under held-to-maturity (HTM) bucket to provide comfort against mark-to-market (MTM) valuation changes. This way, the idle funds become revenue-accruing for the system.

The CRR lever can still be used by RBI to augment or lower liquidity in the system by changing the reserve requirement. And because they are government securities, it would be easy to sell them in the market during a crisis. Also, this will provide another source of demand for government securities in auctions.

 

India’s growth in a sweet spot: Financial Express: 5th September 2024

 The Q1 GDP data ironically bodes well for the economy, even though the growth rate at 6.8% is lower than last year. The main reason for optimism is, it does appear that most of the boxes which represent the prerequisites for high stable growth of above 7% for the year have been ticked.

The seeming contradiction can be explained by the internals of the numbers. GDP is defined as the sum of gross value added (GVA) and net taxes. GVA is the actual growth in production in different sectors that are represented by eight segments. The movement from GVA to GDP is based on the net addition of taxes — the difference between commodity taxes (mainly goods and services tax) and subsidies.

The growth estimates for Q1 were always going to have a downward bias due to the base effect of higher growth last year. The 8.4% growth last year provided this base effect. When one looks at the growth in GVA, there is a lot of comfort as it was 6.8%. This means that GDP growth was lowered to 6.7% due to low growth in the “net taxes” component. This was on expected lines and most sectors witnessed growth roughly as forecast.

There were two positive surprises. The first was manufacturing, which did better than expected notwithstanding that corporate profitability has been low-key this quarter. Gross profits, it should be mentioned, is an important component of value added, with salaries and wages being the other component. The 7% growth is a good sign because as demand moves in the upper trajectory, this level of performance can be sustained. The second is the “public administration, defence, and other services” component, which grew by 9.5%.

The negative surprise was agriculture and allied activities, which grew by just 2%. A higher number could have been expected because the rabi crop was very good last year. It appears the party was spoilt by heatwaves which affected the “allied activities” that include horticulture, besides fodder, animal husbandry, etc. With the monsoon being normal, there should be a reversal in some of these trends.

There have been several encouraging signs in this data set. To begin with, growth in consumption was impressive at 12.4%, the highest since Q2 of FY22 when pent-up demand pushed up growth to a high of 17.5%. This is important because consumption has been one of the missing links to the growth story. Here, rural demand has lagged; and the argument put across often is that high inflation and lower income have stymied demand. This has changed of late, with inflation also seemingly coming under control at less than 5%. Urban demand so far has largely been confined to the premium segment, but this could be changing going by the data.

The second engine that has started to fire is investment. There have been divided views on whether the private sector has started spending on investment. Reserve Bank of India (RBI) data does show some increase in capacity utilisation by March, but this could be a seasonal factor as the rate tends to peak before dipping in June. Growth at 8.8% in gross capital formation and 9.1% in gross fixed capital formation is quite impressive. As the government spending on capex was muted due to the elections this quarter, it can be concluded that most of this growth was in the private sector. Therefore, the GDP growth number of 6.7% is more than satisfying.

What can be the reason for optimism with this growth rate? The government has projected 6.5-7% growth for the year, while the RBI is looking at 7.2%. The latter looks more likely as conditions are favourable. First, the consumption story should work out even better in the coming months. The rains have been more than favourable and sowing data shows that the kharif crop, with the exception of cotton, would be generally better than last year. This means food prices should get tempered. While it may take time to get reflected in the inflation numbers, it would still mean higher rural income.

Second, given that consumption will be increasing and that will lead to better capacity utilisation, the pace of capital formation should also improve. This in turn should lead to some improvements in investment in the consumer goods segment. So far, most of the investment has been in infrastructure-oriented companies. It may be expected to become more broad-based during the rest of the year. Add to this the government capex programme, which will accelerate as already seen in July, and this will ensure overall capital formation gets a boost.

Lastly, on the production side, with GVA on track, the net taxes will hold a clue to faster growth. In the first quarter, tax collections were buoyant. However, subsidy outflows were front-loaded to an extent. This will get corrected along the way, and hence the net tax collection growth, which was muted in Q1, will return to normal.

Therefore, there are strong indications that growth in the economy will be strengthened further. There are also emerging possibilities of the RBI lowering the repo rate, which could be in the fourth quarter provided inflation looks subdued. This can be a positive for industry, at a time when investment looks to improve. It can be said that the Indian economy is truly in a sweet spot for growth and can maintain a number of above 7% this year and move further upwards thereafter.

Would a more diverse monetary policy panel spell better RBI rate calls? Mint 2nd September 2024

 https://www.livemint.com/opinion/online-views/rbi-monetary-policy-committee-inflation-rate-hikes-economists-monetary-policy-repo-rate-indian-economy-11725178071351.html

When all eggs are in one basket: BOok review in Financial Express September 1st 2024

 Today, there is a lot of talk on India becoming part of global supply chains where countries are dependent on us for intermediate as well as finished goods. The concept of outsourcing is based on the premise that countries follow the principle of comparative advantage where they buy goods that they are not efficient in producing and sell those where they do better. This was the model which led the USA as well as other countries to make China their primary source for production.

Several top manufacturers had their production facilities in China where labour was cheap and environment favourable. This helped in bringing about high growth in China. But what if China suddenly stops producing goods? This is the starting point of the book, How the World Ran Out of Everything by Peter Goodman. Covid had closed the doors of China as there was a total lockdown. Production exported as the shipping industry came to a halt. America, which is the world’s economic superpower, ran out of ventilators, medicines, toys and even toilet paper; and the talk of scarcity exacerbated the shortages.

Goodman discusses several issues that confront the world economy today. The overdependence on China on account of cost advantage turned out to be the bane for all producers. Interestingly, he shows that the American allegation of China robbing jobs is not a phenomenon created by the nation but by domestic companies. In order to cut costs, they set up facilities in a foreign investor-friendly country and made their shareholders happy. Hence the job losses were not because of Chinese immigrants, but shift in production overseas. The American companies were responsible for hiring fewer people.

No one could ever expect that something like Covid would strike the world and when it originated from China, the repercussions reverberated globally. Goodman also discusses in detail how the logistics industry was pushed back. The world ran short of empty containers that were required for transporting goods. Even if goods were shipped to the USA there was no docking space in the ports that had hundreds of ships lined up. For the ships which docked, there were no people to unload the goods. When this was managed, trucks and drivers were missing to take them into the country. All this contributed to wide-scale scarcity of goods that were earlier produced in USA, but now were being manufactured by Americans in China and shipped to these ports.

The author gives several examples of the auto industry, which also worked on the principle of ‘just in time’, which meant that inventories could be kept to the minimum to save on costs as production could be upped when required. An order for parts to the Chinese manufacturing unit would ensure that they were shipped immediately which obviated the need to store these products. Tim Cook of Apple had termed inventories as being ‘fundamentally evil’. This worked also for the mobile phones industries, which never expected there could be large-scale shortages of microchips that were used in their production. Taiwan Semiconductor Manufacturing Company had become indispensable to the global automobile industry manufacturing 80-90% of the chips going into cars across the world. Management consultants in their wisdom also had advised on cutting of labour costs; and hiring people part time when production had to be ramped up. Toyota was a very good example of a company that felt that too many employees on the permanent payroll was not the best option.

Covid showed how all these approaches were flawed. The world ran short of semi-conductors which affected both the auto and mobile industries. With fewer people on their rolls, companies could not get trained staff to their factories. All this inhibited production and led to severe shortages all over with the logistics crisis ensuring that there were no ships to move goods. This problem became global with the developed countries being affected more as they were the ones that off-shored production facilities to China.

Hence while the anti-China fervour was always there, Covid has raised the issue of companies using others’ territories for producing goods. In fact, given the rich natural resources in Africa, several companies are considering this option. Earlier it was case of political risk where any disruption could spiral the crisis. Russia is a good example where it has become a pariah and countries which have facilities here could face problems. This also means that there is a practical issue when it comes to globalisation which also has the principle of comparative advantage operating.

Goodman’s book will make both countries and companies to think their strategies harder.

Outsourcing can raise serious issues for any country or company. In that case how does the approach to become part of global supply chains fit in? Similarly for companies an issue to be sorted out is on inventory stocking and employee force. The tryst to enhance shareholder value worked very well for several decades. But when it came to crunch time, these policies flopped badly. Clearly a reset is required when nothing can be taken for granted.

The author concludes on a sombre note because by 2023 the supply chains had gone back to normal and there seemed to be no problem as such. There were hiccups when there was a problem for freight carriers on the Red Sea, but was only temporary. Companies are looking at using more of robots and AI for their production processes. Will this make labour more redundant? There is no clear answer right now because he shows that the ATM did not quite lower the need for tellers. But one can never tell.

This book surely will keep the reader engaged and spark internal debate in the mind as it takes her on the journey starting from Covid till 2023 with several throwbacks on how companies changed strategies to tailor-make them to the demands of shareholder. The ‘just in time’ and ‘lean and mean’ strategies, if persevered with, will be tested continuously, given that geo-political tensions are rife and erupting more often than before even though on a smaller scale.