GST – Phase 2

We know how things work in India – you try to spend years, often decades in a vain hunt for the holy grail of any law or reform move. By then costs mount, direct and indirect, but who cares? Because the poor beggar whose son grows up to be a beggar & is doomed to poverty all his life will not connect his misery to delays in implementing GST or getting that airport built.

But then after all this delay, finally when things get done, they don’t show the perfection expected of such long effort. It as if Kamal Amrohi spent 20 years making not Pakeezah but some usual Bollywood masala trash. This is because the exact same issues that kept the process tortuous have not vanished but have simply resulted in compromises and optimisations that almost manage to defeat the purpose.

Strangely, all of the above applies equally well to other divisive democracies with distributed powers like USA. But then they are rich and can do with lousy healthcare law or Sarbanes Oxley sort of nonsense but we cannot afford to do so.

As far as India is concerned, this is true whether Congress, BJP is in power directly or through messy coalitions.

But then the mere fact that reforms get done in of itself is a major achievement that cannot be underplayed. In fact, that is the only way things can get done. You can wait for perfection another 20 years, and it aint gonna happen.

That is the story of GST too. We cannot stop congratulating and thanking Jaitley, Modi & Co for getting it done. No mean achievement.

What next?

But having done that and benefit of hindsight what else can be done? After all the present law is merely a first step in a long journey.

Arvind Datar and Vaitheeswaran (Indian Express, 28 Sep 2017) have written an excellent piece on this topic and instead of the usual nasty sarcasm, useless criticism and agenda driven venom that passes for journalism in India these days, have given sensible suggestions that is almost a to-do list. Hats off.

Similar sentiments were expressed in our earlier article on this topic – link here.

Adding to the excellent to-do list mentioned above we would suggest the following

1. Get contiguous BJP ruled states to go whole hog and include petroleum, real estate and whatever else is left out into the GST net. That is almost all of India these days! This creates competitive pressure on rest to reform or literally perish as businesses votes with their feet. This is a lot faster than arguing with megalomaniacs and anarchists like Mamata Banerjee & Arvind Kejriwal who will never agree to anything sensible just because it came from Modi. We say contiguous because goods can freely move (with necessary input credit) without having to cross a non-compliant state.

2. Announce that for the first one year, there wont be any penalties (beyond recovery of tax due) on anything other than wilful and wanton tax evasion, that too narrowly defined and clearly listed out.

3. Give taxpayers option of accelerated refunds with the condition that should they prove to be cheats, the law will come down on them like a ton of bricks. Yes, this may expose the revenue to some risks but the benefits will be considerable too. Known offenders, tax defaulters can be left out.

4. Go easy on minor delays in filing other returns such as Company Law, Income Tax etc. because the same bunch of people (Accountants, CAs etc) that are busy decoding GST also are responsible for those tasks and must be tired and exhausted. Remove useless returns, forms, filings that waste time and don’t bring any benefit to any stakeholder. In fact a general amnesty in that direction announced ahead of time is a great PR move and costs nothing.

5. Study the GST credit system of Singapore where ordinary poor (by local standard) taxpayers were given money for first year or two. Nothing works like free money to soothe irritated public mood. It need not be substantial but should not be trivial.

6. Make small but effective steps towards single rate, each month, every month. No need to wait for big bang reforms and endless arguments. Perhaps a good start is Pistachio, Cashew, Almond and Walnut all of which have different rates as one wag pointed out!

Reform is not easy. But rewards can be huge. Indian voters have shown this many times.

 

 

 

 

 

Fixing the “slowdown”

To anyone seeking a masters degree in left propaganda yellow journalism, Indian “liberal” media and its constantly shifting narratives offer a practical course that no University can provide. That too free of charge! Pity they don’t issue a certificate upon completion.

You may recall the concerted campaign mounted hardly 6 months back about “manipulated statistics” & “cooked books” that made India’s GDP growth more than what it “really” was. Of course, it was all laid at the door of Narendra Modi who, we were told is doing this to hide his many failures. No amount of explanation by professional statisticians in the government (none of whom were appointed by this regime) mattered. While some genuine economists had genuine questions about changed methodology etc (which are never static), it was mostly propaganda noise by faithful media warriors of the left + Congress continuum that reached high decibels.

Now once the govt announced that growth slowed to 5.7% in the latest June 2017 quarter all this talk died down and vanished like a ghost. In its place another narrative – that India’s economy is in a “tailspin“. It is no one’s case that economic growth is doing fine but surely tailspin is not the most appropriate word for a rate of growth most developing countries will happily report? Apart from the tailspin narrative, it was all talk of gloom and doom and what Modi should or should not do to stop this free fall that was a product of his own miscalculation.

Arvind Panagariya, until recently Vice-Chairman of the NITI Aayog (whose departure created yet another wave of senseless speculation and innuendos), wrote a brilliant article for TOI advising caution and putting the numbers in perspective. All was not lost and there is no need for desperate measures. Other op-ed writers including the likes of Mihir Sharma who is not exactly Modi regime friendly echoed the same prescription (not to loosen purse strings at cost of fiscal stability) but of course differed on the cause and magnitude of the problem.

In this context what should be the “common sense” approach for the Modi sarkar? We summarise them below.

  1. There’s lots of low hanging fruit in the ‘ease of doing business’ department. Most of them do not need ANY legislative change, just mindset change. PM Modi should ask each of minister to abolish just 1 form or return each week. We have mentioned this earlier, but any SME that chooses to incorporates itself into a Pvt Ltd company files a lot more returns and faces tons of paper work that companies in Malaysia or Singapore don’t face at all.  Among other negative effects, this (plus various other reasons) forces Indian startups as well as established companies to setup holding companies there and raise funds in Singapore instead of India!
  2. A give and take approach to labour law reform. Unions can be asked to tick off reform measure they will approve happily in exchange for benefits and facilities that they need and is fair. Implementing incremental changes in India is lot easier and better than “boil the ocean” types that take decades. Not only that within existing bunch of labor laws one can be 400% sure, as Musharraf would say, there is scope for procedural simplifications, speed up of decision making etc that will keep things going and can make a major change.
  3. That brings us to the next topic – speed up the administration. We in India always think of constitution changes, major laws with draconian clauses etc to fix problems for which much simpler solutions are available. Even if a particular law or Act requires ten steps, where one would be adequate, there is NOTHING in any Act that says don’t do them fast and in fair manner! What is stopping successive regimes from simply cranking up the motor? It is here that Modi has, in our opinion, failed to make a major difference.
  4. To give a simple example, opening a restaurant in USA or Germany or even Singapore is not easy. It may require permits relating to Fire, Food safety, Workers welfare and safety, Building Code, Hours of business, Parking etc from many departments scattered over local, federal and state levels. But the key difference is, at each of these places, rules are transparent, fair, available and accessible and one doesn’t have to bribe desk after desk to move papers. So what is desirable and quicker? Amending or integrating 100 different laws (as our labor Ministry is trying to do) fighting through a thicket of resistance from entrenched babus and the ‘system’ or simply looking at implementation speed and fairness of process?
  5. Bypass the banking system to provide funds where it is really needed, perhaps through existing or dedicated development bank. This can be done for quick win projects that create jobs. Again quick to do while debates about who takes the hair cut and how much can go on for another 20 years in the regular banking system. In fact, there are even doubts if private businesses are keen to borrow and spend on capacity even if funds were available on demand until existing excess capacities are taken care of.
  6. Go easy on harsh and punitive measures particularly in relation to GST. The last thing that one wants is depressed sentiments and fear psychosis caused by overzealous and often corrupt bureaucrats raiding and destroying genuine businesses because there are “errors” in returns that no one understands. There is time and place for that kind of measures.
  7. Get more funds from rich friendly nations on soft terms like the one for bullet train project – but for spending on projects that create immediate jobs, kick start consumption and give booster shot to the economy without wasteful expenditure. Japan, Saudi/UAE (but not Beijing) and others that work on government to government levels and who have already promised cooperation are obvious targets. This is far better than borrowing domestically that crowds out others and pushes up rates.
  8. Go faster on reforms that stir the pot and send the right signals but do not bog down the entire government with lots of resistance. Air India is one good example. There are dozens more. Speed of action is of the essence here, without compromising on transparency. Extensive land reforms can wait for Term 2 for precisely same reason. Plus they don’t give results for five or more years. Correspondents of Financial Times and Washington Post do not vote in Indian elections.
  9. Fill up government posts where new recruits are put to productive use. This not only makes electoral sense but is also eminently do-able given the shortfall in many critical areas. Delivery and governance are suffering even as excess staff who cannot be re-trained or re-deployed act as drag elsewhere.

Hope the next few months are full of action that will show results by early 2018 because it may be too late if results come too close to 2019 May. Just check with A B Vajpayee!

 

 

 

Smart Prohibition for Bihar – a suggestion

Nitish Kumar imposed prohibition on Bihar soon after taking power. To be fair to him, most Indian political parties have dabbled with this silly concept. Some like hypocritical megalomaniac Kejriwal promise one in Punjab but increase liquor outlets in states they rule!

But Bihar’s laws are draconian including horrendous provisions like punishing entire families for liquor found, sometimes entire villages. Fines and penalties are so high even rapes and murders are less taxing. Even in best ruled countries this only leads to corruption. In Indian context, even in best managed states it will open doors to horrible corruption. In Bihar it leads to mayhem.

The arguments in favor are silly. Productivity gains, health gains, “family peace”, increased spending on household expenses are all pushed as miracle gains from prohibition. All are based on dubious statistics. Productivity in Asian societies that share similar cultural DNA like India – Thailand, Malaysia etc are far higher and they are not killing each other or beating wives. We cannot compare ourselves to oil rich Arab states that will have foreigners lining up for its wealth even if they slap each visitor at the immigration. We are bench-marked with our near neighbours.

In fact, Bihar cannot even compare itself to richer, more developed states like Gujarat and say why not us. It is a laggard and it has to run faster, try harder to attract jobs, investments.

Unless country-wide prohibition is imposed, something that will render India a Talibanic pariah state that no sensible investor will visit, it also means Bihar ends up losing investment, jobs and reinforces image as lawless poor state.

Ironically, booze continues to flow to those that are most harmed by moonshine – the poor. And cops get richer. Many die horrible deaths or go blind due to methyl alcohol and other poisons. But a responsible, decent citizen or tourist or visitor cannot have a chill glass of beer after a tired day at work.

Even if the policemen and officials are not corrupt, they spend inordinate amount of time implementing these draconian laws under pain of being punished themselves by whimsical politicians. Time that is better spent bringing Bihar up to par with rest of the country and India comparable to rest of Asia.

This is the net effect of prohibition.

But as a CM, Nitish has to protect vulnerable women, even if they are not a vote bank. And it is true that many Indian working class men, particularly in countryside, spend bulk of their daily wages on booze and return home drunk to beat wives and deprive children of decent food and education.

Is there a mid-way?

Yes. That is where technology comes in. Why not Aadhar backed record for each liquor purchase?

Once implemented, this can track excessive liquor spend and let state as well as NGOs and others focus on where the trouble is. If someone spends too much on booze he can be asked to account for the income.

Ban orders can be imposed on any individual with police record of domestic violence or abusive behaviour after drinks. Family (wife) can seek ban orders with sufficient evidence. In fact a similar system exists in Singapore for casino gambling. We could not do with without individual identity system and now Aadhar enables that. That and technology that is cheaper and easier to acquire.

Drunk driving should be punished so severely that it should not be an option for anyone other than suicidal maniacs. Because this is murder.

You may say people may still drink moonshine. Yes. But moonshine becomes unprofitable when official market exists for liquor that attracts 90% of genuine responsible drinkers. They will shut down or go down in number.

You may say people can cheat (buy on others’ Aadhar card etc) but such people are also the ones that drink excessive or misbehave in all likelihood, so they can be trapped and punished for their actions.

Please do consider this.

 

 

 

 

 

Boycott Chinese Products – smart or counterproductive?

Recent developments in India’s North East border involving China have given a rude jolt to many Indians. Although the standoff is still not over and always carries a risk of armed conflict, it may end up doing some good in the long run. Why? Because it has brought into sharp focus a few things:

  1. China’s overwhelming military superiority and India’s slow pace of catching up.
  2. China’s economic prowess that underwrites this military superiority
  3. How we have allowed Chinese products to control the Indian market and even every aspect of our daily lives.

Domination of Made in China

It is not just in India, even in Singapore, Dubai, London, Chicago or anywhere in the world, chances are 80-90% of the items you find in a typical departmental store are made in China. Other than vegetables and groceries, entire categories of products, shelf after shelf, are seemingly not manufactured anywhere else.

This domination took many years to achieve and has left in its wake closed factories, destroyed communities and devastated lives in many places. Given its scale and volumes, China will probably continue to do so and perhaps India is the only country in the world that has the capacity to challenge this domination. If only it takes decisive steps.

It is in this context that we have to take a look at #BoycottChineseProducts campaigns waged in social media as well as elsewhere, in India.  In fact popular legislators like Baijayant Panda have endorsed this.

https://twitter.com/PandaJay/status/888731188700958720

While it is good to see Indians waking up to the threat from dominance of Chinese products, we have to question if such boycotts are the real solution.

  1. Many products, as we mentioned earlier, are simply not made anywhere else. Laptops, Mobiles are good examples. While some are indeed made in Japan or Taiwan, these are the high end ones that may not be sold in India. Even they have components made in China! This makes any “boycott” impractical.
  2. Flood of Chinese products has of course, affected some traditional manufacturing but these have also given a kick start for technology upgrades, quality improvements and design changes to stay in the game. Aligarh locks, Sivakasi fireworks, motorcycles, pens made in India have all managed to survive and fight back. This can only be good for us.
  3. Although some jobs are lost, cheaper imported products help keep inflation low and enhance the purchasing power of anyone that is not directly affected. Therefore, overall the economy benefits.
  4. Attitude changes take longer, but is already happening. Instead of seeing businessmen and factory owners as “class enemies” to be fought to death, workers are slowly realising how global competition works and how it impacts their rice bowl. This means working together with their bosses to secure both their futures. The decline of Marxist militant unions that killed Indian manufacturing to benefit China both directly and indirectly, has to be seen in this context.
  5. Officially it is very difficult for any ruling party to be seen as too close to such boycott campaigns. China has been very clever in organising such boycotts whenever some human rights or other issue is raised by Western countries or Japan, Korea etc offend its “pride”. India has to learn this trick too. Plausible deniability is the key. We Indians are too clumsy and noisy in general to do such sophisticated campaigns and yet deny them without batting eyelids!

Better focus on Make in India

At the policymakers’ level, India should use this upsurge in nationalist sentiments to boost manufacturing in India. Tougher reforms including labour related ones, are easier to sell if positioned carefully.

For critical products such as mobiles and semiconductors, the entire supply chain has to be built up, brick by brick. This takes years but it is a good idea to take baby steps and monitor progress at highest levels.

India should also work closely with Western and Japanese, Korean companies often target of vicious boycott campaigns in China, to invest more in India and spread their risks. Recently Hyundai and other Korean firms bore the brunt of such campaigns.

For products that we can and do manufacture, often with better quality, imports from China has to be discouraged. Given WTO and other obligations, it is hard or even impossible to do officially. This is where public consciousness can play a role. There are dozens of such products – domestic appliances, garments, locks, plastic decor items or festival lighting, Ganapathy idols(!) and so on. But this cannot be a license to shady Indian manufacturers to push shoddy goods at higher prices.

Those in the know should highlight laws, rules and procedures that come in the way of Make in India and the government should proactively remove them. By any global benchmark, doing business in India, particularly for SMEs and micro enterprises, is still horribly complex, unproductive and stifling.

The wake up call given loudly and clearly by China’s over aggressive media, amplified by its allies in India should be used to our advantage.

Your comments are welcome!

 

 

 

Surat textile strike against GST

Surat is perhaps India’s largest textile manufacturing as well as trading center. It is in the state of Gujarat which is BJP as well as PM Narendra Modi’s stronghold. In fact Modi as Gujarat CM resisted GST because it is one of India’s “producing” states and GST, being a consumption based tax, is favorable to “consuming” states like Bihar or UP which have very little manufacturing but huge populations.

As we have highlighted in our earlier article, GST, in addition to bringing large parts of underground economy into the open, also facilitates better Income tax compliance. Once dealings are recorded, tax evasion, not just of GST but even other taxes like Income Tax, becomes that more difficult.

And everyone knows that while the salaried class and even large sections of organized business sectors pay taxes and have less means of evasion, the small and medium sized traders that dominate the textile sector carry out their entire business in “black”. This means not just no sales tax or very little, but no Income tax.

It is to protect this illegal and damaging modus operandi that Surat based textile traders went on strike soon after GST was implemented. Markets were shut down for weeks and blatant threats issued to BJP that they will “pay” in votes should they not be allowed to continue with their tax cheating ways.

This article in Indian Express explain the motives quite clearly.  “Traders readily concede most of their business was “unaccounted” in order for them to avoid income-tax”. Here is another article that narrates how a nosy Excise inspector was thrown into the boiler!

In fact this strike has been one of those rare highly publicized cases of post GST disruption and troubles. In fact, anti-Modi rags like Wire were reduced to playing up this strike, for want of “better” news. This article, full of hyperbole about the negative impact of the strike in terms of livelihood etc., surprisingly completely omits the tax evasion aspect of the strike, which is in fact its main trigger!

Of course, one can readily imagine how Wire would have played it if Congress or CPM was in power. The strikers would be labelled Sangh parivar fascists who are looting the poor and deserve still jail terms!

Arun Jaitley and Narendra Modi should take up this gauntlet thrown by Surat traders head on. The workers affected by this senseless strike should be helped to tide over this difficulty as well as educated on the real reasons behind this strike. While their daily purchases are taxed, it would be cruelty if their masters don’t pay any tax on their much fatter earnings. Our socialist warriors and their propaganda mouth pieces that shed copious false tears for the “sub-altern” instead of highlighting the real story, choose to fish for anti-Modi sound bites instead!

The strike also highlights how entrenched corruption, cheating, tax evasion is in India to the extent where they become “rights” for which open agitations can be launched.

Genuine and reasonable demands, such as extra time for filing returns, simpler paperwork, protection from corrupt officials etc., can be and should be provided, of course. That is no excuse to demand complete exemption from tax laws of the country.  As the FE article cited says quite clearly “If the government stands firm, this protest will fizzle out ultimately. But if it budges, it will encourage similar elements in other industries as well,”

Jaitley sahib it is your call!

 

 

 

GST a game changer for sure

Let us come straight to the point! Why do we say this?

Many countries implemented GST. It is not as if their economies were magically transformed. But then each one does so for their own reasons and have their own unique circumstances.

For Singapore (to take one example), it was the desire to reduce Income taxes and yet retain revenue buoyancy. This was a key USP when it competes with the likes of Hong Kong where taxes are lower. Prior to that, Singapore had no taxes on sale at all, barring sin goods.

For India, the key benefit is reducing tax evasion and bringing almost all economic activity into the tax net. Perhaps no other country implemented GST with an economy like ours where most activity is outside of the tax net.

This is why it is going to be a game changer. Nothing else (imperfect rates, complexity, too many forms, returns blah blah blah) matters. Just this one factor alone will more than justify these compromises and sub optimal choices and bargains to get the thing going.

Right now most small traders don’t pay any tax. Nor do they issue any receipt. This means their entire income is “black”.  This evasion cascades up and down the supply chain – the trucker who delivers the items, the landlord who collects rent, the wholesaler who sells to the trader and so on, all get paid in “black” and in turn pay others in black. You get the drift..

In other words, for each tax evader enjoying himself, another “idiot” pays the price. In fact many have to pick up the tab. This is the exact feeling of many in salaried class who are forced to pay tax on their actual income while the trader or contractor next door pays zilch and openly flaunts his wealth.

If this changes (yes, it will not change overnight) that’s a HUGE gain for India. We may not need 28% or even 18% rates for most items.

It will also make the traders and other businesses confident and bold because they don’t have to pay bribes through their nose on daily basis and live in fear of raids and harassment. Check my books – they are clean! They can invest, expand, hire more staff and kick start the economic engine held down by bad loans and UPA’s loot. It also levels the playing field so formal retailing can expand and bring benefits (better paid staff, better quality control, cash free payments, the list is endless).  Salaried class can look forward to lesser direct taxes.

In fact even on Day 1  many have proudly posted their GST paid receipts on Twitter – showing tax collected and paid by vendors who never did so earlier! Here’s a sample

In fact the doomsday prophets are having a tough time because even dhabhas, shop keepers and supposedly illiterate vendors are issuing GST invoices, right from midnight on 1st July! A few that are used to old ways are going on strike in their usual ways, but this is one tsunami that is not going to roll back for them.

We are on to something HUGE. The benefits are clearly under-estimated.  Don’t get us wrong. Modi and his government may mishandle the implementation and may even pay a price in 2019. We frankly don’t care. That is besides the point. But it will settle down one day and improve with time.

Looking at Indian economy as a whole this will be the day that will be celebrated by our children and their children as the day India changed.

You heard it here first!

Comments are welcome.

 

 

 

The hit job on IT job losses

Of late we have been flooded with grim news predicting gloom and doom for India’s IT industry. Robots, automation, Donald Trump you name it, a variety of forces working together to devastate the bottom lines, destroy growth and render thousands jobless. Or so we were told. As usual our clever journalists can always find “anonymous” sources or perhaps even the odd genuine geek given the pink slip. In an industry that employs hundreds of thousands (TCS alone has almost 400k), coming across a few should not be that difficult.

But the key questions are:

  1. Are the job losses much more severe this year as compared to earlier years?
  2. Are they really due to the reasons mentioned in these scary reports?
  3. Is the paranoia warranted? Or is there a deeper agenda behind it?

Based on statements, articles and interviews by knowledgeable people in the industry (not our corrupt know-all “journalists” many of whom do their research inside envelopes) we can gleam the following facts:

  1. Technology changes all the time and workforce skills have to evolve, adapt and change. This is nothing new in the IT industry or for that matter any industry these days. After all, our industry has survived various other doomsday prophecies – end of Y2K boom, dotcom bust, 2008 crisis and so on.
  2. Of course, some unfortunately need more time or may may have missed the bus this time around.
  3. This requires action by every stakeholder – the academia (syllabus revisions, industry interactions etc), the industry (re-training, proactive counseling, partially paid sabbaticals for re-boot of skills etc.), Government (fiscal incentives, create learning infrastructure, particularly in smaller towns where skill gap and thus job losses can be higher)  and most importantly the individual (constantly learn, adapt and never feel secure)
  4. Net net the industry is hiring, not firing.  TCS has added more than 20,000 this year, not reduced. Same goes for many other tech firms. NASSCOM says Indian IT hired about 117k jobs in 2016-17. Cognizant also plans to continue to hire and its “firings” are nothing abnormal this year (Link 8).
  5. There is no denying that focus on low end, repetitive tasks and wage arbitrage is bad. Industry’s profits should come from innovation and intellectual property not cheap programmers and flogged workers. On this front there is a genuine case for gripe.
  6. As Mihir Sharma points out (Link 7), changes proposed by Trump administrators may not necessarily be bad for Indian IT professionals. After all, US companies are much better employers! This may force Indian IT firms to change their behavior too.
  7. A country our size cannot depend on the visa policies of another country to ensure its prosperity. Reforms to H1B visa in the US which is long overdue or other advanced Western countries are eminently sensible from their perspective and should be seen as an opportunity, not crisis.

Modi Government – be more proactive

Just as he did with Indian Bank chiefs, perhaps Narendra Modi should initiate a round table discussion with the IT industry heads. Agenda should be pointed, focused and simple:

  1. What specific short and medium term steps can the government take to help? Here focus should be on clearly identified, do-able tasks, not pie in the sky wish lists. What is NOT needed is funding schemes that go nowhere and take years to produce results. India cannot afford that.
  2. Why are we not producing Google’s and thousands of small startups in big data, analytics, cloud etc etc. that US produces week after week, year after year, ironically many of which have Indian talent at the very top? Target here should be identify specific red tapes, speed bumps and cut them down.
  3. Instead of hiring “unemployable” graduates and spending money training them (often at site to the chagrin of the customers) what can Government, industry and Education ministry do to quickly re-tool our colleges? It is not as if nothing is being done but surely results are disappointing so it is worth a re-look.

Somewhere a beginning has to be made to usher in a new future for our IT Industry and keep its powder dry for endless battles in the tech arena. Whining, scare mongering and senseless headlines to score web hits is not the answer.

Links

(may disappear or change over time, valid at the time of posting)

  1. http://www.thehindubusinessline.com/info-tech/chatter-over-layoffs-in-it-industry-highly-exaggerated-tcs-president/article9718629.ece
  2. http://profit.ndtv.com/news/tech-media-telecom/article-why-6-lakh-it-professionals-are-at-risk-of-losing-jobs-1693403
  3. http://profit.ndtv.com/news/tech-media-telecom/article-infosys-defers-pay-hikes-says-no-planned-layoffs-read-letter-to-staff-1692632
  4. http://economictimes.indiatimes.com/tech/ites/indian-it-in-the-sweet-spot-industry-to-double-its-jobs-by-2025/articleshow/58885691.cms
  5. As TCS Chief (now Tata Group honcho) Chandrasekaran points out, global IT spending is growing and that too more in services. This puts India in a “sweet spot”.
  6. http://www.hindustantimes.com/business-news/indian-it-industry-still-hiring-reports-of-layoffs-wrong-nasscom/story-ZlQ8RATcuKshdnc19X9m5L.html
  7. http://www.rediff.com/business/column/column-indian-it-is-dead/20170417.htm
  8. http://www.business-standard.com/article/companies/local-hiring-to-go-on-cognizant-president-tells-techies-fearing-layoffs-117052501075_1.html

 

 

Malaysia cancels Chinese project – Bandar Malaysia

Indian media covers CPEC a lot but happenings in other parts of the world that are equally important receive scant coverage. How many of us know that unlike CPEC which is mostly talk (and some coal fired power plants on one sided terms that no sensible nation would accept) China has already invested US$35b between 2010 and 2016 in Malaysia.

Malaysian Government decision to scrap the sale of Bandar Malaysia site to a consortium that included a Chinese government entity is one such event has has passed unnoticed by Indian media.

About Bandar Malaysia

The Sungai Besi airport, about 7km from KL city center is an old one – this is where Tunku Abdul Rahman landed from London, bringing news of Malaysia’s independence in 1956. It was used by Malaysia’s Air Force and for some VIP flights and is largely unused.  The site was sold in 2011 to the infamous 1MDB to become “Bandar Malaysia”, a city within city incorporating various developments and drive Kuala Lumpur area’s future growth. When 1MDB collapsed (a hugely entertaining story in of itself) the land was taken over by Ministry of Finance as part of “restructuring”, rather rescue.

The area of land involved is about 190Ha.

In late 2015, 60% ownership of the land parcel was sold again by MoF to IWH / CREC consortium for RM7.4b. IWH owned by ethnic Chinese tycoon Lim Kang Hoo who also runs the Danga Bay Waterfront city (4300acre) in Johor in the south, close to Singapore. CREC is PRC goverment owned China Railway Engg Corpn. CREC also threw in a sweetener, promising to build a RM8b Regional HQ in the site.

As with CPEC various grandiose plans were bandied about (one was a “digital” FTZ), along with talks of changing face of Malaysian growth, enormous local employment opportunities etc.

Subsequent developments have made the site worth a lot more – the Singapore – KL High Speed Rail (HSR) project terminates in Bandar Malaysia. This plus the new MRT line under construction that will link Putrajaya (in the south) to Sungai Buloh via KL city is also likely to boost land values. In fact the original RM12b valuation, it is reported, will be well above RM20b now.

Malaysia wakes up?

As with most other deals of this sort in Malaysia, it is not clear how this particular consortium was chosen for the award. Supposedly at government levels without any bidding. But at that time it was justified since 1MDB collapse was hurting Malaysia badly and no one else was willing to come to its rescue other than the Chinese.

This is where the unknown unknowns come in. Because it was a rescue operation, it is not clear what was promised to the Chinese in return. Reports indicate the Singapore-KL High Speed Rail project is one such quid pro quo. That’s worth a lot – US$23 billions by some estimates. Now Japan is rumoured to be the front runner.

JV with Chinese characteristics

PRC has its own way of doing things in such “joint ventures”. It controls the entire supply chain and brings its own labour even for unskilled jobs. Supply of materials too is from Chinese entities. As Singapore’s Straits Times reported, even the canteen staff in Xiamen Uni campus in Malaysia are from China! While this may be perfectly acceptable to the mard-e-momeens of Pakistan thanks to its irrational anti-India hatred and army de-facto rule, Malaysia is a different case.

Although it was desperation (caused by the 1MDB collapse) that threw Najib into the arms of the Chinese, (a theme that should be familiar to Pakistanis re CPEC) he is smart enough and Malaysian politics unstable enough for things to change when circumstances change. Under the table promises are also harder to enforce.

There have been murmurs of dissent and complaints from local industrialists over lack of goodies from the gravy train to local tycoons, who, ironically are almost all ethnic Chinese. In fact there have even been reports that Chinese citizens will be allowed to settle in Malaysia in real estate projects such as Danga Bay, because there are not enough locals to fill those apartments! Such reports have been denied but allegations are not just by the fringe, and have been made by Mahatir Mohammad, Malaysia’s ex-PM.  Since ethnic issues are never too far below the surface in Malaysia, this can be troublesome for the ruling elite to explain.

What next?

Going by reports, it seems Najib cleverly grabbed the chance to get away from a bad deal using non payment as a convenient excuse. The Chinese quid pro quo demands (termed in one report as a “shopping list”) was just too much for Malaysia to pay. Now he can re-sell the same land to another consortium for even bigger amount (should one be willing) and start all over again!

However, it is not clear how PRC will react to this since it seems its capital control restrictions on overseas investments have a role to play. If it is so, it may bite the bullet, even if the bullet train project is not for it to take a bite on. In fact, China has been rolling back or pulling out of numerous Malaysian (and other international) projects because of its internal issues, capital flight, dubious viability and other concerns. The fact that it is still “investing” in CPEC goes to show the juiciness of those contracts, thanks to Pakistani surrender. After all who else can give 15-30% assured returns on equity, 7%+ interest rates on loans and ability to sell third rate products (anyway in surplus) at super premium prices without any competitive bidding?!

Or it may react with under the table pressure and squeeze Malaysia to give up something else in return for the 1MDB rescue act. The fact that such murky deals always involve murky pay offs may give it additional leverage given the political situation in Malaysia.

All this gives us enough indications on how CPEC itself will proceed. Given Pakistan’s utter helplessness and abject surrender thanks to its own visceral hatred for India, the scale of loot is likely to be worse. If the aam Abdul in Pakistan wakes up one day just like Najib did, there could be interesting repercussions!

 

 

 

 

 

 

 

 

 

Boycott of Chinese goods – makes sense?

After the recent Uri attack and China’s blatant siding with Pakistan on terrorism as well as the NSG matter, opinions are slowly hardening on the Indian side too. Now many Indians are copying a long used Chinese trick – boycotting Chinese made goods.

As everyone knows, China has been using this weapon for years now, mostly targeting Japan, occasionally smaller European states like Denmark that dare to raise inconvenient issues like human rights. State run media whip up a frenzy which is promptly followed up by social media “patriots”.

Now China is getting a taste of it’s own medicine although in much smaller, almost statistically insignificant doses.

Question then is, is it right? How does one go about it?

  1. First, it should be made clear the target is not Chinese people. In fact the message that should go from any such boycott is one of pain and not anger. Pain that Chinese government, unaccountable to its own populace, in supporting jihadi terrorist Pakistani generals and the deep state, is acting against the best interests of all three countries involved – China, India and Pakistan itself.
  2. Second, any such boycott should firstly involve change in lifestyle and behaviour. For example, richer parents buy plastic toys (almost 100% made in China) by the dozen for their kids only thrown away in the attic after a few minutes of play. Isn’t it better to avoid such gifts in the first place? After all most parents do it not so much for their kids but to massage their own egos.
  3. Most middle and upper class kids have way too much in clothing, much of it imported, though they hardly wear them once or twice before they outgrow them. Loving parents and relatives shower them with stuff they have no use for. Can we change that? That doesn’t take a boycott.
  4. We should be selective and choose items for which reasonable alternatives exist within India. And which helps our artisans and poorer citizens. Locks are a good example. Diyas (earthen lamps) instead of strip lighting is another. Thankfully clothing is mostly made locally but even here Chinese goods have swamped, particularly in specific sub-sectors like kids clothing, baby wear etc.
  5. Where there are no choices, such as mobiles and laptops that are 100% made in China and nowhere else, we have ask ourselves do we need yearly upgrades?
  6. It should be a reminder to ourselves and our babudom that the reason why we import practically everything from China at prices far cheaper despite considerable distance traveled is because of our own inefficiency and incompetence that treats business as evil, profit as immoral and businessmen worse than armed terrorists. It is odd that we have to learn the benefits of a fair but capitalist, investment oriented society from a supposedly socialist state. If alongside such boycotts, we can dismantle the numerous controls and paperwork and corruption that kill our SMEs we will need no boycotts in future.
  7. Government can also consider sensible regulations that avoid plastic and electronic wastage without directly targeting China. Europe forced most phone makers into using common interface for charging so they dont have to bundle a charger with each handset. Why can’t we ban such bundling? After all chargers can be made here for common use?
  8. Many “Indian” brands have actually given up on manufacturing and simply import stuff from China and sell it in their name. Obviously that brings bigger profits. Bajaj table fans are a good example. Same goes for most iron boxes, rice cookers, even bulbs and other such items sold in Indian shops. Our trade unions and government should sit together and ponder over why this has happened and what can be done about it. While this is slightly better than the situation in other countries such as Indonesia or Thailand where even brands are Chinese, it is small consolation.
  9. Whenever we buy something, it should become a habit to check where it is made. Most of us don’t even check expiry dates of foodstuff. Ask ourselves a simple question – why can’t it be made here? Is it super-duper high tech? Most likely not! Solutions will follow. Reforms pushed from ground up can never fail. If a million citizens change their thinking and push for change, that can exceed the impact a dozen think tanks and intellectuals shouting themselves hoarse.
  10. Government should publish and keep updated, a list of top 1,000 things that we import (not just from China) along with the quantity, value and other statistics. This list should mainly target things that end users buy in large quantities (such as mobile covers, chargers etc). It should be a wake up call to our entrepreneur class to see if they can make them, better, cheaper. In most cases, the answer is yes.

 

 

GST pains and gains

As the GST bill gets closer to its passage in the RS (where BJP is in minority), focus is shifting the the economic spin offs and benefits. One major industrialist called it a ‘brahmastra’ (a celestial weapon from Hindu mythology) for the Indian economy. Perhaps he overlooked the fact that brahmastra was used for destroying, not improving lives!

Be that as it may, there are also concerns that GST may give more pain than gain in the short term, even medium term. Examples of Malaysia are being cited where inflation shot up by 2.5% for a couple of years. Media reports are even saying this would benefit the Congress in 2019. Given the chaos, screw ups, poor planning and execution that features in almost every project run by Indian babus, it is entirely possible that positive effects of GST will be pushed back even further while teething issues are sorted out. And electorates are famous for their unforgiving focus on the here and now.

This is where the NDA government and PM Narendra Modi face a huge dilemma. It’s a big test of their leadership and courage. Should they implement GST ASAP and “pay” the ultimate price in 2019? Or just hope that things will work out by some miracle? Or perhaps do some creative thinking and plan ahead?

GST1

Learn from others, think ahead

It is safe for Arun Jaitley & co to assume that the first few years will be chaotic. It is also perfectly safe to assume that any inflation, even regular one or those caused by monsoons, dollar rate, oil price or whatever will get assigned to the GST by the hostile media and naturally the opposition. Perceptions do matter in politics and all is fair in war and love.

But all is not lost. There is a great opportunity for Narendra Modi to kill several birds with one stone. He was lampooned in Bihar recently for ’empty’ Jan Dhan bank accounts. He has been facing criticism for not being “bold” enough on reforms.  He does not even have to invent any innovative solution! Singapore has been there, done it and there is no harm copying good things!

Singapore implemented GST in 1994 and it did something very clever – it simply gave cash to each citizen with “GST credit” that compensated for extra cost incurred by lower income families, since GST is by nature regressive. This was carefully targeted and benefits were maximum for lowest income families.

GST credit subsidy direct to Jan Dhan Bank accounts

The suggestion is simple. Crores of Jan Dhan bank accounts have been opened. Modi should simply announce that for first 3 years, Central Government will credit an amount into each beneficiary account that roughly compensates for any additional inflation caused by GST. Instantly he can transform crores of ‘aam aadmi’ that knows nothing about fiscal, taxation policy or GST, cares only for his family and its finances, into grateful supporters of an idea that benefits the economy in the long run.

This need not be a huge fiscal burden. Let us do some back-of-envelope maths. The poor and middle class spend, say, Rs. 5,000 per month on essentials. That’s Rs.60,000 per year. 5% of that should more than compensate any GST impact. That’s Rs.3000 per family. If there are 10 crore families (not individuals) that need help, that’s Rs. 30,000 crores. This is a very liberal estimate since 10 crore families will cover about 40-50% of the population and Rs.5,000 itself is a high number. And yet is peanuts compared to money spent on schemes like MNREGA which didn’t do either the economy or the UPA any good. If needed, funds can be diverted from such wasteful schemes to this subsidy.

The biggest problem of the Indian economy, has been that Prime Ministers and ruling parties have rarely made an effort to sell the benefits of reforms to the common man on the street. Most reforms have been by fiat and stealth. This also means that they cannot even openly take credit for doing a good job on reforms.

Today we have a PM who can communicate well and is certainly not tongue tied. Why not go to town with GST and the subsidy to sell painful but necessary reforms in general to the general public? He may find that the poor voter is clever enough to understand if only it is presented to him in a proper way. And he is not ideologically closed minded or biased, something you can’t say of our TV studio liberal elites.