Thursday, July 6, 2017

MANUFACTURING MAY YET TURN OUT TO BE INDIA’S SAVIOUR

In today’s Business Standard, eminent commentator and analyst, Mr. A. V. Rajwade has written on the above subject drawing attention to the fact that without rapid expansion of this sector. Fast and consistent growth of Indian economy is unlikely in the near future if manufacturing does not take off.

Notwithstanding our signal success in the services sector, the greatest major current requirement is job creation. Adding to the worries is the prospect of IT industry which seems to be hazy. So, we need to explore how best we can build on our existing strengths to “grow with jobs”. In the last 70 years, no Asian economy has grown fast and consistently without expanding the its manufacturing sector. The government rightly wants to increase the contribution of the manufacturing sector to 25% of GDP by 2025, from the present stagnant level of 16%.

There are some negative developments in India’s manufacturing sector.  General Motors has recently announced closure.  Lafarge, the international cement giant, has sold its holdings in India. Carns UK is in the grip of tax disputes and may not be investing much hereafter. Nokia also left India because of tax issues.  Posco and Arcelor Mittal seem to have given up the idea of investing in Indian manufacturing. As for the big Indian manufacturers, they seem to be terribly investment shy. Project investments have declined sharply in the first quarter of 2017 – 18.

We, at present, rank 130 out of 193 countries in the World Bank’s rankings in the ease of doing business category. The recently introduced GST might help here in the long run. In the short term, as admitted by the Finance Minister, there may be disturbances in the manufacturing sector with a possible fall in output.

There is also urgent need for larger investment in infrastructure, which are highly capital intensive. They will need public funding. The progress is not very encouraging. The other problem is the decline of bank lending or bank credit going to industry. The main reason is said to be the corrective measures taken by the government with regard to nonperforming assets. Measures like the privatization of loss making public enterprises like Air India needs to be speeded up.
All in all, a total fresh look on the subject needs to be taken collectively by the centre and the states. We may just be running out of time.


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Prof. K. K. Krishnan
Chairperson - CCR &
Prof. Centre for Insurance & Risk Management
Birla Institute of Management Technology

Tuesday, June 6, 2017

GLOBALIZATION HAS A NEW CEO: PEOPLES REPUBLIC OF CHINA

After Donald Trump played the proverbial bull in the China shop, wrecked the Paris Climate Agreement and proclaimed that he was elected to serve the people of Pittsburgh and not Paris, all hell broke loose. Till then, US leadership was almost taken for granted in all international initiatives either through the UN or other multilateral forums. President Obama after prolonged negotiations with all countries was able to hammer out the contentious principle of countries preventing the rise in the surface temperature sea within a ceiling of 2° centigrade. Trump with his slogan of “America First” and preference for coal and fossil fuels, openly declared that global warming was a hoax and he was dumping the Paris agreement. 

This created grater uncertainties in the world financial and commodity markets. In the context of the prevailing volatility because of Brexit, the EU countries got together fast and decided to stick with the Paris agreement as well as all other international trade arrangements. In a jiffy, the Prime Minister of China, Li Keqiang, may be in his capacity as the representative of the world’s number two economy, flew into Europe and virtually took his due position at the high table of advanced countries, which was foolishly vacated by Donald Trump. Please remember that when the US was around, China was considered as the leader of the only developing countries. The two important European leaders Merkel and Macron of Germany and France jelled swiftly with Li Keqiang and a new global collective leadership seems to have emerged – all thanks to the abdication of the number one slot by Donald Trump.

In terms of its economic and financial clout – it has 10% of the world market share in exports and imports - you can say that China has for all practical purposes become the spokesperson for the globalization on the back of its One Belt One Road transcontinental project. Moreover, China also is the undisputed leader in the 10 – nation trading block of Asean. But for India’s own reluctance to play a prominent role either in the Asean or in the wider modern world and its miniscule share of 1% of the world trade, China has become the undisputed CEO of globalization.

It would be a long haul for India with active ‘Look East’ policy (which is only in name now)  to make its presence felt as a leading Asian trading nation and subsequently as a prominent world trading nation. This could call for decisive, quick international trade and commerce steps and execution on the part of India.

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Prof. K. K. Krishnan
Chairperson - CCR &
Prof. Centre for Insurance & Risk Management
Birla Institute of Management Technology

Friday, May 26, 2017

STORM SIGNALS IN THE BANKING SECTOR

The banking industry in India today presents a confused picture. On the one hand, super regulator Reserve Bank of India has granted bank licenses to 23 fresh applicants such as Aditya Birla Neo more, Reliance Industries, Tech Mahindra, Vodafone Mpesa, Paytm and Airtel. These corporates have to invest Rs. 100 crore each to gain entry into the banking sector.  And on the other, legacy banks, who constitute the majority seem to be on their last leg.

Ironically, the banking companies in the public sector, who constitute more than 70% of its turnover are in dire straits. Reason: unimaginable NPA burden. This ailment is has crippled almost all of the public sector banks. It is estimated that PSU banks have run up an NPA position of Rs. 6, 11, 607 crore as on March 31, 2016. According to a Credit, Suisse estimate, there could be a default on 16-17 per cent of total bank loans by March 31, 2018. Presently, the food and non-food credit stand set Rs. 75, 20, 30 crore. This would add up to about Rs.12 lakh crore of humungous NPAs.

It is in the above context that we have to examine the recent Banking Regulation (Amendment) Ordinance of May 4, 2017, which authorizes the RBI to take decisions on the settlement of NPAs and a consequent cleaning up of bank balance sheets-part of the twin balance sheet problem raised by the government’s Chief Economic Advisor, Dr. Arvind Subramanian.

It is ironical that in the bank boardd which sanctioned such gargantuan loans to corporates like those of Malya and other defaulters, there was a full-fledged representative of the RBI present on all such occasions. Neither the government nor the RBI is talking about what action would be taken against such board members who sanctioned these unviable loans. A colossal failure of good governance.

As a matter of fact, the issue is the parlous nature of India’s corporate debt, as they rely on banks for their main source of funds. 65.7 % of the Indian corporate debt is funded by banks. Large borrowers account for 56% of bank debt and 88% of their NPAs. Of this, 40% of debt lies with companies with an interest coverage ratio of less than one. Almost over half of the debt is owned by firms whose debt equity ratio is more than 150%.

This mess is because of the sanction of loans to corporates who lacked capital as well as expertise, besides of course politically directed instructions.  If the writing off of Rs. 36, 359 crore worth agricultural loans in Uttar Pradesh was bad economics, then the waiving of corporate NPAs would be worse. It looks like that the public sector banks are on a course to self – distraction over a time period with the cycle of continuous re-capitalization and self – perpetuating defaults. This is indeed a sad outcome brought about by greed of capitalists, collusion of the bureaucracy and criminal negligence in supervision  on the part of RBI and the Ministry of Finance. It would appear that we’ve perpetuated a self-serving system of socialization of losses and privatization of gains!

Will this cycle be broken and health restored to the banking system? As of now, the light at the end of the tunnel seems to be that of the oncoming train………..

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Prof. K. K. Krishnan
Chairperson - CCR &
Prof. Centre for Insurance & Risk Management
Birla Institute of Management Technology

Friday, May 12, 2017

IS DATA NEW OIL?

The first industrial revolution ram on coal and steam. The second and third were fuelled by oil and computer chips. The forth industrial revolution, experts tell us, will run on data. In anticipation, one wit coined this aphorism: “In God we trust, but others must carry data!”

It is common when a particular commodity becomes very profitable generating a growing industry antitrust regulators step in to control the players. The titans of data such as Alphabet, Amazon, Apple, Facebook and Microsoft will be facing restrictions of some kind of the other, sooner or later. Many feel that they can’t live without Google or Facebook or Microsoft. Looking at this, the regimes in different countries are planning to impose restrictions. Unlike oil companies, these data firms do not seem to be alarmed by this. Old ways of thinking about competition, finalized in the days of oil, will not work now in the ‘data economy’

What has changed?

Smartphones and the internet have led to data riches, making these companies more valuable. Virtually, every activity from the morning jog to TV watching, sitting in traffic can create a digital trace, generating more raw materials for these very same data behemoths. Artificial Intelligence (AI) techniques such as machine learning do data mining effectively to extract value from data. We have been reading about algorithms which can predict when a person is ready to buy, or about a car needs servicing or about warning a person that he is at risk from a disease in the future. Legendry companies like GE and Siemens now project themselves as data firms. The benefits from data usages to customer are real.

The data giants offer “God’s eye view” of activities in their own markets and beyond. They can sense when a new product or services gain traction them to copy it or simply buy the startup which makes it before it grows up to be a threat. Potential rivals thus get eliminated by such “shooting acquisitions”.

The earlier remedy was breaking up the giants as they did with Bell, ATT etc. In mergers, whereas in the past the regulators used size to determine when to intervene, but now they need to take into account the extent of firm’s data assets. The purchaser may be trying to eliminate a nascent threat by buying an incumbent. This explains the astronomical sum paid by Facebook for WhatsApp.

Regulators could insist on more transparency. Governments could encourage the rise of new services by opening up more of their own data banks or managing important parts of the data economy as public infrastructure – just like India’s Aadhaar. Europe is taking an approach of sharing of certain kinds of data with user’s consent. 

Rebooting antitrust for the information edge will be difficult.  It may lead to new risks: more data sharing could threaten privacy. The regulators will have to act wisely and with balance.

[Influenced by a recent article in the Economist]

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Prof. K. K. Krishnan
Chairperson - CCR &
Prof. Centre for Insurance & Risk Management
Birla Institute of Management Technology

Wednesday, May 3, 2017

A NATIONAL RESOURCE GROSSLY UNDERUTILIZED

Recently, there was this news item stating that the Government of India has directed all IITs to increase the number of female students to a significant level. The measure has been widely welcomed. Also for the reason that this can dispel the notion girls are not interested in STEM (science, technology, engineering and mathematics) subjects.  Like in the calculation of GDP or in the political decision making level, women’s contribution are either not included or their dues denied.

A recent contribution by columnist Mr. Siddharth Pai in the Mint comes up with lot of interesting data on the contribution that woman technologists are making even in areas like code writing and other branches of technology.

Three women, Beth Holmes, Farah Housion and Michelle Riggen-Ransom, all with liberal arts backgrounds, have been named by Wired as among the 20 technology visionaries who are creating the future. These three women are the brains behind the personality of Amazon inc.’s Alexa, which is an artificial intelligence device already used by millions of customers of the technology behemoth. In fact, Alexa was one of the most popular gifts last Christmas season, and continues to sell heavily.

Wired’s citation includes a brief background on the three women: Riggen-Ransom, who holds Master of Fine-Arts in creative writing composes Alexa’s r aw responses. She leads a group of playwrights, poets, fiction authors, and musicians who complete weekly writing exercises that are incorporated into Alexa’s persona. Housion, a psychology graduate specializing in personality science, ensures that those responses fit customer expectations. Holmes, a mathematician with expertise in natural language processing, decides which current events are women into Alexa’s vocabulary, from current sporting league championships such a the Indian Premier League to the Oscars. The common thread is that all three women have been writers.

Look at our own ISRO and the space programme. Lady scientists and engineers have been carrying our very vital functions and duties. As a matter of fact the project director for the Mars project was a woman scientist, Seetha Somasundarm. Some eight brilliant scientists are powering ISRO. They are Minal Sampath, Anuradha TK, Moumita Dutta, Nandini Harinath, Ritu Karidhal, Kriti Faujdar, N Valarmathi and Tessy Thomas. Hail our women scientist.

BIMTECH, I am happy to state has been enjoying a reasonably good male-female ratio among students. It is hovering around 35 per cent which is way higher than many of the IIMs. Another happy fact is that our top merit positions in all streams have been going to girl students over the years. Glad to state that more or less the same male-female ratio prevails in faculty strength. We hope to improve on the ratios to improve our outcomes.

In the land of Rani Laxmi Bai, Sarojni Naidu and Indira Gandhi we should be doing even better!

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Prof. K. K. Krishnan
Chairperson - CCR &
Prof. Centre for Insurance & Risk Management
Birla Institute of Management Technology

Monday, January 23, 2017

BIG (BAD) DATA?

The term Big Data has well and truly muscled into our daily life. Not only data pundits but marketers, psychologists, academics and policy makers try to exploit Big Data for their own ends, which according to the IT industry, is the most important “natural resource” of our time.

The problem with data is that it can be presented in many different ways. The danger lies in the fact that while individual elements of data are immutable, inaggregate, a database can be manipulated to mean different things to different people. This also increases the possibility of drawing false conclusions from data sets.

One of the major areas where Big Data can be manipulated, whether knowingly or otherwise, is in crime prevention in the form of “predictive policing”– using Big Data to identify potential criminals before the commit the crimes. The pitfall here is the historical biases inherent in our criminal databases. For instance, the Pardhis, a notified criminal tribe are rounded up routinely by the police in many northern states whenever there is a crime in the area. Similarly, there are groups of people in other states who fall into such a category. If our computers were to blindly rely on these historical databases, this would reinforce historical biases and force the community into machine – determined discriminations.

A model’s blind spots reflect the judgments and priorities of its creators. Big Data requires fresh discussion of the nature of decision making, destiny, Justice. There is a great danger of mistaking correlations with decision making, if managed wisely. Big Data can offer key insights. Otherwise these weapons of statistics will turn into “weapons of math destruction”. Society needs to tame and disarm them before they mislead the policy makers.

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[Source: articles in Mint dt. January 11, 2017 and The Hindu Business Line dt. 23, 2017]


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Prof. K. K. Krishnan
Chairperson - CCR &
Prof. Centre for Insurance & Risk Management
Birla Institute of Management Technology

Thursday, October 27, 2016

TRENDS: ONE DEAD AND THE OTHER DYING?

Recently, Andy Mukherjee of Bloomberg wrote on the day Infosys’ September quarterly results came out that the India IT industry as we know it is dead. Today two Bloomberg columnists James Greiff and Noah Smith have written that globalization too is on its last legs.

The IT industry’s demise is based on the premise that artificial intelligence and IoT will make humans redundant in many of the IT jobs from India where the off shore model employees young legs from India in US, Europe etc. Besides, there is the rising tide of protectionism in Europe and western nations, whose economic prospects are none too bright because of the global economic slowdown and geopolitical uncertainties. Events like Brexit had added to the volatility of economic operations in EU countries. The rising cost levels in China and its shrinking imports are another dampener .Added to this are the uncertainties in the Indian economy itself where new investments are not happening. Besides, the cost of upgrading the skills of Indian engineers and managers is rising because of quality issues in education. For all these reasons, Andy felt that India’s IT industry has no future, especially since the IT biggies are so very short on innovation and creativity.

Globalization is under siege from many quarters. In the US, in spite of the lip service to it, political interests from both sides find protectionism more conducive to their survival. Witness the current US presidential debate. Both Trump and Hillary are batting for protectionism. The unexpected onrush of immigrants from the Middle East into Europe has created a wave of panic against globalization in US as well as in Europe. Added to this is the financial crisis and recession because of which, Europe’s and America’s trade with each other and the world is under severe strain. The net result is the severe curtailment of financial flows across countries. Some of the unethical practices by few big global banks have also disenchanted many countries. And add to all this has been the rising tide of extremism and fears about ISIS.

Slower population growth across many continents, except the African continent is curbing the effective global demand. Low fertility throughout most of the world is also acting as a drag on economic growth. China’s working-age population is falling by millions every year. Europe and East Asia are graying rapidly and fertility has fallen to replacement levels. Only India is somewhat positive on these indices. But, its growth prospects are hampered by poor social, health and educational parameters.

International agencies like IMF, World Bank, WTO, UNO etc. are on steep decline and are becoming irrelevant. No wonder, therefore, that many believe that globalization is going the way of all flesh!

Futurologists are rendering the requiem for Indian IT industry and globalization. You can shut your eyes and disbelieve!!

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Prof. K. K. Krishnan
Chairperson - CCR &
Prof. Centre for Insurance & Risk Management
Birla Institute of Management Technology