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

WHY INDIA CAN NEVER GROW AND COMPETE WITH DEVELOPED NATIONS

What I am going to write below is the most important thing that I have ever wanted to say to everyone- general public, bankers, politicians , policy makers   to every entity that can think.  No it is not a jargon on ethics morality or spirituality but it is about something much more practical which affects each of us every day. Money .. more specifically INTEREST RATES IN INDIA.

How do we all define a great life in India ?  Rather than great- say best life in India. What is every working individual's ( a Businessman's or employee's ) dream.  I think we can summarize it as follows.

 1) Have a great EMI free house to live in

 2)Have a solid bank balance  which will generate enough interest every month to take care of our monthly needs with some extra scope to increase our savings after expenses on a couple of good vacations every year..

I am more than sure I have summarized the financial target/dream of more than 95% of the people.

Will you be shocked if I tell you that most of the western world's inhabitants do not, or better putting it, CANNOT think about it this way specially when it comes to the second point.

In the developed countries THEY DO NOT GET the kind of INTEREST RATES that we get in India and hence just having a good bank balance ( deposited at a great interest rate ) to get regular monthly income cannot be an option. They have to further think on how to invest and grow their savings by putting EFFORTS. Generally they would have 2 options, one- acquire real estate( which has good appreciation potential and give it on rent)  or second - invest in stocks ( in stock exchange or fresh equity in new companies).
Having relatives abroad I have often observed how meticulously they think about how to invest their money so that it grows either in real estate or in stocks. I have seen them think and work on remodeling the houses in order to attract higher rents , talking about various aspects to understand industry and governance which would affect real estate or industry performance. This automatically leads them to assess their leaders and their policy as that will have a direct impact on stocks and industry and therefore the real estate prices. But in India we are impervious to that. Whether the leadership takes a good decision or a bad decision the Indian's saving keeps getting its regular monthly interest irrespective of industry performance. Whether the NPA levels rise or sink whether the stock market performs or not whether the reservation seats outnumber the number of available seats whether Andhra  Pradesh splits into 2 or 23 whether Mr Sahara spends the rest of his life behind bars or  the best Indian Product called Kingfisher Beer meekly goes into  foreign hands without the least defense or from anyone by a little amount spent on politicians- the savings continue to get interests without fail.  And Most Importantly because the interests on those savings have to be paid the businesses have to continue to pay atleast 5 % more interest on the borrowings than that is paid to the depositor as the bank managers and the banking system has to sustain itself by paying their salaries and their establishment charges .......

.....And just because they get higher and SAFE returns on putting money on interest the Indian public does not invest in companies and businesses and stock exchanges.... And just because we do not invest in businesses our companies perennially face equity shortage and because public does not invest in business only people with lots of money can do business.  So that allows only the rich to get into business  and the poor to remain poor and the middle class to always remain middle class by getting their perennial 10% interest.

The  biggest irony is that banks invest on the collateral security ( the properties that the entrepreneur brings in like his house, his inherited house etc) of the entrepreneur and not on the capability, talent and qualification of the entrepreneur. The banks are not wrong. They are more worried on how they would pay the depositor's interest and recover the money given to the entrepreneur rather than the success or failure of the business itself.

Whereas in the developed economies,  people have to search out good talented entrepreneurs to invest their money to make it multiply, they have to locate good policy makers and politicians to run the nation so that the nation grows and becomes a better place  to live in. A nation where money multiplies and then everyone gets THEIR DUE OF THE MONEY MULTIPLICATION PROCESS. The entrepreneurs have to be more accountable to the society because they know that the public and the nation looks forward to them for multiplying their monies. The social systems automatically reorient themselves to suit growth and development of businesses  as they directly impact them. The nations have to look at the quality of goods produced, assess them and give feedback to the manufacturers and product designers so that they all  collectively improve the product experience which in turn  improves the products/services. These improved products which are now armed with customer feedback have better chance to  would sell in the outside ( international) market and earn revenue/fame  for the nations so that their stocks' performance would improve in the stock exchange.

Whereas in India it is exactly opposite. For us politicians and corporate and municipalities are a topic of entertainment and TIME PASS as their performance hardly impacts what interest we earn out of our savings. 

Take a scenario where we earn only 2-3% on interest on our savings. That would impel us into thinking and working on how to multiply our money. If returns on invested amounts would be 2-3 % businesses would get money at 4-5 % making them more efficient. Since 2-3% is not very attractive public would think of investing more in real estate or setting up businesses or INVESTING IN BUSINESSES. Automatically on the one hand money would be available at lesser interest to businesses- small and large and on the other hand businesses would start getting more equity from small investors. Remember in India one rupee from one individual is 120 Crore rupees. So businesses would be full with debt at lesser interest and equity. They would make more ground breaking products and put more efforts on product development which is in modern-era-business the most important but most costly and most resource ( money ) intensive. Currently Indian Industry does product development on either the personal money of the entrepreneur ( which has to be limited unless you are a TATA or somebody like that) or with monies borrowed at 15% net ( which is very costly)from the banking system by pledging the entrepreneur's personal assets . Hence the zeal of an enterprise to invent and innovate is highly dampened. From the above it is a logical  deduction that higher interest rates  not only throttle and poison the industry but they are actually a burden on  the enterprises.  

 Keeping the product's quality and user experience on one side for a moment even if we assume that there was enough money to make good fantastic products equivalent to Apple, Google, Siemens, Porshe, Ferari... and imagine for a moment that the whole world market started equally accepting Indian products like Japanese or German Products, even under this condition if our businesses would source money from the Banking System at 15% net how would they be competitive against German Japanese and American Companies who get access to public funds at 2% or lesser for local and export businesses. So it is obvious that due to the interest rates Indian businesses are not at a level playing field compared to their foreign counterparts. No wonder when Jet Airways or any other company struggling with a high debt is sold there are no Indian takers. Only foreign companies who can source funds at lower interests can acquire these debt laden assets. So the cycle is obvious. All Indian companies will become debt laden and be acquired by foreign companies or if they are not acquired like Kingfisher the entrepreneur's personal assets that are pledged with the banks would be  auctioned and the government and public will applaud the honesty of the system and celebrate the downfall of the entrepreneur like a "Ravan Dahan". We will eternally take pride in begging ( excuse me for the harsh word) for FDI as Indians wont invest in businesses and would invest the money in banks who give fixed interest and safe returns without any effort.  (To just put up another tertiary but important angle here- since the system is showing it's non viability the banks have started actually concentrating on earning money by RTGS/NEFT/ATM charges and credit card payment default interests).

I CAN WRITE A VOLUME OF HOW THE HIGH INTEREST REGIME COUPLED BY A APED BANKING SYSTEM ( READ MORE HERE)  AFFECTS OUR GROWTH IN MULTIPLE WAYS BUT I THINK IT WOULD SUFFICE IF I TELL THE FOLLOWING:

I HAVE BEEN AN ENTREPRENEUR ( first generation without deep pockets of course! who totally depends on the banking system for funds)  FOR THE LAST 15 YEARS.

MORE THAN 50 % OF MY  COMPANY'S NET ANNUAL EXPENSES IS BANK INTEREST AND BANK CHARGES. IF I COULD HAVE SOURCED FUNDS FROM THE BANKING SYSTEM AT  THE RATES IN WHICH MY COUNTERPARTS IN OTHER DEVELOPED COUNTRIES GET THEN I CAN GUARANTEE THAT OUR COMPANY WOULD HAVE BEEN ONE OF THE GOOD ASSETS  GENERATING FANTASTIC TAXES FOR THE NATION AND FANTASTIC RETURNS TO THE INVESTORS. OUR POSITION WOULD HAVE BEEN MULTIPLE TIMES BETTER THAN WHAT IT IS NOW. 

So on the one hand I salute Indian entrepreneurship which puts humongous efforts to survive and grow in this one sided and uneven environment tolerating all the hardships and on the other side I humbly urge the government and policy makers just to interview any 50 entrepreneurs out  of the thousands of  NPA accounts that the banks have now and ask them if they would have become NPAs if the interest rate was 2-4%. The direction for further action would be as obvious as the sun after that.

In writing all this above I may be wrong. But if anyone has any explanation to justify the high interest rate other than the most unscientific intangible " INFLATION" please write to me at prasad@prolabs-vecaun.com. I would be more than thankful to understand the benefits of a high interest regime.

In conclusion I would like to say that the right way to grow wealth is by making products and services which would capture the imagination of the national and international consumers. For this we require innovation and innovation requires entrepreneurship. Entrepreneurship requires risk taking by everyone. Making the entrepreneur stake all his personal assets in a high interest environment is not risk taking- it is something like pushing someone to a position where FEAR TAKES OVER AND CREATIVITY CEASES TO FUNCTION.  We have to make sure that our entrepreneurs get a level playing field to put money in product development and make fantastic products. That creativity and talent is available in India in abundance is a foregone conclusion but should we give that creativity the right environment to grow and flourish and then enjoy together the fruits of that growth like developed nations is what we have to decide. 

Currently the truth that is visible to me is that our talent is chained and forcibly tied down to a  wrong self defeating system.

Let us endeavor to create an India where risk and returns of entrepreneurship is shared by all. let us wake up into an era of JOINT PUBLIC ENTREPRENEURSHIP AND ACCOUNTABILITY by taking off the chains of high interest regime and collateral security.
JAI HIND
PS:Sorry for the harsh title.

ENTREPRENEURS : MEGALOMANIAC USURPERS OR VALUABLE JOB CREATORS WHO ARE VICTIMS OF A FLAWED BANKING SYSTEM

Since the last few weeks my major job as CEO of the company I founded has been - recovering my dues from my customers. Everyone is aware that since the last 3-4 years business in India has taken a beating and many companies have gotten themselves into major problems. The art of running business is very subtle. A business leader has to contend with many situations and possibilities. While an entrepreneur is always energetic towards expanding his business he has to foresee market situations and tread cautiously when he encounters compelling opportunities. A classic case is the acquisition of JLR and Corus by the Tatas. While the latter appeared a more prudent business decision during those times given the more than hundred years legacy of Tata Steel it is JLR that gave meaningful returns to the Tata group while Corus has been a drag on their performance resulting in huge write offs and erosion of networth. The point is that even the legendary Tatas misjudged and wrong timed. But due to their deeper pockets have been able to keep themselves comfortably afloat. The same may not be the case with other business houses in the scene and their failures hav eto be looked at with a practical perspective rather than uniformly and unintelligibly discarding business failures as diversion of funds as we usually do.

Coming back to our recoveries, in my interactions with my customers I have found all of them complaining about their recoveries not coming in and their cash flow difficulties. Every one of them without an exception have come under very heavy cash flow stress. In all the cases  without an exception the top management has told me that they have not been able to take their monthly salaries for almost 10 months, that they are contending with lot of legal cases both from vendors and customers, that they are entertaining me just because our outstanding with them is relatively less and they could avoid additional litigation with us if they closed our outstanding. With the business house that I met today for recovery of funds we mutually agreed to square off with an arrangement to pay the outstanding in 15 months in equated monthly installments. The company I met today belongs to a group which has 40 companies listed in BSE with a net staff strength of 15000!!

While I see all these  business houses in India trying hard to make both ends meet I wondered about the 5 lakh crores that have been declared as NPA by various banks.  On the one hand our honorable prime minister and his government are trying their level best to cultivate a spirit of entrepreneurship to foster independence self sustenance and larger accountability in the society I wondered about the thousands of  business accounts declared NPA by our banking system. Is it not our responsibility to investigate why so many of our enterprises are failing. 

Being an entrepreneur myself and having dealings with the top management my clients I am able to identify a common pattern in all these struggling enterprises which I cannot but feel like sharing with every one.

The banking system of India has been considerably tightened with the adoption of international banking guidelines i.e. the BASEL banking  accord. Year on year these norms are getting stricter with guidelines which will declare a bank account NPA at every small instance like- non submission of stock statement, not regularizing TOD within 90 days, non renewal of account for more than 12 months, non submission of returns of statutory dues... fall of a hat. While these norms have been adopted out of our insatiable urge to ape the west and our indelible impression that they are always right-- we need to understand that our environment drastically differs from theirs. 

While giving any credit facilities to Indian businesses the banks unlike the west ask for more than 125% of collateral back up ( just like the old time Zamindars) . They also compulsorily seek the personal guarantee of the promoter directors. If this was not enough our main difference is the interest rates. The interest rates in Inda range form 15%-20%. the interest rates in the west are in the range of 2-4%.  With  an allowed debt to equity ratio of 4:1 in India @ 15% interest a company would lose its's 100 percent net worth definitely if the business is down for 2 years where as the same business can sustain for 12 years without much erosion @ 2 % interest per anum in the west. This is the huge impact the high interest rate regime has on the sustainability of our entreneurships. It is easy to conclude that our Indian entreprenuerships are atleast 10 times more vulnerable to the banking system due to high interest rates compared to their western counterparts. No surprise that there are 5 lakhs crores defaults spanning thousands of enterprises.

Thus according to me  Indian industries and their promoters are victims of a flawed banking interest and operations regime which erodes their net worth within months of a market downturn or delayed recovery.

No wonder that FDIs get attracted to India as they are able to source funds at lower interest and deploy in high interest financial environments like India. No wonder that when a Kingfisher airlines or  Jet Airways face losses we only look at foreign suitors as no Indian company can source funds at lower interest rates and revive companies. There are endless consequences  of this  skewed and incoherent interest regime like for eg the whole money laundering act and the huge resources that have been deployed to prevent money laundering, accumulation of black money,  availability of money at very high interest rates like 50 % to the lower sections of the society like vegetable vendors etc..  

The most important consequence is however that Indian industries and entrepreneurships  can never compete at par with foreign companies and products. The Indian companies will  increasingly get acquired by foreign players and slowly and definitely our whole work force will be serving foreign companies who would  have got established in India.. As of now more than 50 %  of the stocks in BSE is held by foreign companies  which unmistakably means that we are all working for foreign companies. This is what we have achieved in the last 60 years of independence. We have lost our financial independence to the west again and are fully under their control. 

Coming back to the US and OURS it is obvious that we  need to reorient our ideas of business and entrepreneurship. Entrepreneurs are the jewels in the crown of an aspiring economy and it is only through their energy and initiative that we can become financially independent and regain our identity and independence. We should shed our ideas of entrepreneurs and businessmen as selfish megalomaniacs and rather look at them as risk taking wealth creators who provide movement and flow to the society by their indefatigable endeavors ( Subroto Roy Sahara has written 3 books of leadership during his current prison tenure). We should provide conducive environments for businesses and that is the only sure shot way to progress and sustainable growth if we as a society are interested to retain our independence and not go back into slavery of the powers that be.

OUR RULES SUPPORT CRIMINALS: WE NEED CHANGE

Last week I had to go to the Sub-Registrar Office ( the Government office where property sale documents are registered)  to complete some formalities regarding a property transfer.  There was an unusual crowd since from the next week the local government had announced that the property guidance value ( the minimum value at which a property can be sold ) is going to be revised upwards. Everybody was trying to complete the transaction in that week itself with a view to save the extra tax implications which they would incur if they delayed. 

The procedure requires that the Sale Deed and the documents of the property be verified by the Sub Registrar and the photos and other Biometric information of both the buyer and the seller be caught on the system. The general convention is that the seller and the buyer complete all the formalities, the buyer shows the DD and the seller puts the signature on the registered Sale Deed and then the buyer hands over the DD to the seller. This is a tricky transaction and many times there is an exchange of money other than that mentioned in the Sale Deed. The local brokers also create some trouble most of the times. The environment is generally a bit tense.

It so happened that a dispute broke out between two parties for some reason. One of the parties who was supported by some 5-8 people started shouting and making huge noises. They started threatening the other party which had 2-3 individuals not as well built as the former, very aggressively. They started hurling extremely vulgar abuses in the presence of almost 300 people including ladies and children. I was watching all this from outside the window of the room. Their gestures were violent intimidating and threatening. 

Fortunately one Police man appeared with a walky talky and started making attempts to moderate the situation. Even in the presence of the policeman this party throwing abuses and gesturing violently. My common sense said that this party has violated all civil norms and should be immediately taken into custody by the police. I thought since the police man was alone he was waiting for more force to come in. 

Then a police jeep arrived with around 5 policemen. The party continued to show aggressive  behaviour and use obnoxious language. But still they were not arrested. 

The situation however was brought under control. I went to one of the police man and asked him why these people who have definitely behaved criminally and disturbed the peace and civility of a upmarket area in a Cosmopolis like Bangalore were not taken into custody. I told him that if such people continue to exhibit such behaviour and the police is dormant then what is the hope for a civilised living.

The Police guy told me that for them to be able to TAKE ANY ACTION they need a COMPLAINT else as per the rules they are unable to do anything even though the whole criminality and lawlessness may be unfolding in front of their own eyes.. He called upon me to launch a complaint.  I felt it quite imprudent to launch a complaint against a set of goons  and expose myself to risk.

However I then approached the head of the goons and told him that he should not behave in such a manner in public as children/ladies were there. Their overall confidence on the social structure would collapse and  he would be contributing in them carrying a more negative and hopeless image about the society. I also told him about the health hazards about such behaviour. I also warned him that he could have collapsed out of a heart attack.  May be he was tired after all the shouting, he just listened to me without much reaction. 

After some time I saw this man and his team treating all the police men in a nearby juice shop. 

This event upset me quite a bit and made all that despondency and helplessnes   we see in the movies  coming true in front of my eyes.  

UNLESS SOMEBODY GIVES A COMPLAINT THE POLICE CANNOT ACT. EVEN IF SOMEBODY DARES THE INFORMATION ABOUT THE COMPLAINANT WILL NOT BE KEPT CONFIDENTIAL BUT RATHER OPENLY EXPOSED MAKING THE COMPLAINANT OBVIOUSLY AND EASILY VULNERABLE TO THE CRIMINAL.. WHERE IS THE CHANCE FOR  CIVILITY AND GOOD LIVING?

Suitable measures and LAWS have to be enacted so that either the information of the complainant is kept confidential or Police is in some way duty-bound to register cases by themselves else public should be able to complain about their complacency without getting exposed..

I am of the opinion that this will immediately reduce the criminal behaviour and bring down crimes drastically. 

Introduction to ME US and "OURS"

This blog is about ME YOU US and what belongs to us-OURS. In this era of social networking and media explosion our individual  ideas and thoughts have become more important and effectual than ever before. Our individual ideas about leaders, leadership, opinion on social, political matters, economic ideas etc create a direct impact on our environment. So what we think and believe in today has become more important than ever before.

What we think is  conditioned by the information that we get/ are fed with. It is a foregone conclusion that the media is to certain extent controlled by the so called superpowers who know how to effectively use the media for getting through with their agenda. Each of us as an constituent of the society need to form our opinions and express them with responsibility. We also need to put up our voice against that which we feel is reversing our growth and evolution, of course after due consideration.  It becomes our due responsibility to voice our thoughts against hollow unsubstantiated media presentations which are used to undermine us intrinsically, or simply exploit us as a customer.

Lastly, though we are global citizens, children of one God and  coequal part of mother nature and universe,  we also have the  net summary  of the learnings of all our earlier generations packaged into a word called CULTURE which defines our identity our habits our language and us to a large extent. It defines what we eat, wear, what we use to entertain ourselves and certain things ideas thumb rules which serve as tools for healthy and harmonious living. The MNCs and the rich nations obviously would like to change us so that their wares are sold their language is spoken, their etiquette becomes universal and the whole world is serviced from their global factories and service centers. So we have to be perceptive and discerning and take only the good out of this. We  definitely first need to identify and then preserve what identifies us-- the "OURS". We need to identify and preserve our identities just to help ourselves to take the benefits of the knowledge gained by the  hundreds of generations  that lived before us and also pass on that good repository of information and secrets of good living to the coming generations. This blog is made for the purpose of reinforcing our ideas on good living, things that affect us, our surroundings , our society so that we formulate our ideas on sound basis. These  those ideas orientations and opinions are the embedded software that run our society. Those embedded ideas are real  "OURS"  - OUR COLLECTIVE OPINIONS which actually decide the external physical life that we live and lead. 

Please feel free to contribute some of your opinions/articles by writing to me at prasad@prolabs-vecaun.com