Budget Wishlist 2009

My wishlist regarding the Budget proposals:

• The budget should bring forth clarity about the taxation aspects of Limited Liability Partnerships [LLPs]. This will help foster their growth, especially since it is a better and less expensive form of constituting a business.
• The New Pension Scheme, introduced recently, has not caught on, more so since it's on EET model. The FM needs to seriously consider the suggestions to bring parity between NPS and other savings schemes like PF etc. Otherwise, this very efficient and people-friendly scheme will be left without many takers.
• Another aspect which needs the FM's serious attention is the issue of pricing of petroleum products. The prevailing method is quite messy and lacks transparency. The earlier this is resolved and fine-tuned, the better for the fisc.
• This brings us to the topic of fiscal discipline. Even as there is the need for the state to step up its own spending, it needs to be seen that fiscal deficit does not turn out of control. Towards this end, stake sale of profitable PSUs is advisable. At the same time, to put more money into the consumers' pockets, tax breaks like raising the exemption level and/or restoring Standard Deduction are necessary. To raise revenue, dividends above a certain threshold limit can be brought under the tax net.
• The Govt needs to move forward on the path of introducing Uniform GST. For this, FM should present a road map towards adoption of GST and abolition of CST.
• Development of our creaking infrastructure is critical to ensure sustained growth. To raise revenues for these long-gestation projects, a vibrant bond market is vital. The FM should introduce the necessary reforms for the development of our bond markets.

And, he wins it!!!

A R Rahman wins the award for Best Original Score at the 66^th Golden Globe Awards, beating stalwarts like Hans Zimmer, John Howard & Clint Eastwood. Way to go, ARR!!! Jai ho!!!

The Mithya of Satyam; aka the Satya(m) of a Mithya!!!

Mithya --> Illusion

Satyam --> Truth (also, the name of the now infamous IT company)

It was with great disbelief that I heard the story of Ramalinga Raju's confession. In fact, till I read it, on the web, I didn't really grasp the enormity of the fraud. Now, his confession has showed us the 'Satyam' behind a number of 'Mithyas'. What are they?

Till recently, almost all write-ups on the economy and business environment had repeatedly pointed out that we have great / impregnable systems and checks in place and the absence of any major scandal after Ketan Parekh's proved that. Who could have guessed that a gigantic one was taking place right in front of us, without anybody knowing about it? It's next to impossible that the auditors and key finance personnel in the company could not find this out. Just the CEO & CFO managed to pull it off and that too for a number of years? No way, I'd say.

The fiasco showed us, again, that auditors, if not all of them, are hand-in-gloves with the perpetrators of frauds. However tight the auditing guidelines & accounting standards, if one is creative enough, fudging is incredibly easy. To find gaps, given the current technological advances in book-keeping & complex business processes, auditing professionals need to be highly skilled; we have a long way to go in this respect. Revenue recognition norms, especially for those firms in service industry, need a relook.

With Enron went Arthur Anderson; will Satyam episode lead to black-listing of PwC, given that it was already under the scanner for its role in the failure of GT Bank? No chance, if one were to look at the utterances from ICAI functionaries; they say action will be taken only against the partners and not the firm. Yours truly once had a great deal of admiration towards this firm; no longer it remains. A valuable lesson is that, being big is not a guarantee against failure; in fact, as you grow in size, stronger measures to manage operational risks are to be put in place.

Independence of independent directors is to be ensured through new means. One feels that, for companies which fulfil certain criteria in respect of their assets / market cap, SEBI should be the body which appoints independent auditors, so that, the independence is fully ensured.

Listed companies carry an aura of transparency with them, and subsequently, lower risk premia are attached to them. It is assumed that fear of a market backlash will prod them along the path of self-regulation. Raju's confession tells us that it was his fear of such a backlash and takeover attempts that made him cook up the figures! That is a direct barb at the short-termism of market participants. In fact, one is tempted to say that we are living from quarter to quarter. The behaviour of markets soon after the announcement of quarterly results is too wild nowadays; the stock is battered, even in case of growth, if the growth is not as per analysts' predictions and no thought is given to the long-term prospects of the company. Such an obsession with the Q_n figures needs to be restrained.

One's heart goes out to those investors who bought into the Satyam stocks on Jan 7, before the story broke. Who will compensate them [that is, the ones who have not yet exited], as well as others who invested in shares of other companies and suffered losses from the market meltdown that followed?

What needs to be done now?

• Speedy investigation, trial & justice
  
• Tighter regulation
  
• Revamp of audit practice – it's time competition is brought into the auditing profession; the ICAI's monopoly over the same is not good for the profession and the country in the long-term [yes, I'm an interested party here; but that does not dilute the logic of this line of thought].

What’s cooking for 2009?

Now, this – how 2009 will pan out – is a question that's been 'analysed' in many fora already. So, yours truly would desist from doing it. In fact, my mind wanders and seeks answers to a number of questions... Again, that is something my mind always does. For a change, I'll jot down a few here...

Governance

When will we, Indians, have a well-functioning government in India? We have an elected government, yes; we have a functioning government, yes; but, we lack a well-functioning one – an accountable one. Agreed, there cannot be any govt which satisfies all people's aspirations; however, every party in India always utters food, clothing and shelter for all. It's indeed a matter of shame that even after sixty years of getting independence, we're nowhere near the goal of a minimum standard of living for our billion-plus population! Moreover, where was our government when a handful of terrorists, like rabid dogs, audaciously kept on planting bombs and attacking innocent civilians in different parts of the country? While not a day goes without blaming the rabid terrorists and the nation which harbours them, what firm action has been taken to rout them? Again, where was the govt when hundreds of farmers committed suicide due to mounting debt? Apart from destroying the 'debt-repayment culture', what did the much-publicised farm debt waiver scheme achieve? Given that 2009 is an election year, will we finally elect a government that performs well? Or, are we destined to get one more lame-duck ministry?

Economy

Everything was honky-dory till the US economy sneezed and ours caught pneumonia! Pray, how long can we keep blaming the global economy for our woes? When the fruits of globalization took time to reach the masses due to inefficiencies in our system, globalization was blamed; it is being blamed again when the economy is facing a downturn. In 2008, the RBI tightened the strings too much and too early, thus jacking up interest rates; it's doing the same thing in reverse now – too much and too fast. By releasing an estimated Rs.300000 Crores within a short span, ignoring the money multiplier effect, and relaxing many rules together – e.g., special finance facilities for NBFCs etc – is the stage being set for the enactment of a desi version of the sub-prime drama? How much of the currently perceived slowdown in our economy is due to our own creation? And, any news about investments for improving our infrastructure?

Corporate Governance, Financial Markets

No, it's not about the Satyam imbroglio; it's about credit rating agencies [CRAs] and mutual funds [MFs]. It's time a new system is put in place to ensure independence of CRAs' job – rating the public issue of debt / equity capital. From the 'issuer-pays' model, we should move to 'regulator-pays' model, ensuring at the same time that there is no patronising of any particular CRA. As for MFs, one cannot fathom why listed companies [are allowed to] invest in them. Two reasons why they should be kept out: one, the companies, especially the listed ones, [can afford to] have professionals to manage their fund flows and to optimise cash flows and two, MFs were conceived as a mechanism to allow retail investors who aren't finance-savvy to reap the benefits of participating in equity markets. One feels that the kind of redemption pressures Indian MFs faced in Oct 2008 could have been avoided, to a great extent, had companies been kept out.

The bottomline is that, instead of being garrulous, our so-called leaders should now take firm action to help India emerge stronger from crises; and the people, too, should take an active and renewed interest in nation-building. Jaago re!!

2009.....

Thus, a new year had dawned, bringing with it hopes - of a peaceful world, betterment in economic fortunes [blame it on the business confidence gone into a tailspin ;)], better work-life balance, and above all, the ability to fulfil promises made to self!!!!

Happy New Year!!!!!