What Government of India can learn from Wimbledon !

I am Director of Company in Pune which is having a peculiar problems in scrutiny. The IT officer is insisting on the company effectively  changing its method of accounting from Mercantile method to Cash accounting, He is asking the method of revenue recognition to be made on Cash receipts than on revenue recognition based on period matching concept of accounting. These are so very well established concepts of Accounting that they should not be questioned. I discussed with CAs and I was told that is illegal for Companies to follow cash accounting and yet the Scrutinising officer is pursuing this line of investigation. I was informed that it is a waste of time and the company will win th case at all higher stages as this is the universally accepted method as per GAAP, Company law and also prevailing methods of accounting standards for software industry.

I was introspecting what is the Root cause of the problem and a positive way of handling such problems.

In my opinion the root cause of problems is that the IRS officers come from a wide variety of disciplines and have varying skills and aptitudes. I can understand that they make make mistakes.

They also have to quickly learn everything and give proper judgements on a vast scale of matters. This is quite a task for people say from History or Arts or Medical background.

I was thinking how do we solve this problem at the root without wasting time of Appellate Courts etc ?

I got an idea came to me when watching Wimbledon this year.

Wimbledon situation

The ball moves at very high speed upto 200 km/hr and the line umpires have to make spot decisions. They have a thousand things on their mind and humans even the best of them are prone to making mistakes due to the mechanism of the mind. These mistakes can make or break a player's career. So Wimbledon a place which values tradition has come up with a solution which uses technology in a restricted manner using Review option. The player calls for a review and a higher technology which is less error prone is used to instantly settle the dispute ! The Review lapses if the player loses the review so he/she can't abuse the system.

Based on this I would like to propose an idea for tax reform for CBDT.

During every scrutiny the Assess should be given 1 or 2 Scrutiny Review Options so that any thing technical like Revenue recognition etc  can be reviewed by a technical panel based on whose expert opinion the scrutiny can be completed, The online portals can be used for the Review so that time is not wasted in movement of papers.

Lastly if the Assessee wins the Review he should still have reviews left.

This measure will use the Adminstrative experience of the IRS officers with the Technical experience of the Central panel which can deliver Reviews that will eliminate wastage of time of Appeals and Appellate Tribunals and High Courts and Supreme Courts.  Higher salary can be given and highly accomplished people can be kept on these panels so that these disputes can be resolved at the time of creation. The time of the august institutions can be freed up to use for serious cases so that the series offenders are dealt with harshly and severely thereby deterring people from breaking the law.

I request readers of this blog to take this idea to as many decision makers as possible so that we can add another mechanism to make Improve Ease of doing business across various government ministries.

Time to say Thank you Europe and America and take back our billions from them

Many years ago I met a person who worked at an US think tank. They had done a study for the US government in the 1990s and calculated that the cost to the US state of producing a world class  Engineer or a management graduate was in the region of US$ 250,000 to US$300,000. So they advocated an easy visa policy for such individuals so that the US could get such easily trained persons at short notice. He also mentioned that this was a strange situation  where the developing country was actually subsidising he developed country and getting aid with very high multiplier effects from them

This person also said that they studied  the racial origins of Maths Ph.Ds and found that hardly any US Caucasian was doing a Ph.d in Maths. They realised its importance to the future of computing and recommended to the US government that when person gets a Maths  Ph.d degree from a good university the US government should immediately confer an US citizenship on that person.

This shows the nuanced understanding of the US system on the role of human resources and how to quickly absorb and leverage such resources when they come your way.

After decades of losing our smart people to the West we are now in a position to reclaim back our  prized assets namely our talented people who are now well trained.  In unregulated  fields like management  and engineering this does not require any policy changes. This may partly explain the explosion in new ventures in engineering and technology in India by returning diaspora. However other regulated fields such as medicine require regulatory approval and need policy interventions and procedural changes to make time bound the approval process to include such professionals in our workforce.

This also includes the need to harmonise the degrees as different countries in Europe, the US may give different names to the same education. Even in India, the Post graduate  education in management is  called Post Graduate  Diploma in Management in one Government institution and the Masters in Business Administration  by another Government institution. The same degree in Engineering is called Bachelor of Technology in an IIT and Bachelor of Engineering in some other government engineering college.

In this regard we should learn from the US system which is very alert to study the various degrees in other countries and recognise them appropriately and harmonise them with their system.

This requires us to have a fast track method  to study and validate equivalence of various degrees and issue requisite permissions in a time bound manner for talented and trained Indians to come back and join the workforce.

This could be a bottleneck in medicine and other fields.

This is an issue as I personally found out in the case of one of my neighbours Anirban and Sonali. Anirban is an IIT Bombay graduate  and Ph.d from Princeton University. He and his wife Sonali wanted to return to India and work in India and do something for the country. He is a faculty at IISER, Pune  Sonali is a Doctor of Osteopathic Medicine who practises in India. Her degree is the equivalent of MD in America but it is not accepted in India. As a result she is not able to practice in India. As a result they are living in separate continents despite having a small child also now. The details of this case is in this blog.

The Government should look into this case and more importantly the policy to  remove all bottlenecks and make the best of this opportunity. If we are able to get 10,000 highly trained people  we could easily save $ 500,000 per individual in training people to this level which would amount to taking a gift of $ 5 billion or Rs 35000 crores from US and Europe . This does not even include the downstream effects of employment generation and taxes generated for the country and the rapid advancement that would be possible within a short time. Needless to say it would take us at least 15-20 years to build up a bank of such competent people if we did it from scratch not to mention the significant costs.

The real tragedy of reservation today

The real tragedy of reservation today is that in states like Tamilnadu (State Per Capita GDP is Rs 63549) which are very forward in economic development every one is backward barring the Brahmins, Chettiars, Saiva Pillais and few other communities. Compare this with states like UP wiith State Per Capita GDP Rs 23392 where about 40% are "forward castes"and and Bihar ( Rs 17064) upwards of 20% ( I am not able to get accurate data on this - any help will be appreciated) . Tamilians with access to electricity, much better schools, economic opportunities are thus getting disproportionate and undeserving share of the National OBC pie. The fools like Mulayam, Nitish don't understand this and are still dividing their vote bank while the entire fruits of what they are fighting for is already stolen by TN because they are essentially fighting with the politically, economically and socially castes of TN who are backward castes using their political clout. And now they are supporting Hardik Patel little realising if they add Patels to such lists, UPs Bihar OBC will not get much out of this. In Pune in one of the central government institutes due to job reservation for OBCs most jobs are taken by Tamilians and locals like Marathas don't get the jobs - hence the demands from them to be declared backward. There is relative logic in this -if they are on same keel as TN backward why can't they declared backward ? If government jobs are slowly set to get based on entrance exams, soon TN candidates may take very disproportionate share of the same. I am hoping some one will file a case to compare the State GDP per capita with the % of state considered backward ( i.e. OBC+SC+ ST) and cap the limit based on state per capita GDP. Also the same state per capita GDP should be used which are calculated for sharing tax losses on VAT so that some states don't claim to be poor to claim reservation and rich to claim lost VAT compensation.

The beta tested society

India is a very old civilization. If astronomical observations in some of the vedas are to be taken, then we  have been a civilization for  a minimum 6000 years old. We have diverse climate, soils, people and problems which required different approaches to managing our society and civilizations. In complexity, India is more than a continent. Like an old monkey, we have tried every trick in the form of social organization. Our proverbs, aphorism, myths, stories, epics and even humour are testimony to it.

In the field of management, we try to learn from past practices and mistakes so that we do not repeat  the same. So people who want to become experts in management go to a Management School instead of trying everything afresh but in running societies and civilizations the same principle is not applied. Other civilizations instead of learning from us want to convert us into their untested ways. This is like running an Apple Macbook Pro not on Apple software but on a  new and exciting software written by some new funded start up in Bangalore that started yesterday.  The current tragedy is that you have tested software to run a civilization and from a vendor who is open source and willing to freely give tech support - and yet no one wants to learn and on the contrary they want to impose on us  their  untested software which is showing signs of great instability and may crash  on that vendor !

In understanding concepts like marriage, family, rights, duties, clan, caste, war etc our understanding is very elevated.  Not because  we  are smarter but we have done more mistakes than others too and moved on. Is it not true that one of our own tried out the ISIS type violence in Kalinga and lived to see the utter futility of violence without any meaningful results and gave it up completely ?

In the Hindu marriage, for example there is little place for romance in decision making. Romance may happen if you are lucky. Marriage is a institution to carry the family line forward. It is more about demographics and carrying forward genes, professions, knowledge etc than looking into someone's eye and feeling one with them which doesn't last too long. How did this knowledge come from - fiat, practices, observations ?  Could the West have learnt from us in this aspect and saved themselves so much anguish ?

Many of things we consider "not politically correct" teachings of people like Chanakya are now corroborated by social research in America. The website the Fatherless generation pretty much says the same thing that Chanakya said i.e, that houses in which  there are no men and women are leaders are likely to have severe problems and are to be avoided.

Why won't it ? Chanakya must have merely observed cause and effect of the same thing when it happened here hundreds of years ago. Is it not highly likely that at some point in time, India had run through same problems faced today by US and Chanakya had merely been a social scientist tabulating the results in pithy aphorisms ! 

Is it a coincidence that our study of health is called Ayurveda and not Aushadveda ? As citizens of this planet,  do we really need to again struggle with Aushadveda  like the US where medicine accounts for 1/5th of their GDP with no end in sight and then think of finding solutions which eliminate root causes - when this knowledge was present somewhere else a long time back ?

The objective of writing this post is to not to make the case that we are smarter than other civilisations. It is to make the case that we have tried out more things, run more betas, failed, succeeded and altered things more than others can even begin to imagine due to our long stint as a civilization.

FDA imposes strict methods on testing new molecules and drugs but rules to run a civilization are run as experiments in which neither past knowledge, experiences or precedents are taken into account ! 

In the same manner we send kids to schools and colleges  not because all that they say is right but because they have a lot of knowledge and/or wisdom to offer, other civilizations would gain a lot and reduce their sufferings if they were to observe and learn from our long  experience  instead of dismissing us as a primitive, backward or unscientific society.

Even the response to westernization is so different in India and Islamic societies. We are trying to run with Westernization and see how we can fit some of it into our civilization.  Our experience in absorbing  democracy, technology, food and working with it stands testimony. We have the strength to run the program for sometime and finally even reject large parts of it as we have done in the past with programs that did not work ! 

This is the real reason India deserves to be the Jagat Guru. We  are like the Silicon Valley of civilization. We have the openness to try a lot on on ourselves, learn and carry a lot of knowledge which is tested by time, place and numbers forward.

As individuals, the sooner we try to understand the extent of knowledge available in our country and try to make sense of it the the better for us - else even at a personal level we risk exhausting ourself making old mistakes again  and turning ourself  into more modern "case studies " for future generations !

Reform by a thousand cuts

Recently a friend called me up to ask if I though there was any real reform happening in India since the ascendancy of Shri Narendra Modi to the Chair of the Prime Minister. This friend, who is in the financial markets, said there is currently a view among many that the PM is only doing things which are  not good for the country such as giving bank accounts to poor people, freebies in the form of free insurance, loans and is not really doing anything substantial.

I thought about this and tried to make a list of things that have been done since he has come to the PM's post. Here is a list of which gives a flavour of the kind of things going on

1. Proposal to merge all hydroproject companies into one big company. This is the kind of decision usually a private corporate group takes. It is based on improving  economics, efficiency and reducing costs - all alien concepts to traditional management of PSUs.

2. Instructions to bureaucrats to reduce all forms to 1 page.

3. Proposal to accept citizens self attestation instead of notarized documents

4. Firing of all political appointees from board of PSUs of national strategic importance

5. Closing tax loophole in debt funds by which the ultra rich were not paying tax on their Fixed deposits and making the country lose thousands of crores.

6. Cleaning all government offices and making them organized . Incidentally this is one of the principles of Kaizen. When the Gemba (work place ) is clean, many problems become self evident.

7. Announcing policy to build toilets in all schools and giving clueless corporates a hint and a direction for their CSR programme.

8. Building relations with enemies of our enemies. Sending a clear message to China to decide if wants dhandha with India or territorial ambitions .

9. Fast tracking cases against MLAs and MPs. This changes the incentive to stand for elections completely. If you are a criminal, it would be best if you did not stand for elections in such a regime.

10. Proposal to release under trials who have already served more than half the maximum sentence possible for the crime of which are accused. This has the ability to reduce cases, decongest jails and speed up the judicial process.

11. Nuanced removal of retrospective judgement provision with  losing its teeth. Now the Junior assessing officers have to send their order to a central committee - who will study, vet the order and then issue it. This keeps flexibility to nab crooked companies while removing the powers of junior officers to ruin our nation's reputation by their vile acts/ignorance.

12. 100% FDI in Railway projects.

This is just a top of the mind list. I am sure daily readers of newspapers can write many many more.

None of these by themselves will be great but each of them are a cut on the old establishment. They are a clean break from the old style of doing things. They will have an impact. None of them can be called big-bang but each of them is a small step towards building a new India. 

No one improvement seems to be big but the total will provide massive change. This is very similar to the Japanese movement of Kai-zen - perfection in small steps.  Also most of these ideas have come from those who are working in the area and they have buy-in from those who have to implement the ideas and are not something thrust on them from the "high command". Finally each item is small so there is not much resistance to it.

This way of doing things is to keep making small and steady improvements in each and every activity as you come across them, while also working on the possibilities of the bigger things. In such a scenario there  may be no real big Bang which news anchors can discuss at length at 9 pm. These small changes and improvements  may work quietly and silently and perhaps the big bang may be heard only  during the next election results !

Till then, all we may see is change of the status quo by a thousand cuts.

Saving the cement industry from itself

The cement industry is in a peculiar situation. They are having almost 350MT of capacity. They are using only 220MT. Seen in a historic context, this is an alarming situation. Such a low capacity utilization should have led to the industry been in doldrums but somehow that has not happened.

Despite the low capacity utilization, they are adding capacity constantly - a truly unfathomable move especially by many players across the industry further adding pressure among them to keep cement prices high. In fact this low capacity utilizations, coupled with price hikes and new capacity additions itself may be proof that the industry is now working in an above board manner.

This phenomenon is causing high inflation in cement prices and waste of national capital. If one takes 85% to be a fair capacity utilization then  the industry is carrying almost 100MT extra capacity. This means about Rs 70000 cr of bank loans are being wasted.

 It is time the the government has a dialogue with the industry to make them understand that they are supposed to earn fair rate of return on assets at capacity utilizations of 80%+. Also since we have also enough capacity the RBI and Government of India should ban fresh loans  to cement industry until the capacity utilization reaches 80%.

Introducing Indian Cinemas Leading Villain ..

I was watching an interview with Mr. Arshad Warsi on TV. He said that despite Indian cinema doing the hard work it is not getting the recognition it deserves.

Indian cinema has operations of a global scale. More movies are made even in regional languages than perhaps in Hollywood. Yet Indian cinema has not become a global powerhouse. Why ? The answer to this came recently when I watched a movie of Arshad Warsi.

The reviews of the movie and the feedback of the fans on Arshad Warsi's twitter handle made me think I am living in two different planets. The fans loved it, the theatre was in splits but the reviews said something else. The review measured how good an idli was a cup of filter coffee. The movie was reviewed as though it was from some other genre. If you review a comedy as a method film, what would one expect ?

Who is the villain of the piece here ? Payola - (see FCC website) i.e, paying journalists to get a good review of their product. Payola is not a violation anymore. It is the business model of the big stars and business houses.

Further more, there is a dharma in indulging in unfair practices too. The big houses can get a good review for themselves and let an honest review be done for other films. I found that is not possible, The big houses insist on good review for themselves and trashing other films.

So small well made movies have very low real chance of making it unless

The domestic market is rigged and hence not competitive. So innovation and creativity is being stifled. Few production houses, stars and TV and print  journalists are holding the future of lakhs of cinema industry workers to ransom.

So I say, Payola is the leading villain of the Indian Cinema industry.

Are there any solutions ? Yes. We have reached the climax scene and in this movie you  the movie-goer and movie loving Aam fan is the  hero.  If you indeed find that the hype of the leading houses and actors too much and the reviews of movies do not match with your assessments, please consciously stop using these sources of information.

Use other sources of information such as Twitter handle of the stars, hashtags of the movies, friends who have watched the movie and whose taste matches yours.

If we fix this problem, there is an opportunity to create multi-billion dollar export industry from this.

I request  the Competition Commission of India to treat this as a little birds whisper and take this matter up suo-moto.