Global Economic Cycles in the Shadow of Pandemics

Global Economic Cycles in the Shadow of Pandemics 

                                  - S.N. Ghatia

The whole world is passing through an era of eerie uncertainty about the future. The fear of modern demon COVID-19 has confined us within the four-walls of our homes. In our wildest imagination, we never thought of such a crippling situation. The fear of COVID-19 is a real medical possibility of getting infected with this deadly novel virus. COVID-19 being a new virus, its full contours are yet unknown, undefined and everyday new features are being added to its deadliness. So far there is no specific cure/vaccine in sight. Like the mythological demon Bhasmasur, this deadly virus merely by touch can infect any one regardless of caste, creed, religion, gender, age, occupation, authority, status etc. Even the high and mighty ones like the U.S. President and the British P.M. etc. have not been spared by the vicious demon COVID-19.

Economic activities have come to a halt world over in the wake of COVID -19 lockdown. There is a growing apprehension of worldwide economic recession. Calamities, market crashes or economic recessions do not occur overnight. There is always a long build-up of sequential events. We may not notice them or even if we notice, we tend to overlook them as insignificant. When things reach to the extreme level, some such seemingly insignificant event works as a trigger for the catastrophe. After a long spell of booming stock/debt markets, geo-political tensions, non-stopping exploitation of natural resources and high levels of environmental contamination, the trigger for worldwide recession has come this time in the form of deadly infectious virus named COVID-19, which is the abbreviated form of Corona Virus Disease of the year 2019. It originated in December 2019 in Wuhan city of China and then spread to other countries and by March 2020, the pandemic COVID-19 firmly gripped the whole world in its clutches. Most of the countries declared emergency lockdowns to control the infection. 

Specifically talking in the context of India, life came to a halt since declaration of “Janata Curfew” on 22 03 2020 and official Lockdown1 of three weeks from 25 03 2020 followed by Lockdown2 (up to 14 04 2020) and Lockdown3 (up to 17 05 2020). "Social Distancing" and "Stay Home, Stay Safe" have become the new watchwords. We were all unprepared for such a rude shock of strict Lockdown. The Government’s order froze all the socio-economic activities in a single stroke at the midnight of 24 March 2020.  The only aberration amidst the COVID-19 curfew is the Share Market, which after some initial knee-jerk reaction and sharp price fall in March 2020, resumed its trading vibrancy and excitement. Its vibrancy is all the more conspicuous when almost all other economic activities right from factories/businesses/offices to restaurants are shut down; no buses, no trains, no flights, no autos, no cabs and even no private cars and 2-wheelers are seen on the deserted roads and streets. Nevertheless, the Share Market punters, sitting smugly in their chairs with computer screens in their front, are busy swinging as usual with the market fluctuations.  Of course, initially there were demands from some quarters for closing the Share Markets also. But strangely enough, Share Markets all over the world continued their business unabated. I have no grudges whatsoever about the Share Market being open even when every other market is closed. At least, it has kept people occupied with their daily dose of share sale-purchase pursuits.

What is puzzling most in the whole process is the fact that despite clear signs of imminent economic slow-down, share indices shot up by 2-3 per cent in a row. Amid the countrywide Lock Down in India, the benchmark index NIFTY rose in 10 sessions out of 18 trading sessions in the month of April 2020. It registered a net increase of 14.68 per cent from 8597.75 on 31 March 2020 to 9859.90 on 30 April 2020. Thus, April 2020 emerged as the best month for highest increase in the NIFTY share prices after May 2009. Furthermore, share prices continue to rise in the current month of May 2020 as well.

When the news of Corona eruption gripped India in March 2020, share prices dropped by 23 per cent. Thereafter, the economic situation further worsened in India as well as the world. But April onwards share prices rose even though global economic slowdown is amply reflected in the major key indicators as under:

·        According to a March 2020 report titled “The COVID-19 Shock to the Developing Countries” by The United Nations Conference on Trade & Development (UNCTAD), “Even so, the world economy will go into recession this year with a predicted loss of global income in trillions of dollars.”

·        According to the IMF outlook report (April 2020), the economic growth rate in Asia is expected to be zero and the global GDP may decline by 3% with per capita income falling in 170 countries of the world in the wake of COVID-19.

·        The Economist (02 05 2020) reported that lockdown in all the major countries will adversely affect the productivity and return to normalcy will be a slow journey as the Consumer spending is down by 40 – 80 per cent.

·        Goldman Sachs survey (April 2020) revealed that two–third of small businesses in the U.S.A. will be out of cash in the coming three months. As many as 30 per cent business firms in Britain have not paid rentals.

·        It is not certain how long the governments of the U.S.A. and European countries will continue to fund unemployment allowances and other popular social security benefits.

·        The IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) hit record low of 27.5 in April 2020 from 51.8 in March 2020. This is the sharpest fall since the PMI was started in India 15 years ago.

·         Auto Sector in India recorded zero sales of vehicles in the month of April 2020 and the early recovery prospects are bleak. More or less similar are the performance reports of other sectors.

In the backdrop of such a grim economic scenario world over, steep rise in share prices during April 2020 is somewhat bizarre and may become a cause of serious concern in the coming months. Market experts have cited the following reasons for such a high optimism in the equity markets:

·         Hopes of relaxations in the lockdown

·         Hopes of early availability of Corona vaccine

·    Better than expected financial results by the tech giants like Face Book,  Microsoft etc.

·         Zero/very low interest rates

·         Low crude prices

·         Relief packages/bailout for industries/businesses by the governments

·         Loan moratoriums etc.

On delving deeper, the above assumptions sound like hoping against hope. Such assumptions may be valid in normal times but not in the present grave pandemic lockdown situation. Reports are not encouraging from the countries where lockdown is relaxed. Though medical scientists are working hard for developing an effective vaccine, it is a well-established fact that any new medicine/vaccine requires a minimum period of 12-18 months for trials before its final approval. Optimism arising out of recent good financial results by tech giants is hollow because these results are for the past period. As regards hopes of State assistance, the governments cannot continue for long to fund the ever-increasing expenses with their limited resources and revenues shrinking due to continuous lockdown. Before the onset of COVID-19, budget forecasters had projected the USA Government budget deficit around $1.00 trillion. To fight the onslaught of COVID-19, budget forecasters are now projecting that the government budget deficit will run over $3.5 trillion because of huge jump in Govt. spending coupled with steep decline in the revenues. The brutal demon COVID-19 has already badly bruised the global economy with no immediate relief in sight and the recovery is going to be very slow and painful.

In such a grim economic scenario, current frenzy of the Equity markets may turn out to be a highly speculative misadventure because there is an underlying correlation between a market crash and economic recession. Taking a cue from the world history of pandemics and economic recessions, it will not be out of place to draw a parallel with the Great Economic Depression of 1930. Going by historical trends, world has experienced periodical business slowdowns of different time spans. We are now at the onset of a centennial recessionary business cycle like that of 1930. Similarities in market configurations of 1920 and 2020 are so striking that we cannot afford to ignore them. Let us understand the making of world’s greatest and longest Economic Depression of 1930s. During the decade prior to 1930, there was speculative build up of positions by investors/market players in real estate markets and the New York Stock Exchange (NYSE). Unregulated liquidity fuelled by margin trading led to highly inflated asset prices. Equity prices rose to all time high multiples of more than 30-times earnings (P/E Ratio). The benchmark Dow Jones Industrial Average (DJIA) Index was up by 500 per cent in a matter of just 5 years. It was a Black Thursday on 24 October 1929 when the NYSE crashed. There was a brief rally on Friday, 25 October and during a half-session on Saturday, 26 October 1929. But after the weekend, there was horrible bloodbath in the Equity markets on Black Monday (28 10 1929) and Black Tuesday (29 10 1929). Dow Jones fell by 20 per cent in those two days followed with eventual blow-by-blow 90 per cent fall of stock markets. The shock waves reached to Europe also, triggering other financial crises such as the collapse of Austria’s bank Boden-Kredit Anstalt. Subsequently, many bank runs/failures occurred in Europe and the U.S.A. causing loss of public confidence in financial institutions.  In 1931, the economic contagion hit the U.S.A., Europe and other major economies of the world with full force. By 1933, unemployment was at its peak, majority of the population was poverty-stricken, a large number of industries/businesses had to down their shutters, and essential goods were in short supply.

Though the stock market crash of October 1929 was the immediate trigger for the onset of 1930’s Great Economic Depression, the definitive build-up to it started with the ravages caused by the World War I (WWI) and the Spanish Flu (1918-20):

• World War I (1914-18): Although there is no consensus about the root cause of the Great Depression, a look at the post-WWI sequence of events, gives a fair idea of the socio-economic damage caused by the WWI (1914-18) and Spanish Flu (1918-20). Initially, America was not directly involved in the WWI, but it financially supported the Allied nations of Europe. After the war, America wanted Allies to repay the money lent by it to them for funding the war. The Allies took the stand if they have to repay to the U.S.A., they would have to recover reparations from Germany who initiated the war and was defeated. Accordingly, Germany and the Allied Nations (Britain, France, Italy and Russia) signed the Treaty of Versailles on 28 June 1919. In terms of this Treaty, war hostilities ended and it required Germany to pay billions of dollars to the Allied Nations in reparations for war damages. Heavy reparations further impoverished Germany and led to irreparable damage to the European economy as a whole.  In a vicious circle of payments, Germany borrowed money from America to pay reparations to the Allied Nations, who in turn repaid to America. Soon a stage came when Germany was no more in a position to honour its commitments and the Allied Nations did not agree to relax the terms of reparations. As a result, Germany defaulted on its payments in 1923, its economy almost came to a halt as France and Belgium occupied industrial Ruhr region to force German repayments. Left with no other alternative, Germany increased currency printing to meet repayment obligations. It caused a hyperinflation and Mark, the German currency, became worthless in value. It had a crippling effect on the European economy, which in subsequent years adversely affected the American and the world economy as a whole.

Herbert Hoover, who was the U.S. President during the Great Depression, wrote in his Memoirs (1952), “The primary cause of the Great Depression was the war of 1914-18. Without the war, there would have been no depression of such dimensions.”   
     

• Spanish Flu (1918-20): In a way, it was the after-effect of WWI as thousands of corpses rotted in the remote battlefields all over the Europe and H1N1 virus caused a new strain of influenza. It was detected in the U.S. military personnel in 1918 spring. Interestingly, it was named as Spanish Flu because Spain was neutral in the WW1. While the other warring nations did not report the actual number of infected persons, neutral Spain could report the factual severity of the pandemic. Though different figures of the total infected persons and deaths are quoted, the estimated number of infected persons at its worst was 500 million, which was about one-third of the world’s population at that time. Deaths from Spanish Flu are estimated from 50 million to 100 million across the globe. This pandemic further damaged the world economy because of lockdowns.       
• Forgotten Depression: The adverse economic effects of the Spanish Flu triggered the recession in 1920-21 when the U.S. Stock markets slumped by 50 per cent and corporate profits shrunk by 90 per cent. Market crash of 1920-21 is also called as the Forgotten Depression because soon after it the U.S. economy registered robust growth till 1929 and the Americans enjoyed the gains of Stock Market as if there was no tomorrow. The frenzy of Roaring Twenties tempted the public to put their hard-earned savings in the Stock Markets where prices were at their peak.

Similar to the background of Great Depression in 1930, discords and clashes among nations have become order of the day under the current geo-political situation in many parts of the world. On the economic front, sectors like automobiles, real estate etc. are already under severe pressure while the stock market valuations are high. According to some market experts, COVID-19 may prove to be a trigger for the onset of 21st century’s Great Depression. It is difficult to predict exactly the gestation period of recessions, because their actual occurrence depends upon a number of variable factors. Looking to the inherently uncertain nature of economic outcomes there may be time lags, but we cannot rule out the threat of impending economic recession. All said and done, we cannot ignore the unsettling effect of pandemic like COVID-19 or geo-political tensions on stock markets and economy. In an interview to the CNBC at the World Econoic Forum on 23 01 2020, Antonio Guterres, UNO Secretary General said in no uncertain terms that the state of global geopolitical tensions is high, and this is having an impact on the global economy.

It is said that uncertain times breed high volatility in the markets. Market volatility on the one hand offers opportunities for high gains. On the other hand, it also lays traps for investors. Retail investors are most vulnerable to lose money in volatile markets because interplay of Greed and Fear confuses the retail investors’ minds. While there is a temptation to buy stocks at all-time-low prices, the fear of losing the money is also equally strong. That is why “caution” is the watchword for retail investors and they should adopt the following time-tested precautionary, conservative approach in the volatile and recessionary periods:

• We should be active in the market but our focus should be on the “sell side” for booking profits.
•  Keep 35 per cent of investible funds in cash or cash equivalents.
•  Strictly observe pre-defined Stop Loss Limits and Profit Booking Limits in the portfolio.
•  If we come across any excellent buying opportunities, our preference should be        

1.    consistently profitable, dividend paying companies with Zero/low debt;

2.    well-established large cap companies from "A" Group who are market leaders with good track record in their respective fields;

3.    stocks of above category of companies particularly from the defensive sectors like Pharmaceuticals, Utilities and FMCGs;

•         Invest own funds and not borrowed funds.
•         Do not indulge in speculative Intraday Trading.
•         Midcaps, Small caps, banking and finance stocks are generally the            worst hit in recessionary periods. 
•         Accumulate slowly and gradually because markets tend to make new        bottoms with deteriorating economic conditions during the recessionary      periods.
•         Say a firm and bold “No” to impulsive buying sprees.  
•         Buying decisions should be based on fundamentals and not on the            so-called “hot tips”.

The above is only an indicative and not an exhaustive list of precautions. In fact, these are the common precautions known to everyone with some experience of stock markets. Nevertheless, these time-tested Golden Rules need to be hammered deep down in our consciousness because Behavioural Finance studies show that investors as human beings are not always rational, they have a limit to their self-discipline and their decisions are influenced by their own biases. It is all the more so in the case of retail investors who are highly vulnerable in times of market turbulence and volatility.

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Artificial Intelligence v/s Natural Intelligence

“The ‘singularity’ event that scientists talk about in artificial intelligence (AI) — when robots would outsmart human beings in reasoning — has just been moved up, according to a top scientist at HP Inc. The progress in AI and machine learning has been so rapid that scientists have upped the estimate for the ‘singularity’ to happen in 2029 from 2040, shaving off 11 years of development time, says Shane Wall, Chief Technology Officer at HP, who also heads the HP Labs which is at the centre of innovation within the company.”

My simple worry is when Robots will become more intelligent than human beings that will be the starting point of deterioration of human supremacy on this planet Earth. It may further lead to annihilation of human race itself like what happened to Dynosaurs, whose dominated in the Jurassic and Cretaceous periods and ended when the Cretaceous–Paleogene event led to the extinction of most dinosaur groups 66 million years ago. 

Though today the extinction of human race seems to be a very-very remote possibility, let us not forget that we are digging our own graves by our excesses against the laws of nature. In our quest for the so-called progress, we have polluted air, water, soil and all the edible items. Origin-growth-decline-extinction are the inevitable stages in evolutionary process. Though a scary thought, the extinction of human race may be triggered by ROBOTS, our own creation. Apart from religious legends, the redeeming scientific feature is that in due course there will be a new evolutionary cycle, though it may take trillions of years and, obviously we or our immediate next generations will not be there to witness these spectacular happenings of extinction and origin! 

Hence it is for our present generation to decide whether we should go all out for AI (Artificial Intelligence) and in the process give up our natural intelligence!!

कोटा का विकास

कोटा का आर्थिक विकास – समस्याएं और समाधान



                                                                                                                                 - एस एन घाटिया



जब हम विकास की बात करते हैं तो सिद्धांत रूप में यह बात उभर कर सामने आती है कि विकास समस्या और समाधान की एक शाश्वत प्रक्रिया है. कोई समस्या सामने आती है और मानव मस्तिष्क प्रयास कर उसका हल खोज लेता है. लेकिन उस समाधान के परिणामस्वरूप कोई नई समस्या उत्पन्न होती है और फिर उसका समाधान खोजा जाता है. इस प्रकार समस्या और समाधान की यह प्रक्रिया शाश्वत काल से चली आ रही है. इसी सिद्धांत को ले कर सामान्य भाषा में एक कहावत भी प्रचलित है कि आवश्यकता आविष्कार की जननी है. हम कह सकते हैं कि विकास मानव स्वभाव की एक मूल प्रवृत्ति है. मनुष्य कभी भी अपनी वर्तमान स्थिति से संतुष्ट नहीं होता है और वह प्रगति की नई राह खोजता रहता है. यही कारण है कि बौद्धिक, आर्थिक, सामाजिक और सांस्कृतिक दृष्टि से अन्य प्राणियों की तुलना में मानव क्रमिक विकास के पथ पर सदैव अग्रसर रहा है और आज वह निर्विवाद रूप से सृष्टि की सर्वश्रेष्ठ कृति है.



वस्तुतः यथास्थिति से संतुष्ट नहीं रहने की प्रवृत्ति के कारण ही मानव जाति का उत्तरोत्तर विकास संभव हो सका है. समस्या और समाधान के इस कार्य-कारण संबंध से ही विकास और विनाश का अनन्य संबंध भी स्थापित होता है. ज़ब भी सुनामी या अन्य किसी विपदा से विनाश होता है तो मानव मन अपने स्वभाव के अनुरूप पुनः नव-निर्माण के प्रयास में जुट जाता है और तब तक चैन नहीं लेता है जब तक कि पहले से बेहतर स्थिति प्राप्त नहीं कर ले. साथ ही, यह भी सत्य है कि जब विकास चरम सीमा पर पहुंच जाता है तो विनाश की प्रक्रिया आरंभ हो जाती है. यही कारण है कि मानव जाति के इतिहास में कई सभ्यताओं का उत्थान और पतन हुआ. संक्षेप में, हम यह कह सकते हैं कि विनाश और विकास एक ही सिक्के के दो पहलू हैं और एक में दूसरे के बीज अंतर्निहित होते हैं.
विकास - किसकी जिम्मेदारी?

विकास की प्रक्रिया के इस सैद्धांतिक पक्ष को समझने के पश्चात यह प्रश्न उठना स्वाभाविक है कि समस्याओं का समाधान खोजने का उत्तरदायित्व किसका है? उत्तर स्पष्ट है - प्रजातंत्र के रूप में हमने लोक-कल्याणकारी शासन (Welfare State) को स्वीकार किया है. इसलिए जन कल्याण की सभी समस्याओं के समाधान खोजने और उन्हें योजना के रूप क्रियांवित करने की जिम्मेदारी सरकार की है. चाहे समस्या बिजली, पानी, पेट्रोल, डीज़ल, सड़क, शिक्षा, चिकित्सा या रोज़गार की हो, हर चीज के लिए हम सरकार का मुंह जोहने के अभ्यस्त हो गए हैं. इसमें हमारी कोई गलती भी नहीं है क्योंकि हमें यही समझाया गया है कि सरकार बनाने के लिए आप हमें वोट दो और सरकार चलाने के लिए टैक्स दो. बस, फिर आपकी सभी समस्याओं को हल करने की जिम्मेदारी हमारी है. आज़ादी के बाद कुछ सालों तक तो यह व्यवस्था ठीक-ठाक चली क्योंकि सरकार के मन में भी ईमानदारी थी और जनता मे भी सहनशीलता थी कि नई-नई सरकार है, इसे अवसर दिया जाना चाहिए. किंतु यह हनीमून पीरियड ज्यादा नहीं चला. लगभग दो दशक बाद ही सरकारी नुमाइन्दे और कारिन्दे समझ गए कि सत्ता-सुख स्थायी नहीं है और फिर संपत्ति समेटने की जो होड़ चली वह आज जग-जाहिर है. आज स्थिति यह है कि टैक्स की आमदनी का अधिकांश भाग वेतन और प्रशासनिक खर्चों में चला जाता है. विकास के लिए पैसा बचता ही नहीं है. इसलिए सरकार द्वारा ऋण लिए जाते हैं, किंतु उसकी भी सीमा हम पार कर चुके हैं. अब विकास कैसे हो? इसके लिए एक नया कंसेप्ट चालू किया गया पी पी पी – पब्लिक-प्राइवेट पार्टनरशिप. विकास की योजनाएं इतनी विशाल हैं कि अकेली सरकार उन्हें नहीं चला सकती है. अतः विकास की प्रक्रिया में प्राइवेट सेक्टर की भागीदारी आवश्यक है. आज हम देखते हैं कि रैलवे के अलावा सरकारी एकाधिकार के लगभग सभी क्षेत्र धीरे-धीरे प्राइवेट सेक्टर के लिए खोल दिए गए हैं – शिक्षा, चिकित्सा, सड़कें, बिजली, पेट्रोल-डीज़ल, बैंकिंग-बीमा, डाक व फ़ोन सेवाएं इत्यादि. प्राइवेट सेक्टर के आने के बाद इन क्षेत्रों में प्रतियोगिता बढ़ी है और सेवाओं में सुधार देखने को मिला है.



विकास का मूल आधार क्या है? अब यह अच्छी तरह स्पष्ट हो चुका है कि विकास के लिए सरकारी संरक्षण का कोई अर्थ नहीं रह गया है. वनों के विकास के लिए हमने वन विभाग बनाया और वन समाप्त हो गए. सरकारी संरक्षण की यही कहानी हम चिकित्सा, शिक्षा, सड़कों, रोडवेज़ बसों, बिजली, पानी, डाक आदि क्षेत्रों के विकास में देखते हैं. किसी भी स्थान या क्षेत्र का विकास मूल रूप से दो बातों पर निर्भर करता है. प्रथम, वहां की भौगोलिक स्थिति, जलवायु और प्राकृतिक संसाधन जैसे नदियां, समुद्र, झीलें, भूमि का उपजाऊपन, खनिज पदार्थ इत्यादि. दूसरी, उसके नागरिकों की दृढ़ इच्छा शक्ति एवं नेतृत्व की योग्यता.

विकास की प्रक्रिया के इस परिप्रेक्ष्य में कोटा संभाग की स्थिति को समझने के लिए हमें कोटा के आर्थिक व व्यावसायिक इतिहास में जाना होगा. समय-समय पर यहां की अर्थव्यवस्था को प्रभावित करने वाले कारकों के आधार पर कोटा शहर को अलग-अलग नामों से पुकारा जाता रहा है:



नन्दग्राम
ललित कला अकादमी द्वारा प्रकाशित पुस्तक The Kingdom That Was Kota के अनुसार, सन 1719 में गोस्वामी गोपीनाथजी से वल्लभ कुल में दीक्षा लेने के पश्चात, महाराव भीमसिंह I नें आधिकारिक रूप से कोटा का नाम नंदग्राम कर दिया था. उस समय सरकारी पट्टों और परवानों (आदेशों) पर लगाई जाने वाली मोहर पर लिखा होता था:

उत्कीर्ण काया सर्वदा सर्वभाविणः भजनीयो प्रजाधिपः

भीमस्य कृष्ण दासस्य राजसिंह मध मुद्रिका

तत्पश्चात, सन 1744 में श्री मथुराधीशजी के मंदिर की स्थापना पाटनपोल में हुई. लगभग दो शताब्दियों तक इस मंदिर के कारण वैष्णवों के पुष्टिमार्गीय संप्रदाय का एक प्रमुख तीर्थस्थान बना रहा. यद्यपि यह नाथद्वारा या कांकरोली की तरह अधिक विकसित नहीं हो सका, पुष्टिमार्गीय संप्रदाय की श्रद्धा का केंद्र होने के कारण धार्मिक पर्यटन स्थल (नन्दग्राम) के रूप में भी कोटा की अर्थव्यवस्था को उस समय की परिस्थितियों के अनुरूप गति मिली.



दशहरा मेला
देश में मैसूर के बाद कोटा की ख्याति राष्ट्रीय स्तर के दशहरे मेले के कारण भी रही है. यद्यपि बदलते समय के साथ आज दशहरा मेला मनोरंजन का पर्याय रह गया है, किसी समय इस मेले का कोटा की अर्थव्यवस्था में महत्वपूर्ण योगदान हुआ करता था. इसका आरंभ एक धार्मिक मेले के रूप में सन 1723 में महाराव दुर्जनशाल सिंह द्वारा किया गया था. महाराव उम्मेद सिंह II (1889-1940) नें इस मेले का विस्तार कर इसे क्रय-विक्रय का केंद्र बना एक नया आर्थिक आयाम और अत्यधिक लोकप्रियता प्रदान की. कालांतर में इसे राष्ट्रीय मेले का दर्जा मिला.

सुगम भौगोलिक स्थिति, कृषि के लिए अनुकूल जलवायु और प्राकृतिक संसाधनों का लाभ कोटा को आरंभ से ही मिलता रहा है. ब्रिटिश शासन में दिल्ली-बंबई रैल मार्ग का निर्माण कोटा के आर्थिक विकास को सुदृढ़ता प्रदान करने में नींव का पत्थर साबित हुआ. इसके कारण कोटा की कृषि उपज और खनिज पदार्थों की पहचान देश-विदेश के बाज़ारों में हो गई. यही कारण है कि रैलवे लाइन के आसपास स्थानीय उद्योगों का विकास आरंभ हुआ.

स्वतंत्रता के पश्चात, 1948 में विलय के समय कोटा रियासत की वार्षिक आय लगभग रु. 1.25 करोड़ थी. तत्कालीन रियासत द्वारा नवनिर्मित राजस्थान प्रांत को अन्य परिसंपत्तियों के अलावा रु. 2.5 करोड़ नकद प्रदान किए गए थे.

स्वतंत्रता से पूर्व आधुनिक नागरिक सुविधाओं - नल, बिजली, शिक्षा, चिकित्सा व यातायात के साधन इत्यादि – की दृष्टि से कोटा रियासत की गिनती न केवल राजपूताने बल्कि पूरे भारत की गिनी-चुनी प्रगतिशील रियासतों में होती थी. महाराव उम्मेदसिंह II (1889-1940) के शासन काल में ही कोटा शहर में पहली बार नल-बिजली की सुविधा नागरिकों को उपलब्ध हो गई थी. सन 1909 में उच्च शिक्षा हेतु हाड़ोती का प्रथम हर्बर्ट हाईस्कूल (वर्तमान गवर्नमेंट कॉलेज) स्थापित किया जा चुका था जो कि 1956 में स्नातकोत्तर महाविद्यालय के रूप में क्रमोन्नत हो गया. इसी प्रकार लड़कियों की शिक्षा हेतु पहली बार 1916-17 में विद्यालय (वर्तमान जे डी बी गर्ल्स कॉलेज) की स्थापना की गई जो 1958 में स्नातक महाविद्यालय के रूप में क्रमोन्नत हो कर वर्तमान में स्नातकोत्तर स्तर का प्रमुख महाविद्यालय है. शिक्षा के क्षेत्र में इन प्रारंभिक प्रयासों का ही परिणाम है कि आज राजस्थान में साक्षरता की दृष्टि से कोटा का प्रथम स्थान (73.78%) है. 1940 के पश्चात, महाराव उम्मेदसिंह II के उत्तराधिकारी के रूप में महाराव भीमसिंह नें अपने पिता की प्रगतिशील नीतियों का अनुसरण करते हुए कोटा के विकास को जारी रखा. उनके समय में संचार साधनों के विस्तार पर विशेष ध्यान दिया गया और सीमेंट सड़कों का निर्माण कराया गया. इसी समय कोटा में एयरपोर्ट और महाराव भीमसिंह हॉस्पिटल का निर्माण हुआ.



कोटा स्टोन


व्यापार-व्यवसाय की दृष्टि से खाद्यान्नों, छत और फर्शी के लिए सैंड स्टोन (लाल पत्थर) और लाइम स्टोन (कोटा स्टोन) का देश के दूसरे भागों में भारी मात्रा में निर्यात आरंभ हुआ. लाखेरी में एसोसिएटेड सीमेंट कंपनी (एसीसी) की सीमेंट फैक्ट्री और रामगंजमंडी में एसोसिएटेड स्टोन कंपनी के चालू होने से स्थानीय अर्थव्यवस्था को गति मिली. लघु स्तर पर, जगपुरा में चूने के भट्टे और कैथून में कोटा साड़ी भी उल्लेखनीय हैं. यह उल्लेखनीय है कि राष्ट्रीय और अंतर्राष्ट्रीय पर कोटा की पहचान कोटा स्टोन और कोटा साड़ी के कारण भी रही है.



चंबल
एक महत्वपूर्ण प्राकृतिक संसाधन के रूप में चंबल नदी को कोटा की जीवन रेखा माना जाता है. स्वतंत्रता के आरंभिक वर्षों में चंबल घाटी परियोजना के अंतर्गत विभिन्न बांधों के निर्माण का कोटा के विकास में महत्वपूर्ण योगदान रहा है. चंबल कभी नहीं सूखने वाली नदी है. देश की प्रथम पंचवर्षीय योजना के अंतर्गत चंबल घाटी परियोजना का कार्य 1953 में आरंभ हो गया था और सिंचाई के लिए 1960 में नहरों से जल उपलब्ध करा दिया गया था. इस परियोजना के चार बांध तीन चरणों में बनाए गए थे. प्रथम चरण में, गांधी सागर डैम और कोटा बैराज का निर्माण 1960 में पूरा कर लिया गया था. द्वितीय चरण में, राणा प्रताप सागर बांध (रावतभाटा) 1970 में और तृतीय चरण में जवाहर सागर बांध 1972 में बन गए थे. लगभग एक दशक तक चंबल परियोजनाओं के विशाल निर्माण कार्यों के कारण कोटा की अर्थव्यवस्था को बल मिला. चंबल के नहरी जल की उपलब्धता से कोटा, बूंदी और बारां क्षेत्रों में विकास का एक नया युग आरंभ हुआ और कोटा चंबल के कारण भी जाना जाने लगा.


औद्योगिक नगरी
कोटा में जल और विद्युत की प्रचुरता के साथ ब्रॉडगेज रैल लाइन की उपलब्धता नें औद्योगिक समूहों को आकर्षित किया और इसी के साथ आरंभ हुआ आधुनिक बड़े उद्योगों की स्थापना का एक नया दौर. कुछ उल्लेखनीय नाम हैं - डीसीएम, जे के सिंथेटिक्स, ओरियंटल पॉवर कैबल्स, इंस्ट्रुमेंटेशन, रावतभाटा में एटोमिक पॉवर प्लांट, थर्मल प्लांट और मल्टीमेटल्स इत्यादि. इन उद्योगों की स्थापना के कारण कोटा एक औद्योगिक नगरी और राजस्थान के कानपुर के नाम से जाना लगा. इन बड़े उद्योगों की स्थापना के कारण जहां एक और कोटा के व्यापार-व्यवसाय और अनुषंगी लघु उद्योगों का विस्तार हुआ, वहीं दूसरी और बल्लभबाड़ी, बल्लभनगर, दादाबाड़ी और विज्ञाननगर जैसी बृहद नई आवासीय कालोनियों का निर्माण हुआ. आर्थिक विकास की दृष्टि से इसका लाभ सभी वर्गों को रोजगार, व्यापार और व्यवसाय के प्रचुर अवसरों के रूप में मिला.

कोटा में वर्तमान में कोई नियमित विमान सेवा नहीं है. विमान सेवा किसी भी शहर के विकास का एक मापदंड मानी जाती है. इस मापदंड पर हम कोटा को 1960 के दशक में अधिक विकसित कह सकते हैं क्योंकि उस समय यह विमान सेवा के माध्यम से दिल्ली, जयपुर इत्यादि शहरों से जुड़ा हुआ था.


औद्योगिक रुग्णता
राजनैतिक इतिहास की तरह, आर्थिक इतिहास में भी उत्थान और पतन का क्रम देखने को मिलता है. इन्हें तेजी और मंदी के आर्थिक चक्र कहते है. 1980 के दशक में श्रमिक आंदोलनों और अन्यान्य कारणों से कोटा में औद्योगिक रुग्णता का जो दौर आरंभ हुआ वह कोटा की अर्थव्यवस्था के लिए घातक सिद्ध हुआ. एक के बाद एक, लगभग सभी प्रमुख उद्योग रुग्ण होते गए. 1970 के दशक के पश्चात कोटा संभाग का विकास लगभग थम सा गया था. कोई नए उद्योग या विकास की सरकारी परियोजनाएं यहां नहीं आ रही थीं. कुछ विश्लेषक इसका एक मुख्य कारण इस संभाग को विरोधी राजनीतिक दल का गढ़ होना भी मानते हैं. जनमानस में यह एक सामान्य धारणा बन गई है कि प्रदेश का मुख्यमंत्री जिस क्षेत्र का होता है वहां का विकास अधिक होता है.

शैक्षणिक नगरी
जैसा कि कहा जाता है, जब विकास का मार्ग अवरुद्ध हो जाता है तो कोई नई राह खुलती है. औद्योगिक रुग्णता के फलस्वरूप उत्पन्न आर्थिक मंदी से उबरने के लिए कोटा में कोचिंग संस्थाएं विकसित होने लगीं. व्यक्तिगत परिस्थितियों के कारण 1984 में श्री वी के बंसल द्वारा जे के कॉलोनी के एक गेरीज में शुरू की गई कोचिंग कक्षाएं आज एक विशाल उद्यम के रूप में विकसित हो चुकी हैं. सन 1986 में कोटा के एक कोचिंग छात्र को आइ आइ टी (I.I.T.) की प्रवेश परीक्षा में शीर्ष स्थान प्राप्त होने के बाद यहां कोचिंग उद्यम द्रुत गति से विकसित होने लगा. इंजीनियरिंग और मेडिकल इत्यादि की प्रवेश परीक्षाओं की तैयारी के लिए इस समय बाहर के लगभग 70,000-80,000 छात्र अध्ययन करते हैं जिनका कोटा की अर्थव्यवस्था में लगभग रु.600 करोड़ वार्षिक का योगदान है. कोचिंग संस्थाओं नें इस व्यवसाय में लगभग रु.500 करोड़ का विनिवेश किया हुआ है. मोटे रूप से, कोचिंग छात्रों की वृद्धि दर लगभग 10 प्रतिशत वार्षिक है. इसमें कोई संदेह नहीं है कि कोचिंग उद्योग के कारण कोटा की अर्थव्यवस्था को एक नई गति मिली है और अखिल भारतीय स्तर पर अब शैक्षणिक नगरी के रूप में इसकी ख्याति स्थापित हो चुकी है. कोटा के कोचिंग उद्योग की बढ़ती हुई ख्याति से प्रभावित हो अमेरिका से श्री एरिक बेलमेन नें व्यक्तिगत रूप से 2008 में कोटा आ कर विशेष रूप से यहां की बंसल क्लासेज की कोचिंग प्रणाली का नजदीक से अध्ययन किया. उनकी विश्लेषणात्मक रिपोर्ट को India's Cram-School Confidential: Two Years, One Test, 40,000 Students Town Fills With Teens Studying Full-Time For a College Entrance Exam; 'Bansalites Rock' शीर्षक से अमेरिका के प्रमुख दैनिक समाचार पत्र “वाल स्ट्रीट जरनल” (30 09 2008) में प्रकाशित किया गया. इस रिपोर्ट में कोटा की अर्थव्यवस्था पर कोचिंग उद्योग के प्रभाव को निम्नलिखित शब्दों में व्यक्त किया गया है: Cramming has been the salvation of Kota, an industrial center in the 1970s that then fell on hard times. In the past three years, new malls, restaurants, hotels, Internet cafes and clothing stores began to spring up to serve the 16- and 17-year-old cram kids. Many homeowners have added second and third floors to rent out to students.

Balwan Diwani, manager of Milan Cycle, a bike shop in Kota, says bicycle sales have surged to more than 2,000 a year from fewer than 200 five years ago. Mamta Bansal, no relation to the school founder, quit her job as a maid to start a service to deliver boxed lunches and dinners to 30 students as they study. "We try to make what their mothers would cook for them," she says. "I have had to learn how to make dishes from Gujarat, the Punjab and southern India."

Local schools also have benefited: Cram students have to attend regular classes so they can pass their high-school exams and graduate. Some high schools have early morning classes so cram students can finish early and move on to cramming.

"There used to be a lot of hooliganism and goons," says Pradeep Singh Gour, director of the Lawrence and Mayo Public School in Kota. "Now the entire city is like a university campus."

कोचिंग के कारण बढ़ती हुई ख्याति के कारण विगत कुछ वर्षों से कोटा को व्यावसायिक द्वेष से प्रेरित राजनैतिक पक्षपात का सामना करना पड़ रहा है. इस पक्षपात के प्रमुख उदाहरण हैं - कोटा के स्थान पर जोधपुर में आइ आइ टी (I.I.T.) की स्थापना करना और इंजीनियरिंग व मेडिकल प्रवेश परीक्षाओं के केंद्र कोटा में नहीं रखना. यद्यपि इस वर्ष के बजट में यहां आइ आइ आइ टी (I.I.I.T.) की स्थापना की घोषणा की गई है, यह भविष्य के गर्भ में है क्योंकि पहले आइ आइ टी भी कोटा को देने की घोषणा की गई थी किंतु अंततोगत्वा इसे जोधपुर को दे दिया गया. इन नकारात्मक परिस्थितियों के बावजूद, कोटा की कोचिंग संस्थाओं की गुणवत्ता व यहां के कठोर प्रतिस्पर्धात्मक वातावरण के कारण छात्रों की संख्या में प्रति वर्ष वृद्धि हो रही है. गत वर्ष (सितंबर 2010) में, कोटा की एक अग्रणी कोचिंग संस्था कैरियर प्वाइंट (Career Point Infosystems Ltd.) नें इक्विटी शेयर्स की पब्लिक इश्यू के माध्यम से पूंजी बाजार में प्रवेश किया था जिसे निवेशकों का बहुत अच्छा समर्थन मिला. कहा जाता है कि शेयर बाज़ार का रुख आर्थिक स्वास्थ्य का सही संकेतक होता है. इस दृष्टि से इस पब्लिक इश्यू को मिला प्रोत्साहन कोटा की कोचिंग संस्थाओं के लिए और अंततः यहां की अर्थव्यस्था के अच्छे स्वास्थ्य का सूचक है.

इस लेख के आरंभ में पब्लिक प्राइवेट पार्टनरशिप के माध्यम से आर्थिक विकास का उल्लेख किया गया था. न केवल कोचिंग उद्योग में अपितु उच्च शिक्षा के क्षेत्र में भी हम पाते हैं कि निजी क्षेत्र द्वारा कोटा में इंजीनियरिंग, डेंटल, मैनेजमेंट और सामान्य विषयों के महाविद्यालयों की स्थापना की जा चुकी है. इसी प्रकार, चिकित्सा के क्षेत्र में भी कॉरपोरेट हॉस्पिटल्स कार्य कर रहे हैं. निजी क्षेत्र में ही, मल्टी स्टोरी बिल्डिंग्स और टाउनशिप्स की संख्या में भी तेजी से वृद्धि हो रही है.

उक्त विश्लेषण से स्पष्ट है कि कोटा के आर्थिक विकास में (विशेष रूप से स्वतंत्रता के पश्चात) इसकी भौगोलिक स्थिति, जलवायु, प्राकृतिक संसाधनों, कृषि योग्य उपजाऊ भूमि, जल स्त्रोत खनिज संपदा का विशेष योगदान रहा है - चाहे वह 1950 का दशक हो या फिर 1960-70 के दशक या वर्तमान काल. इन सभी अनुकूल तत्वों के कारण कोटा के विकास की अपरिमित संभावनाएं हैं. किसी समय यह माना जाता था कि कोटा में उद्यमिता (entrepreneurship) की कमी है. किंतु यहां के संसाधनों से आकर्षित हो बाहर के उद्यमियों के आने, शिक्षा के विकास और स्वस्थ प्रतिस्पर्धा के कारण स्थानीय उद्यमिता भी विकसित हुई है और कोटा के सतत विकास की संभावनाएं प्रबल हैं.

Banks Badly Bruised By Bears

Banks Badly Bruised By Bears
                                                                                                          - S. N. Ghatia

12 02 2016

With the severe beating of PSB shares by the markets, there is a lot of hue and cry about the mismanagement and bad governance in the PSBs. All these allegations are judgemental and, therefore, over- exaggerated.

Of course, there have been mistakes and irregularities in lending decisions, even gross ones in certain cases. Let us not forget that the nature of banking (lending) business is such that errors of judgement cannot be ruled out. Similarly, looking to the public sector composition, irregularities of all sorts also do happen for a variety of well-known reasons in the working of PSBs. And, these aberrations are bound to happen in any decision-making area. Let us not forget that all the big banking names of 2008 fame like Lehman Bros, RBS, etc. were all private sector banks and considered to be too big to fail. There are rogues, scamsters and black sheep in every business. Even the private sector is not immune from judgemental errors, external pressures and scams. The only difference is that the decisions and working of private sector are not subject to public scrutiny and RTI.

Besides, every accountant knows it very well that Balance Sheets are engineered universally across all the businesses and countries, though at varying scales. Even if the business is robust, there is a tendency to add further flavour to it. If there is weakness in the business, obviously there is an anxiety to camouflage it in fine print or through creative accounting. 

Having acknowledged the presence of some undesirable traits and external factors in any business, let us examine the current scenario. And, you will observe that the real culprit is the slow down in economy caused by global factors. The economic slow down and global trends have triggered the selling by FIIs. We cannot ignore the fact that the Indian equity markets are up or down mostly by the FII activity who hold a sizeable chunk in the stocks of most-traded scrips.

The equity analysts in their frenzy conveniently overlook the fact that the profits of all the big industrial names have plummeted and their share price are at 52-week or even at multi-year lows. Banking industry is the mirror of a country's economic condition and, therefore, the balance sheets of banks reflect the state of economy they are in. It is a well known fact that the PSBs have huge exposure to manufacturing (metals, cement etc) and infrastructure sectors. If these sectors have suffered badly, the banks will also be equally bruised.

We also know it very well that the market analysts and media are always in search of one or the other scapegoat to blow up the issue repeatedly on the screens with sensational subtitles so as to attract attention (TPR). The Regulatory and Government Authorities also have their own priorities and organisational needs to point the finger at some one.

And, this time the scapegoat is the PSBs. Otherwise, there is nothing wrong with the Indian PSBs and they are as strong or weak as they were in 1991 or for that matter in 2008 or at any other point of time!

DIGITAL DISRUPTION

The following Whatsapp message is doing the rounds these days in the cyber world:

·         World's largest taxi company owns no taxis (Uber)

·         Largest accommodation provider owns no real estate (Airbnb) 

·         Largest phone companies own no telecom infra (Skype, WeChat) 

·         Most valuable retailer has no inventory (Alibaba) 

·         Largest movie house owns no cinemas (Netflix) 

·         Largest software vendors don't write the apps (Apple and Google)

Where are we heading in our mindless pursuit of 'digital disruption'!

Marketing & Modern Banking

Marketing & Modern Banking

These days I am intrigued by the quantum jump in the business of banks. While discussing it with one of my erstwhile colleagues who is a Regional Head in the bank, I was shocked to know that these days banks have to pay incentives to the Automobile Dealers and Builders for referring their customer files to the bank for grant of loans. 

The bankers are always on their toes because they are expected to attain a business growth of 25 per cent every year. The business base itself has grown so enormously that 25 percent growth in absolute terms is very difficult to achieve. So "creativity" replaces the customary caution of bankers in their lending operations. All sorts of exotic credit products are available on tap. 

A conservative and conventional banker like me is at his wits' end. He cuts a sorry figure in the periodic meetings by the higher ups for monitoring the credit growth. When he admits that he does not understand the mechanism of high sounding derivative products, he gets fired and transferred to the Stationery Deptt.      

He finds the job in Stationery Deptt. is not demanding at all. Most of the time he is at ease and start reading a lot. One day he comes across a wonderful story that has been doing rounds on the Net and in an instant he understands how a castle of cards is being created in the banking industry:  

  

Heidi is the proprietor of a bar somewhere in Europe. In order to increase sales, she decides to allow her loyal customers, most of whom are unemployed alcoholics, to drink now and pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).

Word gets around and as a result increasing number of customers flood into Heidi's bar.
Taking advantage of her customers' freedom from immediate payment constraints, Heidi increases her prices for wine and beer, the most-consumed beverages. Her sales volume increases massively and the balance sheet looks robust with all the favourable financial ratios in place .

A young and dynamic customer service consultant at the local bank recognizes these customer debts as valuable future assets and increases Heidi's borrowing limit.
He sees no reason for undue concern since he has the debts of the alcoholics as collateral.

At the bank's corporate headquarters, expert bankers transform these customer assets into DRINKBONDS, ALKBONDS and PUKEBONDS. These securities are then traded on markets worldwide. No one really understands what these abbreviations mean and how the securities are guaranteed. Nevertheless, as their prices continuously climb, the securities become top-selling items.

One day, although the prices are still climbing, a Risk Manager (subsequently of course fired due to his negativity) of the bank decides that now the time has come to demand payment of the debts incurred by the drinkers at Heidi's bar.

However, they cannot pay back the debts.

And consequently, Heidi cannot fulfill her loan obligations and claims bankruptcy.

DRINKBOND and ALKBOND drop in price by 95 %. PUKEBOND performs better, stabilizing in price after dropping by 80 %.

The suppliers of Heidi's bar, having granted her generous payment due dates and having invested in the securities, are faced with a new situation. Her wine supplier claims bankruptcy, her beer supplier is taken over by a competitor.

The bank is saved by the Government following dramatic round-the-clock consultations by leaders from the governing political parties.

The funds required for rescuing the bank are arranged by a tax levied on the non-drinkers.

Finally an explanation I understand ... why the world is hit with a recession........ and the honest tax-payer has to bear the brunt of ever-increasing taxes!

Three cheers for our marketing experts, financial engineers and the ruling political parties!!

Banking: ATMs - Restrictions on  free cash transaction

11 10 2015

I am surprised to know from a recent media report (http://indianexpress.com/article/cities/pune/limitation-on-atm-transaction-rbi-allows-release-of-some-documents-on-decision-making-process/) that "Now, only five transactions from the home bank are free in a month and only three transactions are free from a non-home bank. After that, fee of Rs 20 is levied for each ATM transaction." 

Aggrieved with this new rule, Deepak Sethi, Pune resident, approached the Reserve Bank of India under the Right To Information Act to know what led to the withdrawal of free ATM cash transactions facility to the bank customers in 2014. It is alleged that the RBI was forced to take this step after pressure from the Indian Bank Associations (IBA) at the instance of its member banks as they were making losses in ATM operations. 

The success of banking business hinges upon two basic but time-tested tenets: 

1. Bank should be able to bring more and more people to its fold. 
2. Bank should facilitate deposit and withdrawal of funds with as much ease as possible. 

Taking into consideration these basics of banking, the Section 5 (b) of the Banking Regulation Act, 1949 clearly lays down: "banking" means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise."

Leaving aside the convenience to customers, this issue is more important from the banks' point of view. If a bank does not encourage ATM transactions, it will have to go back to brick and mortar banking involving huge costs on staff and establishment. While other countries have installed Cash Machines for withdrawals free of charge at all public places, the RBI wants the Indian banks to go backward to primitive times. 

Hope wiser counsel will prevail and the customers will be allowed free use of ATMs for banking services including the cash withdrawals.  

Sense of Purpose in Life

Sense of Purpose in Life

If there is a sense of purpose,

You have a sense of urgency,

Urgency leads to real action,

Giving a sense of satisfaction.

Satyam - another Enron!

Satyam - another Enron!

With discloures today in the resignation letter of Ramalinga Raju (Satyam's founder and Chairman), the worst fears have come true - the company is not cash rich but cash-stripped. The resignation letter answers most of the questions posed in the earlier post on this blog.
In a moment of truth, Ramalinga Raju has revealed on 07 January 2009 that the balance sheet of the company is a cooked one. Obviously these revelations in a ripple effect will have far reaching consequences on the markets. But the touching part in Raju's resignation letter is when he says, "...neither me, nor the Managing Director took even one rupee/dollar from the company and have not benefitted in financial terms on account of the inflated results."
The full text of Ramalinga Raju's resignation letter is appended below.
Taking the confessions in the letter at face value, it would appear that the company was trapped in a vicious cycle of cash crunch which was aggravated further year after year by pushing the real problem under the costly carpet. In the days to come, investors with their money trapped in the company will be eagerly watching the developments. Though in due course the law will have its course against the promoters, the moot point is whether the investors will get back their money? But then that is the risk of investing in equities!
It is said you can fool a few persons once but not all the people all the times. What is most shocking in the Satyam episode is that erudite academicians on the board, seasoned investors, professional portfolio managers, bankers, due diligence experts, legal eagles, vigilant auditors and stringent regulators in all parts of the world were simply blindfolded year after year in succession. Really dumbfounding!
The morale of the story is that equity investment is not for the gullible ones!!
____________________________________________________________________
Text of letter released by the Bombay Stock Exchange.-------------------------------------------------------------------------------------------------
To the Board of Directors
Satyam Computer Services Ltd.
From B. Ramalinga Raju
Chairman, Satyam Computer Services Ltd.
January 7, 2009
Dear Board Members,
It is with deep regret, and tremendous burden that I am carrying on my conscience, that I would like to bring the following facts to your notice:
1. The Balance Sheet carries as of September 30, 2008
a. Inflated (non-existent) cash and bank balances of 50.40 billion rupees ($1.04 billion) (as against 53.61 billion reflected in the books).
b. An accrued interest of 3.76 billion rupees which is non-existent.
c. An understated liability of 12.30 billion rupees on account of funds arranged by me.
d. An overstated debtors position of 4.90 billion rupees (as against 26.51 billion reflected in the books)
2. For the September quarter (Q2) we reported a revenue of 27.00 billion rupees and an operating margin of 6.49 billion rupees (24 pct of revenues) as against the actual revenues of 21.12 billion rupees and an actual operating margin of 610 million rupees (3 percent of revenues). This has resulted in artificial cash and bank balances going up by 5.88 billion rupees in Q2 alone.
The gap in the Balance Sheet has arisen purely on account of inflated profits over a period of last several years (limited only to Satyam standalone, books of subsidiaries reflecting true performance). What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years. It has attained unmanageable proportions as the size of company operations grew significantly (annualized revenue run rate of 112.76 billion rupees in the September quarter, 2008, and official reserves of 83.92 billion rupees). The differential in the real profits and the one reflected in the books was further accentuated by the fact that the company had to carry additional resources and assets to justify higher level of operations -- thereby significantly increasing the costs.
Every attempt made to eliminate the gap failed. As the promoters held a small percentage of equity, the concern was that poor performance would result in a take-over, thereby exposing the gap. It was like riding a tiger, not knowing how to get off without being eaten.
The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones. Maytas' investors were convinced that this is a good divestment opportunity and a strategic fit. Once Satyam's problem was solved, it was hoped that Maytas' payments can be delayed. But that was not to be. What followed in the last several days is common knowledge. I would like the Board to know:
1. That neither myself, nor the Managing Director (including our spouses) sold any shares in the last eight years -- excepting for a small proportion declared and sold for philanthropic purposes.
2. That in the last two years a net amount of 12.30 billion rupees was arranged to Satyam (not reflected in the books of Satyam) to keep the operations going by resorting to pledging all the promoter shares and raising funds from known sources by giving all kinds of assurances (Statement enclosed, only to the members of the board). Significant dividend payments, acquisitions, capital expenditure to provide for growth did not help matters. Every attempt was made to keep the wheel moving and to ensure prompt payment of salaries to the associates. The last straw was the selling of most of the pledged share by the lenders on account of margin triggers.
3. That neither me, nor the Managing Director took even one rupee/dollar from the company and have not benefitted in financial terms on account of the inflated results.
4. None of the board members, past or present, had any knowledge of the situation in which the company is placed. Even business leaders and senior executives in the company, such as, Ram Mynampati, Subu D, T.R. Anand, Keshab Panda, Virender Agarwal, A.S. Murthy, Hari T, S.V. Krishnan, Vijay Prasad, Manish Mehta, Murali V, Sriram Papani, Kiran Kavale, Joe Lagiola, Ravindra Penumetsa; Jayaraman and Prabhakar Gupta are unaware of the real situation as against the books of accounts. None of my or Managing Director's immediate or extended family members has any idea about these issues.
Having put these facts before you, I leave it to the wisdom of the board to take the matters forward. However, I am also taking the liberty to recommend the following steps:
1. A Task Force has been formed in the last few days to address the situation arising out of the failed Maytas acquisition attempt. This consists of some of the most accomplished leaders of Satyam:, Subu D, T.R. Anand, Keshab Panda and Virender Agarwal, representing business functions, and A.S. Murthy, Hari T and Murali V representing support functions. I suggest that Ram Mynampati be made the Chairman of this Task Force to immediately address some of the operational matters on hand. Ram can also act as an interim CEO reporting to the board.
2. Merrill Lynch can be entrusted with the task of quickly exploring some Merger opportunities.
3. You may have a restatement of accounts' prepared by the auditors in light of the facts that I have placed before you.
I have promoted and have been associated with Satyam for well over twenty years now. I have seen it grow from few people to 53,000 people, with 185 Fortune 500 companies as customers and operations in 66 countries. Satyam has established an excellent leadership and competency base at all levels. I sincerely apologize to all Satyamites and stakeholders, who have made Satyam a special organization, for the current situation. I am confident they will stand by the company in this hour of crisis.
In light of the above, I fervently appeal to the board to hold together to take some important steps. Mr. T.R. Prasad is well placed to mobilize support from the government at this crucial time. With the hope that members of the Task Force and the financial advisor, Merrill Lynch (now Bank of America) will stand by the company at this crucial hour, I am marking copies of this statement to them as well.
Under the circumstances, I am tendering my resignation as the chairman of Satyam and shall continue in this position only till such time the current board is expanded. My continuance is just to ensure enhancement of the board over the next several days or as early as possible.
l am now prepared to subject myself to the laws of the land and face consequences thereof.
(B. Ramalinga Raju)
Copies marked to:
1. Chairman SEBI
2. Stock Exchanges
(References using Indian numerical system of crores and lakhs have been converted to international system)

Satyam, World Bank and media hype!

Satyam Another Enron! 

Satyam Computer Services Ltd. (Satyam) has recently been too much in the news for all the right and wrong reasons. Nonetheless, each new piece of information has raised more questions, leaving a lot many questions unanswered. Sitting in remote corners away from the corporate corridors, individual investors are the most confused creatures with all sorts of news items coming in quick succession. This article seeks to analyse the spate of news items from individual investor's perspective about the wrong-doings of Satyam and the severe punishment meted out to the Company by its institutional investors.
The story of Satyam started in June 1987 when it was incorporated as a private limited company at Secunderabad in Andhra Pradesh. Satyam became a public limited company in 1991. Thereafter, the company never looked back and it did have an upward graph continuously on all business parameters. Rather, the company did have a meteoric rise under the leadership of Ramalinga Raju, the founder and chairman of the company supported by Rama Raju, the co-founder and the CEO. Performance-wise Satyam claims to be “... one of the youngest IT service companies to reach US $1 billion in annual revenues”. Its revenue exceeded US$1 billion in 2006. Today Satyam is a global business and information technology services company. In its Annual Report for the year ended 31 March 2008, Satyam claims to be a global organization on the basis of the following facts:
Associates >51,000 (over 60 nationalities)
Revenues in USD >2,000,000,000 (2008 Fiscal)
Customers: 654 (Including one-third of the Fortune Global & US 500 companies)
Geographies: 63 (Number of countries)
Global Solution Centers: 31
Listings: NYSE, US and Euronext, Amsterdam, Europe in addition to BSE and NSE in India.

Like a bolt from the blue, the things at Satyam suddenly took an ugly turn on 16 December 2008 when the company announced a US$1.6 bn deal to acquire Maytas Properties and Maytas Infrastructure, companies run by Ramalinga Raju's sons B Rama Raju and Teja Raju. The business of Maytas Properties is urban infrastructure development and Maytas Infra is into infrastructure construction and asset development. The official line of argument was that the proposed take-over deal would work as a diversification to mitigate the business risk of Satyam's core business of IT services.

According to the announcement made on 16 December 2008, Satyam would have acquired 100 per cent shares of the unlisted Maytas Properties for US$1.3 bn and 51 per cent of construction firm Maytas Infra for US$300 mn. Satyam’s founder and Chairman B. Ramalinga Raju and other insiders hold 36 per cent stake in Maytas Infra and 35 per cent in Maytas Properties. As regards the funding of the proposed deal, Satyam planned to fund 75 per cent of the acquisition with cash available on its balance sheet and the rest by raising debt. Satyam planned to acquire 31 per cent in Maytas Infra from its promoters (who are also promoters of Satyam) at a price of Rs 475 a share. Satyam also planned to make an open offer for an additional 20 per cent at a price of Rs 525 a share.

Had it been a boom time in the market, the investors would not have paid any heed to this intra-group deal because such transactions are commonplace in the corporate world. But this time two factors worked against Satyam. Firstly, these are highly depressed times for capital markets and secondly, the foreign institutional investors (FIIs) have a substantial exposure to Satyam. The very fact that the FIIs have a substantial exposure to Satyam, the motives of the company were under their close scrutiny. Obviously, the Board's decision to acquire closely-related family companies angered investors. They started offloading their holdings and drove down Satyam’s American Depository Receipt (ADR) value by a record 55% on 16 December 2008, i.e., the day of announcement of the company’s plan to buy Maytas Infra and Maytas Properties. The foreign shareholders construed the deal in utter disregard of corporate governance. The FIIs found it shocking that Satyam management did not deem it appropriate to take the proposal to the so-called minority shareholders whose stake in the Company is many times more than that of the promoters.

In this context, it is revealing to have a look at the shareholding pattern at Satyam. According to a Forbes report, “large investors including Aberdeen Asset Management, Fidelity and ICICI Prudential hold roughly 60.0% of Satyam, dwarfing the 8.3% stake held by the family of the company's founder and chairman, Ramalinga Raju, and leaving the company vulnerable to a hostile takeover."
The shareholding pattern on 31 March 2008, as reported on the Company’s website, was as under:
Shareholding Pattern of Satyam Computer Services Ltd.Promoters 8.74%
Domestic Institutions 13.00% (MFs. 4.88%, Fin. Inst./Banks 0.09%, Ins. Cos. 8.03%) Foreign Institutional Investors 48.22%
Bodies Corporate 0.59%
Individuals 8.75%
NRIs, Foreign Nationals & Trusts 1.24%
Shares held by Custodians and
against which Depository Receipts
have been issued. 19.46%
TOTAL 100.00%
The latest news reports indicate that now even this 8.74 per cent holding of promoters in Satyam is questionable. It is reported that the promoters had pledged their shares to raise loans and those shares have been sold by the lenders as a part of Margin Call procedure.
When the announcement about Mytas-acquisition was made Indian markets were already closed on 16 December 2008. The next day Indian bourses also reciprocated to the price erosion on the NYSE. Satyam shares closed down by 30.22% at Rs 158.05 on 17 December 2008 touching an intraday low of Rs 153.80. It was the lowest level touched by Satyam shares in the last five years. The stock had a 52-week high of Rs 544 on 30 May 2008.

In a knee-jerk reaction, the company immediately announced withdrawal of its proposal to acquire two Maytas companies. Srinivas Vadlamani, Chief Financial Officer, Satyam Computer Services Ltd. said in a brief statement, “Based on input from our shareholders and investors, we decided to call off the Satyam-Maytas acquisition. Satyam has called this (29 December 2008) board meeting to consider the proposal for buy-back of shares.”

Soon after the Maytas fiasco, there followed a series of comments and articles by the financial news reporters, analysts, securities firms and brokerage houses condemning Satyam as the fit case of bad corporate governance. It is ironical that Satyam was awarded the Golden Peacock Global Award for Excellence for Corporate Governance in September 2008. Also, to quote from Satyam’s website, “Your Company retained its eminent position in the 2008 Investor Relations Global Rankings for the Asia, Pacific and Africa Region and won the following recognitions:
• IR Website: Top 5 in region
• Corporate Governance Practices: Top 2 in region
• Financial Disclosure Procedures: Top 5 in region; First in Technology; and First in India.”

What is more intriguing is that Satyam management did not come out with any further explanation about its two actions with regard to Maytas acquisition. The top level management at Satyam comprises the following members of the Board:

Executive Directors:
1- Ramalinga Raju, founder and chairman
2- Rama Raju, co-founder and CEO
3- Ram Mynampati, member of the board and president
Non-Executive Directors:4- Prof. Krishna G. Palepu (since resigned effective from 28 December 2008)
5- Vinod K. Dham - Independent Director (since resigned effective from 28 December 2008)
6- Prof. M. Rammohan Rao - Independent Director (since resigned)
7- T. R. Prasad - Independent Director
8- Prof. V. S. Raju - Independent Director
9- Dr. (Mrs.) Mangalam Srinivasan – Independent Director (since resigned on 26 December 2008)

Talking of corporate governance at Satyam, Prof. Krishna G. Palepu (non-executive director) offers courses on Corporate Governance at Harvard Business School. The independent director, Prof. M. Rammohan Rao, is the Dean at the eminent Indian Business School, Hyderabad. He is also a member of government's appointment committees for positions such as the RBI deputy governor, Sebi chairman and Telecom Regulatory Authority of India (Trai) chairman. Another independent director Dr. (Mrs.) Mangalam Srinivasan has held senior academic positions at the University of California at Berkeley, American University in Washington DC, and Harvard University. Similarly, Prof. V. S. Raju, independent director on Satyam’s board, is the ex-director of IIT. T R Prasad is the ex-cabinet secretary and Vinod K Dham is considered as the father of Intel's Pentium chip. With such a galaxy of non-executive/independent directors, it is really ironical that matters of corporate governance have come to such a sorry pass at Satyam!

Sensing the Maytas episode to be merely a tip of the iceberg, reporters and analysts started further digging up. It was revealed from the transaction details that the top management executives of the Company sold as many as 4,57,978 shares during the period April-December 2008. It is now any body's guess that no purchases of Satyam shares were made by the top executives during this period. The details of share sales by Satyam executives are as under:

1- Srinivas Vadlamnani- Chief Financial Officer 92,358 shares
2- Ram Mayanampati -President/member of board 80,000 shares
3- V Murali Head – Commercial & Contract Management 60,000 shares
4- Manish Mehta- Global Head - SAP 48,000 shares
5- M Pavan Kumar- Chief Technology Officer 40,000 shares
6- A S Murthy- Head – Delivery & Leadership Development 36,605 shares
7- Papani Sriram Prasad - Head – Enterprise Applications 30,500 shares
8- Hari T - Chief Marketing Officer 28,000 shares
9- G Jayaram - Company Secretary 26,015 shares
10- Kiran Cavale - Head – Business Intelligence 16,500 shares
TOTAL SHARES SOLD 4,57,978

In a news report on 23 December 2008, Mr. T R Prasad, one of the Independent Directors, was quoted “saying the board hadn’t fully signed off on the $1.6 billion, or Rs7,568-crore, valuation placed on the two companies by Satyam management.” Similarly Prof. V S Raju, another Independent Director, is also quoted saying, “There were several suggestions from the board members regarding valuation and those were to be taken up during the due diligence process, which was yet to be done,” said V.S. Raju, a former director of Indian Institute of Technology, Delhi. “Now that the deal has been called off, all such discussions are academic in nature.” However, the Company spokesperson simply commented there is no official information regarding these matters.


Meanwhile, the severest blow came to Satyam from the World Bank on 23 December 2008. In a statement the World Bank informed that it banned Satyam for eight years, alleging “improper'' benefits were given to the World Bank's employees and for failing to maintain documentation to support fees charged for its subcontractors. Consequently, next day Satyam shares were once again hammered down on the bourses. Again, Satyam management declined to comment on this news item saying it is not Satyam’s policy to comment on client- related matters.
The news about the World Bank’s ban on Satyam was reported extensively throughout the world. But the version of facts was different because every reporter has his/her own perspective of looking at the matter. For example, Financial Times from UK reported on 24 December 2008 that “the World Bank has barred India's Satyam Computer Services from doing business with it for eight years, in one of the severest penalties by a client against a large Indian outsourcing company.” However, additional inputs came from Taiwan (http://www.etaiwannews.com/) which reported on 24 December 2008, “The bank (World Bank) said it suspended relations with Satyam in February and made the decision permanent in September.”

This additional input aroused my curiosity because if the ban on Satyam related to September 2008 and February 2008, why it is being highlighted so prominently now in December 2008? I started rummaging more news reports about Satyam and the real break came through the report of IDG News Service. Unlike the FT in the UK, the Boston headquartered IDG News Service reported all the pertinent facts with regard to the World Bank statement about Satyam through its Bangalore Bureau in India on 23 December 2008. The additional input provided by the IDG News Service report was that – “And Upaid Systems Ltd., a mobile payments company, is suing Satyam on charges of fraud, forgery and breach of contract.”

What is interesting about the IDG News Report is that it invites comments from the readers and interestingly enough one reader, though anonymously, provided a clue that - “Who fact checked this because it is false . Go to http://web.worldbank.org/external/default/main?pagePK=64148989&piPK=64148984&theSitePK=84266&theSitePK=84266&contentMDK=64069844&querycontentMDK=64069700&sup_name=SATYAM&supp_country ……and see for yourself. There are many companies that have been debarred from the World Bank. Satyam is NOT one of them!” - By Anonymous on December 23, 2008, 5:12 pm.

On following this link, it is found that Satyam’s name is nowhere mentioned in the list of Debarred Firms on the World Bank’s website. All the attempts to search information about the ban on Satyam Computer Services Ltd. were met with the automated response on the screen saying 'no matching results found'. The latest addition in the World Bank’s current list of ineligible firms on its website is a Korean firm with ineligibility period from 31 July 2008 to 31 July 2012. May be the list is not updated or Satyam’s case does not fit in this category of debarred firms!

As regards Satyam’s soured business relationship with the British firm Upaid Mobiles, Upaid released a statement in London on 25 December 2008: “That Satyam would proceed with a transaction that seems so clearly designed to deplete its assets in advance of a judgement, rightfully concerns Upaid that Satyam may be willing to engage in fraudulent transfers to avoid its legal obligations.” It is pertinent to mention here that Upaid filed a lawsuit in the Texas court against Satyam in April 2007 seeking damages of at least $1 billion on the allegations of fraud, forgery, misrepresentation and breach of contract involving transfer of intellectual property rights issues. All these allegations are in the context of a project the firms jointly worked on in late 1990s when Satyam was an outsourcing vendor for Upaid.

It was on 26 December 2008 that Satyam came out publicly seeking an apology from the World Bank. It claimed that the statements by World Bank representatives to the media are inappropriate and therefore the World Bank should withdraw the statements, issue an apology for the harm done to the company due to World Bank's actions, and provide Satyam with a full explanation of the circumstances that necessitated the public statements. Satyam further advised the World Bank that it would evaluate all possible options in view of both the Bank's inappropriate public statements and its response to Satyam's requests. This delay in demanding the apology is understandable because the Company might have taken legal opinion about its line of action apart from weighing the pros and cons of client sensitivity. However, the World Bank declined to accept Satyam’s demand for apology as the Bank stood by its statement about the ban.

Another significant development on 26 December 2008 was the resignation of Dr. (Mrs.) Mangalam Srinivasan, one of the Independent Directors on Satyam's Board. Of course, in between there were reports quoting the independent directors that they were not informed about the real reasons of the World Bank’s sanctions against the Company. Subsequently, another two directors, viz. Prof. Krishna G. Palepu (non-executive director) and Vinod K. Dham (independent director) also resigned effective from 28 December 2008. And, now there is a news report that Prof. M Rammohan Rao has also resigned from the posion of Independent Director on Satyam's board.

All these media reports have raised a number of questions in the minds of individual investors:
1. If Satyam was debarred way back in February/September 2008, what prompted the World Bank to prominently highlight this fact so late in December 2008?
2. If Satyam was debarred way back in February/September 2008, why all the analysts at the brokerage firms and financial reporters were silent till 23 December 2008 about the far reaching consequences on the fortunes of Satyam because of the World Bank's action against Satyam?
3. Whether the timing of this announcement by the World Bank in December 2008 was engineered to put Satyam in discomfiture, particularly in the wake of Maytas fiasco?
4. Whether the World Bank was prompted to issue such a damaging statement in December 2008 at the behest of vested interests?
5. Why Satyam was silent till 26 December 2008 about such a disparaging statement of the World Bank against it? Was it merely due to consideration of straining relations with an important client like the World Bank?
6. Why the independent directors chose to remain silent about the Maytas fiasco and the World Bank episode till these matters were ferociously pursued by the media in the second half of December 2008?
7. Why all of a sudden the management decided to call a Board meeting on 29 December 2008 for considering buy back of shares?
8. If the promoter stake was reduced to only 8.74%, why the FIIs with higher holdings did not ask for seats on Satyam’s Board?
9. It is reported that the Board meeting scheduled on 29 December 2008 has been postponed to 10 January. In a crisis-ridden situation like this, is it not appropriate to hold a Board meeting immediately and discuss strategies to control the damage to the Company’s reputation?
10. What is the role of independent directors - whether the independent directors can really be independent and vigilant?

Evidently, there are a lot many unanswered questions than what has been fed by the analysts/media to the individual investor community.
As per latest reports, the institutional investors are in search of a suitor who can take over Satyam. If materialized, it would be a sort of record in the Indian corporate history - a company, founded and fostered by a family is forced to parts its ways with the founder promoters at the instance of outsider shareholders! Looking to the meager and questionable stake of founder promoters (8.74%), there should be no surprise if there is a change in the management of Satyam!