VUCA 2.0 and Board evaluation of Strategy.

VUCA 1.0 talked about Volatility, Uncertainty, Complexity and Ambiguity in the countries around the world and how this VUCA gets multiplied over the years with a purposeful push towards chaos.

The laws of thermodynamics are called into play to describe what was chaos yesterday which has moved into the chaos of today and which will move into the chaos of tomorrow, with entropy increase.

But to tackle VUCA 1.0 , I prescribed the following:

 In a VUCA WORLD

    -Volatile environment requires Vision to look beyond the immediate and prioritise

    -Uncertainty  needs calm Understanding of the situation to be purpose driven

     -Complexity  demands Capability of mind to look at locks & keys

     -Ambiguity  calls  for  Agility in the workplace to innovate, grow and excel.

In VUCA 2.0 Bill George in his HBS article gives out a solution model instead of a fearful premise.

 He elaborates that Vision, Understanding, Courage and Adaptability are the main constructs over which the Strategy can be raised.

When it comes to Adaptability, I am reminded of Charles Darwin, who famously said

that  "it is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change."

If you want to swim against the tide and come out surviving, you will have to have the adaptability to change according to the demands of the circumstances.

A Board of Directors while looking at the Sustainability Goals of an Organisation will have to keep the above in mind while chalking out the Strategy. Whenever the Board faces a challenge in evaluating the goals vs the actual performance of the Co, they should remember the following as the compass for them to proceed.

“I can’t change the direction of the wind

but

I can adjust my sails to always reach my destination”

-Anonymous Sailor

EIA 2020 draft is good and what should we be careful about?

What do we know about EIA draft 2020? But even before we read it, we want to register our opposition to the draft. Does this attitude not reek of cynicism.

Former UPA minister Mr.jairam Ramesh shot out a letter to Minister for Environment in Central govt,Mr.Prakash Javadekar saying that draft EIA allows post facto approvals going against the principle of assessment before projects are put up.

There are some fundamental flaws in the assumptions behind the accusations against the draft.

1)Under the current EIA everything is hunky dory and the revised draft now is going to spell doom to the environment. For that, they are side by side quoting that LG Polymers gas leak disaster saying that this project has not obtained EIA clearances for the project still. These people, conveniently forgetting that this project has been put up as per current guidelines and not under the draft now presented, quote LG Polymer as an example of a violation of Environment Act. If the project had come up under the current guidelines it shows that the present system is far from perfect and not the draft EIA which is yet to be implemented.

2)The current regime encourages a lot of bureaucratic hurdles and "environment tax" on industry due to discretionary powers wielded by the govt agencies, NGOs and other vested interests. The influential private citizens hold the industry to ransom raising any number of objections and many a time it becomes a political battle using the corporate turf. The victims are corporate and the employed and finally the country.

3)Are we going by unbiased third party audits for EIA compliance before approving any mega projects. Whenever people's opinions are called for, most of the time the opposition parties jump in to settle their petty disputes and for scoring some political brownie points.Even after the matter is heard and resolved by NGT, and PCBs , local people are fed concocted news by urban naxals in the garb of NGOs through carefully planted stories in the gullible media inorder to arouse their passions and to rake up riots against the projects.In all this, the central point of Environment Impact assessment is the casualty. There are impartial National and International agencies who can give unbiased assessment reports and the country should make engaging them for assessment necessary, if not madatory.

4) Are we not unwittingly not believing any Govt agency even if the truth is told- immediately jumping to conclusion that the Corporates have bribed these Govt. agencies to talk in favour of them. We have become totally cynical of this system and we want to throw the baby with the bathwater.

5)Any development can happen only in the existing land.People must understand where they live today as their house and apartments all stand on land which was once thriving agricultural fields. Britishers pushed the development agenda by forcibly taking up the land and today our own Govt acquires these lands by paying up the agreed market price.Why are we then raising our hands against our own development. Is there any gain without pain?

6) People must understand, if they raise objections to any of these acquisitions, then where new roads, railroads etc can be laid?If our grandparents had raised such objections , whether today's existing Indian railways or National highways would have come up? or whether we could have enjoyed criss crossing the country happily riding on these infra facilities?

7) All those who raise these objections are still at liberty to approach the Courts seeking justice. Nothing or nobody is stopping them from reaching to the Courts.Instead if they want to do road roko or rail roko or cause obstruction to others in general, then their actions are anti social and anti national only. Such people are hell bent on scuttling India's development and prosperity and are playing into the hands of India's enemies.

My appeal to the common man is not to fall for the words of those who want to subvert India's growth using sophisticated wordplay and methods, as part of their selfish partisan and hidden agenda at the behest of our enemy nations.

RBI on Financial Stability of India and outlook on Govt finances

RBI has come out with its latest Financial Stability Report of the country last week.This is the first report after the outbreak of Covid 19 since this report is released once in six/seven months by RBI.The last report was released in Dec 2019.

Some of the macro financial indicators like CRAR(capital to risk-weighted assets ratio)at 14.8% ,, PCR (provision coverage Ratio) at 65.4% and GNPAs at 8.5% of all SCB improved all but marginally between Sep 2019 and March 2020.

But the bad news is GNPAs can worsen due to economic distress induced by  Covid pandemic and the Stress tests due to credit risk show a probability of this widening  to anywhere between 12.5% and 14.7% by March 2021.

Nomura India Business Resumption Index (NIBRI) which is published every week on Monday says in its latest published on July 27th that the Business Resumption shows signs of flatenning due to increase in Covid nos..According to  its short term outlook  the Indian Business which was set back by 30% from its pre pandemic Feb levels, will continue to languish at the same level. NIBRI index which hit 70.5 by end June after recovering from the slump , was at 69.2 by week ending July 5th, 68.7 by July 12th, 70 by  July 19th  and 70.1 by week ending July 26th .(link)(link) Pl. see these links to HT and ET reports.

Also in the Mint column of Dr.VAN (Bare Talk) on July 28th ,the real GDP contraction is projected to be at - 5% approx this year 20-21 with some other economists predicting it to be  direr than that i.e higher contraction of GDP.(link).Even a contraction in nominal terms is in their prediction as things stand.

The Govt. would have seen the writing on the wall. If the economic activity plunges its tax revenues will be hit and consequently its ability to finance its deficit and spend through its way. Already the impact of this is seen in dip in GST collections .In the previous fiscal itself there was a huge shortfall in GST collections vis-a-vis Budgeted nos.In FY 18-19,GST collections had fallen below 5% of GDP and in FY 19-20, it would have fallen still further. The shortfall in its Cess collections has impaired its ability to transfer the share of the States as promised by the Union Govt when GST was introduced.This lament by the Finance Secy about the need to invoke lower threshold for transfer invited sarcastic comments in the social media that this is the first case of GOI asking for moratorium and one time restructuring.

A timely disinvestment proceeds would have come in handy for the Govt. at this hour.But that is not to be as divestment of Air India and BPCL or other disinvestments are many months away, if not years.

So, the next two quarters will define the future course in terms of GDP growth,Tax revenues and the medium term plan of the Govt in finding new resources for funding.Since other macro factors like Current Account deficit, Foreign exchange reserves, Debt to GDP esp. outside Debt, Oil prices are all slightly better, if not favourable, Govt may bite the bullet and go for monetising of its fiscal deficit.When it decides on this, it should do that with a targeted loosening with a medium term clawing back to its fiscal glide path to 3% fiscal deficit in another 3/4 yrs.

Two days back RBI Governor has indicated where to target- five major dynamic shifts -infra, farm sector, renewables, leveraging ICT & start-ups, shifts in supply and value chains in domestic and global arena.

I would add my pet Auto sector to start with in terms of GST cut, which can be a game changer in terms of employment, investments and GDP growth with its ripple multiplier effects across the economy.!!!

Hammer and Dance strategy- both with Corona and China!!

Initially, when COVID 19 started spreading in India, PM Modi announced a war on Covid 19 and every single citizen abided by his exhortation.

Many newspapers and media personnel screamed Modi is going hammer and tongs at Covid 19 virus in order to scorch it totally.

But after a few lockdowns, both PM and the common man understood with humility that Covid demands hammer and dance strategy to deal with it.

So we are now reconciled to the fact that we must learn to live with Covid 19 at peace instead of waging a losing war. Adapting to its speed and spread, the common man is now equipped with mask, social distancing etc. to tackle it and dance with it.

Govt adopts the hammer and the common man adopts dancing with it.

Hopefully, this will become a considered foreign policy also with China, the birthplace of Covid19. Hammer at LAC and then dance with it in commercial and trade space!!Also, dance with China to wean it off Pakistan!!

Government's asset monetisation

Policy prescriptions are flying thick and fast and on my part, I am adding one more .

All Economists including me are prescribing deficit monetisation, pump priming etc. taking a leaf out of Modern Monetary Theory.

As against this,Central Govt. has an alternative which is called Asset monetisation, according to me.Govt calls it Disinvestment/Divestment of PSUs. When the whole world is reeling under Covid pandemic , will there be a suitor for Air India?

Even if there is a good buyer will he be willing to pay the right price for Air India.What will be the benchmark for its valuation when the whole industry is bogged down by this pandemic and its repercussions on the travel industry.

In such unprecedented situations , it is best advised not to go in for outright sale transactions of Government stake in PSUs including Air India, BPCL,etc.

Similarly, other intangible but real assets are Spectrum waves (link), Mining/Abiotic  ,Biotic Resources which are hidden inside the Earth, Ocean ,Space etc., Potential Renewable energy sources, which have future economic value and can add to GDP when suitably exploited without degrading the environment.

If these resources are valued properly, and India identifies these assets in terms of monetising its strengths, then India will have to look for its Enterprise value and raise suitable resources upfront for its current requirements in investing in its infra development.

In fact even lands owned by Indian Airports Authority can be used better by allowing usage of its land underground for commercial purposes.Even some of the defence lands can be wisely used under the ground for commecial purposes without in any way jeopardising defence security.

Immediate prescription for demand stimulus!

Sri. Krishnamurthy Subramanian, Chief Economic Advisor to Central Govt,yesterday, has gone on record saying that further demand stimulus measures will be announced after vaccine becomes available. Why should we link stimulus to vaccine availability is not clear. What kind of vaccine he is expecting and if the vaccine falls short of his expectations whether he would not allow roll out of stimulus?

It may become too late to wait till then.Why because, the common man has started saving his meagre earnings due to his fear about his future earnings and not due to Covid pandemic per se.In order to allay his fear about his employment and future earnings, Govt must sacrifice some near term revenue and announce some economic incentives  for kick starting the economy.What better place to start than with Indirect Tax cuts.

Auto sector is the biggest in manufacturing in terms of GDP and reducing GST on it from 28% and converge it with Revenue Neutral Rate(RNR) of 18% will give a huge boost to demand, and thereby to the generation of employment.The multiplier effect will be huge on the rest of the economy with ripple effects cascading throughout the economy.Difficult times demand drastic steps in terms of revenue sacrifice by Govt in the near term.The Govt.will get back more than half its sacrificed revenue by way of huge jump in volumes of goods and services produced.The feel good factor this can generate will negative the fear over the pandemic and will give a greater fillip to PM's call for "Atma nirbhar Bharat" and "Make in India" initiatives.So, one should not wait for Vaccines to announce this.We must do it on war footing.

We have anecdotal examples at hand. Like Mr.Mukesh Ambani bringing in huge FDI even during Covid without waiting for it to end, the Govt. must take a cue from his proactive action and give this relief to the economy.Thiruvalluvar also says "தூங்குக தூங்கிச் செயற்பால் தூங்கற்க தூங்காது செய்யும் வினை."(Sleep over such actions as may be slept over, but not over such actions which require quick actions)

 This calls for immediate action on the ground to kickstart demand and to restore the confidence of common man in his future earnings, income, and employment.

வேண்டுதல், வேண்டாமை ....

அன்பே தெய்வமென்று சொல்வது உண்டு;
      அன்பே விலங்கானால் உடைப்பதும் உண்டு;

இன்பமே விரும்பி ஏங்குவதும் உண்டு;
        இன்பத்தை விலக்குவதும் உண்டவன்;

பழத்துடன் பால் வேண்டி அலைவதும் உண்டு;
         கூழே போதுமெனக் கேட்டுண்பது உண்டு;

குழந்தை செல்வம் வேண்டிப் பெறுவதுண்டு;
         குழந்தை பேறு வேண்டாமென வேண்டுவதுண்டு;

கைநிறைய வேண்டும் காசென்பதுண்டு;
       கையளவு பணமே அதிகம் என்பதுண்டு;

வையகமே தனக்கென வரங்கேட்பதுண்டு;
         கையளந்த ஆறடி நிலமே கேட்பதுமுண்டு;

எப்பொருள் வேண்டாமென சொல்லி நின்றாலும்,
           மெய்ப்பொருள்  வேண்டாமென சொல்வதும் உண்டோ?