Live debt-free life! 

NO1

Here is a disclaimer! I am not an expert in the financial field, and I don’t have detailed knowledge of finances, especially the finance requirements of businesses. But then why am I writing this blog? There is another side of assets and liabilities in our life. You may be in business, serving somewhere or you are a student or a housewife. I am talking of time available to us. Every person has twenty-four hours available daily. I have heard some executives and young mothers say, “If I had forty-eight hours with me!” Every persons’ time balance increases by 24 hours at the stroke of midnight, not a second less not a second more. In the money world, when we start using credit cards indiscriminately or buy those yachts and buy chalets in St Moritz, your credit lines are going to be stretched. These then break at some time as it happened to a Mallya or a Neerav Modi.

Friends organise your time finances, or you may end bankrupt before you come to know. Every task on your to-do list, unread email, meeting request, project update, and goal requires time to complete. You wake up and realise before you think of this list, you know that you don’t have time to make this list! The actions and choices you make during the day have a compounding effect on your time. But you don’t have to go into “Time Debt”, you only need to tweak the way you do things, you plan your things. Even before you realise, you will have “Time Assets” with you.

If you are in “Time Debt”, you are not alone in this world. The whole world appears to be in this debt. There are reasons like wrong planning, procrastination, can’t say NO. We forget that you owe it to you and your family first. I am not saying that you come to the office late every day because you have home stuff to be completed. Plan and execute the home stuff the way you do things at the office. You are falling short of time at home because you take that extra half an hour wink, every day. You need to take that wink because you sleep late at night. You sleep late at night because you were making that presentation late in the night. You know what I mean. It is a vicious circle. Unless you plan these things both at home and work, you will never become debt-free.

A considerable number of people work late in the office or keep on working after coming home. Now I am sure you have understood what I mean. When you use a credit card, you are committing your future income to the credit card company. If you use the credit card as a convenience, then it is a different issue. If not, then you are in big trouble. You suddenly realise that after the credit card money is paid, you are not left with much cash and zero savings for the future.

How does time-debt start working in real life? You are working on a software project. Due to customer pressure or boss’s stares, you resolve the customer complaint, temporarily. By the time customer is back unhappily, you are handling another issue. So, you make another quick-fix patch. Within a short period, you know that you have supplied to the customer a quilt made up of different patches. What happens to your other projects? You have used your credit card here rather than using your debit card. Slowly you start realising that debt in any form is easy to take but hard to pay and you pay back much more. If the software company where you are working works this way, at some stage it will collapse.

The problems start when you don’t prioritise your work. Start saying No instead of Yes! You overcommit yourself and work longer hours to achieve it. We don’t realise the effects of time debt until it’s too late.

Time debt charges its interest, in the form of deficit in focus and attention. The more time you’ve loaned out to other tasks, the more those tasks weigh on your mind and steal your attention. For example, it’s much harder to focus on an upcoming deadline when you have tons of overdue tasks hanging over you.

Social media has become a significant reason for distraction. I am sure that during office hours, people must be getting distracted at least 50% of the times due to social media. The lack of focus is the debt, and with debt comes the interest payment. Delaying decisions is also a way of losing focus. Such delays by decision making people can cost monetarily as well as reputation-wise.

I will share a story which will show how delays can cost! A medium-sized vendor was supplying a component, an assembly, to a large vehicle manufacturer; the Vehicle Manufacturer (VM) owned the design for the component. There was a premature failure of the component in the field, in large numbers. The vendor did a lot of research and suggested some changes. For three years vendors suggestions were ignored. When the vendor took a stand, that he will stop production, everybody woke up. During these three years, the vendor and the vehicle manufacturer shared the warranty cost; but both lost their reputation in the field. The cost of loss of reputation could not be calculated. Add to this, various meetings, phone calls, travel in the market, which created stress between the two partners. The three-year delay caused and enormous hardships to all!

The classic case of debt taken without understanding the cost is seen in the example discussed above. I am sure the total cost to VM incurred due to the loss of goodwill must have been much more than the actual warranty costs.

In the same way, we should keep track of where we are “wasting” time daily. Wastage will include distraction, time lost for something unbudgeted because you could not say no! You have first rights on your time. So, when you need to withdraw additional time from your bank, do it for your work and not someone else’s job. Your “job” could include your rest too! Handle the item which leaks your energy, first. These are “must” items; so, unless these are completed, you don’t feel comfortable resting or even sleeping.

Importance of saying no is explained in the story I want to tell you. Years back, I used to go to the office on a bike. I would leave home, keeping sufficient time as a buffer for some unexpected problems. A friend used to go to his office in their office bus, but he would habitually miss the bus. Once he missed his bus and requested me for a lift. As we were about ten minutes from my office, he said, “Could you drop me to my office first?” His office was in another direction. I would have got late for my office. I told him, “Mate, I leave home at a particular time so that I can reach my office on time. Sorry!” I had learnt to say NO at a very early age! 🙂🙂

No2

Slowdown! Recession and the cycle! 

Economic cycleThe science of economy is something which I don’t understand, seriously! Noble laureates give their theories, experts write essays, but an engineer like me understands only physics. Whatever goes up must come down! It is the theory of gravity. Sometimes it goes up slowly and comes down fast with a thud. Sometimes both speeds are similar. Economic growth goes up swiftly and comes down slowly sometimes. India has been lucky that it came out of the 2008 recession reasonably unscathed and bounced back for the last eight years to a decent growth rate of 6 to 8%.

Many factors lead to growth. Similarly, different factors slow down the economy. These factors are market sentiment, buying power, and so on; the Indian economy since independence did not show correct growth due to a parallel economy. The parallel economy, in the local language, is called Black Money. What is black money, and how does it get generated? Many businesses like construction, land dealings, trade pay each other by cash. Cash payment is made to avoid Income Tax. A part of business activity is never shown on paper. When there is “no business” there is no profit hence no Income Tax. The parallel economy also grew because of unprecedented corruption activity. Nobody takes bribe by cheque, so spending is also done in cash.

In some cases, corruption is in kind by gifting condos, high-end cars, or items which can be bought in cash. Such gifting is done in the name of non-earning spouse or a relative. In Many cases, such assets are “Benami” assets in the name of one’s sweepers, peons and drivers. In a recent interview, Mahindra & Mahindra Chairman Anand Mahindra said that the economy has been going through a process of ‘detoxification’. Since the negative impact of disruptions is now over, the economy is expected to see an upside in FY21, Bloomberg TV reported Chairman Mahindra as saying at an event in Davos, Switzerland. “The prime minister has been quite obsessed with the kind of growth he wants, and that is transparent, free of corruption” Mahindra also said. He also felt that the upcoming budget is expected to be watched closely by different quarters of the economy amid the slowdown.

The Indian economy is seeing a slowdown for some time now on account of a fall in consumption and demand. The government announced a slew of measures in the past few months to revive growth ranging from bank recapitalisation and boost in liquidity.

The perception right now is that government actions caused the slowdown. But on the other hand, if you are going to detox yourself, you always have a process of cleansing before you start recovering and running again. Demonetisation and GST were the part of disruptions that have now ended, and the economy is already seeing signs of life. From the next fiscal, India will surprise the world on the upside is the general market sentiment.

The International Monetary Fund (IMF) recently slashed the growth estimates for both the Indian and the global economy. The global growth is expected to reach 3.3 per cent in 2020, compared to 2.9 per cent in 2019, the slowest pace since the financial crisis a decade ago. The Washington-based international crisis lender revised downward India’s GDP growth projection to 4.8 per cent for FY20 and 5.8 per cent for FY21. “India’s domestic demand has slowed more sharply than expected amid stress in the non-bank financial sector and a decline in credit growth,” the IMF report said.

Detoxification had to be done. It has not eliminated black money. But the reports say that it is reduced to some degree. The government is relentlessly after the businesses and businessmen who have cheated their customers and banks. People like Modi and Mallya are in jail in Britain. Other business people like Sahara Subrata Roy, D S Kulkarni, Wadhawan are in prison. Unitech projects have been taken over by the government to give homes to 21000 people like you and me. The authorities did not have the guts to detoxify the banking system in olden days. The detoxification process has started bringing out huge NPA’s (non-performing assets) of many banks. These NPA’s were created with the help of bank employees sometimes. But many times, the businessmen cheated the banks. Under the garb of hidden NPA’s our economy was “doing well”. When the cleansing act began a few years back, the loan sanctioning processes became a little tougher. The result of more scrutiny was that credit availability came down. When the available credit comes down, business activity slows down. It is a spiral that any economy dreads. But system correction was a must.

recession1recession2

Growth any any country cannot be perpetually high. As the base increases rate of growth is bound to come down.

On one side, the automotive industry has slowed down, but there are reasons like availability of Ola’s and Uber’s of this world. But there is a surprise that the SUV introduced by KIA is selling like hotcakes. There is going to be one more hurdle here; the government is pushing for Electric Cars or initially more efficient IC Engine Hybrid cars. These cars will be more expensive than current IC Engine cars; the young generation is now changing their thought process. They don’t buy cars, but prefer Uber and Ola; they rent homes instead of buying homes. India has now become number two in the world behind China for the Smart Phone market. Spending ways are changing.

I am happy about this downturn for another reason. Gita Gopinath from IMF explained that the Indian recession has caused a 0.1 % reduction in the growth rate in the world economy. It indicates that India is not a small cog in the world economic wheel. At the same time, she has also said that the worst for the Indian economy is over, and it will start the upward movement in growth rate from this year 2020! The statement will disturb some people because they hoped that bad times would continue. Each group has his/her agenda! Some for political reasons and others for TRP reasons! The lousy news is THE news!

Indian economic experts had made similar predictions and statements! But we believe in someone who sits in cool climes; even if the person is desi, it is okay! Old habits die hard!

I have observed an interesting thing in international diplomacy. Turkey and Malaysia had no business to poke their nose in the internal affairs of India. They made some statements which were not necessary. When India protested, they continued in the same vein expecting the docile Indian response of yester years. But they must have got a shock of their life. India kicked them where it really hurts. India had ordered one ship worth US $2.2/ billions, on Turkey; it was put on hold. For Malaysia, India was the most significant customer of refined palm oil. A few hints here and there, the purchase pattern changed within a few months. Indian traders switched over to Indonesian palm oil. Malaysia was shocked, and they have no option but to accept it. Their prime minister accepted that Malaysia is too small to retaliate. They are trying to offer some sweet deals to India. But India is ignoring them.

Friends, in the economy of any country and for that matter world, there are always cycles of growth and downturn. A downturn can be because of market sentiments, inflation and sometimes the combination of two, stagflation. The experts of every country find ways that suit their economy. Japan for years is not doing great because of their efficient methods of working. The Japanese markets are too small for some of their giants like Toyota, Honda, Docomo. They have no option but to export and open plants in different countries. The German case is also like Japan because its economy is entirely dependent on the exports of superb engineering products. The economies of different countries are now changing from a global open market to the one which is suitable for own requirements. The US has become a leader of such self centered thoughts.

It is going to be a game of diplomacy where each country will look for ways which will be to their benefit only. Brexit is a latest classic example of this thought process. In each country, the opposition plays the political games of troubling the incumbent governments. Whichever is the government in any country, they can make mistakes, but they all put the interest of the country ahead of everything else.

For commoners like you and me, it is necessary to be remember that economic activity is a cyclic process. It goes down and then it bounces back; we need not worry about these issues.

 

 

 

 

Even Better India!

My previous blog was Better India! The blog got responses from people, and the subject has touched many hearts! My friend Ajit was very vocal and made strong pointsThese many comments induced me to write this blog, Even better India! 

https://panvalkarpramod.wordpress.com/2019/11/18/better-india/ 

Most have agreed about self-discipline, and road discipline and rule-breaking by ordinary people. But the comments also suggested that if specific actions are taken against a group of people, we can have “Even Better India”! Who are these people? Which is this group of people who need to be controlled? Politicians, Bankers, Rogue business persons? Or all these can be defined under one group, Goondas? Maybe this is too strong a word! People working in government have great opportunities to take bribes, but let me assure you it happens in the private sector too! Let me tell you that taking bribes has been happening even in my parent’s generation! I know it because my father was a police officer and retired as a DCP! Since he was an honest officer, after retirement, he did not have enough money to buy his own home too! Our family found a different solution for them. While I was in school, at some family friend’s house, I had accidentally seen a few bundles of hundred-rupee notes! He was a government official. So how do we start to make even a better India?  

Independent India started with people who had their needs barely covered, but there was only small higher middle class and wealthy class. Our country was in a euphoric mood, and the income tax slab at the top end was 97 %! We were in a socialist mood. There was general hate about wealthy people as if they were some aliens. Wealthy Kings and Royalty were expected, but there was dislike about rich people. At 97 % income tax rate tendency to hide profits and not showing correct income started becoming a norm. My personal view is that I would have also done the same thing had I been a taxpayer in those days. Over a period, the government understood the folly of such high taxation plus need to get linked with the global systemTax % over a period became more realistic and with global links business activity in India started increasing. IT industry suddenly put many Indians in the worldwide workforce. The number of people in the middle class and higher middle class started growing.  

Now we have millionaires and billionaires in the working class. Along with this change, businesspeople started becoming superrich. Income tax compliance increased, but people still started hiding their income, the most standard method was to create a group of shell companies, thanks to the creativity of chartered accountantsSome well-known global accounting firms also started helping businesspersons by suggesting the Swiss Banks and Cayman island routes. Some super-rich became roving Casanovas and had lifestyle which created many Nonperforming assets. Homes in London, Villas in Cannes, spending summer months in St Moritz became the lifestyle of these people.  

When there were so many super-rich people, politicians could not be far behind. The nexus became stronger. The lawmakers tweaked the laws for their friends, and the quid pro quo was not far awayWhen money levels reached thousands of crores, the need for bank loans increased, with this cheating the banks also increased. Over some time, friendly managers, general managers and directors of the banks started the quid pro quo acts with the rich! You help me; I will “help” you!  

Some of the super-rich entered the political arena, along with these people some harmful elements from the society also joined the bandwagon, including those with murder charges, started becoming netas and getting elected in Vidhan sabha and Lok SabhaWe all forget that theoretically, India is a great democracy with significant rules and laws to keep check on malpractices! The income tax departments, enforcement directorates, and other authorities were around but were kept dormant under pressure by politicians. These group of officials were “told” to ignore malpractices done by certain groups of businesses. Politicians thought that they were immune to such actions.  

But in recent years, the government is trying to ensure that the vigilance departments would start doing the job actively, without any influence from interested” people. The action created Mallyas, Modis and Kotharis. People who thought that they could never be caught have become official fugitives. Government has started action against shell companies, and three lac shell companies were forced to closeThe act of closing shell companies automatically brought out the trail of black money. Government has started acting against chartered accounting firms who were “guiding” people to hide the black money trail. A chartered accounting firm in Bangalore was guiding thousands of employees to “steal” money from Income Tax. All these people were made to pay correct tax, and it was easy for the department to locate who was guiding them. The authorities acted against this particular company too! 

The nexus between all these groups is so deep in the system that it is going to take time to bring them to books. Some political families, who were middle class twenty years back now have thousands of crores with them, without any specific known source of income. How is this happening? Will the government have the guts to act against such families? I think the government has shown courage already by taking action against individuals and families 

Supreme Court is also quite proactiveThey are actively pursuing cases like Sahara, DSK, Unitech, Amrapali and many others. The court has put many big shots in jail. They have been told, arrange to return people’s money if they wanted to come out of jail. Mallya, Modi, Kothari have been shamed as they are declared fugitives! They are living the life of fugitives in other countries. The courts, even in the UK, are making it very difficult for them to get bail. These folks ran away from India before they were declared offenders, so their exit from India and entry into the UK has been legal, so extradition has become a tough and longdrawn process.  Banks have also started correcting their errors. The NPA money to the tune of four lac crores has been recovered from defaulters 

One thing is sure that the system does not like non-corrupt officials and politicians. But some non-corrupt people have shown that one can work in the present corrupt environment. When the government started giving various subsidies based on Aadhar card links, many groups and individuals were upset. Some state governments are already acting on corrupt officials, but there is a long way to go!  

Making changes is not as easy as it looks, but again it is about the culture. The world over there is significant corruption in large business deals. But usually, it does not happen on day-to-day be basis like our policemen, anti-encroachment team taking hafta (speed money)! So, it comes back to the same issues what I wrote in the blog “Better India”! If the policeman on roads, clerks in the offices, peons sitting outside the boss’s cabin stop taking haftas, things will change.  

Government action on business people, politicians, and goondas is going to help create “Even better India”! But as Ajit had also mentioned in his comments that the general public is good; no, I don’t agree! All the big guns or goons whatever you want to call them, are being chased and are being taken to task; the same non-hafta culture and culture of self-discipline must filter down to the lowest common denominator!  

Actions need to be taken right across the board and not against only some groups! Combination of these two actions is going to make “Even Better India”!

 

Are you not proud of your nation?

tiranga3

As usual, let me make a disclaimer! I don’t care which party is ruling our country! Whatever I am writing in this blog is apolitical! We were under the British rule for 150 years before the independence we got on the 15th of August in 1947! Thanks to strong personalities like Sardar Vallabh Bhai Patel, we became India or Bharat as we are known in the world todayOur national wealth was looted by the British under the garb of collecting taxestaking away raw materialBritish presence (and their final going away) did a few good things for India. We became one nation, we had railways, we had an established all-India administrative and police services.  

In Nehru era Public Sector units, Irrigation got significant importance. Indira Gandhi broke Pakistan into two, thereby correcting the problem created by the British by at least 50%! Kashmir issue resolution opportunity was lost; it could have been achieved in the Shimla Agreement. Indian population showed great maturity in overcoming Emergency, the black patch on the Indian Democracy! Jayprakash Narayan led the movement though he was old by that time.  

Next twenty years were tumultuous, but India somehow overcame the same, though we did not have strong leadership. India’s jumping the IT bandwagon successfully started the financial growth processAlong with fast economic growth, crony capitalism and corruption at different levels increased at breakneck speedCheating the government with shell companies was at peak and was used for money laundering.  

All the governments did a lot of good things in their times and bad things too! Then came the Modi Government in 2014 and looks like it will run till 2024! They have had their ups and downs. They have also done some good things and some bad things. From this angle, it is not much different than the previous governments.  

Along with fast economic growth, crony capitalism and corruption at different levels increased at breakneck speedCheating the government with shell companies was at peak and was used for money laundering and diverting funds. These issues created a need for strong actions.

There are specific actions taken by this government which were never considered by any other government before. These were essential for a mature democracy and were generally discussed previously with a glass of Chivas Regal. Nobody ever thought that it was possible in India. 

Yesterday, I shared a certificate displayed below with my friends. The reactions to the certificate were varied! “I have already done it” was message sent by many. Some people sent me a congratulatory messageMy friend Shrikant appreciated this very strongly, and that is what led me to write this blog. 

Certificate ofCommitement

He wrote an elaborate message which I am sharing verbatim!  

“What did you do? Please elaborate?? Such certificates are sent by IT/Vigilance department of Govt of India, to persons having an impeccable track record of regular tax payments & no offences registered, in Govt data tracker! Just a law-abiding citizen. I am also told this is an initiative to motivate/thank taxpayers while furthering the stated objective of putting a high premium on honesty. I have received two such certificates already. Many others also must have! 👍😊 

An individual or an organisation can go to the website https://pledge.cvc.nic.in/ and take this pledge if one desires so. When I went to the site, it also shared information that 85,86,062 individuals and 123,138 organisation have taken this pledge. In the discussion  on our WhatsApp group, somebody said, “Why do you need a certificate?”  

Then a thought came to my mind. We always ask the question what has my nation done for me? But should we not be asking the questionwhat have I done for my nation? I feel that the British have, along with many things, ensured that our pride for our nation was killed. Even today some people say, “We don’t deserve to run our nation. The British should be brought back to run it.”  

The current government has taken many actions in international diplomacy, where people listen when India talks! Now, do we not feel proud of the nation? One major historical correction by India of removing article 370 provisions for Kashmir got allround support in the world. Except for Pakistan’s all-weather friend China, all major countries have supported India. China too is looking at Pakistan from strategic and commercial point of view. Let Pakistan default on repayment to China then it will be interesting to see what China does!  

From the beginning of the 21st centurythe concept of media changed drastically. We started having TV news Superstars” who considered themselves knowledgeable in everything. They started behaving as if they were Gods of media; all others were treated by them as mere mortals. Sycophancy was at its best during this phase. Corruption, both material and moral, reached its peak. There formed a group of people who had jumped the free jaunts bandwagon. They would travel with ministers and the Prime Minister. They ended up giving sermons to others — Social Media like Facebook, Twitter, et al. added to this list. You and I were immaterial. 

Now this government has started the initiative of pledging integrity to the nation. It is like saluting when Jan Gan Man is sung or keeping your hand on your heart! I felt proud to take the formal oath; I felt proud of my nation. All through my life, I have always tried to avoid paying bribes for personal work or business. Sometimes I failed as I was not the final authority to take that decision; I was an advisor to some companies. But in my software and furnacerelated business, I have never paid a single Rupee bribe.  

Some of my friends were cynic about this drive. India has had a poor record as far integrity is concerned. Sometimes, we say God Promise; similarly, here we are saying “Nation Promise”! Till date, not even one per cent of people have taken the pledge mainly because many may not be aware of this initiative. When we say God Promise, do we break the promise? The same logic can be and should be applied to your nation. Assume that even 5% of people take this pledge, will it not make any change in India? Will you beak your new version of “God Promise”?  

What have to say to the cynics? For those who tried to make fun of the certificate, I shared, I will say in the endI can understand the doubters because things have not been as they should have been, so they feel that people will take the pledge but keep on doing what they have been doing! We are always going to have Naysayers who are fashionably called Liberals! Liberals group was not very much against government stuff as they were getting their foreign jaunts and were able to run Nalanda Vidyapeeth-just to give an example.  

Government has started a new portal for a portal http://www.pgportal.gov.in/ The portal is used as  Centralised Public Grievance Redressal Monitoring system 

Such an initiative has never been tried before.  

External affairs ministry under Sushma Swaraj was helping individuals stuck in foreign countries due to some issues. Mr Modi makes it a point to spend a day during Diwali with soldiers on the borders.  

I am not at all saying that it is hunkydory on all fronts. In many areas, issues and problems continue. To run a nation as big and as diverse as India is not going to be easy. On top of that, the British had looted our wealth for 150 years and made us a developing countrywhere famines were a part of life initially. But the green revolution, white revolution (Milk and Sugar) have taken place. In many areas like infrastructure, India is progressing fast. Metros are being built in many large cities. Let’s not forget ISRO!  

To me, the definition of naysayers is a bit different, besides the conventional oneThese are the people who after having toilets at home, want to go to the fields because they feel manly. It is those people who routinely break many laws and rules of public life, like parking, wrong side driving. These are the people who behave rudely with service providers like waiters; they cut corners at every possible opportunity in public lifeThese are the people who follow every general rule just after taking a fivehour flight from Mumbai to Singapore!  

About the friend who made fun of my statement about the certificate should go and ask the Sahara Boss, DSK Boss, Unitech Boss and many other such socalled big people if things are funnyMallya and Neerav Modi are enjoying their new status as fugitives and are forced to take shield behind the slow legal process in Britain. I am sure they have very high social status in the British page, three people!  

Income tax department sends certificates to people who pay personal Income Tax above specific value and appreciates them for being honest and proud citizens.  

Government is trying to push honesty culture, and if people find it funny, they must laugh loudly! If someone finds that it is a joke that I am proud of being an Indian, so be it! Some people have queer sense of humour!  

 

 

 

Cheats, Frauds or Failed Businesses!

Last few years have seen unprecedented situations in the construction business where tens of thousands of customers like you and me have been cheated by non-completion of the projects en mass and people are left in limbo. For many, their life’s savings have gone, on top of that, they have to pay the instalments against the loans taken by them.

Unitech, HDIL, DSK, Sahara, Amrapali group, Jaypee group are some of the companies who have cheated approximately 575000 flat owners all over India. Many cases may not have been reported for various reasons. But it is not only the builders who have done cheating. In other cases, the government and banks are cheated, the prime examples being Nirav Modi and Mallya. Recently it is found that in education “industry” too, this trend has started with staff not being paid their salaries for months together.

What is common in all these companies and individuals behind these affairs? After they started business initially, during rising markets, profits were enormous, and probably all of them felt that they had become Gods. Profits are never very high in the industry except in some IT and software related business and Narcotics! I know of an IT/Software global company who are absolute leaders in what they are doing. Even Intel is doing catchup game with them for the last 20 years. Their gross margins are 53%. So yes, the core group of people do buy Ferraris and have huge mansions. But they keep on working 24/7, 365 days. They also invest 30% of their profits every year in R & D. Recently one of their senior executives donated close to 40 million US dollars to start a Computer centre for teaching modern software technologies, at his alma mater. It was from his personal wealth.

All the cheats I am mentioning never bothered about such things and went beyond this, and started treating the companies as their private fiefdom. They diverted funds to personal accounts in hundreds of crores; additionally, they diverted money to different personally owned companies. So everything used at home, including their toilet papers, was spent by some company or the other.

The question that comes to mind is like the title of Count Leo Tolstoy story. “How much land  does a man need?” On the same lines, how much money does a family need? One crore, ten crores, hundred crores, a thousand crores? Maybe my assets are so small that I don’t understand what thousands of crores can do?

One thing is for sure, all of them become very arrogant and think that doors anywhere will open to them by saying “Open Sesame”! Probably they did open in specific corridors but current government in India, since 2014, is closing doors of their cells in jails. Or they have formally been declared fugitives. If this were to happen to me for such reasons, I would not be able to look at myself in the mirror! But not these people.

How do they operate? How did they manage to cheat? In many cases, with the help of someone in the banks, in some cases by defrauding the bank. First major cheat located was Harshad Mehta, 25 years back. In connivance with officers in Bank of Karad, he magically created FD of Rs. 200/ crores and rest we know what happened.  In some instances, senior bank management may have no business sense, or they were bought with some quid pro quo deals! Chanda Kochar of ICICI appears to be the case of quid pro deal where her husbands business was helped against sanctioning of massive loans in Videocon case. In the case of Neerav Modi, there was one middle-level officer who knew the systems well. He helped Modi by doing paperwork outside the computer system. Modi would take every time even higher loans to return previous loans and balance money for himself. I had read the news that he was also in the business of fake diamonds! So maybe his working capital requirement was not high!

In the recent classic case, owners of HDIL in Mumbai joined hands with Bank Management of PM Coop Bank. The bank management ended up giving HDIL loans which were 73% of total loans sanctioned by the bank to all customers. Luckily sleuths have located 1100 acres of land purchased in last few years which is now attached. If there is a delay from the government side to find out the misdeeds, the money trail becomes very weak, and it becomes hard to track assets that can be attached. On Rs.600/ crores turnover, the family had bought two small aeroplanes, a yacht, and huge bungalow in Alibag which was used to invite makers and shakers of Mumbai and Bollywood for parties; also maybe there were collateral benefits (not damages 🙂🙂)

It also appears that these “business people” forget the basic principles once they become big. DSK is one such case from Pune. He came up with the really hard way of doing business. From small projects, he graduated to create a big condo project of about six thousand condos. He handed over the homes in time and had become famous in Pune. After this, he wanted to make a township which was worth more than Rs. Ten thousand crores (the US $ 1.6 billion). He realised that he would fall short of funds big time. Hence, he started raising money. Because of his excellent track record, people in Maharashtra gave him the money, but many internal issues were going on, which came out too late. He used the caste card and convinced Maharashtrian brahmins to keep fixed deposits with him. The deposits were serviced well initially, but later it almost looked like a Ponzi scheme. He forgot the main principle that FD’s are to be returned back to people. Interests need to be paid regularly. He started treating FD’s like equity. I have been told by a friend, one of DSK’s vendor, that vendors were treated shabbily. Kulkarni’s wife would treat vendor’s like beggars. Financially, they were already in doldrums and rumours started spreading; these were not rumours, things had gone out of control. Thousands of customers were cheated; hundreds of fixed depositors were cheated. But obviously, there was no change in his and his family’s lifestyle, they had 46 high-end cars. Their almost ready condos were also found to be under lien! The whole family went into jail. But there is no relief as most of his assets are already under some claim or the other. With all this, there was hardly any progress in the 1.6 billion dollar project!

Ranbaxy is a classic case of cheats. The promoters sold their company to Dai Itchi of Japan. But Ranbaxy concealed and misrepresented many things and finally lost their case with due arbitration in Singapore. But biggest fraud was that one of the brothers could not pay his dues to Dai Itchi as he had diverted Rs. 6700/ crores (the US $1 billion) to a Guru! It is honestly beyond my understanding what these people are trying to do and why they do it!

So it brings me back to the same question? How much money does one need? All these so-called big shots are in jail. There are huge problems faced by courts and the government as the assets of most of them cannot be sold for one reason or the other. So who will complete these stalled projects? How will the people at least get their money back?

I must share one story I was told by someone about a well-known industrialist. He had bought a Rolls Royce; after a few months, he ordered another one. When the industrialist was asked, “Why the need for the second car so soon?” The industrialist replied, ” We had dinner at my home yesterday. A well-known politician said that the car looked superb. I jokingly said, take it if you want. The person drove away in my car at night”! Quid pro quo?

Can one really spend the amount of money that is diverted in such projects? So-called fame, bungalows, homes in foreign countries, planes, yachts, but finally jail! Is the urge to mingle with movers and shakers so strong that they want to “arrive” by any means? I presume that all these are not bad people, but they lost control over their thinking. They all started thinking that the setbacks can be overcome by borrowing more, most of the time, fraudulently! Some of them have fled from India, but the government is making strong efforts to bring them back to India.

The main reason for this situation is that they all started thinking that they had become Gods; all doors to where ever they went would open with their money and fame. But only doors that finally opened for them were jail doors.

Startups, Venture and Angel Investors!

I am venturing into an area where even angels are afraid to tread! For a long time, I have felt lost with the terms mentioned in the title. To my understanding as an oldie, anyone starting a new business is a start-up. Investopedia definition of a startup is below:

A startup is a young company that is just beginning to develop. Startups are usually small and initially financed and operated by a handful of founders or one individual. These companies offer a product or service that is not currently being provided elsewhere in the market, or that the founders believe is being offered in an inferior manner. 

If we go by the strict definition of startups then the names like Uber, Airbnb, Zomato, Oyo and their likes come to mind. These companies have provided a service or a facility which was never offered before. These facilities became possible because of the internet and IT. I wont call Tesla a startup because they are providing a variant of an existing product; that variant is no doubt a game changer as it will change and push the Petroleum economy. But the car itself is not a game changer. 

 

Unicorn1I read a news item today which said that Delhivery a startup has become a Unicorn company. Unicorn is a mythical animal depicted from thousands of years and appears unique; maybe that is the reason this name Unicorn, a unique company. Unicorn company is defined as a company whose valuation as per markets is One billion (One thousand million) US $, i.e. Rs Seven thousand crores. As a semi-retired person nearing 70, I feel out of depth to read such figures. But for records, all my life I have run a business (a dirty secret- a software business) and had consulting assignments. In both my activities, I have dealt with companies from a couple of billion dollars to nearly 40 billion dollars. So, these numbers don’t scare me, but personally these days I go to an ATM to withdraw money for myself, I am a small man.  

Many of these Unicorn companies have been based on the internet, and IT technologies but some of them are doing the work of brick and mortar things as mere mortals do. Here is a table that I got on the net and made me start thinking. 

US $ Million  Revenue 2018 Funding   Valuation  R/F  R/V  F/V 
BYJU  219  784  4000  0.28  0.055  0.196 
Swiggy  72  1500  3300  0.048  0.022  0.455 
Zomato  47  653  2500  0.072  0.019  0.26 
PayTM  51  2200  10000  0.023  0.005  0.22 
Oyo  400  1600  5000  0.25  0.08  0.32 
Policy Bazar  62  35  1000  1.77  0.062  0.035 
Udaan  4  285  1000  0.014  0.004  0.285 
Freshworks  14.5  249  1500  0.058  0.010  0.166 
Delhivery  15  365  1500  0.041  0.010  0.243 

 I will briefly mention what they do.  

  • BYJU is in online training– revenue from students 
  • Swiggy and Zomato are restaurant food delivery companies- revenue from the restaurants whose food they pick up and deliver. Tie up with restaurants and menu details is unique 
  • PayTM is a wallet plus allied things company
  • Oyo- helps book hotel rooms and takes money from hotels– this is unique 
  • Policy Bazar- helps you buy many policies online- commission on the sale 
  • Udaan is like Flipkart and sales products online 
  • Freshworks offers sales and support solutions 
  • DelhiveryPhysically delivers goods from place A to place B and has warehousing facilities.  

To me except Oyo, Swiggy and Zomato others do not fit the strictest of the definition. Are other companies providing products and services that did not exist before? No, still they are called startups! By this definition then, like other companies, my company was also a startup and faced the same problems as these companies are facing today. The only difference is that some experts in the world thinks that they are doing something extraordinary!  

As usual, my mind started whirring, and I have questions! What is so unique in becoming a company which some experts” feel is doing fantastic work; they have invested large sums of money in them. For an oldtimer like me what matters is how much I am selling and what is the profit that I make out of the business!  Is the business sustainable over a period of time?

I will introduce two more terms now for better understanding. 

Venture capital firms are investment companies that operate only to handle investments in business ventures that may be considered high risk. 

An angel investor (also known as a business angel, informal investor, angel funder, private investor, or seed investor) is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity.  

Now that we are through with definitions, tables, please help me solve my queries. When the companies are creating variants of existing available services and products, how do they become startups? These companies are supposedly creating products and services which are not existing. So how do investors and angels analyse them, study them and invest considerable sums in them? Uber concept never existed, Airbnb is a new concept; so in these two cases, the investors seemed to do more right than wrong.  

I have read that more than 90% of startups fail. What could be the reason? The reasons for failures are the same as the reasons for any failed businesses. These are 

  • Lack of focus
  • Lack of motivation 
  • Too much pride and ego; that you were a smart techie does not mean that you can create and run business 
  • Taking advice from wrong people (including advisors brought in by investors) 
  • Lack of general and specific domain knowledge in life finance, operations and marketing 
  • Raising too much money too soon. 
  • Lacking good mentorship  

From what I understand about the world of business, you need experience, maturity. How will young guns have this? Recently I read some story about a 15-year-old who has done something great in creating a platform for short story writers. He has two thousand hits to his short stories! Come on, its not two million hits. I also happen to be a blogger, and I know what hits are and how difficult it is to get them.

Similarly, how can 25 years old be know all? He may be brilliant both in his techie side and convincing the investors about his ideas about which others don’t know much, anyway. How do dollars get converted into a sustainable running company? 

The table above shows all the figures in million US dollars. It shows revenue, money pumped in and valuation! The revenue is tiny when compared to the money invested. Who does the valuation? What is the significance of the appraisal? I will tell you something about valuation. How can an unproven company, with unproven management, product or services with 4/15/14 million dollars have 1.5 billion dollars valuation?  Do investors not understand these things? But since private money is involved, who cares?  Is this gambling, horse racing equivalent?

Apple was the first company whose valuation reached one trillion (I can’t count zeroes) US dollars. But once the US-China trade war started, it appeared that Apple may have problems. Immediately its valuation has come down, now Microsoft is numero uno! Apple valuation with tons of money and great products and with proven track records can come down. The companies listed in the table above are both brick and mortar companies and IT companies with nothing proven. Their valuation is going up and up and up! Any logic? 

Friends I will introduce you to more things. What people called in olden days as an investment, is now called burn rate. These companies burn money, it’s not yours anyway. Then there are serial entrepreneurs a la serial killers! They create startups, burn money (a % goes to own pockets), take the company to a level and start looking for larger companies for merger and acquisition! Someone decides and declares them more valuable. So promoters, investors, angels all make money as a new set of people replaces the old team. The show goes on. Nobody keeps track of what happens to such companies. Since bank funds and financial institution money is not involved nobody cares. No Nirav Modis and Mallyas are created. Start next company and go through the same cycle, make a million or two. The cycle goes on.

The end result of all this is that “Startup Culture starts in your country. The startup language is a new language which most don’t understand and I am sure you have still a lot of questions on the subject discussed, even after you have read this piece!

 

 

 

 

 

 

Richie Rich!

RIchieRich

 

Richie Rich! This is my favourite comic character, in fact I still read these comics when I get a chance to read them. This kid is from a rich family and has everything that one may dream of. I used to wonder, how hard his family must have worked to reach this stage. Even today I dream of becoming Richie Rich but now there appear to be simpler ways than working hard, slogging all through life!

Nirav Modi has shown us the way of doing these things. This Modus Operandi had started with Harshad Mehta when he got a bogus Rs.200/ crores fixed deposit certificate. This was done in connivance with some bank official from Bank of Karad. The original FD certificate was for Rs.2/ crore and was conveniently changed the certificate to Rs.200/ crores. Using this fictitious certificate Mehta borrowed money from institutions, and rest as they say is history. When you borrow money against a Bank Deposit, it is assumed to be correct one in all respects and loan is simply given against the most liquid asset. Bank of Karad later went into liquidation. Why work  hard when you can cheat? A little jail term and some bad name is ok as long thousands of crores are available to you.

What we all have seen is that real money is created over a period a few generations of consistent efforts and hard work, sometimes a bit of luck also plays part. But during last 50 years, share markets, and IT companies with their very high  valuations and hence their skyrocketing share prices, have created billionaires. But in share markets real billionaires are far and in between. Not like those from IT industry. Classic case is Jeff Bezos, founder of Amazon. Even after 25 years in business, Amazon is constantly in loss, but keeps on doing business, gives deep discounts on products, Bezos is currently the richest person in the world. Some years back he bought iconic Washington Post for US $ 250 million , in all cash deal. These people have huge personal wealth, they have money to pump in business continuously, but their companies are loss making all the time! But at least they are not cheating banks and you and me!

In normal course, non- IT businesses do become bankrupt, fail but in IT industry failed companies on your CV make you special! Venture Capitalists pump more money in your next  ventures. Cheating happened to some extent, like in case of Enron. There are normal cheats but those of the size of Mallya’s and Modi’s were not many. There was a classic case of Chrysler corporation, who were given special loan by US Government. After a couple of years, this loan was repaid! The Chairman, Lee Iacocca at that time made a famous statement. “We borrow the money the old way, we repay it!” This one statement explained the way the business is done, world over, including India !

But with Modi’s and Mallya’s of this world, things are different. In recent years, there is a big list of people, from different sectors of industry like, power, construction and steel. These companies were given such huge loans that they have sucked the banks in trouble because they are all on the verge of bankruptcy. The beauty of current law in India is that the personal assets of the defaulting promoters cannot be attached. So, most are enjoying life as if nothing has happened.  A bankrupt company’s assets were being auctioned. The original promoters had failed to repay Rs.800/ crore. Original promoters took part in the auction and bought the same assets back at Rs.50/ crores; due to declaration of bankruptcy Rs.800/ crores went into thin air! A law was recently modified to stop people from cheating further.

In case of Modi, fraudulent LOU (Letter of undertaking) were issued by Punjab National Bank. Officers from the Bank issued these without any guarantees. This issue came up in January as the suspect officer had retired and when Modi needed fresh LOU’s, the new officer asked for guarantees. Modi’s people said that they had never given any guarantees before. Why they are being asked now? The whole Pandora’s box opened!

There are many checks and balances in the system but those who are supposed to check, break the rules, how to stop such frauds? It seems that the sizes of fraud are increasing in proportion to inflation and lifestyle. With whatever wealth they had,  before fraud, both Modi and Mallya could easily have lived with whatever lifestyle they wanted! But why do something fraudulent? What is enough money? It comes to basic question; how much land does a man need? What does one do with tens of thousands of crores of Rupees? There is a reverse trend started by Bill Gates who is encouraging the superrich to donate their assets because those assets by remaining under control of an individual or organization, remain idle. If these are donated and correctly used, world will be a better place to live.

In case of Modi he has been living in Europe most of the times, in case of Mallya also it is the same! At least at present they are lucky otherwise, when and if they are brought back to India, they will meet the same fate as Sahara Chief, Unitech boss, Jaypee team and now probably D S Kulkarni. What is the thinking of these people? All these people had done reasonably well in life, till they started doing wrong things. What were they trying to achieve? To become biggest in their field? These four groups have cheated individuals like you and me! Many of us have taken loans to buy flats, many have given life’s savings as FD’s after retirement!  Now there is no way for any new infusion of funds; income for these retired people have stopped, and capital is locked!

Let us hope that government of India, irrespective of party in power, continues the good work they are doing. They are ably supported by our courts by giving strongest possible indictment for bad deeds of the suave looking bad guys! But in discussions with some friends, I found that some people have sympathy for the these fraudulent people! They felt that it is just bad luck in their business cycle and people should support such business people. If you are supposed to be doing Rs.10,000/ crores of projects, and cannot raise Rs.50/ crores to repay depositors money, you do not deserve sympathy, they deserve law to take over and may free stay in Tihar jail or jail of your choice!

Who is the worst? 

Recently we have seen a spate of financial defaults where the so-called giants in industry and business have financially played havoc. Mallya, Sahara Chief Subroto Roy, Unitech Chandras list goes on and on and on! Question came to my mind who is the worst of the lot? I missed on adding the name of our local hero from Pune D S Kulkarni, who has joined the elite list though not on that scale.

In such matters two major aspects need to be checked. Whose action has caused the problems to the health of banking & financial system, and whose action has caused the most damage to the livelihood of individuals besides the banking system? The first group which has caused the issues to banking system are led by Mallya. Before he could be “caught”, he managed to change ownership of companies and to my knowledge companies are running reasonably alright! It appears that both Mallya and the new management have managed to siphon money to tax free heavens. Mallya apparently has billions of dollars in his personal name and has managed to evade tax in many locations in the world. How to get money back from such people? Assets he created all over India have become tricky to dispose-off, now that these have become tainted assets. Same issue is there in case of Amby valley, near Pune, huge asset created by Roy!

How to decide who is the worst of the lot? My thought process tells me that those who have cheated individuals, many of them retired, who invested most of their life savings, are the worst culprits. By this test Mallya may appear to be a saint. No individual has launched any complaint against Mallya. By this logic other three appear to be major culprits. Roy and Chandra are in jail for some time, thanks to Supreme Court; has their families’ life style changed, no way! They have no money to return but have enough money to blow! Our friend D S Kulkarni’s family lives in rented flat! So sad! Not really, the flat is in Trump Tower in Pune with a rent Rs. 400,000/ per month! Extremely high by Indian standards. Mallya’s case is totally different. He moved to UK when there was no criminal case against him. So, when he entered UK, he was not “tainted”! The propah British law says that when Mallya entered Britain, he was not “tainted”. So procedures had to be followed, as he was not a fugitive when he entered Britain! British took their own sweet time to start the extradition processes. The Indian authorities are now tensed up and keeping their fingers crossed. In another similar case in Britain, the judge who will be handling Mallya’s case gave a decision that the concerned culprit will not be extradited, as jails in India are in extremely poor condition. Same logic may be applied in Mallya’s case!

I don’t have knowledge of various laws but my common sense tells me that such people’s factories shut down, businesses close down; the so-called owners are still having fun whether there is profit or loss.  The workers, financial institutes, and vendors are facing the main brunt. I remember when in Pune, Garware Nylons shut down, the loss was to the workers, vendors and banks! Garware’s have been moving around in their helicopters!

Why does this happen? How is this allowed to happen? Where is the lacuna? When any organization starts, it needs money; it gets money in the form of equity, loans and fixed deposits and working capital. The persons who start the company are also expected to put in the seed capital. Everything works quite all right in the initial phase. How business runs, depends on many factors some under control and some not under control. When people invest money in business as equity, it is a risk taken knowingly. When business does well people get dividend; and at some stage some investors liquidate their shares, based on share market variation and make their kill. But when the business does not perform well they are in for a loss. This is a known risk for investors. Same things happen in case of fixed deposits by people. Interests are paid on time, whenever requested deposits are refunded. Problems begin when businesses start floundering. Promoters, at this stage probably start treating FD’s as equity! If business conditions deteriorate further then the deposits become Ponzi schemes! Take deposits from someone promising high rate of interest and try to pay interest to older depositors. Vicious circle goes on and on and on till the court and Police cases start. Unfortunately for individuals, the first right on recovery from such organizations is with financial institutions!

In the meanwhile, the smart promoters have done something in between. They take deposit under the name of one company and transfer the money to their other businesses. This is done like hedging when intentions are not good . So, their other businesses run well. The assets and incomes made in these businesses are not in the name of original promoters of the main company. You don’t need to own a helicopter or a Mercedes to use it! 😃Holidays in cool climes continue because it is never done under parent company. Wealth is flaunted and social activities continue. I am by no means a socialist or a communist but what I have just explained is simply cheating. Small vendors, retired teachers, others are affected badly. This is what is happening in case of D S Kulkarni. He even has gumption to claim that his business started suffering when Lehman Brothers collapsed in 2008!

How do these people maintain their lifestyle even after they are in jail or court cases are on? Here is an example from building trade. It is pretty simple. Company A buys a plot of land. B, C, D and E are other companies from the group. The plot is finally purchased by E following the straight path via B/C/D. By the time plot is in possession of E its price maybe five times! This is loaded on the project to sell homes to us. A is the company who takes FD’s from people but income of A is meagre and this money is routed to “other” companies. A & E ownerships may have some connect but B, C, D are owned by other family members or are trusts. These companies will have high profits! Another way of making the killing is that when E sells a home either B/C/D gets say 3 % commission on each sell as they are “Sells Agents” for E! Got it.

What is the solution? Believe in market rumours! Smoke is seen only when there is fire! It is impossible to know which organization can go into difficult times. The moment you hear some story, withdraw money from such organizations. Don’t keep on hoping that they will come up again! If they do come up put your hard money with them again! After all it’s your money! My take is that those who put individuals in difficulty are worst of the lot!