A SIMPLE 5 POINT MAGIC FORMULA GROW THE INDIAN ECONOMY AND MAKE IT BETTER THAN EVER

My 20 year’s experience as CEO and Managing Director of a Fire Protection contracting and manufacturing company has led me to understand many problems in the Indian Business Environment which have not been conducive to the growth of the Indian Business and our country.

Very briefly I am presenting the FIVE most important problems and their corrective steps which will bring immediate and rapid growth  to our economy.  Before I go into the steps let me briefly present the foundation on which I rely upon. Readers who are in a paucity of time may well skip this and read the next section.

The Foundation

We ( inspite of all our  intellectual brain drain – which is our pride- satire intended) are  a 130 crore predominantly youthful population. Our policies therefore should be oriented to tap into this large and most valuable human and intellectual resource edge  and leveraging upon it. We should avoid  doing anything that demotivates the human effort and prevents or discourages talent from meeting its potential.

 High interest rates on loans, collateral based and not enterprise quality based loans, delays in payments by customers, lack of appreciation for innovative ideas, bias against Indian Brands, Psychological reverence  towards western products, anything that undermines our national image and competitiveness, any high handedness by tax authorities or administration, disrespectfulness towards small businessmen entrepreneurs and start-ups, preference and tolerance of religious dogmatism, delayed dispensation of justice etc are some of the many banes in the society which discourage human effort an dispirit talent.  All our policies should be oriented towards nourishing and directing HUMAN TALENT TO MEET ITS POTENTIAL so that the effort of 130 crore motivated people reinforces  the growth foundations of this great nation to make it shine and rise to the position it deserves in the world.

Is it not so surprising that our DNA ( likes of Sundar Pichai,  Satya Nadella and gang) is driving the world, but here, with the same  talent available in drones and herds,  we still rot in unfulfillment and misery ( farmers commit suicides in india) ? We ought to accept with humility that there is something very grossly wrong with our system and environment.  Till our leaders and politicians do not acknowledge this and make SERIOUS changes in policies which will promote talent and help it reach its destination of success and fulfilment as against  just merely protecting  the rich and powerful of India and the world,  our dreams will only remain dreams.

THE FIVE  POINT FORMULA:

Having  explained the foundation behind the growth formula now I alight to briefly present and explain the growth formula:

1)      Payment on time: Just timely payment by customers to vendors will ensure quick rotation of funds in the economy leading to higher tax collection and higher demand. It is an irony that in India small companies in addition to marketing- sales – production – servicing – finance and HR functions also have and exclusive COLLECTION DEPARTMENT. All the people involved in small and large businesses know that in India once we supply material on credit we are not able to recover payments without extensive follow up. In fact, following up for payments becomes the single most important and costly department in all small companies. The parliament in all its wisdom enacted the MSME ACT 2006 which has been effective. But the bigger companies have found a very convenient way to circumvent this Act through filing frivolous WRIT Petitions.

·         Our government needs to immediately issue strong directive to all the companies recording above Rs 50 Crore turnover – either not to  take material on credit or make payment within 30 days of delivery of material.  The government should make it very clear that the bigger companies should not hold payments using any pretexts. The most common pretext is BILL ACCEPTANCE PROCESS.  In the pretext of verifying bills bigger companies delay payments for multiple months. Many times, they find fault with supplied material or services months after bills have been submitted. Statutes should clearly guard against all these delay tactics. The Banks should withdraw lending or not lend to any customer who has even one small unpaid vendor of more than 30 days after supply of goods.

·         Any payment delayed by companies more than 30 days should be not allowed to be taken as expenditure by the company and should get treated as income by changing required laws.

·         Companies beyond turnover of Rs 50 Crores should not be given any benefits and facilities if they are in the habit of delaying payments of their smaller vendors.

2)      REDUCE LENDING INTEREST RATES TO LESS THAN 4 PERCENT AND PAY ONLY 2 % ON DEPOSITS:  The current scenario is very grave.

·         On the one hand- There is a complete lockdown in the Hospitality, Airline Malls and some other service sectors. This loss of revenue in these sectors will lead to loss of business in the Automobile and the Realty Sectors as those who were planning to buy that new car or book their new flat will have to defer the same due to plummeting salaries or loss of jobs. Recession in the Realty and the Automobile Sectors will lead to lack of take off from the steel and cement sectors. So, we are staring at a gloomy picture for the near future.

·         On the other hand we have a situation where our interest rates on business loans, education loans,  cost 10-12 % with a debt to equity ratio of 3:1. For laymen I would just like to say that if Rs 100 is being deployed in a company Rs 25 is brought by the entrepreneur and Rs 75 is brought in by the bank. Now during a recession say which lasts for 2 years a company would end up paying Rs 14-20 ( assuming @ 15-20% including penalties etc) which completely erodes the capital (Rs 25) of the entrepreneur. Hence at higher interest rates the capability of companies or an economy to weather recessions is highly diminished. Where as, if a company borrows the same money in a country like USA the promoter would lose his wealth in 7-8 years assuming 3% interest rates.

·         In any case how can a company paying higher rates be as competitive as a company paying lower interest rates on its borrowings. How can an Indian company compete against companies in America and Japan who have access to funds at 1/4^th. Of the cost at which finds are available in India specially when more than 3/4^th of the funds in any company are deployed by banks.

·         A higher interest rate ensures that the people with money keep getting returns without efforts . This cannot be allowed in India which has to give more value to efforts rather than focus on wealthy becoming wealthier. For senior citizens government should implement a decent social security package which enables them to live with dignity during their sunset years. Of what use is a society which cannot provide or those who nurtured them during their childhood and teenage.

·         Reduction in deposit interest rates would compel people to invest in entrepreneurship or real estate. This will complete the cycle. Entrepreneurs will have to become accountable to the society. Politicians will have to become  responsible to keep areas neat and tidy and disease free failing which people’s wealth will get eroded in real estate and stock exchanges. Currently irrespective of whether that pile of garbage near the main road is cleaned or not the depositor is assured of getting his interest on his savings. The rich will continue to grow richer till the bank goes bust as companies collapse. I have written in more details about this here. Please take out your precious time to read this too. I assure you that it will be worth it if you are truly worried about our economy.

3)      REMOVAL OF INAPPLICABLE IMPORTED NORMS FROM THE BANKING SYSTEM:  We have been naïve enough to copy some irrelevant norms into our banking system- like BASEL norms (for eg.) which enumerates so many frivolous conditions to declare a company NPA. Some of them I will list here below just for a glimpse-

·         if a customer does not pay a vendor money within 90 days of supplying of goods the vendor’s account gets negatively tagged and not the customer’s account who actually did not pay the money after accepting the material, strange isn’t it?

·         An account that has become NPA can be given a strange restructuring package- while it was not able to service just interest on the outstanding working capital loan it is now made to convert the working capital loan into a working capital term loan. Now it not only has to pay interest on the outstanding working capital loan but also has to return the principal in a matter of 5 years.  How can a company, which could not afford payment of interest money pay interest along with principal? Strange, isn’t it?

·         A company can be declared NPA just because it did not submit its audited balance sheet, or just because it declared loss for a year, or just because it delayed interest payment by one day after the last day of payment so on and so forth.

 It has almost come to such an extent, that, if the banks do not declare sufficient number of companies NPA, then it seems that there is some problem with the banks’ moral standards. Banks and their policies have become anti -  business. Most of the banks take collateral from the parties before extending loans unlike their western counterparts, who study the credit rating of the customers and then extend loans. Here even if the real estate industry is loaded with collateral the banks refuse to fund them and on the other hand even though some business are good banks force them to give collaterals and the entrepreneur ends up pledging his family property to these banks. It is very strange that banks- once they get a collateral,  are more interested in declaring a company NPA than growing them. Small statured inexperienced managers who have nothing at stake  are left to decide upon the fate of entrepreneurs who would have pledged their everything to the banks. It is high time that the Banking industry becomes more relevant to the needs of the industry so that we see some real growth coming from leveraging-  like  other developed  nations. Banks should lend based on business strength and not based on collaterals. Banks should be assessed on how many companies grew in revenues under the umbrella of their financial support rather than on imported Basel Norms.

4)      GIVE PRIORITY TO RECOVERY CASES IN THE JUDICIAL SYSTEM:  When people are not able to resolve their differences it assumes the form of a dispute and the parties approach the court.  We are all aware that the judicial system of India converts this into an extremely prolonged affair spanning decades. What is a country when there is literally no justice dispensed in time?  It is needless to say, that, lack of  early dispensation of justice is a major weakness in our system. It is sufficient to say that the person who wins the case should win early as he will utilise the funds and a person who will lose should lose early so that he can cope up in time with other alternatives. When there is a logjam for years it affects the rotation of funds and hence the economy. It is always essential to understand that for the economy loss or profit is least important. What is most important is rotation. Anything which stops rotation should be immediately dispensed with. The judiciary should act so fast and so firm that their aggressiveness serves as a deterrent against  committing any act that adversely affects anyone’s business and rotation.   Isn’t it strange that cases are getting delayed in our country due to shortage of judges when we have so many people in the country and so many capable lawyers. Has anyone ever complained about shortage of lawyers ? It is lawyers who are appointed as judges. But we have an extreme shortage of judges. Why?...

5)      DO EVERYTHING POSSIBLE TO STRENGTHEN INDIAN PRODUCTS AND ENGINEERING: IT IS A FACT THAT INDIA IS THE GLOBAL HUB FOR TALENT. Once upon a time the Chinese welcomed offers for setting up manufacturing bases in their country. Their vision was twofold. One- generate revenue and employment and second -learn / copy the technology and over a period of time become better than the originator of the technology as they had more manpower to deploy and work on the same technology while western nations had to import costly people from India to build technology. We in India happily allowed and took great pride in exporting our qualified people and buy into our own country products made by them abroad and lose  our costly money to the outside world  creating an ever-widening trade deficit and ever increasing dollar to rupee gap. It is a shame that such a thickly populated country like India with a huge bank of talent could not even develop software like search engines, operating systems, social networking software or e commerce platforms.  The Chinese developed all this in China. Wechat  Alibaba etc.. Even platforms like OLA and OYO which we claim to be Indian only have Indian face value with Japanese or American Owners/investors.

Can one ever imagine large Japanese companies like Toyota or Sony being taken over by western companies. Can we ever imagine big Chinese companies being taken over by companies from other countries.  But how often we hear product companies like Kingfisher, Flipkart or others being taken over by foreign companies. We in fact, quite on the contrary take pride and celebrate such takeover entrepreneurships.  Here entrepreneurs are considered successful only when they are able to get their companies to be taken over by a BIG FOREIGN ENTITY. We do not have the same reverence for Coffee Day like we have for Starfish sorry Starbucks. WE allowed the assets of Coffee Day to get easily taken over by the American bosses. The facts are on our faces. The advanced countries regard their  products  and engineering enterprises as their proud winning stallion. They  nourish and enhance their local and international image. While we on the other hand behave very differently. It would hurt many sentiments if I write more about this here. But a person who is interested in the welfare of our own country should deeply contemplate on what is happening and how and why it is happening.  The least we can do as of now is to  not take too much pride in serving foreign companies as employees, ancillary units or offshore development units and start taking pride and diverting support and investments into whatever is ours and try to strengthen and grow the same.

·         Make a list of items that can be exported as products or end  services ( not exporting manpower) and push hard to build their image by local consumption      – feedback and support in international marketing.

·         Make a list of items that we import and build companies which can make products which  can give tough competition to them.

As a closing note to this important topic I would like to say that the famous earthmoving equipment manufacturing company JCB has 45% of its revenue coming from India in spite of our own BEML manufacturing the same equipment. We should stop accepting our treatment as a mere market.

I am a small entrepreneur. What is known to me is surely known to the policy makers. But still I am having to write this. It is high time that vested interests give way to national interests.

It is not by sitting with the Tatas and Godrejs that the government will get the right inputs for spurring growth. It is by discussing with the failed businesses and their Directors  that the Government will come to know which of their policies paralyse businesses. The true intelligence as always will come from failures.

From my 20 years’ stint as an entrepreneur I have written the above and not copied this from any book or other source of hollow economic or business gyan. I have evaluated  every aspect of what is written above and have always dreamt of what a powerful nation our country will become if the above business hurdles are removed. We should focus on motivating the only power we have MANPOWER towards achieving our goals of international leadership. When 130 Crore people work with passion there is nothing that cannot be achieved withing a short period of time.

I pray to the Almighty to lead us  and our leaders in the direction  which will bring glories to our motherland.

Jai Hind.

FRIVOLOUS WRIT PETITIONS RUINING THE ESSENCE OF THE VITAL MSME ACT

The Parliament in all its wisdom passed the MSMED act 2006, which enabled MSME units to file recovery suits within their own jurisdiction, through a simple application to The Commissioner of Industries acting as a Quasi Judicial Authority empowered to conduct arbitration between parties. The law explicitly provided that the cases should be resolved within 90 days after the application was filed with the Commissioner. It provided for above 30% interest on payments delayed to MSME units beyond 45 days with compounding effect. With respect to the matter of recovery, the Act overruled all other terms of the purchase order. The appeal procedure required the appellant to deposit 75% of the award amount to the court with court having jurisdiction to pass on the award amount or part of it to the aggrieved party.

However, though this Act has benefitted many MSME units, some  MSME companies are not getting any benefit of the same, as the big and the mighty companies specially in the field of construction and contracting, which are vital sectors for any growing economy, use the route of filing writ petitions in High Courts and drag the procedures of the MSME Council.  The writ petitions are admitted by the High Courts and the Honourable Supreme Court though they do not have any major locus standi.

It is obvious that the small companies, who are not in a position to hire able lawyers and are already facing cash flow problems due to stoppage of  payments, do not have the wherewithal to fight at that level.

There are cases where for a single outstanding case filed by the MSME Unit the customer, instead of paying money, has filed 3 writ petitions in 3 different courts of India and after having lost one of the cases has moved the Supreme Court.

If the acceptance of frivolous  Writ Petitions against the conduct of the MSME Council proceedings are not admitted by the High Courts and the Honourable Supreme Courts, and the Honourable Higher Courts ensure that the parties strictly comply by the APPEAL PROCEDURE LAID DOWN BY THE MSMED ACT 2006 it will do a lot of good to  the MSME companies who many times suffer at the hands of the bigger companies. Needless to say, the MSME companies are the blood veins of the economy and facilitating early justice to them is a major responsibility of the society.

Strict adherence to the MSME Act will without allowance of frivolous Writ Petitions will deter the delay of payments by the bigger companies to smaller companies.

I have written here how just making payments on time would lead to a robust economy.  Would feel privileged if the reader also goes through this article in conjunction with the current one.

Jai Hind.

NOIDA REALTY THE EPICENTER OF EMPLOYMENT FOR THE NEEDIEST

 The sight of the mass exodus of labour from NOIDA to UP and Bihar after the Prime Minister announced a lock down would have stirred the compassion of even the most stone hearted.

The entire country through their TV screens would have got a glimpse of the  massive number of unlettered  people employed by the real estate businesses of NOIDA. It Is highly important to note that the real estate sector provides wages and livelihood to the lowest of the low strata of the society. But sadly,  this sector faces gross neglect from the financial support system. While sectors like automobile, metals and minerals, power,  Oil, FMCG,  which today do not give any large scale employment to people because of dizzying levels of automation  get red carpet welcome and government support everywhere,  the real estate sector, on the contrary in spite of providing  employment to the large section of the  most underprivileged people does not get its deserving  honour or support.

I am the CEO of the only Indian end- to- end manufacturer of Fire Alarm systems  and our speciality is the real estate sector. We have deployed  fire alarm systems in around 25000 apartments spanning 160 high rise  towers in over 27 projects. As I have been front ending the marketing activities of our company, I have had the opportunity to closely interact with the directors and founders of many of these real estate companies and I have a very important perspective to present.

An entrepreneur, whether successful or not is basically a person who ventures out of safe havens to the  rough risky high seas. He is zealous and wants to do something which will create an impact. This is the DNA of  an entrepreneur. So is the case with the builders of Noida. Most of these builders in Noida are   new generation businessmen who ventured out and launched massive projects when the local state government provided a conducive opportunity around 20 years ago.

Their “drive to build and create” has seen millions get affordable low-cost homes. Providing affordable but decent quality homes has become their passion and second nature. Their core  teams after 20 years of exposure to the industry have acquired cutting edge, engineering, commercial, legal and statutory  expertise in mass construction of residential and commercial infrastructure. Their teams are assets of our country. A massive new city called Noida,  with broad roads and facilities, the likes of which have been never seen  in the country has been established owing to their enthusiasm to make a mark.  The biggest bonus however has been the continuous livelihood  that these entrepreneurs provided to the unorganised  labour community. Millions of labours have been employed in this belt from Uttar Pradesh and Bihar.

This unorganised labour community is unlike the organised industrial labour, who,  owing to their continuous presence in the same area  are affiliated to unions and hence have political clout. The labour in the construction industry is  the most unrepresented class, without any social security, insurance and  free access to medical facility. They mostly sustain on weekly wages. Either they get their wages and survive or they do not get their wages and suffer and sacrifice without an option. Their numbers are really big.

This lockdown for the first time exposed their numbers. And, believe me, as I tell you from my first-hand experience, that only a very minor percentage  of them actually came down to the streets. Majority of them are still staying put as many of the landlords and employers  have been benevolent.

One of our main duty as a society and as a nation is  to take care of this class and provide for them. The strata beyond them, starting from the organised industrial labour, are well protected and represented. Any major disturbance from the other upward strata would be highlighted in various arms of media.

If these voiceless people are victimised even after 70 years of Independence, then what kind of a progress are we witnessing or creating. By victimization I am not talking about the lock down. This class is resilient. They will brave this out. What I am trying to refer here is a larger problem in our economy – the gross neglect and lack of support to the real state sector which is the largest employer of this unorganized labour community.  

For the last 2 years I have been trying to organise working capital for my company which has been serving the real estate sector. On knowing that we are supplying to the real estate sector the banks instantly refuse to fund. I have heard cases first hand from the Directors of the builders that the banks have refused to fund them even if they are willing to offer 95% construction completed infrastructure as collateral security.  If looked at logically, funding the real estate sector seems to be the safest option for banks as they have very saleable fallback collateral in the form of property. The disinterest of the banks and their drastic distancing from the real estate sector is beyond my understanding.

After the implementation of the RERA act the sector has had to increase their compliances and transparency multi-fold. This has of course added to their cost. But still the banks have not opened up their purses to this vital sector.  Everyone is aware that the demonetization has hit this sector the hardest. The upwardly revised  in the minimum sale price by the government in many cases is higher that the market rates of the  property.

I was informed that  a  top level delegation of builders tried to meet up with the Chief Minister of Uttar Pradesh but were denied an audience as he was not interested to meet realtors
.

Like most others I was also under the opinion that the realtors have diverted funds to create personal assets and have misused and over leveraged the funds. In one of my meetings with a senior director of a big builder when I brought up this topic he had an altogether different story to tell. He said that the erstwhile Chief Minister encouraged and pushed these Builders to acquire more property from the Noida Authority and assured every kind of Support. The Builder only had to deposit 10% of the amount and the rest could be paid in installments. When after demonetization the demand plummeted they approached the Noida Authority to take back that portion of the land for which they have not been able to pay installments and allow them to retain part of the land proportional to what they have paid. The Noida Authority was ruthless  and sent them back saying that they will get back only 5 Crores irrespective of whether they have paid 100 Crores or 500 Crores in installment and will not get any proportional retention of land. He said that most of the builders are suffering from this liability and are somehow trying to pay whatever installments possible so that they not lose all the money deposited. Again, this approach of the government goes beyond my comprehension.

CREDAI is the most popular  industry guild of the Noida Builders. The membership of CREDAI has fallen down from a vibrant 300 to a stuttering 80 currently in the NOIDA region.

It is high time that the Government acknowledge the contribution made by the Noida Builders and reinforce their entrepreneurship. The government needs to take two important steps to bring growth back to the industry.

            1)              Infuse strong liquidity into the segment based on collateral provided by the builders without asking for theoretical and unfounded dictum of the Basel norms.  I am not here saying that these funds should be disbursed without proper control. The system set up by RERA is sound and should be fully enforced for utilization of the funds. In  the older projects also, which are not under the purview of  RERA, the recommendations of RERA should  be followed. Many of the norms followed by the banking system are not practical. Like for eg: If a B2B outstanding is not recovered within 90 days the RBI. instructs the banks to declare the supplier of the material NPA rather than declaring the buyer( who is not able to make timely payments) as NPA. 

Kindly note that the RERA Act has ensured that the funds belonging to a particular project either deposited by the customer or the bank is not diverted to any other sources by routing the funds through an mandatory ESCROW account.

            2)      Bring down the lending interest rates for home loan and construction loans to around 4%. Drastic times call for drastic measures. If lending rates for builders and home buyers are brought down to 4% the EMI per lakh would come down drastically and there would be a spur in demand which will take care of everything else. After all, it is the responsibility of the government to spur demand. Right? ( I have written more about why reducing interest rates in the most important step to grow our nation here.)

      

I just hope and pray that this economy should realize  the importance of the Construction sector. A vibrant and competitive construction sector symbolizes growth, energy and movement in the economy.

It is important to lower the interest rates in India as we are a nation of 130 crore people. We need to give more thrust on human talent rather than be worried about how the rich will become richer by keeping the interest rates high. As a society we will be happier if our children are able to afford to buy their homes a year or two earlier than wait till a time when their salary can afford to buy a 50 lakh home at a Rs 900 per lakh EMI. Now that we cannot reduce the simmering high cost of education will we not be a more satisfied lot if our children got that educational  loan at a lesser interest rate.

Finally, most importantly,  the companies involved in this industry are all Indian companies with very less external involvement. Their consumption of steel, cement, wooden items etc is mainly of local. So it is high time and more than appropriate that we take strong action to facilitate and push growth into this most important industry.

I SUPPORT DEMONETISATION GIVE A MONTHLY SOCIAL SECURITY TO SENIOR CITIZENS AND BRING DOWN INTEREST RATES DRASTICALLY TO 2-3 PERCENT

I have not seen any other event in our country which created such a massive response and enthusiasm in our 120 crore populace. This demonetisation has really woken us all up. Every single individual has been talking about this.. the impact it will have on our lives our nation etc.  It is very obvious that we had stooped to a very deep level of immorality.  This year I during the admission season I was fortunate to be associated with some of my senior friends who were trying to secure a good college seat for their children. I was surprised that the most venerable educational institutions were openly accepting black money to give seats under management quota. Luckily the my friends did not need management quota as their children opted for seats based on their merits and ranking but I think this is the height of our decadence. We send our children to  revered educational institutions so that their character is shaped and their skills are honed, I have no qualms in admitting that my personal nature was highly influenced by some of the great teachers during my school and college days. I am eternally grateful to them. When we accepted and supported corruption and compromises in our educational institutions where the professors ( look at the term professor and profession how it differs from making livelihood) and teachers would be exalted examples of focus dedication and non consumerism to shape the ideas of generations we totally ruined the moral fibre of living. 

The effects of tolerating black money are very serious. By tolerating black money we ensure that connections and pedigree GAIN  over competence and capability. I remember multiple instances where I would not be given to contract because some MLA's son knew somebody and passed money under the table. In India competence was defined as the capability  to identify and and handle the bribe channel. If black money is eliminated from the system this kind of disease and shamelessness would come to a grinding halt. 

I got reports that in addition to just demonetising the government has posted CBI and IB officials in every nook and corner ( in banking areas state borders etc) and anybody who tries to do any hanky panky is being caught. 

People were very comfortably hoarding their unaccounted wealth in Benami accounts in various banks in collusion with the banking officials specially in smaller banks. The government has kept the bank top brass under severe warning against any such transactions in benami accounts. 

I whole heartedly thank Modiji and the Almighty for inspiring this move. 

As far as the problems being faced by the common man is concerned- I would plead that we were all part of this decadence and hence should be part of the atonement. Seriously nothing worthwhile has been ever accomplished without sacrifice. 

The next and most important thing to see that competence and capability gains is to ensure that money is available at 3-4 % interest rates like all developed economies. This 12-18% interest that is prevailing is making sure that the people who have money make more money and people who do not have and hence have to borrow have to pay a very high cost almost all of their earnings in EMI or working capital loans. If one takes a 25 Lakh Home Loan for a 15 year EMI after paying 25000 for 8 years the principal amount would only come down by 2 lakhs.

  I  had written in detail about the evils of a high interest regime earlier. I specially  request the reader to go through this link here as it covers this aspect in detail.

In in same breath I would like to see an India where every senior citizen is atleast given an amount of Rs 10,000. as a social security so that those people who have slogged all their lives raised children with limited resources supported the society in their own way do not have to suffer humiliation and  insults at the hands of  any insensitive people. This will ensure that the senior people do not feel ashamed about us and our society and do not feel like living burdens themselves. 

I sincerely pray to the  Almighty that we should very soon see such a day. 

My Guru repeatedly says that whatever we see outside is COLLECTIVE CONSCIOUSNESS. This means that we are all creating our reality together. What we are seeing outside is a product our our combined thought process and imagination. PLEASE BANDHUS let us all together imagine and create an India which is  BLACK MONEY FREE ( therefore corruption free) , COMPETENCE DRIVEN (low interest capital) and SENIOR CITIZENS SECURED ( social security fund of 10k to senior citizens)!!!!!

IN DEFENSE OF VIJAY MALLYA

Today we found the headlines screaming about the escape of Vijay Mallya with 7 bags in a first class flight. They said that a person who sqaundered public wealth and cheated the banks has been allowed to escape.
To me it looked a tad different: to me it seemed that a person who had the charisma to employ lakhs of people expand a business from a small family run setup to the level of a global conglomerate that too in a business like liquor which is not an Indian Saraswat Brahmin's forte launch a grand luxurious airline which redifined flying comfort for the masses from a nation which has been hitherto known as a land of snakes and snake charmers vibed with the businessmen and people of elan in a way in which even they felt smaller.
The only flip side is that he belongs to a nation of thankless countrymen. A person who was solely responsible for generating huge amount of foreign exchange from his rather -our world class liqour business which was almost created from scratch.
All the Airlines were making loss. Indian Airlines and Air India Leading from the front followed by Jet Kingfisher and others. The only problem with Kingfisher is that it had a beautiful and successful liquor business which was generating cash to support to back it up.
Let us look at the story this way.

THERE WAS A BEAUTIFUL BUSINESS IN INDIA CALLED UB SPIRITS WHICH WAS DOING VERY WELL AND GROWING EVERYDAY. THE WORLD LIQUOR BARONS AND CORPORATE WERE AT THEIR WITS END LOSING MARKET SHARE. TO TOP IT ALL THIS COMPANY WAS CONTINUOUSLY ACQUIRING EVERY GOOD NICHE SMALL LIQUOR BRAND AND ADDING IT TO THEIR FOLD. THEIR CHAIRMAN MR VIJAY MALLYA HAD CREATED AN AURA AROUND HIMSLEF OF GOOD TIMES. THE BRAND WAS ASSOCIATED WITH GOOD TIMES FLAMBOYANCE FUN AND LUXURY.  SO MUCH SO THAT EVEN THEIR JINGLE YELE LE LE LE LE YO HAD ALMOST BECOME  IN INTERNATIONAL FAVOURITE APPEALING TO EVERY TASTE JUST LIKE THEIR BEER.

THE  WESTERN LIQUOR CORPORATE WANTED TO STOP THE MARCH OF KINGFISHER ANYHOW. THE WESTERN GOVERNMENT WERE LOSING FOREIGN EXCHANGE AND RUPEE WAS APPRECIATING. THEY WANTED ONLY THEIR LIQUOR TO DOMINATE THE MARKET SO THAT THEY GET THE REVENUES. KINGFISHER HAD TO BE STOPPED OR ACQUIRED.  THEY KNEW THAT IT CAN BE ONLY DONE BY THE SUPPORT OF THE TREACHEROUS CORRUPT BUREAUCRATS AND POLITICIANS OF INDIA. THROUGH  THEY GOT THE AIRLINES GROUNDED BY NOT GIVING CREDIT FOR OIL AND PARKING SPACE. THE INDUSTRY WAS ALREADY SUFFERING DUE TO IMPOSITION OF AIRPORT TAX AND PARKING FEES DUE TO THE NEW AIRPORTS.
THEY MADE SURE THAT NONE OF THE FOREIGN AIRLINES WOULD PUMP IN MONEY INTO KINGFISHER. THEY MADE SURE THAT THE BANKS AND GOVERNMENT DO NOT SUPPORT THEM WITH FUNDS. THEY USED THE MEDIA TO SHOW VIJAY MALLYA'S NEGATIVE PICTURE AS A BLOOD SUCKER AND PERSON GIVEN TO ENJOYMENTS NEVER HIGHLIGHTING WHAT GOOD HE DID AND WHAT A CHARISMATIC BUSINESSMAN HE HAS BEEN.
THEY FUNDED THE EMPLOYEES TO AGITATE AND TARNISH. THOSE EMPLOYEES WHO HAD BEEN EMPLOYED DUE TO HIS CHARISMA FOR MORE THAN A DECADE AND AN HALF  WHO BOUGHT FLATS PAID EMI EDUCATED THEIR CHILDREN  WHO ARE NOW SELF DEPENDANT ,, RAISED SLOGANS AGAINST MALLYA.  AFTER DOING ALL THIS THE FORIEGN LIQUOR GIANT WHO HAD TACITLY FUNDED ALL THIS ACQUIRED THE LIQUOR BUSINESS FOR ZILCH AND A BEAUTIFUL NATIONAL ASSET WHICH WAS GENERATING FOREIGN EXCHANGE SWITCHED HANDS.  THE BUREAUCRATS  AND POLITICIANS MADE SURE THAT INDIA GOES BACK TO IT'S OLD WAYS OF CONTAINING FOREIGN EXCHANGE BY DOING ALL SORTS OF TRICKS INSTEAD OF MAKING PRODUCTS THAT WOULD CATCH THE IMAGINATION OF THE WORLD AND GENERATE EXPORT REVENUE.. WE ARE CRYING MAKE IN INDIA MAKE IN INDIA AND WHAT DID WE DO TO THE GREATEST MADE IN INDIA PRODUCT KINGFISHER BEER ..................

MALLYA MUST BE DISGUSTED BECAUSE HE LOST THE WORTH OF ALL HIS TALENT AND CHARISMA : NOT BECAUSE HE WAS NOT CAPABLE , NOT BECASUE HIS TEAM WAS NOT CAPABLE , BUT BECAUSE OF A CORRUPT AND NON COMMITTED GOVERNMENT WHO WOULD PAVE WAY TO AN EASY TAKE OVER TO FILL THEIR PERSONAL COFFERS... NOW THE WHOLE NATION IS CASTIGATING HIM AS A TRAITOR..



FOR ME HE GENERATED TAXES EMPLOYMENT- PAID INTEREST TO BANKS- MADE WORLD CLASS PRODUCTS AND SERVICES, REBRANDED INDIA.

IF MALLYA WAS THE SON OF A MORE GRATEFUL NATION GOD KNOWS HOW MUCH MORE PROSPERITY  HE WOULD HAVE CREATED FOR HIMSELF AND OTHERS

GST-TRUE BENEFITS VS HYPE !!!

A few days ago the bill to adopt GST in India was passed by the Parliament  accompanied with  a lot of     fanfare. I read so much stuff in newspapers and whatsapp was flooded with lot of messages on the great changes GST is going to bring.  Many people are expecting many things. I somehow felt that  the metrics to understand GST was slightly amiss. 

I just thought of putting up my ideas up here.

In our country there are fundamentally 2 types of taxes

1.  Direct Tax: which is on one's income  called income tax collected by the Central Government 
2.  Indirect Tax which is again classified into 3 types as follows 
1.  Manufacturing Tax a tax called as excise duty which is levied on any manufacturing activity collected by the central government with a current rate of around 12%.
2. Sales Tax which is collected by the respective state governments which is levied on the selling activity currently levied at 14 %. 

So if there is any thing that is manufactured and sold the central government gets around 12 % and the state government gets around 14 %. 

There is a concept called VAT ( value added Tax). VAT is better explained by an example. Suppose a piece of machinery is in manufactured and sold from the factory at Rs 100 then, when the manufacturer sells it to the master distributor he bills it at Rs 100 Price plus 12 % Manufacturing tax plus 14% Sales Tax. Let us assume here that the Sales Tax is VATtable. Thus the state government gets Rs 14 out of the transaction and the central government gets around Rs 12 from the transaction. When this master distributor sells this machinery to the dealer he does not have to pay manufacturing tax as  he is not a manufacturer, but being involved in the activity of sale he has to pay sales tax. Imagine that the distributor  has sold the machine to the dealer at Rs 150 then the sales tax would be only computed on the Value addition done by him  as follows. 

Sales tax payable on Sale Price - Sales Tax already paid on Cost price. i.e. 21 (i.e.14% of 150)-15.68( 14% on 112)= Rs 5.32   

Thus the tax payable by the seller would be only on value addition to the extent of 150-112 @14% amounting to Rs 5.32.

In India over a period of time both Sales Tax and Manufacturing Tax have been made VATtable. 

There are a few exceptions in the case of inter-State Transactions. However they are often subsidized and a much lesser percentage of tax ( 2%  called CST) is payable in such cases. So all the discussions that implementing GST will reduce multiple levels of taxation and there by bring huge benefit to the industry seem to be misleading.

Now when the service industry started growing government wondered that service is also like production so there should be something like a manufacturing tax on service. So they decided to introduce a manufacturing type tax on services and called it service tax. The Excise department ( manufacturing tax department) of the central government was allocated the task of collecting the service tax. The rate of this tax was similar to the manufacturing tax. First the government thought some services should be included in to this then slowly they brought in almost all the services and levied this tax.  So this third type of tax which can be called manufacturing tax on services came into existence. 

Now the government wondered that the service is also being sold so there should be a sales tax on the services as well and while they were pondering on this they thought that we should merge the sales tax and manufacturing tax and bring one uniform tax called GST ( Goods and Service Tax). 

Ideally the GST percentage should have been 12% manufacturing( or 12 % service tax)  and 14% sales which is 26%. This 26% tax is what all us pay today on everything that we buy( excluding certain items like Gold Steel etc where the percentage is lower). 

But till now, since,  sales tax has not been levied on services it has been thought that an additional revenue can be generated by increasing the tax on services so the sales and manufacturing tax on goods can be reduced by some percentage. For Eg Suppose GST is levied at 18% then there would be a gain of 6 % on services and a loss of 6 % from manufacturing.  So overall there would be a balance.  The net effect of the GST bill would be that services would become costlier and goods would become cheaper  by around 6 percent. 

I really fail to understand the premises that certain parties are putting up to limit the GST collected to around 18%. Right now as of today we are paying a 26% tax on any goods that we purchase like tooth paste,  soaps, furniture and so on. So obviously the simple thing would have been to say that GST would be levied @26% for goods and  12 % for services. Everything would have remained same except that industry would have had to contend with lesser paper work. However by bringing down the tax payable on goods and increasing the tax payable on services I fail to understand what motive some of these parties are trying to achieve.  Some could argue that generally the poor buy goods and the rich buy services ( like services of hair cutters, auditors, taxis, theaters, restaurants gymnasiums etc). If that is truly the case then the move is good if it does not overall reduce the national income!!!

However the major benefit would be that the industry will have to deal with only one department instead of facing the idiosyncrasies of 3 departments viz Service Tax Sales Tax and Excise. Instead of filing three monthly quarterly and annual returns there would be only one return filing now which will definitely increase the comfort factor of enterprises. Focus would be more on making and selling good products/services than filing various returns. Care should be taken by the government to make simple and uniform procedures for GST. The filing of returns should be in simple format. The facility to avail input GST  credit should and online and simple just like TDS. If proper unfiormity is maintained it will also lead to de-clogging of the perennially clogged Tax Check Posts in the state borders. This may also decrease the transit time of the goods and reduce the cost of freight.

I hope that this also brings down the employment of personnel required by these government tax  departments which is a very huge load on the national exchequer. 

Having been a businessman for the better part of my career I would like to really welcome such a step as this would lead to higher productivity and any measure that reduces interaction with statutory departments of India is always more than welcome ( If you caught my hint)!!

ACHIEVE 12 % GROWTH JUST BY PAYING ON TIME

Yes! It is as simple as that.

As I have mentioned in my earlier posts Indian Government's central tax collection is Rs 15 lakhs Crore. This tax collection becomes the Capital at the hands of the Government to build the nation. So this tax becomes our Nation's income. This money is used to build roads develop urban and rural infrastructure pay Government staff salary Defense salary police salary  etc.

If we want to grow the nation the most important thing is to see how this income of the country will grow.

It is obvious that tax is collected when people buy and sell goods ( indirect tax-sales tax and service tax ) and when people make profit/income ( direct tax or income tax).

So if people buy and sell more the tax collection would increase and this would increase the national wealth.

People will buy and sell more under 2 conditions

1) If their income level increases

2) If they have cash in hand ( through availability of  car loans home loans credit cards etc)

Now our country is plagued by a strange disease which I would try to explain below.  Just by treating this one disease I challenge that  our economy can grow at a minimum addtional rate of 4%. The growth rate can hit 12 %.  The good news is that the treatment of this disease is not going to cost money. It only needs the will to do by the Government and the public.

Now to the malady!

Imagine that we are paid salaries on credit. That every month there is an entry in our personal books of accounts that salary is paid but no money actually comes into your bank account. Imagine at the end of the year the income tax department asks us to pay our tax based on  all these book entries but the income tax department does not give us credit.. One  has to pay them in cash even though one never got any money into the account in the bank. On top of that the bank deducts interest on home loan and car loans every month in cash from the account but still we are not receiving our salary into the account in cash. Imagine further that we are also supposed to pay sales tax and service tax and that this tax also has to be paid in cash but we do not still get any credit in your account from the company we are employed with. Imagine further that we have to import or buy some goods every month for sustenance and that these principals ( from where you import your goods ) also do not give any credit but ask for the entire money in advance. How to manage. No Money actually coming in- there are only book entries for income. But all expenditures to be done in cash.

Obviously you would say quit this job and take something else but suppose the population of the nation is very huge and number of jobs are comparatively less and all other jobs are also more or less like this only. There could be one way out of this that you develop such a skill that no one else has and that which can bring about solid growth to the company. Imagine we somehow developed that skill and go for interviews. The company says " great !... but even though we can get more revenues by this skill of yours but since those revenues will also be on books( as our customers will not pay the actual money) we do not need your services if it is on payment basis!!!!!!!###***

You will be surprised if I tell you from my 15 years as entrepreneur that this is the story of Indian Businesses serving Indian Customers specially in the Infrastructure segment which accounts for major revenue deployment. The Indian PSUs do not make payment to the Large corporate on time and the large corporate do not pay the  small companies and MSME sector on time. The smaller companies who would have taken loans from the banks end up becoming Non Performing Assets  first and later on the large corporate also end up in the same  boat. The NPA levels in the banks rise and everyone comfortably puts the blame on the malpractices of the businessmen who took the loans.

Further the taxes, salary and imports have to be done by paying money and not credit. The businessman is held personally liable to pay the salary& taxes by various government statutory bodies but if he asks for his money on time from the customer the customer asks him to go to the judiciary knowing fully well that it is a long and protracted process.
Though the company managers think that they have used OPM ( other people's money as taught in MBA courses) to do business successfully and earn profit by using other's money- in reality they have not earned anything as whatever they think they have earned is also on PAPER. The side effect of this thinking is an economy starved and  choked of rotation of funds which deprives- the nation of income in the form of taxes and corporate their profit in real  tangible money form.

For example on a  3400 Crores annual Turnover Tata Projects Limited ( which takes up construction of governemnt steel plants power plants etc) has a customer outstanding of 2600 crores vendor outstanding of 2400 crores on a 2600 crores purchase figure and a bank loan of 1500 crores. This means that they could not collect more than 75% of their outstandings and did not pay their vendors their due monies. Since TPL are corporate with deep pockets those vendors would have got badly affected and would have turned NPA. 

Source (http://www.tataprojects.com/AnnualRep201415.pdf)

Take the case of BGRESL a company doing around Rs 3500 crore turnover annually in the energy sector. Their customer receivables is 2700  crores,which shows that more than 75% of their booked outstandings is not pad to them.Obviously they have a huge outstanding of 1000 crores to be paid to their vendors which exceeds half of their purchases.

 Source( http://www.bgrcorp.com/financials.php)

Now another case .. the great Larsen and Toubro!!  This infrastructure giant has a vendor outstanding of Rs 24000 crores on a net purchase of 30000 crores. On a turnover of around 57000 crores their outstanding with the customer is 24000 crores where as the figure should be around 12500 crores assuming that they are giving 3 months credit to their customers. It is obvious that neither are they receiving payments like their foreign counterparts nor are they making payments to their vendors. Source  .. ( http://investors.larsentoubro.com/upload/Quarterly/FY2015QuarterlyQ1-28072014.pdf )

The disease is more pronounced in the builder segment.  This segment has a record of not paying for years and if you up the ante for recovery they would simply terminate the contract and revoke the bank guarantee of the vendor and get the job done from another vendor without paying the earlier vendor.

Ok.. I have done enough diagnosis but a parting case before I conclude the diagnosis part. We from our company have been doing 2 small projects with a Government steel plant for the last  10 years. We have completed our supplies and erection and part of the commissioning long ago but out payment of more that 30 percent is held up with the steel plant in case of both the projects. Every six months they ask us to renew our Bank Guarantees and insurance and for the last ten years we have spent more than 20 % or the project costs just on renewing Insurance and Bank Guarantees. The customer has a huge rank and file with GMs DGMs Engineers etc but no one is able to understand that by making our due payments the project would get closed. By holding our payments  due to their over protective behaviour they have put a hold on the rotation of funds and thereby deprived the Government  and the nation of the taxes which this money would have generated if it was in circulation.

From the foregoing discussion it is clear that we as a Nation are not rotating our funds fast . Every rotation would generate 25 %  indirect tax  and at least 3-5% Direct Taxes for the nation. But our PSUs and corporate  do not pay on time and stop the rotation of funds. Our Builders do not pay on time and stop the process of rotation and there by prevent the nation from getting tax revenues.

My simple thumb rule to straighten this is that every one rupee deployed should generate minimum two rupees as indirect taxes.

In our economy one rupee deployed is not even generating 25 ps taxes. The sole reason for this is delayed payment by the PSUs and Large Corporate to the smaller companies thereby choking the fund flow. If there is no flow of funds how will there be tax generation.

The above coupled with a skewed interest regime ( http://accelerate-india-growth.blogspot.in/2016/07/why-india-can-never-grow-and-compete.html ) and a non-sonorous banking system is a sure shot recipe for degrowth in spite of all the efforts by the Government.

I am sure every small entrepreneur and every senior Government and private employee in the infrastructure business would appreciate acknowledge and endorse the prevalence of this epidemic in the Indian business environment.  I would only appeal to the patriot in each of us to understand and respond to the fact that delayed payment results in choking of the economy and stops rotation of funds thereby stopping and affecting the collection of taxes which is the income of our country. The Thumb rule is one rupee stopped for one year will lead to a tax loss of 2 rupees for that year.

I am not stopping by this appeal. Below I am putting up a few lines on some immediate policies that the Government of India should adopt to systematically eradicate this disease from our economy.

1.  In the first year impose 30 % additional tax on all the companies doing a turnover of above 1000 Crores on the amount they delay to pay to their vendors for more than 45 Days. In the second year impose the same rule to all companies doing a turnover of above 100 crores and in the 3rd year standardise this across all companies and firms
2. We need to understand on what grounds the companies hold vendor payments. The grounds are as follows
1. Companies are worried that the vendors would collect the supply payments and run away without completing the job and hence they tend to withhold the payments. 
2. Companies enter into complicated contracts with unclear ambiguous and contradictory clauses and using these clauses they delay the payments of the vendors. Smaller vendors are not able to appoint costly lawyers and hence are weary of the legal processes and give up on the recoveries
3. Simplify Payment Terms and remove retention and bank Guarantee clauses where ever possible.There is another crucial part to contracting that we need to look at to bring simplicity to achieve faster  rotation of funds in contracting. Contracts can be majorly divided into 2 parts. 
1. The core technical part( which uses some high end manufactured /patented item by a party ( for eg the core part of a stee plant blast furnace, the core part of a boiler  or sinter plant drive. software or custom manufactured hardware etc  ) which is not freely available in the market and there are no ready equivalent substitutes. These core technology parts are generally supplied by big companies and multinational giants. Since these are core technology the customer is not at a liberty to seek alternatives if the manufacturer is not "tied-up" with him. In this part of the contract a there should be a good retention amount  clause supported by a proper performance guarantee clause to safeguard the customer interests. In the non core technology part it should be reverse 
2. The Non Core part  There are essentially 3 major parts on contracting 
1. Civil Structures: Both Minor and Major. This includes right from building a compound wall to erection of buildings roads etc. Most of this job is fairly straightforward with standard prices and procedures. After giving an advance against Bank Guarantee the payment can be made on prorata completion of the structure. There should be a 50% payment against supply 35% against erection and 15% payment on finishing. There need not be any retention clause as the jobs are fairly straightforward. Just for the sake of continuing the old habit retention can be kept at 1.5 -2%.
2. Mechanical Structures: This includes erection of structures pipelines and any other mechanical items with structural steel etc. Payment terms should be 65 percent against supply and 35 % against erection. For the sake of old habit there can be a 2.5 % retention.
3. Electrical installations: mainly cabling 60 % against supply 40 % against erection. No retention : ( PL note electrical panels using plcs drives etc fall in the core tech category)
4. Simplify and standardize contracting procedures at a National level : The larger companies and PSUs use many complicated and creative clauses ( like LDs, Milestone Payments, Penalties, Billing Approvals Procedures etc) in their contracts which are used as tools to stop/delay payments of the vendors. Since India is hugely dependent on the contracting and engineering industry to steer it's growth the Government should lay out a simple clear  contracting procedure for the non core technology part of the contract with proper guidelines for quick judicial settlement by internal arbitration between parties in case of a dispute. In the non-core technology area the parties should have freedom to exit the contract if they are cash strapped or are not interested to continue further due to whatsoever reasons. The quitting party should be given a quick settlement after doing a material and work reconciliation. The guidelines should ensure that both- the speed of work and speed of rotation of funds should not suffer. Companies should be disallowed from adopting any other contracting procedures/ clauses or payment terms in deviation to that set up by the Government. This will bring lesser load on the Judiciary and save us valuable money without making our talented manpower languish in court disputes and lengthy judicial processes.

In the overall context of things the Nation will benefit greatly if everyone starts paying everyone else on time. The PSUs and the large corporate should be specially brought under strict policy and statutory guidelines to make payments on time. I would still be understating if I say that this has the potential to increase the growth pace by around 4 %. More than anything else this will bring huge cheer to the businessmen and corporate who have been toiling day and night endlessly to recover payments. 

As I always say- I may be wrong am open to being pointed out and being corrected. Kindly nourish me with your ideas. 

According to me this problem is a penchant of the Indian Business scenario and if tackled along with strong reduction of interest rates as I have mentioned earlier can make a perceivable difference. If you agree with my views I request you to send the link or the article to your contacts and help me spread the message. 

Thanking you in anticipation,

Glories to Our Nation

Prasad Parasuraman
Bangalore