Business to the Buddha

Tag: Kingfisher airlines

  • Gaming the system

    A couple of weeks back I wrote about problems with Socialism and probably how it can be improved with lesser gaming of the system. It is not that capitalism does not allow gaming the system, in fact there is immense lobbying that happens which is no less than corrupting the system. A few examples are – unsubstantiated loans to corporate houses (ICICI bank gave to Videocon group), Kingfisher Airlines and Jet Airways playing their own lobbying tactics to either get better slots / airports or getting competition out of the system.

    The point is, in capitalism too many wrongful act are done at higher level too besides on personal level. Which is basically a case in Socialism too. The advantage in capitalism is everyone is trying to be rich whereas in socialism mostly the government control most of it. In many of these high level and individual level we tend to look at our own’s benefit over the collective good of the society. Effectively, we are individually smart and collectively dumb.

    The technology enhancements are helping people game system can be done at various levels. A couple of days back I came across this small video on Twitter. In China, insurance companies offer discounts in the premiums of health insurance if a person is physically active. So, people have devised “a solution” to look fit. The point here is not to stay fit, but to let the insurance company believe you are fit. This step counter does the trick.

    The above system is not only for fooling insurance companies but also to fool oneself. It defeats the purpose of having step counter, healthy life style and own’s health at large. Besides loss to the companies it is a bigger loss to individual – you only get on life to live.

    Net net I would emphasis – you only get on life to live – live truthfully, why game the system? If you look at recent Indian businessmen’s examples be it Naresh Goyal of Jet airways, Vijay Mallya of Kingfisher airlines or Mehul Chowksi and Nirav Modi of Gitanjali group; by the way there are many more in the list; what is the result? Whole banking system and many consumers are at the receiving end. Why game the system – live life truthfully, isn’t it?

  • Leaking pipe, economics and politics







    Recently I went to meet one of our relatives. We were generally speaking and his plumber came, I asked what happened? He said – Pravin, we requested our plumber to fix the leaking pipe. Later we asked him to put blocker from where the leaking pipe was having water inlet. I said why did you solve the problem of leaking pipe twice? He said the fixing the pipe with m-seal and other plumbing means was cheaper. But second time you had to put a blocker, isn’t it? It costs and your plumber might have charged you twice too. I curiously went to check the place – being an insider to this family it was alright. I repeated – you tried to fix a wrong problem and you did it twice! and also by putting blocker you made the pipe irrelevant too…

    The same keeps on happening in our society be it bailout or loan waiver to farmers. Those who cannot get in such beautiful moral hazard go to UK or become part of crony capitalism.

    I was speaking with my wife today, she said “loan waiver is not a permanent solution”. Yes she is right. This endemic was started by government of our own very famous economist Mammohan Singh and his another gem of an economist finance minister Chidambaram in 2008. It was a waiver of 60,000 cr, largely to win upcoming election. Manmohan Singh government won that election too, just to end up embroiling themselves in scam after scams. The scams resulted in public anger and protest – India Against Corruption. There are long lists of corruption under the Manmohan Singh government however the point of discussion currently is farmer’s loan.

    The kind of waivers offered mostly result in moral hazard. Just imagine, if I am a farmer – this year monsoon is expected to be good – why would I care to pay my loan EMIs when everyone is getting sops? The other trouble is – even after 70+ years of independence of India we are more dependent on monsoon rather than our skills of farming! Connecting all the rivers was a dream project of Atal Bihari Vajpayee 10+ years back, yet it has to see light of the day. Furthermore, we ignore solving the problems we created ourselves such as depleting underground water level. Mostly, the reason is – we are individually smart but collectively dumb. We assume that I cannot control where the underground water goes – why should I?

    Imagine, the amount of 60,000 cr farm loan of 2008 – had it been utilized in making canals and rainwater harvesting, educating farmers for better methods of farming and technology interventions in agriculture and post harvest we might have been able to solve the problem to some extent if not completely. The other thing to note is – how can we ascertain the benefits are transferred to the right people? Those who have small land holding may be taking loans from local private lenders, also they might not even have their credit ratings for bank to offer them loans. Where exactly does such huge amount go?

    Now think again about where the government gets this huge amount from? Have you ever seen your bills? Did you see Krishi Kalyan Cess? Government generates parts of such sops from us when we pay taxes – indirect tax. This is a problem to worry for middle class only. They earn and pay income tax, they buy and pay Krishi Kalyan Cess and when farmer’s are on strike they pay exorbitant amount for buying vegetables too. Mostly this expensive vegetables are procured by middlemen at cheap prices – all cash business less or least tax with black money. A better option for middle class Indian is to either become a farmer and get loan waiver or become an industrialist take loan and leave India!

    When I completed my sentence – “you tried to fix a wrong problem and you did it twice!… …The leaking pipe was old and rusting, you should have changed it at first instance. why don’t you fix it permanently? My relative said “why should I? It is a rented property? I may go next year, someone else will come, so I am fixing it temporarily.” Same is with the governments – they solve a problem as temporary fix – farmer loan waiver for winning next election and not solving problem which causes farmers to take extreme step of committing suicide or protesting for loan waiver.

    According to the Bank of America Merrill Lynch the farm loan waiver will cost 2% to the GDP of India by 2019. This wrong precedence was set by two of the most knowledgeable economists of India – Mammohan Singh and Chidambaram. Go figure what it means to be subject matter expert!

  • Panama leaks, IPL & the rulers







    Kill! Kill! Kill! the arena was full with the viewers and they were shouting, it was horrific scene. The gladiator was looking at almost a corpus – the other gladiator – who had lost the battle. Fate of this gladiator was in the hands of winner or the king. People were giving their verdict ‘to kill the losing gladiator’. What was wrong with these people who were enjoying such brutal and life taking game? I suddenly woke up and started thinking about this dream.

    The arena has changed, shouts for kill is changed too and now instead of the queen asking us to “eat cake, if we do not have bread.” The politicians are serving us IPL and other trifling stuff to divert our attention.

    No wonder there is widespread corruption, Panama Leaks seems to be the tip of the iceberg. Can we doubt of existence of 100s of other law firms in Panama or any other tax heaven? If there are ten more such law firms worldwide, what number we are looking at – in terms of corruption or black money? The problem is in most countries, let me take India as a case in point (as I live in India), there may be parallel everywhere though.

    Secondly, heard about few of the World Cup T20 matches were fixed. Vijay Mallya haggling with banks after eating thousands of corers for settlement. On top of this haggling RBI governor stating – Releasing defaulter names can ‘chill business activity’. We are fighting with each other on who should or must win, who is in your or my dream team and here the whole economy is at the ransom of those who are so powerful and mighty and yet in so much debt (and defaulted on debt) that if their names are made public economy of country will be standstill! At the same time, it is beyond doubt that those who have defaulted have a lot of money stocked in tax heavens. Otherwise how come Dr Vijay Mallya say that he can pay 4000 Cr in coming days. Why didnt he pay this amount before KFA becoming defunct?

    It is not just about one man. It is about those thousands who have stocked money and poor people of their country are dieing of hunger or more recently of thurst (In Maharashtra India) or are jobless. Once again quoting – Mr Rajan governor of Reserve Bank of India Panama Papers: Dangerous to question the legitimacy of wealth! Seriously! If people have legitimate wealth why would they hide it in tax heaven? Well, its likely that the answer will be – according to xyz legal framework created by (many of the corrupt politicians as the law maker) the then Govt it is legitimate to under Liberalized Remittance Scheme to put your money out of the country.

    It is like 1. making rules for your own and close clouts convenience and 2. than hiding behind the same to make your ill gotten  money the garb of legitimacy.

    FarmerIn all these – we are trending on twitter about local teams matches as hashtags! Forget that, we are not even considering that people and their cattle are thrusty but we are enjoying the tamasha of IPL where a lot of water is going in drain. Again, what is the argument? Maharashtra Govt may lose crores of rupees if matches are moved out of state. What is the probability and assurance that Govt will use the revenue generated by IPL for 1. prevention that is providing water to drought hit areas and 2. correction that is taking steps so that in future we do not face drought like situation.

    Governments (in effect rulers) earn most in the tragedies of citizen – be it flood in UP or earth quack in J&K or drought in Orisa or Maharashtra even floods! We’ll forget all the natural or man-made calamities and go back to our TV set or stadium and start shouting – six, or Kohli or slogan of a team. On parallel worldwide – for IPL in India, we’ve soccer in the Europe, NBA, NFL in USA and so on!

    This time the shouts of KILL are changed that is it. This time rules don’t ask us to eat cake if there is no bread, they show us the revenue generated in Govt tax collection. But problem remains – Forget terrorist! who knows the french revolution this time may explode the whole world?

    Image 1 source – http://famouswonders.com/wp-content/uploads/2011/12/Depiction-of-Gladiator-games-by-Jean-Leon_Gerome_Pollice_Verso-400.jpg

    Note – Author referred to RBI Governor’s statements, but believes the rot in the system is political & crony capitalistic.

  • Flawed business model







    There was a company Kingfisher Airlines which owed 7000+ Cr (70+ billion INR or well over 1B USD) to a consortium of banks in India. The company could not pay its debts; its owner/company recently was declared ‘willful defaulter’ by few banks. Now, the owner Dr Vijay Mallya is shifting to England with all funfair.

    Indian Big Corporations debtThis event and the total debt (sourced from a LinkedIn post above) makes one seriously think – is it true that “The wall streets fraud” as Bernie Sanders US presidential candidate has said earlier? In India, we have very contrasting examples – one side there were many farmers who were committing suicide because they couldn’t repay loans and on the other side we have banks with NPA (Non Performing Assets) & professionals who do “Corporate Debt Restructuring” resulting in many if not all NPAs in future. At present Indian PSU’s NPA is more than their Market Capitalization.

    Isn’t it “a subsidy transferring wealth from the rest of us to a select few” as the article rightly says?

    Just imagine – the debts given above, tax evasion, Satyam case and many other cheating happening not just in India but in almost every corner of the world. For me ‘wall street’s fraud’ is just a metaphor, there are many more frauds we are confronting daily. I have written on a few earlier – Volkswagen & Toshiba, Rajat Gupta and Moral Markets! to name a few. Are we really maturing as human race? Or we have become more deceptive and satanic?

    Just another example is the double speak of developed world on saving the earth – read Profit over the Planet.

    The point, after lamenting so much is always – how do we solve these problems? Only way I see is spirituality – Paris attacks – solutions please moving towards being saint in suits rather than Thief in Tuxedo.

    Related blogs – What are you searching for?

    Image source – LinkedIn post of Mr Hariprakash Visant

  • Measuring growth







    I had been asking myself a very naive question. How do we measure growth? Well the answers is not “the GDP” etc. What if I sell things very expensive? GDP might grow, right? So, I zeroed down to interest rate as one vehicle to measure growth.

    Well, let me be more fairer in providing one more reason for taking debt as a metric. I had been wondering about 2008 crisis and the fancy word – Corporate Debt Restructuring. When we look at these and other special purpose instruments we would realize that humans try to fool themselves or fool others. Therefore I considered  Debt as one metric to measure growth. I noticed Kingfisher drowning  recently – I mean the airline in India. We all have witnessed crisis of 2008. In the enthusiasm and to show fat books banks start providing loans to people; once a person is not able to repay the debt banks auction those properties. These two big cases and the housing bubble, all these things are examples of our assumption based “Growth” of economy. Here we assumed growth is represented by the ability of people/organizations to take loan. Interest rate of loans would become a representative of metric of growth.

    We all are in this mess of economic slowdown because of the concept of debt. The ability of big, smart and mighty people and organizations to restructure these debts. When I was doing a course on Independent Directors with Institute of Directors I was wondering in one session – “What if  we don’t have this concept of Debt?” In Islamic banking there is no concept of debt. We may say that Islamic banking has a more refined concept (debt), it is called as profit sharing.

    I am not a scholar of Islamic Banking and therefore whatever I am writing here is with reference to what I was told by one of my colleague and friend (Abdullah Pijvi). He too suggested to me that he is speaking from his experience (he had taken some loan) and therefore he knows that there is no straightforward concept of Debt/loan. It was interesting to know that concept however I had a question in my mind – if Islamic banks don’t have the concept of debt how do they grow? And I started defining metric of growth as – debt and interest rate!

    Related blogs – Where is growth?, What else you need? and Abundance of scarcity

    Disclaimer – 1. In this blog technicalities of economics were not considered very seriously. So readers are warned to do their research in formulating their arguments for/against such thoughts. 2. More thoughts on Islamic banking in future blogs