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CONTENTS
EDITOR Gp Capt R Vijayakumar ﴾Retd﴿, VSM
READERSHIP OUTREACH Gp Capt Dr R Venkataraman ﴾Retd﴿
Sundar R Vakeeswari M DESIGN D Rajaram, Tayub Refai MADRAS MANAGEMENT ASSOCIATION Management Center, New No.240 Pathari Road, ﴾Off Anna Salai﴿, Chennai 600 006 Ph:044‐2829 1133 / Email:mma@mmachennai.org | mandate@mmachennai.org | www.facebook.com/mmachennai
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EDITORIAL
Gp Capt R Vijayakumar (Retd), VSM
Recognizing excellence in management
W
elcome to the 66th Annual General Meeting of the Madras Management Association (MMA). It’s once again my pleasure and
privilege to be associated with another special edition of the digital Business Mandate being released on this momentous occasion.
has significantly enhanced the quality of our services. Among the management fraternity, the MMA Awards for Managerial Excellence is one of the most acclaimed accolades
for
celebrating
leaders
of
businesses,
entrepreneurs and professionals for their all-round performance. It recognizes managerial excellence,
Over the past 66 years, MMA grew from strength to
innovation, service and commitment to stakeholders.
strength to carve a niche for itself as a multidisciplinary
Through these awards, MMA seeks to recognize
group
outstanding business models driven by people who think
focused
on
high
quality
management
programmes, which not only benefited its members but also the public at large. Ranked Number One among its peers from India, MMA is positioned itself to fulfil the
Among the management
vision and mandate laid out by its founding fathers. I
fraternity, the MMA Awards
would like to thank the members of MMA, Past
for Managerial Excellence is
Presidents,
one of the most acclaimed
Managing
Committee
Members
and
Secretarial staff for enabling this achievement. It has been an exciting journey, but a long road remains ahead. With purpose and values, MMA continues to focus on
accolades for celebrating leaders of businesses,
the imperative, discourage unproductive engagements,
entrepreneurs and professionals
and encourage activities that promote managerial
for their all‐round performance.
excellence. Functioning at our new Management Center BUSINESS MANDATE
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differently and are indeed an inspiration to all. The
for the next 30 years, it will cross $30 trillion by 2052.
Award applicants were shortlisted using a unique and
Such prediction is a tall order, indeed. Nonetheless, as
scientific methodology conceived by Deloitte, our
Ruchir Sharma writes in Breakout Nations, “The new rule
consultant for the Award. The winners under each
is to forecast so far into the future that no one will know
category have been selected by an eminent panel of jury.
you got it wrong.”
MMA congratulates the winners of the 20th MMA Awards for Managerial Excellence: Carborundum Universal Ltd., TANFAC Industries Ltd., and NTECL.
2022. I am delighted to present the article on the
The message from the Agnipath episode is that India’s youth must begin to look at self-employment in a serious way. Rather than don the cap of a job seeker, they must learn to be job givers. Equipping our young with necessary skills in a vocation of their choice will help them be self-employed with dignity. It is not out of place to mention here about the mandatory military service (of about three years) that Israeli youth go through. It is one of the most significant factors that Israel
discussion on the theme, “Where from Here is the $5 Trillion Economy” with eminent panellists on 23rd June
Agnipath
turned
Notwithstanding the prediction, we organized a
into
a
hub
of
innovation
and
discussion in this issue with an embedded video. Please read on and watch the video for thought-provoking views on the theme.
The Context for Gender in Leadership? The term “women leaders” is often used without any context. I think there are only two categories of leaders: Good and Bad. Leadership has absolutely nothing to do with gender.
The way both genders are wired and
conditioned creates certain strengths and weaknesses.
entrepreneurship. It is also worth noting that the young
In this context, MMA is organizing a discussion
Israelis—after their compulsory military service—are
under Women Business Forum on the theme, “Be the
often inclined to pursue higher education.
heroine of your life…”
India’s
Agnipath programme too can become a similar transformative force. It is imperative that we create a world-class education system in India to meet these
Ms Gangapriya Chakraverti, Managing Director, Ford Business Solutions—India, will be in conversation with Ms Babita Baruah, Managing Partner, GTB India.
challenges and aspirations of our youth. In this context, MMA organized an event on the theme “Creating a
Click to view the event details.
World-class Higher Education System in India” by Mr K
With another hectic year around, there are definitely
V Ramani, Founder and Chancellor, Sai University on
better days ahead!
Wednesday, 6th July 2022 at MMA Management Center. Happy Reading! Please click to view and get inspired.
A $30 Trillion Economy? The Indian economy will reach $30 trillion by 2052, according to Mr Piyush Goyal. The size of the economy is currently around $3 trillion. If it grows by 8% per year 6
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Mr M R Sivaraman, Former Revenue Secretary, Government of India, Mr Arun Kumar, Malcolm S Adiseshiah Chair Professor Institute of Social Sciences, New Delhi, and Mr K Kumar, Sr. Partner & Leader, Consumer & Industrial Products Deloitte Touche Tohmatsu India LLP share their insights on the question of the 5 trillion dollar economy.
M R Sivaraman
G
ross
Estimating GDP correctly is a challenge. For
Domestic
Product
(GDP) is the value addition made
within
the
geographical limits of a country. Gross
National
Product
(GNP)
includes the value addition of the country’s GDP plus
example, take the price of paddy. Should we take MSP price at the factory gate or at the market where we go and buy? Interest is also a factor income. The street vendor who goes to the money lender close by takes 1000 rupees in the morning and agrees to pay 1100 rupees in the evening. This is much higher than the rate of interest of the government of India. Then we have
that which is made outside the country. GDP takes different forms. It is estimated at factor
prices. Factor price means the goods and services and
I had running battles with
the taxes attached to them. Normally, we talk about
economists in this issue. I'm not
GDP at market prices so that everyone understands.
an economist. I did an exercise,
Then there is GDP with reference to a particular base
when I was in the government,
year. It is 2011-12 for India.
with my economists and they found our GDP was underesti‐
GDP all over the world follows the system of accounts developed by almost all the chief statisticians
mated.
of most of the countries. India was also a member of this UN committee. It has a 600-page manual that goes into the details of how each account has to be properly
~ M R Sivaraman
taken into consideration while estimating the GDP. BUSINESS MANDATE
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GDP at purchasing power parity. When you compare the
deficit and the tax to GDP ratio will all go wrong. It has
GDP of nations—that is the GDP at our rupee account
a lot of implications for the economic policy.
divided by the dollar value, then it gives a different picture. The GDP of India at the beginning of this year
Black Economy and GDP
would have been higher than the GDP now—the rupee
In 2008, the then Finance Minister, the late Mr
has depreciated with respect to dollar. India's GDP in
Pranab Mukherjee, asked the National Council of
terms of purchasing power parity in 2021 was $8.9
Applied Economic Research, the National Institute of
trillion; For China, it was $24.1 trillion and the US $20.9
Public Finance and Policy and the Indian Institute of
trillion. India is at number three in the world.
Financial Management to do a detailed exercise
Estimating the GDP of India is a very complex issue. A
independently on black money. They estimated that it
doctor is valued at 1000 rupees a year whereas a
was between 72% and 76% of our GDP.
government doctor is getting 8000 rupees a month. An egg has been valued at one paisa per egg.
Professor Arun Kumar, in an article that he wrote in DNA in 2019 estimated that India’s black money was
I had running battles with economists in this issue.
144 lakh crores. We do not really know how much of
I'm not an economist. I did an exercise, when I was in
this is in GDP. I studied a street vendor next door to my
the government, with my economists and they found
house who sells breakfast, lunch and tea. Her net
our GDP was underestimated. I spoke about this up to
income was 7500 to 10,000 rupees a day. She has
the level of the then PM Vajpayee. He constituted a
bought a 50 lakh worth of flat next to my flat. If all of
committee to study this. Based on its findings, India’s
these are captured correctly, probably we may be near
GDP in that year was revised upward by 18%.
$4 or 4.5 Tn already.
If GDP
of India is underestimated, a lot of things like the fiscal 10
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Savings Rate
There are problems in the
Be that as it may, taking the GDP of 3.5 trillion
international financial system.
dollars figure , we have to make good 1.5 trillion dollars to reach the figure of five trillion dollars. Are we in a
We are talking about the US
position to achieve this?
heading for a recession. The interest rates are going up in
Now, valuation in the country is dependent on investment, which is dependent on savings. Our savings
the US. The Russia‐Ukraine war
rate in the last few years has been very unsatisfactory.
has created unusual inflationary
In 2017, it was 31.3%; in 2021, it has come down to 28%.
levels the world over, which is
Compare it with China's 45.5%.
also percolating into India.
Savings divided by the capital output ratio gives the rate of growth of an economy. That's a standard formula. In the case of India, it should be around 4.5, which means we are growing at about seven percent.
14 states in India have a per capita income of more than 3000 dollars. Bihar has a population of 10 crores.
To touch five trillion dollars with this rate of savings, we may take seven years. Now, many state governments
What is happening in Bihar? They are willing to
are making heroic attempts to reach one trillion dollar
spend a lot of money on caste census but they don't
economy in their states.
focus on mapping the MSME sector there to find out how they can grow. There are policy constraints. Some
High Defence Expenditure
state governments like Tamil Nadu, UP, Maharashtra,
Secondly, our defence expenditure is increasing. We
Karnataka and Telangana are trying to move forward.
can't call defence expenditure non-productive, because,
We have to also take into account internal
defence by itself gets value addition. Indigenisation
disturbances and natural disasters. The International
leads to employment and value addition within the
Meteorological Organization has estimated the loss of
country. The third factor which is eating away our
India in 2020 on account of natural disasters to be 6.3
resources is periodic elections. One general election
Bn $. In rebuilding this, there will be value addition but
costs 4000 crores and one state election costs 200 to
we are rebuilding an asset which has been lost. This is
300 crores depending upon the size of the state and its
the magnitude of disaster.
complexity. Of course, there is value addition in elections and people are employed in the process. But it could have been used for many other purposes.
International Problems There are problems in the international financial system. We are talking about the US heading for a
Regional Disparity
recession. The interest rates are going up in the US. The
Then we have serious regional disparities in income.
Russia-Ukraine war has created unusual inflationary
In the case of Bihar, the per capita income in 2019-20
levels the world over, which is also percolating into
is Rs 50,733. In Goa, it is 5.2 lakhs and Delhi, 5.6 lakhs.
India and which we are not able to tackle. These are
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some of the important factors which may obstruct our
correcting the social injustice that has taken place
movement towards multi trillion dollar economy.
within the system. Even in the United States, Obama gave free cell phones to a lot of poor people.
Falling Labour Participation Another worrying feature of the Indian economy is the falling labour participation rate. It came down to 40%. As on December 21, it reached 45.7 but still it is very low. The reason is because of low participation of women in the workforce; it is probably one of the lowest in the world at 19%. Bangladesh has 55% labour participation rate.
Toward the end of the 18th century in the UK, the Lords, Dukes and others joined hands and started giving free bread, free food, free clothing, etc., as part of an agreement. Then ultimately, they realised that they did not give labour for the industries. So, William Pitt, the younger, abolished this when he became Prime Minister and said that people are to be paid according to the work they do.
If people do not come and produce things and they remain idle at home, then how can there be value
Forex Reserves
addition? In the case of Tamil Nadu, I saw a report that
India's forex reserves which were 641 billion
the youth do not want to go for a job. The lowest labour
dollars, have now come below 600 billion dollars. Even
participation of youth is in Tamil Nadu.
these reserves do not fully belong to us. It's not state
There are certain remedial actions being taken by the government. For example, they are now launching a massive program of self-help groups among women. A lot of women get employed or self-employed. I am myself in charge of about 200 self-help groups. Some of them have a turnover of Rs 50,000 a week and some have a turnover of Rs 10,000 rupees a week. They make pickles, bakery products, etc.
I don’t know if this
revenue generated gets added to the GDP estimate calculations.
back. But the rest of the thing called hot money can fly away. Even foreign institutional investors can sell off assets and go back. This once happened in South Korea. So we cannot say that the 500 or 600 billion dollars of forex is a great asset with us.
Disruptive Technologies In the coming years, there is also going to be the things that we see today. We have to compulsorily
The then Prime Minister, Dr Manmohan Singh, once asked me, “If you were the Prime Minister, what would you do?” I said, “The first thing I will do is to raise the minimum wages in this country.” If you increase the wage,
comes through FDI or remittances, which cannot go
disruptive technologies coming and replacing many of
Raise Wages, Cut Freebies
minimum
surplus reserves. That is some amount of reserve that
you
can
also
expect
greater
productivity. A large number of states are going in for freebies which make people a little bit indolent, although we may say that freebies are a matter of
shutdown thermal power plants in the next 20 years because of the climatic change. What happens to the 2.5 million families who depend on mines for livelihood? Because of EV, the automobile sector will suffer. EVs, I am told, have 20 moving parts compared to 2000 moving parts in conventional vehicles. Just like cell phones replaced landlines, EVs will definitely replace conventional automobiles. There will be social problems when people are displaced.
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The consumer confidence is
These are going to be some of the major obstacles that we will come across in our march towards making
now still at around 75. In
this country a five trillion dollar or ten trillion dollar
January 2020, just before the
economy.
pandemic, it was 104. Capacity utilization for the organized sector has reached only around
Prof Arun Kumar
T
he
pandemic
and
70% as per RBI data.
the
Ukraine war have created continuing problems for
the world economy, including the
~ Prof Arun Kumar
Indian economy. China's economy has been hurt very badly by the extreme lockdowns that they have had. Since China is the manufacturing hub of
28, we will reach five trillion dollar economy, assuming
the world, supply chains have been disrupted.
that the dollar to rupee parity stays at 80 Rupees to the dollar and inflation is 6% for the entire period.
A Proxy War
If we grow at 12 percent, then we will reach it in
The Ukraine war is a proxy war between two
2026-27 and at 14%, we will reach in 2025-26. These are
superpowers. On the one hand, we have Russia which
some of the projections. But that is going to be very
is a superpower and on the other hand, we have Ukraine
tough because starting at 4% to get to 10% requires 16
supported by EU, NATO and USA. There are sanctions
percent real growth of the economy, which has never
on Russia and we are headed towards a new cold war
been achieved. So in other words, by 25-26, it's almost
between these two blocs (Russia, China and friendly
impossible to reach five trillion dollar target.
countries versus Ukraine, EU and USA). The old cold war was ideological between a communist socialist bloc and a capitalist bloc. This time, both are capitalist blocs. The struggle is for dominance. The US has already said that China poses a bigger danger to them than Russia. So the western powers will continue to move against
What are the impediments to the growth of the economy?
The Bleeding Unorganised Sector During the pandemic, we had a huge impact on the unorganized, non-agriculture sector. The consumer
China.
confidence is now still at around 75. In January 2020,
Shift the Paradigm
just before the pandemic, it was 104. Capacity
What we follow today in India is called the supply side policy paradigm. This needs to change. From 201617 onwards, the rate of growth was about eight percent and then it declined pre-pandemic to about 3.1 percent quarterly growth rate. If we grow at 10%, then in 2027-
utilization for the organized sector has reached only around 70% as per RBI data. After the pandemic, it's now clawing its way back. At this low capacity utilization, we can’t expect the investment rate to suddenly go up.
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The unorganized non-agriculture sector has been
Russians and this will create further issues for India,
declining. At least five percent of the units closed down,
because India's trade with Russia will get disrupted. We
as five percent demand shifted from the unorganized
cannot make payments in our banks in the normal way,
sector to the organized sector. Hindustan Lever’s annual
because of the sanctions. Many problems will arise in
report talks about this demand shift and why the
trade and finance.
market share for Hindustan Lever has gone up. The small sector is unable to deal with the problems they are facing. They are unable to avail input tax credit. The demand
is
shifting
due
to
a
combination
of
demonetisation, GST and the pandemic.
The US in the last quarter had a negative rate of growth. People are worried that the US economy can slip into recession. It's a likelihood, and there is the stagflation—high inflation with very low rate of growth.
Inequalities and Inflation
We have unemployment, under-employment and
Recent surveys by agencies including Credit Suisse
disguised employment. Our labour force participation
and Oxfam have shown that inequalities are growing.
rate is low. 94% of the unorganised sector earns less
When inequality grows, mass demand does not rise and
than Rs 10,000 per month. Though external factors are
we are dependent on investment to fulfill the demand.
beyond our control, internal factors are in government
The investment and savings have been quite low in
control.
India.
What should the government do?
India's rate of inflation has been very high. The wholesale price index has been about ten percent, for
• It must change its policy from supply side paradigm to demand side paradigm.
more than 12 months. The CPI, the Consumer Price
• Focus on employment generation both in rural
Index has been growing at above 6% for the last 4 to 5
and urban areas by creating schemes. Rather
months. At a high rate of inflation, poor people and the
than massive highway projects, we need small
unorganized sector get impacted and demand further
projects in rural and urban areas that will
declines. There are now supply bottlenecks and
generate employment.
commodity and metal prices have risen. The shipping
• We need to boost the micro sector of which
and freight rates are rising. Due to shortage of
there are 6 crore units. In small and medium,
containers, containers get stuck at ports, so the
we have 6 lakh units and in large, we have
transport costs are rising.
6000 units. 97.5% of MSME employment is in
Fuel costs are rising as Russia is a big supplier of energy and because of sanctions, those supplies could not come to Europe. Fertilizer prices have also gone up. Ukraine and Russia supply food items like wheat and
micro sector. This, and the small sector are now in trouble. Hence the unemployment problems. • Tax the wealthy through wealth tax. • Increase direct tax rates and reduce indirect
sunflower oil.
taxes. GST should be made the last point tax. Finance is getting highly disturbed because of the sanctions on banks and other financial sector of the
• There will be new viruses coming; we have to be aware of these and plan measures in place.
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• Make use of technology in managing viruses
The consumer confidence is
now still at around 75. In January 2020,
and in overall growth.
just before the pandemic, it was 104. Capacity utilization for the organized
K Kumar
I
company
sector has reached only around 70% as
employs 100 people in its fifth
per RBI data. While we talk about 5Tn
year, in its 40th year, it
$ economy, we must also be
f
an
American
employs about 800 people. The employment gets multiplied by 8
times. Also, we must note that in the 40th year of a
concerned by the quality of such economy.
company, the technology also grows substantially. So productivity per employee must have gone up, not just by 8 times but in multiples of 8 times. If you compare
~ Mr K Kumar
this scenario with an Indian company, it grows by just 1.4 times in 8 years. We call it as dwarfism. occupy a significant place in the GDP affect
• Our entrepreneurs are, no doubt, aspirational.
them. We must help them to find markets in
But we do not give them an ecosystem to grow. • We must have many companies creating
India. • While we talk about 5Tn $ economy, we must also be concerned by the quality of such
wealth rather than a few.
economy. MSMEs must be groomed in such an
• We must see if there is headroom for MSMEs
economy, like how Japan groomed companies
to grow. If we compare India with US, China and Germany, we can find that our MSMEs account for 30% of our GDP. In China, it is
like Citizen and Sony. • Right now, we put all MSMEs in one bloc and focus mainly on their skilling. We have to
55%, it is 42% in the US and 48% in Germany.
treat them differently as some of them may be
• China has half the number of MSMEs as India.
already skilled and they may need some other
That shows that we have many dwarfs and
form
they impact the economy.
our
need
be
to
sector specific needs and address them. •`China has one village, one product and one
MSMEs to take a larger load than they can actually take. Lack of competitiveness and lack of headroom for them to grow and 18
makers
instance,
international accreditation. We need to look at
their exports; the US MSMEs 30% and 16% in
JULY 2022
saree
For
provided with a market and our spas need
China’s MSMEs contribute to less than 10% of
• We need to question ourselves if we make our
support.
Kanchipuram
• 40% of our exports are done by Indian MSMEs.
Germany
of
BUSINESS MANDATE
industry concept and that industry is a worldbeater. We have to also work on such concepts.
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WINNER IN THE MANUFACTURING CATEGORY
C
arborundum Universal Limited (CUMI) is part of the 120-year-old Murugappa Group, one of India’s leading business conglomerates. CUMI started as an abrasives
company in 1954. With a focus on value-chain integration, CUMI has expanded its portfolio to become a mines-to-market company with integrated operations that include mining, power generation, fusion, manufacturing, marketing, and distribution. With a legacy of over six decades, CUMI has carefully nurtured and built businesses across geographies and cultures. CUMI operates as a Glocal player – a global vision that preserves local ethos. This vision comes from its deep-rooted commitment to create environments and opportunities that allow local regions to flourish. Whether in India or around the world, these long-standing relationships and networks have enabled CUMI to become what it is today—a leading materials science engineering company. The CUMI network also creates a wealth of opportunities for employees to experiment, learn, innovate, and contribute to business and their communities. CUMI is focused on being a world-class solutions provider in abrasives, electrominerals, industrial ceramics, super refractories, and energy storage materials. The company has a varied end-user industry portfolio and has maintained a steady performance despite volatile operating conditions. CUMI’s consolidated revenue is Rs.3,300 Crores and PAT of Rs.333 Crores for the financial year 2022. Today, it is one of the largest producers of silicon carbide grains worldwide, the largest silicon carbide player in Russia, one of the market leaders in abrasives in India and Russia, the largest electrominerals and abrasives player in India, and the world’s second-largest producer of metallized cylinders.
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WINNER IN THE SERVICES CATEGORY
N
TECL (NTPC Tamil Nadu Energy Company Ltd), a 50:50 Joint Venture Company between NTPC Limited and TANGEDCO is a power station with an
installed capacity of 1500 MW (3x500 MW) situated in Tiruvallur District in Tamil Nadu. Around 71% of the power from NTECL is supplied to Tamil Nadu and the rest to neighboring states like Andhra Pradesh, Karnataka, Kerala, Telangana, and Pondicherry. It sources coal from Mahanadi Coal fields, Central Coal Fields, Eastern Coal Fields etc. Some of the unique features of NTECL are gas insulated switchyard, pipe conveyor and grab unloader. NTECL is a 100% sea water-based plant with the least area/MW among NTPC plants and a spillage free pipe conveyor of 4km length for transporting coal from port to site. As a power plant set up near the coast, we have had to bear nature’s fury time and again—be it cyclones, floods, and salt water corrosion. We have taken steps to be resilient enough by adapting best practices to deliver quality power to our beneficiaries. Our PAT had doubled in the past two years. Also, since the start of commercial operation of NTECL, dividend was paid to our stakeholders for the first time in 2020-21; dividend payout has more than quadrupled in the subsequent year. NTECL is performing better than the state and private sectors and is inching towards central sector peers in terms of performance.
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WINNER IN THE MANUFACTURING CATEGORY
D
uring the period from 2010 to 2015, TANFAC was affected by Chinese competition, Thane cyclone damage, debt and high interest burden. It was on
the verge of going into the BIFR fold with a debt of Rs.64 crores (The D/E ratio was around 13.8 times). To turnaround the business, the company took a lot of focussed initiatives, such as: • Improving
productivity
through
best
people
practices, including steering performance-based work culture, rewards, recognitions and man power optimization • Customer Centric Approach • Market penetration of specialty fluorides • Simplification of production processes • Strategized sourcing of input products • Tight control on working capital management • Reduction in finance cost TANFAC collaborated with CPCL, a vendor, and highlighted the possibility of reducing the cost of flaking at CPCL and melting at our end. This resulted in a win-win situation, helping CPCL to reduce their price to us substantially. These steps helped not only in turning around the company when the odds were unfavourable but also placed the company back on a far better growth trajectory with better Balance Sheet and acceptable ratios.
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XVI CUB Shri V Narayan Memorial Lecture by Dr T V Somanathan, IAS, Finance Secretary, Govt of India . This article is published with the courtesy of Sastra University and City Union Bank.
A
rchitecture is a scientific discipline. The word
Bretton Woods twins, which were the World Bank or
architecture evokes a sense of planning, order
The International Bank for Reconstruction and
and form. There are many styles of architecture
Development, and The International Monetary Fund
—Victorian, Mughal, Chinese, Chettinad, Gothic and so
(IMF) known colloquially as the Bank and the Fund.
on. Each has some distinct and identifiable features,
These were the first creations post the World War,
which most common people and certainly connoisseurs
though they were created slightly before the end of the
can identify. From approximately 1944, there was a
Second World War.
certain pattern of economic arrangements, which could reasonably be termed an economic architecture. There were the three blocks of economies in the world: the first world that had the market or capitalist countries; the second world, which had the communist countries; and then the third world, which had countries like India, that were generally poor, either under colonialism or recently decolonised. The first world’s institutional structure was also the one that the third world willynilly had to conform to or be part of. We were not actually the ones designing our architecture.
the UNICEF, UNESCO, The Food and Agriculture Organization (FAO), the World Health Organization (WHO) and so on. But there was a difference. In the Bank and the Fund, the governance structure was not ‘one country, one vote.’ It was one dollar of share capital and one vote, which is similar to that of a private sector company. In the other UN specialized agencies, it was one country, one vote.
had bigger shareholdings and hence a bigger say. The
In that architecture, there were the so-called 24
powerful, well-funded, UN specialised agencies such as
So in the Bank and the Fund, the richer countries
The Bank and the Fund
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Apart from these two, there were several other
disadvantage of this structure was that the third
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world's views were not given due importance. The advantage was that the first world countries funded these organisations amply, because they were confident
of their ability to control the organizations they
The three organizations—the
funded. Quite naturally, the western donor countries
World Bank, the IMF and GATT
were much more comfortable with the Bank and the
or later, the WTO—had a largely
Fund and also with UNESCO, UNICEF, WHO and FAO.
common set of beliefs on the methods by which developing
The funding levels of these two sets of agencies,
countries should develop.
though they were approximately on par initially, diverged enormously over the years. While these two became very powerful, the other UN specialised agencies were continuously strapped for budgets. It is all very well for someone to say that I want to be an equal member of an organization. It is sometimes more useful to be an unequal member of a stronger
Agreement on Tariffs and Trade (GATT), which later was converted in 1995 into the World Trade Organization (WTO). In fact, during the Bretton Woods conference, it was agreed to create the World Trade
organization.
Organization. It was supposed to be one of the three
The Role of GATT/WTO
institutions that was to be created in 1944. But
The third important element in the global economic
sufficient agreement was not reached on the shape of
architecture was initially known as the General
the WTO and it was created nearly 50 years later in 1995.
BUSINESS MANDATE
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The GATT resulted in a steady reduction of tariffs
It is not known to many people
across many countries between 1994 and the creation
that India was a participant in
of the WTO. Customs duties on imports fell in a secular
the Bretton Woods conference
manner between 1945 and 1995 and fell even further
in Bretton Woods, New
after the creation of the WTO.
Hampshire and British India was
Washington Consensus
represented by Shri K Shanmugam Chetty.
The three organizations—the World Bank, the IMF and GATT or later, the WTO—had a largely common set of beliefs on the methods by which developing countries should develop.
regional institutions of considerable importance, such as the European Economic Community, as it was known
Some of these elements were known as the
then and which later became the European Union.
Washington Consensus and these included that a)
Similarly, there were institutions like the CFA franc in
countries should have free trade with little or no tariff
Western Africa, which was anchored by France. They
barriers; b) there should be free flow of capital across
had a currency union between the French franc and the
national boundaries; c) there should be flexible
CFA franc. The CFA franc was tied at a specific parity
exchange rates; d) there should be a market or market
to the French franc.
driven economy in all of these countries; and that would be the best way forward for development. In some cases, these beliefs were held more strongly
than
warranted
by
either
So effectively these countries were running a French franc currency area and so they didn't have control over the monetary policy. Their interest rates
theoretical
were decided in Paris for most of the ex-French West
foundations or empirical evidence. In some cases, they
Africa. Similarly, there was an Organization of African
were sound prescriptions. Thus, they were a mix of
Unity that became the African Union. However, many
some very well-established sound prescriptions of
of these regional institutions, with the exception of the
universal application and some which are more
European Union, lacked longevity and influence.
debatable. However, the strength of the institutions which backed the Washington consensus meant that many countries in the developing world did follow the advice and prescriptions, albeit to a greater or lesser degree without necessarily having to test each of those principles for their actual correctness or relevance in
India in Bretton Woods The founding of the Bretton Woods institutions roughly coincided with the peak of India's struggle for Independence. The gap between their founding and Indian independence was about three years. It is not known to many people that India was a participant in the Bretton Woods conference in Bretton Woods, New
the circumstances of each of those countries.
Hampshire and British India was represented by Shri K
Regional Institutions
Shanmugam Chetty. So we were there, even though we
Apart from these global institutions, there were 26
JULY 2022
were not independent.
BUSINESS MANDATE
fountainhead of excellence
Whether by coincidence or not,
The confidence that was generated by the fall of the Soviet Union and the admission of China into the
when Europe in 2011 to 2013,
international trade and currency systems, instead of
faced severe economic problems and when there was a
generating more confidence, led to a level of overconfidence. The western regulators and central
chance of Greece dropping out
banks, among others, started to deregulate much
of the Eurozone and when Italy
further. This philosophy received a big jolt in 2008
and Portugal were also in
when we had the global financial crisis. It showed up
serious trouble...
the weaknesses of the extreme deregulation version of the post-war economic architecture.
This year, we mark the 75th year of India's independence and it's also approximately 78 years since the start of what can be termed the post-WWII economic architecture. The architecture established then, remained largely intact for over six decades. It was strengthened by the collapse of the Soviet Union in 1991 and the subsequent admission of erstwhile communist countries into that architecture. It was further strengthened by the admission of the People's Republic of China which was not even a member of the United Nations for the first 40 to 50 years of its existence, but it was admitted later.
It led to a re-examination of that architecture but it did not fundamentally change it. Nobody felt that the architecture was fundamentally flawed. It looked like there were a few excesses here and there.
IMF’s Change in Thinking The other thing that happened during the aftermath of the global financial crisis was a change in the thinking of the IMF. Till then, when countries ran into serious economic problems, they were the major advocates of austerity. Whether by coincidence or not, when Europe in 2011 to 2013, faced severe economic problems and
Success Leads to Overconfidence
when there was a chance of Greece dropping out of the
In 1995, China became a member of the WTO.
Eurozone and when Italy and Portugal were also in
Viewed from its results till the turn of the century, that
serious trouble, in terms of their ability to service their
is till 2000, one could consider the post-war economic
debts, the IMF, which is traditionally headed by
architecture largely to be a success, because many
somebody from the European Union, changed its
countries moved from poverty to prosperity; others
philosophy and did not advocate austerity as the
moved from dire poverty to less poverty. The
solution.
proportion of poor people in the world declined dramatically. A large numerical share of that decline was in China and India. But there was a decline in many other countries too. Some countries, however, have worsened between the 1940s and now but they are very few.
Then we had a series of other events between 2008 and 2012. There was an unprecedented level of monetary expansion. Creation of money was given a new term—Quantitative Easing (QE). The labelling changed but it was typically what old textbooks would have called, creating money or injecting money supply.
BUSINESS MANDATE
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When this massive expansion happened, it seemed to
The Covid, Galwan and Russia‐
settle things down. A lot of things calmed down and
Ukraine war have created
the crisis receded. The worst was over and a lot of new
profound effects on the way the
things started, including startups and crypto.
government of India has to
Free Trade gets Trumped
manage its finances.
By 2016, another set of challenges emerged. The US began to retaliate under new political leadership, against what it saw as manipulation of world trade
but it had done the damage. It had damaged the belief
rules by China and therefore, it imposed measures,
that this is the ideal system; that there is one country
which were in classic WTO terms could be called
in the world, which is the global manufacturing hub
protectionist. I am not making any value judgment on
and everybody else supplies components to that hub
the correctness or wrongness of their action. The
and everything gets shipped from that hub to
United States, which was the prime mover of free trade
everywhere else. This hub-and-spoke model and the
and in whose country, the so-called Washington
free flow of capital that it enabled began to suddenly
consensus used to reside, began to impose unilateral
seem not so optimal and that it was vulnerable. Then
trade restrictions on imports from China. Then came
came the other one—the Russo-Ukraine war, which
the completely unexpected exogenous event, which was
happened in late February 2022.
Covid. It brought trade to a screeching halt across
The Covid, Galwan and Russia-Ukraine war have
countries and exposed the risks of highly decentralized
created profound effects on the way the government
supply chains that had enabled and expanded free trade
of India has to manage its finances. The war and the
post-WTO. Optimization of costs became possible
western reaction to it have again upset a lot of widely
because of low tariffs and free trade system. It brought
held assumptions about how the global economy
consumer prices down for a lot of people including
functions.
citizens of India. Many things have not changed much in spite of inflation thanks to the supply systems which are
extremely
efficient.
But
they
depend
on
continuation of free trade, open markets, free-flowing
Western countries for centuries have been a bastion of property rights. Confiscation, expropriation and nationalisation without adequate compensation were all roundly condemned. It was always emphasised that
shipping lanes and air traffic and so on.
there is a need for due legal process before any such
Covid Shows the Mirror to the World
thing happens and it cannot arbitrarily be taken.
What Covid did is to show the world that all of
Confiscation
and
expropriation
were
known
these are man-made devices and that they can collapse.
features of communist states and not of capitalist
They all collapsed at the same time. There were no
states. Yet today, confiscation of movable and
ships and factories were not working. People didn't
immovable properties of some persons, of certain
have even toilet paper.
nationalities happened in those countries without
When Covid ended, things began to perhaps recover 28
JULY 2022
legislation and without following the principles of
BUSINESS MANDATE
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We need to rethink our own policies, for example,
The US and Western Europe are
on the composition and location of our foreign
closer to each other, than they
exchange reserves or the desirability of issuing dollar
have been for decades. They are
bonds by the government of India. There are multiple
systematically detaching their
views on these but the point is, one has to think afresh.
economies from Russia and to
After all, it's a new world. It's not the world that we thought we lived in.
a lesser extent from China.
So, with all this, what is the situation today? Let me pick a few points selectively.
natural justice, which used to be held as self-evident.
The China‐Russia Factor China and Russia have de-facto formed a new
Freezing of Currency Reserves
economic block among them. There's a lot of Russo-
Another feature of the recent economic changes
Chinese or Sino-Russian trade. Most of it is not
has been the unilateral freezing of foreign currency
denominated in US dollars. It is largely Yuan
reserves of certain countries. That in turn, in certain
denominated and some of it is Rouble denominated.
cases, has created a risk of those countries defaulting
The US and Western Europe are closer to each
on their sovereign bonds. You have a country which is
other, than they have been for decades. They are
a borrower in sovereign bonds. It is solvent, willing to
systematically detaching their economies from Russia
repay its bonds but it is not allowed access to the
and to a lesser extent from China. The US-Western
currency it needs to repay those bonds. Therefore, it
Europe block is trying to pull away from the China-
could technically be in default and if it is in default,
Russia bloc. Earlier in the WTO era, everybody was
there are serious consequences to defaulting on a bond,
trying to trade with everybody else, as much as
especially a sovereign bond.
possible, whatever was the cheapest. That's not the case
None of these actions are based on any UN
now.
resolutions. I am not criticizing the decisions of any of
The economy of Europe is certain to suffer.
these countries. They were taken in exceptional
Potential damage from their self-imposed withdrawal
circumstances and it is quite normal. Let us accept that.
of energy sources from Russian oil and gas will be
But they should now realise that it is quite normal for
damaging in the long run. They will recover but it will
other countries also to act in their own best national
definitely take a long time because their huge
interests.
dependence on Russian oil and gas cannot be solved
When it comes to a crisis, long held principles are
overnight. The solutions involved are costlier purchases
sometimes not followed. It is no longer sufficient to
from more distant countries than Russia. The economy
assume the prevalence of a particular architecture or
of Russia is also certain to suffer because of the
of a particular set of rules or ways in which the global
sanctions that have been imposed on them. Meanwhile,
economy functions.
Brexit has weakened, at least numerically, the European BUSINESS MANDATE
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29 JULY 2022
WTO enables trade creation and
Union and it has perhaps weakened Britain as well
not trade diversion. Whatever is
though. Again there are two views on whether it has
done, is done for everybody,
weakened or strengthen them.
but bilateral and these kinds of
Less Talk in WTO
group arrangements do result in some suboptimal trade
Free trade agreements are becoming much more prominent than the WTO negotiations. A lot of trade
arrangements, though it may be
discussions happen between two sets of countries or
better than not having an
between two countries and much less gets done in the
agreement at all.
WTO. Now, as a matter of principle, the multilateral WTO system is better because it gives you optimal results and doesn't result in trade diversion. What do
Therefore I would argue that what we have today
I mean by trade diversion? If India enters into an
is difficult to call an architecture. At best, it has the
economic free trade agreement with one country X,
architectural look of an old locality in an old city, with
then any trade from that country becomes cheaper. But
a mix of structures of different ages, vintages and
some other country Y may be more efficient at
appearances. At worst, it has the chaotic architectural
producing that product. Because I don't have a free
features of a slum. So it is this architecture that we are
trade agreement, I end up buying from the more
dealing with today. We actually have a lot of confusion
inefficient country. This is called trade diversion.
in the global economic structure.
WTO enables trade creation and not trade
India Stands to Gain
diversion. Whatever is done, is done for everybody, but
But such chaos has benefits, particularly for a
bilateral and these kinds of group arrangements do
country, like India. So in the earlier architecture, India
result in some suboptimal trade arrangements, though
was not in the premier league. It was a second class
it may be better than not having an agreement at all.
citizen, without a permanent seat in the UN Security
BoP Crisis
Council and classified as a borrower country, rather than an investing or lender country. India was
The other feature of the present situation is the classic case of balance of payments crisis like the one we see in today's Sri Lanka. But in this crisis, the role
peripheral to global decision-making. There is little to lose and much to gain for us, from the emerging architecture or lack of it.
of the IMF has declined. The role of two countries —China and India in Sri Lanka’s economic crisis and
Even if India does not do anything spectacular, even
its resolution as of today—has been greater than that
if we simply continue with our existing normal
of the IMF. I'm not saying that it's a good thing but just
functionality and dysfunctionality that India has
observing that it has changed. The multilateral
displayed consistently for the last 10 to 15 years, our
institutions that were the pillars of the 1944 order are
relative position is almost certain to improve. If we
not driving this particular crisis. It is something that
continue growing at six to seven percent a year, we will
we can see easily.
be way ahead of many countries globally and our
30
JULY 2022
BUSINESS MANDATE
fountainhead of excellence
the most important challenge for us is domestic. We
We need to improve the quality
cannot shape the global order if we do not have a
of our public expenditure with
strong domestic economy. Paradoxically, our strength
a greater share for those
starts from here.
aspects of public expenditure
There are many steps which we need to take for
which promote growth.
our domestic economy to become strong. Gandhiji had talked about the role of drain inspectors. If I take such a view on Indian economy, I can dwell on a few of our weaknesses, so we can set them right. First and
position will continue to improve substantially in this
foremost,
new system. We have to only ensure that we don't do
government need prudent and conservative fiscal
anything very bad and score self-defeating goals. We
policies. This is absolutely critical if we have to stay
will improve, because others are worsening.
afloat and do well. We need to reduce our fiscal deficit,
and
more
state
governments
and
central
particularly at the central level. The Central deficit is
The Solar Alliance Second
both
much higher than at the state level. positively,
we
have
an
opportunity to shape the emerging architecture now.
Target Subsidies
A small but significant aspect is in the founding of the
We need to improve the quality of our public
international solar alliance. Solar energy is going to be
expenditure with a greater share for those aspects of
one of the key energy sources of the future. 100 years
public expenditure which promote growth. To do this,
from now, it may be more important than oil. The
we will have to reform some of our poorly targeted
international solar alliance is the first international
subsidies such as those in electricity and fertilizer,
organisation headquartered in India. It's not a
without which we cannot improve the quality of our
government of India organization.
public expenditure. There are no quick fixes in this
Another example is India's leadership in areas like unique identity and unique payment interface. These
task. It will be difficult but it needs to be done and it calls for a lot of introspection.
are technologies where we are ahead of even developed
We must have a tight control over public
countries. A lot of developing countries are being
expenditure. The other way is to increase our tax
advised on unique identity by the UIDAI. The UN
revenue but nobody wants tax increases. Nobody wants
agencies are taking the support of the Indian
any subsidy to be reduced and yet everybody wants
government in doing this in many developing countries.
fiscal deficit to be reduced. So, this is our trilemma
There will be many more things like this.
which we face every day. This is a very difficult balancing act. The governments and the people inside
Need for Strong Domestic Economy
governments need help from people in telling us how
If India truly has to play a significant role in
to solve this and coming up with workable solutions.
shaping the emerging global economy, then ironically,
The reduction of fiscal deficit is the single easiest way
BUSINESS MANDATE
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31 JULY 2022
to increase the domestic savings rate. If you want India’s savings rate to go up, you need to cut the fiscal
We may need to think about diversifying of foreign exchange
deficit.
reserves, including an increase
Managing External Shocks
in the share of our gold.
Second, we need to minimize the vulnerability of our economy to external shocks. This means, we need to avoid taking too much external debt, and especially debt denominated in foreign currencies. All kinds of
of these feelings. There is also an assumption that
external debt have consequences.
industry and investors will evade or cheat if they can.
We may need to think about diversifying of foreign
There are enough examples to confirm this assumption
exchange reserves, including an increase in the share
also. We need to get out of this trap. We look forward
of our gold. Now, as an aside, Indians are often
to practical suggestions from you on how we can rise
criticised for an apparently irrational attachment to
above this.
gold but the Ukraine conflict and the various currency
Stay Away from Fashion
restrictions have shown the value of gold, which is not dependent on any sovereign; and which can be portably
Fourth
and
last,
India
needs
to
exercise
carried from one place to another. This perhaps gives
independence of mind in taking economic decisions.
us some sense of a deep civilizational experience as to
We need the courage to stay away or walk away from
why Indians have always wanted to keep a little bit of
agreements that are not in our interest. Without
gold. I'm not making a plea for you to invest in gold. I
harming others, we need to do what is in our interest.
am only talking about India's gold reserves.
When India did not join the regional comprehensive economic partnership or RCEP, there was a lot of
Foster Investments
criticism that we are isolating ourselves from global
Third, we need to foster a strong domestic investment climate. We need to achieve the right
trade. After two years, subsequent developments have shown that to be a wise decision.
balance in regulation, between preventing harm and
Economics is a discipline which is subject to
promoting good. Regulation is always a tension between
fleeting fashions. Massive fiscal stimuli were the
these two intentions. Too often, well-intentioned
fashion in 2020. India did not join that fashion. We had
regulations have stifled innovation and growth. We have
a restrained fiscal stimulus. Most of the relief measures
a long way to go in reducing compliance burden and
were in the form of credit and monetary measures. We
we must reduce the harassment of businessmen for
have emerged in reasonably good shape. Compared to
trivial mistakes or bonafide actions.
most other countries, we have emerged in better shape.
There is an assumption that the government and
There was a lot of pressure on us to follow fashion. We
regulators will be unreasonable or maybe corrupt or
need to resist fashion and assess things based on actual
both and there are enough examples to confirm some
facts, circumstances, empirical evidence and the pros
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BUSINESS MANDATE
fountainhead of excellence
and cons. This has held us in good stead over the recent
focus
past. We will have to follow policies that work for our
manufacturing quality and process of the Germans; and
country and our circumstances.
the quality life of the Scandinavians. We need to do all
and
work
ethic
of
the
Japanese;
the
this while preserving our unique strengths, including
My Wish List
our cultural values and diversity, where every citizen
To reach our potential, we need to improve in many dimensions. I would suggest that the future Indian economy should have ease of doing business of citystates like Singapore and Dubai; the financial, scientific and technical innovativeness of the US; the quality
is treated equally. The old economic order is crumbling. India can become a global economic power only by having a powerful domestic economy and a peaceful and cohesive society.
BUSINESS MANDATE
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33 JULY 2022
34
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fountainhead of excellence
As the world emerges from the pandemic, it has opened up numerous opportunities. However, these opportunities come with challenges that India and the rest of the world must contend with. In this conclave, successful entrepreneurs, leaders and experts share their thoughts, opinions, insights and experiences with a focus on inspiring and guiding businesses, young entrepreneurs, and investors about the opportunities available and how to grow their business potentials.
Mr Sunil Mathur
of direct tax collection, we find that there is a growth
Director General of Income Tax Investigation (TN & Puducherry)
of about 45% in net collection. These figures indicate
W
e have just come out
of
a
very
difficult period. We
are really lucky that India—our
people, economy and businesses—has been very resilient. Although we had a bad FY20-21—the economy was literally in recession and growth was negative at around 6%, we did well in the subsequent FY21-22. The growth rate has been around 8.5%, and in the coming financial year, it is expected to be 7.5%. This shows that the country is recovering and the economy gaining the momentum lost two years ago. This fact is also borne out by the robustness in revenue collection. Last year, the government had targeted revenue collection of about Rs.22 lakh crore but the revenue departments could achieve about Rs.27 lakh crore. This shows that revenue collections are rising and there is momentum in the economy. This year also, after the first instalment
that businesses have done well and are ready to take India into the next level. We have a new India which is looking to leap into a league of advanced nations. In this new India, our current government wants us to be Atmanirbhar
Bharat—a
self-sufficient
and
self-
dependent India where businesses have a big role to play.
Efforts in Digitisation Businesses among themselves are doing well in adopting technology. The government is also trying to keep pace with them and it is not lagging behind. The tax departments have taken a number of initiatives in digitising processes and compliance requirements, thereby making an effort to ease the compliance burden of taxpayers. You must have seen what has happened during the past 10 years in the IT department—right from payment of taxes, getting PAN number allotted, filing of income tax return, filing of TDS return and
BUSINESS MANDATE
fountainhead of excellence
35 JULY 2022
processing of returns, etc. Now you can do everything
come in your registered account. Once the notices
online, sitting at home!
come, you will also have to file all your responses and
About two or three years ago, the scrutiny of assessments by the IT department was an area where the taxpayers were required to come to the IT office. If their case got selected for scrutiny, they will have to come to the IT department to attend to proceedings of assessment and also subsequent proceedings. In August 2020, a transformative decision was taken by the
submissions to the questions asked, online.
Territorial‐less Assessment Another feature is the scrapping of territorial jurisdiction. If you are in Chennai and say, you live in Nungambakkam area, there used to be an assessing officer in charge of Nungambakkam area and you had
government. The Prime Minister announced a scheme that honours the honest, in which it was decided that the major part of income tax department would become
The idea is to make it
faceless. After two years, we have almost implemented
comfortable for the taxpayer to
that scheme.
comply with the requirements.
The features of this scheme are very unique, and
During the initial
they may not be there in many of the advanced
implementation of this scheme,
countries. Under this scheme, if your case is selected
there were some teething
for scrutiny, you will not be required to go to the IT department.
Whatever
notices
are
issued,
the
communication will be online. The information will 36
JULY 2022
BUSINESS MANDATE
fountainhead of excellence
problems.
to appear before that officer for your scrutiny
On a lighter note, while this has brought a lot of
assessment. Now, your assessment will not be done by
comfort to the taxpayer, our officers have become
him. It may be done by anyone else in the country. Your
lonely. Nowadays, there are hardly any visitors to the
assessment case may be assigned to somebody in
IT department. Earlier we used to have parking problem
Gujarat, Assam or Rajasthan. You will not have any
in our offices. It is no more there because whatever the
contact with your assessing officer. He may be far-off
taxpayers want to say, they have to say it online. It is
and will communicate with you only online.
also compulsory for the officers to communicate with taxpayer only through online. Of course, there is an
Group Assessment
exception to this: the investigation wing, which is in
The third feature is group assessment. An officer
charge of conducting IT raids. From this wing,
who has been assigned from any part of the country
sometimes we go to the taxpayer and at other times,
will question you, but he will not do it alone. He will
the tax payer is called to our office for scrutiny.
prepare a draft order which will then be shared with another unit called review unit. This unit will review final order will be passed. This scheme is called group
Reengineering of Conventional Business Using Technology
assessment. The idea is to make it comfortable for the
Mr Santosh Parekh
taxpayer to comply with the requirements. During the
Partner, Tulsi Silks, Chennai
the draft order and only when it approves the order, a
initial implementation of this scheme, there were some
• Thirty
teething problems. There may be some problems even
ago,
we
did
not
have
a
differentiator in selling our silk sarees. I
now and we are improving them. Some of the taxpayers
stayed in a weaver’s place for three months to
want to have personal hearing as they want to explain
understand the weaving process. Then we did
their case personally. So the government has allowed
backward
to have personal hearings too, but again, these will not
integration,
added
looms
and
designed our sarees, after which our business
be face-to-face or in person. It will be through video conference and the assessing officer will be at a remote
years
started picking up gradually. • Family
place. The link for the video conference will be shared
owned
technology
with the taxpayer.
and
businesses for
must
which,
a
embrace top-down
approach is needed. It is very easy for people with
The faceless and territorial-less assessment has
business
experience
to
adopt
technology.
now been extended to penalty scheme and appeals. The appeals were being done by the Commissioner of
• To insulate from competition, businesses
Appeals. Now if you appeal from Chennai, it will be
must focus on R&D, investing in technology
heard by somebody sitting somewhere else. This is a
and recruiting the best talent.
transformative change which has been brought by the
• We have embraced technology and we are now
government with the intention to minimize the
using apps in our entire business, providing
compliance burden of the taxpayer.
customers and other value chain partners with great experience. BUSINESS MANDATE
fountainhead of excellence
37 JULY 2022
Trade from India: The Story for Next Decade
Tax Technology: Current and Future Trends
Mr Navin Ranka
CA Divyesh Lapsiwala
Director, SPR India, Chennai
Partner, Ernst & Young, Mumbai
• Historically, India is very strong in trade.
• Tax technology is all about tax professionals
Trading comes to India quite naturally but we
and very less about the software itself.
don’t focus on trade tourism as China does.
Therefore, tax professionals must drive the
• China makes 49% of US toys, 70% of world umbrellas, 60% of world buttons and 72% of
technology. • Earlier, it used to take a long time to
US shoes. All these are not high tech.
summarise the transactions and tax used to
• India’s falling behind in trade is because of its losing
steam
in
manufacturing,
be the last point. Now with ERPs being used
while
by most companies, we see frequent use of
focussing heavily on services.
the tax module and thus, tax planning. Tax
• Parking, safety and sanitation, restricted
has thus determined the way of running
movement, risk of fire, rainy days and legal challenges are the key impediments to doing
businesses. • The penetration of tax technology that we see
trade in India and showcasing it to the world.
in India is not seen even in many advanced
• The solution lies in building world-class Trade
countries. They are now trying to introduce
Parks. Each Tier 1 city must have at least one
the tech with many similarities to the India
or two trade parks.
model (like E-invoicing and GST filing). It is a proud moment and an opportunity for us, as we go along.
Brand Building for Success
• Looking at GSTIN data for the last 4 years, we
Mr Vijay Parthasarathy
can see that 80.2% tax payers are proprietary
Brand Specialist, Mind Coach and Speaker
concerns paying 13.3% of GST.
• Businesses must develop a strong brand
• E-Invoicing is one of the most successful and transformational thing that India has done.
narrative that resonates with customers. • Emotions are the key to build a powerful
• The guiding principle of new approach is
brand. It is never about what we are. It is
based on: Re-use of IP; leveraging new
always about who we are.
technology and Re-use of data.
• The secret to building a powerful brand is
• Efficiency, Risk & Governance and Value
picking the right emotions, mapping it with
optimisation
the target customers and then building the
transformation.
narrative carefully.
are
critical
aspects
in
tax
• Tax professionals must aim to offer platforms that can be operated on mobile phones and which can be easily used by the customers. This presents huge opportunities.
38
JULY 2022
BUSINESS MANDATE
fountainhead of excellence
Stock Market and Opportunities in Alternative Investment
Stock Market and Opportunities in Alternative Investment
Mr Sudarshan Lodha
Mr R Pallava Rajan
Founder & CEO, Strata Property, Bangalore
Founder Director, PMS Bazaar, Chennai
• Investments must give a return that can beat
• There are two major categories of alternative
inflation.
investment.
• There are multiple products available in the
• Category 1: Angel funds, Venture capital
market that can give you good returns and
funds, SME funds and Infrastructure funds
help you grow your business. Some of the
• Category 2: Private equity funds, debt funds,
alternate investment opportunities which are different from traditional investments are:
Fund of funds, Real estate funds. • There is enough of asset class available in our
–
Invoice discounting
country that is well regulated and which can
–
P2P lending / Liquid loans
be picked by us, with minimum investment.
–
Fractional commercial real estate
All asset classes will not perform well at the
–
Working capital financing
same time. Investors must understand this
–
Bonds (E-rated bonds that give a very
fact and have a well-diversified and balanced
good return)
portfolio.
–
Revenue based financing
–
Asset financing (like funding charging stations for Electric Vehicles.)
• Platforms are there for all these options. They
Emerging Technology: Driver for Business Growth
take care of the CIBIL score and other
Mr Vijay Hebbar
requirements that a lender / investor must be
Sr. Vice President & Global Head, Sales and Marketing, KrypC
concerned with. • KredX, Wint, Grip, Klub and Smallcase are some
of
these
platforms.
Using
these
platforms, one can also raise money for their own businesses. • Though there are risks associated with these like defaulting of bill payment by a company, these can be managed by carefully selecting the companies.
The Top Trends that can impact your business are: • Smarter devices (like intelligent home robots) • Robotics, AI and Machine Learning • Computing Power (Use of Cloud, 5G and 6G) • 3D Printing (including printed food, metal and composite materials) • Genomics eradication,
Investors can experiment
with a minimum of 3 to 5% of their portfolio in these alternate investments and explore.
(modified new
crops,
vaccines
and
disease medical
breakthroughs) • New Energy Solutions (Green Energy and Cost Effective) • Quantum Computing
BUSINESS MANDATE
fountainhead of excellence
39 JULY 2022
• Digital Trust / Blockchain (Distributed ledgers
Therefore, diversify your investments in
and non-fungible tokens –NFTs that transform the world)
different buckets. • Different business models are followed by
• Extended Reality (ER) / Metaverse whose advances
pave
the
way
for
family run businesses. They are meritocratic
incredible
model (the best person manages), democratic
experiences.
model (all are treated equal), multi-trust model and cash-it-out model (where the business owners fight and kill the business. It
Transition of Family Business to Next Genera tion: The NittyGritty and Nuances Mr Krish Srikanth
is better to sell such businesses and distribute the money to the family members) • Writing a personal will is very important and
Business Family Mentor, Life & Executive Coach Organisational Consultant, Chennai
more so, for family business owners. Believing that nothing will happen to us is akin to
• Business owners must know the difference
having a no business model.
between business and employment. If the day-
• Business owners must have plans to overcome
to-day operation of a business cannot run if
some of the common problems faced by the
the owner is not there, then it is not a
family business owners and which are:
business.
It
is,
in
other
words,
self-
–
employment for the owner.
properly.
• Have a vision for the business.
talent
level
of
the
–
How to get good non-family members
personal income. The owners must aim to
to join the business and they remain
become to financially free as individuals. Even
loyal to the business.
if the business fails, the individuals must be
–
able to run their life with the same lifestyle.
40
The
members is an important factor.
• Treat business income as separate from
JULY 2022
Ensuring other family members work
BUSINESS MANDATE
fountainhead of excellence
How to prepare and groom the family members.
BUSINESS MANDATE
fountainhead of excellence
41 JULY 2022
MMA‐KAS organised a discussion on the theme of the book: ‘India’s IT Revolution ‐ The Maverick Effect,’ authored by Mr Harish S. Mehta. Mr N R Narayana Murthy, Founder & Chairman Emeritus, Infosys addressed the participants during the event. Mr Rajesh Nambiar, CMD and President, Digital Business & Technology, Cognizant, led the conversation on the theme ‘Trillion Dollar Digital Economy’ with the special invitees Mr Harish S Mehta, author, Mr K V Ramani, Founder and Chancellor, Sai University and Mr Lakshmi Narayanan, Managing Trustee, Chennai Mathematical Institute & Former Chairman, ICT Academy.
MR N R NARAYANA MURTHY
thinking and acting quickly to solve the future problems of our nation.
F
Role of Nasscom or India to become the Sone kee chidia or the golden bird that Harish Mehta talks in his book, the country needs intellectual liberation. But we
must remember that cultural transformation must precede intellectual liberation.
What is the role of Nasscom in contemporary India? The primary role of Nasscom in the early 90s was forming a cohesive group of leaders of competing software service businesses to accept competition. Such a group worked as a unified team to hold dialogue with
The cultural transformation must result in Indians
the government on early issues like tax exemption, the
becoming honest, disciplined, transparent, accountable
availability of bandwidth and installing an IPR regime.
and hard-working. We must learn to put the interests
Nasscom is currently occupied with issues like IT for
of our institutions, our community, and our country
public
ahead of our personal interests. It requires us to elect
upskilling.
the best qualified and the most honest people to lead
important role in the first decade of its journey.
us. It requires our government to become a true catalyst
However, the initial successes would not have been
in removing every hurdle for our citizens and our
possible without the effort of the CEOs of several large
businesses. It requires us to introduce an educational
companies today, as well as, without dedicated
system that enhances curiosity, critical thinking and
individuals like Harish Mehta (the first elected
problem-solving abilities of our children. It requires us
Chairman of Nasscom), K V Ramani, Ashank Desai,
to move from our tendency to gloat about our past, to
Vijay Srirangan and Saurab Srivatsava.
42
JULY 2022
BUSINESS MANDATE
governance,
fountainhead of excellence
cyber
security,
privacy
and
Late Shri Dewang Mehta played an
Dewang's
successors as Presidents of Nasscom and the successive
engaging with the government for better policies, for
chairman’s councils have also played productive roles
the growth of the industry. What are the current
in the later years. Of course, this chain of successes
challenges of our industry and what can Nasscom do
would not have even started if we did not have the
about it? There are many. Our future objective is to
support of India's finest pro-business bureaucrats like
obtain a bigger share of the global services market, to
Shri N Vittal, ably supported by late Dr N Seshagiri, Shri
add value to the domestic market and to become
N Gopalaswamy and late Dr Varadan. In a parallel
recognized globally in the software product market. I
thread, Harish Mehta, in his book, traces the idealistic
will mention about four strategic challenges in our way
journey of a young couple—Harish and his wife Shaila
to achieve these and how to overcome them.
returning to our country from the US and playing their role in creating new dreams, new adventures and new
Revamping Education System
opportunities. This narration will serve as a good
Our first challenge is to revamp our education
template for any NRI to follow in the footsteps of
system to enhance curiosity, critical thinking and
Harish and Shaila. Harish is a good example of
proactive problem-solving amongst our youngsters.
optimism, positivism, teamwork and energy. Shaila
This will perhaps help many services companies to
personified compassion, friendliness and generosity.
enhance their per capita revenue productivity. It will also help some member companies to succeed as
Four Strategic Challenges for Nasscom
product companies in the global market.
What is the main lesson from Nasscom that other industry associations can emulate? To me, it is enabling competition among fiercely competing companies in
It will help services companies to transform themselves from reactive problem solvers to proactive problem definers and solvers for their global and Indian
BUSINESS MANDATE
fountainhead of excellence
43 JULY 2022
customers. The new education policy of my friend Dr
Kasturi Rangan has made many useful recommendations.
Most large Indian companies derive about 5% to 10% of their
Nasscom therefore has a seminal role in exalting our
revenue from the domestic
higher education institutions to implement these
market.
recommendations with a sense of alacrity.
Champion English Language English is the universal language of digitalization. English is also the language for mobility of IT
Improving Per Capita Revenue Productivity
professionals, going from one state to another in India.
The fourth issue is that the per capita revenue
I am told that the maximum percentage of local people
productivity of the Indian software services companies
in a company is generally not more than 60%. Therefore
in a global hard currency like the US dollar has
companies have to hire about 40% of professionals from
remained almost the same during the last 22 years. I
other states. These professionals want schools in a pan-
hope I am wrong. It used to be at least so till 2014 when
Indian, globally valued language like English for the
I was at Infosys. The depreciation of the Indian rupee
education of their children. Therefore Nasscom has its
from 45 rupees per US dollar in 2000 to rupees 78 per
role cut out as a champion for English.
US dollar today has helped the Indian service companies to manage inflation and the increasing cost
Guide Private Companies
to some extent and to protect their operating margins.
Most large Indian companies derive about 5% to 10% of their revenue from the domestic market. Very little of even this small revenue is from digitalization effort of public governance systems at the state and the central level. Most of these revenue, definitely during my time, but I am told even now, is either loss-making or at very low margins. There are many reasons why it is so. I will not go into the reasons here. Nasscom can prepare a recommendatory methodology for private companies to prepare talent for successfully executing government projects in India on time, within budget and with the requisite quality. Nasscom can also produce a manual to help governments in India to plan a digitalization project, to prepare a proper bid, to select the right vendor, to detail the requirement definition and to manage time, cost, productivity, quality, security, privacy and disaster recovery in developing and maintaining and
Improving per capita revenue productivity in US dollars is clearly a company level issue. The focus of service companies has to shift from competing on price to competing on value to our customers. Our companies will have to bring innovations to increase the business value leverage. We must focus on BVA: the ratios of value delivered to customers to price paid by customers, which is called BVA (Business Value Addition). It is easy to see that the price can be higher if the business value to the customer is higher. This will also move our companies away from our tendency to commoditize markets and compete only on cost. Nasscom can create a group to share innovative ideas in this effort. We at Infosys have always believed that sharing ideas will only make the ideas better. In any case, the success of an idea is determined primarily by how well and how quickly you can execute it.
operating large application projects for digitalization. 44
JULY 2022
BUSINESS MANDATE
fountainhead of excellence
"A nation becomes vibrant when there are independent thinkers." ajesh Nambiar: Why do you call our IT industry's growth as a revolution?
Harish Mehta: A thousand years of downward spiral of India was changed by the IT industry. When you arrest the downfall of the country's economy, I call it a revolu on. Today, we have a flywheel of around 60,000 startups. The original flywheel that was built by the IT industry has created posi vity and op mism in the country.
during lunch and therea er, we had to seek personal mee ngs with them. We were usually a group of 25 delegates and there would be fierce compe
on in mee ng the
American clients. But during the seminar, we were completely cohesive and put up a unified show and talk about India in one voice. Those days, some of the clients have even asked me, "Where is so ware in India? We’ve heard of only cows and saints on the
Tell us about the early days of Nasscom and what it should do today, according to you?
roads in India." One more client asked me, "Tell me
K V Ramani: Nasscom today is a glorious ins tu on.
sell your so ware?" That was the state of our
It did not happen overnight. In the mid‐eigh es, we
so ware industry then.
used to par cipate in the So ware India shows arranged by the Dept. of Electronics. We used to have half a day seminars and we were not even allowed to put our logos in the slides when we made presenta ons. None of us was allowed to talk about our companies. We were only allowed to talk about 'so ware in India.' The audience and speakers were Americans. We were allowed to meet them only
frankly. Have you come here to buy so ware or to
Today, 35 years later, even if you are a startup in San Jose and go to an investor, the first ques on they ask you is, "What's your e‐up with India?" They say, "Get India into your startup. Then only, we will come here for funding." That has been our transforma on. Of course, we had many challenges. There was diversity of views but we all stayed together. In the mid‐80s, import duty on so ware was 235%. Year by year, it got reduced and we were also
Today, 35 years later, even if you are a
increasing the turnover. At one point, we picked up
startup in San Jose and go to an investor,
momentum and the Indian IT elephant started flying
the first question they ask you is, "What's your tie‐up with India?"
beyond even our own wildest imagina on. Going forward, Nasscom has to take mul ple avatars, because the industry has become more complex.
~ K V Ramani
Lakshmi, can your share your thoughts about Nasscom?
BUSINESS MANDATE
fountainhead of excellence
45 JULY 2022
Lakshmi Narayanan: To those IT companies that
early as 1975. Fi y years ago, our bureaucracy,
started later, Nasscom was there to share the
made it so difficult for the hardware manufacturers
industry best prac ces and guide them not to make
to set up shop and succeed in India. In certain cases,
the mistakes which the veteran companies made in
the duty on raw materials was higher than that of
the beginning. It was not easy to learn from
the finished goods. I do not pass any judgements on
individual organisa ons but an industry organisa on
them and they were all well‐inten oned. It is now
like Nasscom helped us greatly, as it collated
too late for India to pick up speed in hardware. 12
informa on across IT industry.
Many new
years ago, Intel came to India. They asked for some
companies, thanks to Nasscom, could emulate the
facili es. Our bureaucracy did not accept their
successes of previously started big companies.
request. As result, they moved to Vietnam. For India
When Nasscom said something, people were willing
to succeed big in hardware, it will lead to a lot of
to listen as they knew that Nasscom had no
fric on.
individual agenda and that they were not promo ng
What should India do to stay relevant in creating technology talent, especially with some new technology coming up every day?
any individual company. Its reports had credibility and were based on a lot of data analysis and
Lakshmi Narayanan: Open innova on is a big thing
research.
that has happened. The idea travels so fast. So, We have today great IT products used by the government like Unique iden ty, FASTag, Co‐Win, the Income Tax system and Passport system which can be used by popula ons around the world and not just in India. These promote ease of transac ons and ease of doing business. Nasscom must focus on export of these products.
research talent and capability is available, though not in the numbers that we want. The key people are there in India. To scale up open innova on, we need more and more talent. I know children in the age group of 14 to 18 who learn computer languages, AI models, neural links, etc. I am confident that people have the capability and
The other aspect is the technology itself and
capacity to learn and make a progress. I believe we
Nasscom is a key contributor to government's policy
have cracked the problem of developing talent for
making in technology area. Another strength of
the problems of today and the immediate future.
Nasscom is that it does not take more than it can chew. Though there were many requests to
Another strength of Nasscom is that it
Nasscom to take on hardware also in its domain, it
does not take more than it can chew.
has consistently stayed away from it, saying 'no' to
Though there were many requests to
the proposal.
Nasscom to take on hardware also in its
Mr Murthy, what would it take for India to take up the cause of hardware, just like Nasscom has done for software?
Narayana Murthy: The reality according to me is
domain, it has consistently stayed away from it, saying 'no' to the proposal. ~ Lakshmi Narayanan
that India missed the bus of hardware industry as 46
JULY 2022
BUSINESS MANDATE
fountainhead of excellence
Where we need to focus is developing talents for
their parent pays 30 lakhs a year. Imagine the impact
the future that lies much ahead.
on our na onal economy. Why is it that we have not
Harish Mehta: I have two out‐of‐the box ideas. One,
ramped up our UG educa on to a level that we can
at a very young age, make learning chess compulsory. It is a very low cost device and even the poorest of the poor can learn and start developing certain abili es as a child. Two, make coding and ar ficial intelligence compulsory for every student, right from the early years. K V Ramani: We are in the 75th year of our independence. Yet, not even one educa onal ins tu on of ours, finds a place in the Top 100 of Times ranking or QS ranking. Even the IITs rank between 125 and 150. They do a great job, no
meet with others? The new educa on policy is an outstanding document. We need to make the poli cal, parental, student and academic community to buy into it. This is the basis on which I started the SAI University. We want to be the first interna onal university in India. Narayana Murthy: Ramani's crusade is extremely praiseworthy. One thing that we Indians lack is discussing our problems openly. Unless we do this, we will not be able to solve them. It is in our culture not to discuss our problems in the open.
doubt. I feel that it is a ma er of policy. We have
I used to take part in customer surveys and analyse
been too busy, focussing on literacy and primary
them very carefully for 33 years—between 1981 and
educa on, which could be at a demand at the
2014. The general consensus was that our people
country level. But simultaneously, we failed to invest
were excellent in doing what they were told to do.
in higher educa on, technical educa on and
"But your people would not tell us if there was a
research. Most private universi es in our country
problem in our business process and how they can
are beyond 700 in interna onal rankings.
suggest us to make it be er," was the feedback, by
Every year, nearly 3.5 lakh students are going from India
to
overseas,
primarily
the
US,
for
undergraduate educa on. If they go for PG for a specialisa on, we can understand. Each student or
and large. That is why I talked about the importance of Business Value Addi on (BVA). AI or programming is the easy part. What is important is moving from a reac ve problem solver to a proac ve problem definer and solver. They are a few good universi es coming up which are trying to arouse curiosity,
What is important is moving from a
analy cal thinking and proac ve problem solving.
reactive problem solver to a proactive
That is what this country needs.
problem definer and solver. They are a
A na on becomes vibrant when there are
few good universities coming up which
independent thinkers. Late Robert Kennedy once
are trying to arouse curiosity, analytical
said, borrowing the words of George Bernard Shaw,
thinking and proactive problem solving. ~ Narayana Murthy
‘Some men see things as they are, and ask why. I dream of things that never were, and ask why not.’ That, to me, should be the purpose of our educa on system.
BUSINESS MANDATE
fountainhead of excellence
47 JULY 2022
48
JULY 2022
BUSINESS MANDATE
fountainhead of excellence
MMA organised a discussion on the theme of the book "The Comrades and the Mullahs" authored by Dr Stanly Johny and Mr Ananth Krishnan. The authors were in conversation with Mr Srinath Raghavan, historian and author; Mr Aziz Amin, Former Principal Secy. to Ashraf Ghani, Former President, Afghanistan; and Dr Vinitha Revi, independent scholar.
Dr Stanly Johny
escaped to tell the world about horrors they faced.
International Affairs Editor, The Hindu
A
Soviet Invasion
fghanistan has got a very complicated history. It is popularly known as the graveyard of empires. In the mid-19th century, the British
went into Afghanistan. In the 20th century, the Soviets entered Afghanistan and in the early 21st century, Americans went there. There are interesting similarities between all these three great power interventions in this country. The British went there in the 19th century as they wanted to create a buffer zone to stop the Russians from getting into Afghanistan, as it was on the Indian border.
In the 20th century, in 1978, there was a communist revolution in Afghanistan. In 1979, during the
Christmas
night,
the
Soviets
crawled
into
Afghanistan. Under their presence, there was a regime change. The President was brought down and assassinated and there was a new President in Kabul. The main goal of Soviets was to ensure that the Communist regime survived and to make sure that the Soviet influence in Afghanistan stayed. But 10 years down the line, the Soviets had to withdraw from Afghanistan in ignominy. Within a couple of years, the
They did not want Russian influence to reach British India. They brought down Ghouse Muhammad Khan’s regime and replaced it with Shah Shujah Durrani's regime in Kabul. But within a few years, the
Soviet Union itself would disintegrate.
9/11 and the US Anger Then
the
Americans,
in
2001,
went
into
British had to withdraw from Afghanistan and while
Afghanistan because of the 9/11 attack. They brought
withdrawing, all the camp followers and British soldiers
down the Taliban regime and the Islamic Republic of
were massacred, except one medical officer who
Afghanistan was founded, supported by the Americans.
BUSINESS MANDATE
fountainhead of excellence
49 JULY 2022
At the zenith of their presence in Afghanistan, they had more than 110,000 soldiers stationed in Afghanistan. If you go down the reports from 2001 to 2004, Afghanistan had relative stability; it had Parliamentary and Presidential elections. Everybody expected that Afghanistan had finally become a stable country. The Taliban
had
withdrawn
into
Pakistan
or
Talib
Afghanistan's mountainous regions. But twenty years later, the United States, the world's most powerful military force and the largest economic power had to cut a deal with the Taliban and withdraw its troops
The Questions There
are
interesting
questions
like
Afghanistan is a graveyard of empires. Why have great powers always shown interest in Afghanistan? What makes Afghanistan so special and what led to the rise of the Taliban? Now with the United States exiting Afghanistan, what does the new situation mean for the regional countries, especially China, which has become the second largest economy and the most powerful military force perhaps, and for India?
from Afghanistan, practically handing the country over to the Taliban. Interestingly, the Soviets troops pulled back from Afghanistan in 1989, after 10 years of
The geopolitical contest
presence. Two years later, in 1991, after the collapse
between the United States and
of the Soviet Union, the communist government in
China is going to be one of the
Afghanistan of President Mohammad Najibullah collapsed. In the case of the American withdrawal from Afghanistan, 15 days ahead of the United States completing its withdrawal, the government in Kabul had fallen and the Taliban were already in Kabul. 50
JULY 2022
why
BUSINESS MANDATE
fountainhead of excellence
most defining foreign policy contexts of the 21st Century.
The geopolitical contest between the United States
China is keeping its
and China is going to be one of the most defining
engagement with the Taliban to
foreign policy contexts of the 21st Century. The
see how it can build mutual
Chinese got rid of the Americans from their backyard
trust with them in their own
in Afghanistan. India has stayed engaged with
interest.
Afghanistan throughout, except for a brief period in the 1990s when the Taliban were in power. India's policy was to deal with the government of the day. Afghanistan had seen several regime changes.
of influence, particularly in your neighbourhood. Afghanistan is in a very strategically located geography.
Initially, there was monarchy. In 1973, the Dawood
Being at the backyard of China, it is important for the
Khan's Republic replaced the monarchy. Within a few
Chinese government to have a stable and friendly
years, there was a communist coup and the communist
government that does not pose threats to its security,
government was in place until early 1990s. When it
political and economic interests.
collapsed, the Mujahideens took over, followed by the Talibans, till the US intervened in 2001. With the return of Taliban regime now, India faces strategic challenges.
The Hype about China Although there was hype in the Chinese media and by the Western scholars and the netizens who said that the vacuum created by the US leaving Afghanistan is
Azim Amin
going to be filled by China, we see that it has slowly
Former Principal Secy to Ashraf Ghani, former President of Afghanistan
T
become far from reality as of now, because Beijing is not keen to pursue it, particularly in the short term.
he Chinese policy towards Afghanistan has
Since the Taliban takeover, it has been cold in its
always been viewed through the prism of
approach and is in a position of waiting and observing.
Pakistan. China's engagement with the previous
government was heavily influenced by Pakistan. And so it is now. However, the situation has changed in Afghanistan and the current Afghanistan presents both opportunity as well as risk for the Chinese government.
China is keeping its engagement with the Taliban to see how it can build mutual trust with them in their own interest. China's policy towards Afghanistan has primarily been dominated by security concerns, followed by economic concerns. Afghanistan has vast mineral resources and China wants to expand its
Opportunities for China
influence. The Belt and Road initiative (BRI) is the
The Taliban which now controls the government
hallmark of Chinese global ambitions.
has very strong relations with Pakistan; Pakistan is very close to China. Therefore it presents a lot of opportunities
to
the
Chinese
government,
for
expanding its political influence in the region.
The Threats China's other concerns include cross-border drug trafficking. They want to make sure that the drug
Being a global power, you definitely need a sphere
produced in Afghanistan does not get into mainland
BUSINESS MANDATE
fountainhead of excellence
51 JULY 2022
China. It is also concerned with the security of its
the ISPK—Taliban's existential enemy. The warm
projects and assets in the cities in the surrounding
reception that Taliban got in China earlier has now
region and in Afghanistan as well. Recent events have
turned into a cold response.
shown an uptick in violence. It has alarmed many pundits in Beijing. The spurt in violence by the Islamic State of Pakistan and Khorasan (ISPK) and ETIM founded by the Uyghur militants are deemed by the
Ananth Krishnan The China Correspondent, The Hindu
in Pakistan's northern areas of Balochistan. The Karachi
A
suicide bombings targeted the Chinese Confucius
development in those early years was a model
Institute’s personnel. These have made China wary of
agreement to settle the China-Afghanistan boundary.
the Taliban and their promises. They are worried by
On 2nd March 1963, incidentally the same day China
the presence of non-state actors within Afghanistan.
signed the controversial border agreement with
Uyghurs have established strong military relationship
Pakistan that India continues to reject, China and
with ISPK now, which was not the case previously.
Afghanistan announced that they would enter formal
Chinese to be of primary concern. These groups have gained in strength, resources and organisation since the Taliban have taken control. Attacks have intensified
fghanistan was one of the first countries to recognize the PRC in 1950. Diplomatic relations between the two nations were
established five years later. The most significant
My information is that the discussions that took
talks, which made quite a good progress. By August
place between the Taliban leadership and Chinese
1963, they had a draft agreement and by end of the
foreign minister early this year revolved around
year, they signed a boundary treaty, which most
neutralising threats and potential threats to the security
observers agree, largely favoured Afghanistan, as it
of China.
largely followed the boundary of the 1895 Britain-
From Warm to Cold Expecting Taliban to crack down on Uyghurs, Al Qaeda
and
other
militants
will
have
political
consequences for Taliban. So far, the Taliban have not been
recognised.
relationship
on
Maintaining
the
one
hand
coherence and
and
mollifying
international partners in regional countries on the
Beijing responded very differently to Taliban 2.0 though, twenty five years later, which reflected not only the
other, is an incredibly difficult task. Many of the Taliban
changed global situation but
fighters have developed personal relationships, even
also China's own changing
married and established ideological bonds with these
ambitions as well as a sense of
fighters. Their immediate priority is to keep the Taliban
its place in the world.
rank and file cohesive and this is the key to the longevity of their rule. They very well know the consequence of upsetting these groups who may join 52
JULY 2022
BUSINESS MANDATE
fountainhead of excellence
The launch of the BRI which had
up to America's exit, their growing weariness to sustain nation building projects in Afghanistan. The second is
a clear focus on China's
Xi Jinping's entry into power in this period and the
neighbourhood, dovetailed with
launch of the BRI in 2013—the year that he became
Ashraf Ghani coming to power
President. The launch of the BRI which had a clear focus
in Kabul and beginning his
on China's neighbourhood, dovetailed with Ashraf Ghani coming to power in Kabul and beginning his
administration with a push for
administration with a push for infrastructure projects.
infrastructure projects.
He went to China on his first overseas visit and declared China as a strategic partner. China remained in touch with Ghani till the very end. They did not explicitly back the Taliban against him. They may well
Russia agreement, which saw China give up its claims
have preferred an outcome in Kabul where there was
on the Wakhan corridor.
some kind of power sharing agreement, which many people expected to happen at that time.
The Sino‐Soviet Split The Soviet occupation of Afghanistan which took
Two Messages
place during the Sino-Soviet split and a phase of
Two noteworthy messages were conveyed in July,
difficult relations between China and the Soviet Union
which somewhat reflected the Chinese approach to
was a huge factor in how Beijing looked at the security
Afghanistan. The first is, welcoming the fact that
of its western borders. Beijing jumped into the efforts
Afghanistan now belongs to the Afghan people and its
to support the Mujahideen against the Soviets. The PLA
future is in the hands of its own people. Of course,
even trained Mujahideen fighters in Xinjiang, something
that's an implicit reference to the end of American
that is very unthinkable today. Now fast-forwarding to
presence in Afghanistan and secondly, an expectation
1996, the Taliban coming to power hardly inspired their
that the Taliban will make a clean break with terrorist
confidence, since there was a suspicion of their links
organisations that had a connect to Xinjiang.
to extremist groups, especially those that China believe, are active in Xinjiang. Beijing's initial outreach to the Taliban was very tentative.
The second factor is that there is still some weariness in China. Even in 2021, several Chinese experts expressed caution against assuming that Taliban 2.0 would be very different from the first
Different Response to 2.0 Beijing responded very differently to Taliban 2.0 though, twenty five years later, which reflected not only the changed global situation but also China's own changing ambitions as well as a sense of its place in the world. Two concurrent trends are important to note here. The first is America's exit as well as in the lead
version. They were broadly right in their assessment, perhaps more than some Western experts who, for whatever reasons, were putting forth the argument that Taliban 2.0 will be different. The public statements from China, which almost welcomed the Taliban’s return, are more of propaganda driven by the schadenfreude of the US exit and scoring points against
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Americans, rather than reflecting a sense that China
steps to insert themselves as a power player. We are
would open its wallet in Afghanistan in a big way.
seeing that not just in Afghanistan but elsewhere in the neighbourhood. We have seen that in Sri Lanka and in
Memories Don’t Fade
Nepal. They are willing to be involved in domestic
Beyond this sort of outward welcoming of the
politics to a degree not seen before in the past. They
Taliban's seizure of power, there was a more
are willing to take more steps to protect their security.
complicated response in China to the Taliban coming
Take, for instance, the new base they are helping to
to power. Many Chinese carry memories of Taliban 1.0
construct in Tajikistan. According to reports, they have
and especially the destruction of Bamiyan Buddhas.
stationed some of the People's Armed Police force, who
They are wary of extremist Islamist groups, and to be
are in charge of internal security in Xinjiang. So we are
honest, of any kind of Islam, if you look at what's
seeing a more assertive China that's willing to take
happening within China today and in the Xinjiang
some amount of risk. But at the same time, at least for
camps. At the same time, the state media was doing
now, it is still a generally cautious player that does not
its best to remake perceptions of the Taliban within
want to repeat the mistakes of others.
China, diluting the hardline views and instead trying to present them as the real figures from the grassroots of Afghanistan. A lot of this was just hyped.
Srinath Raghavan Historian and Author
Projects on Hold In 2020, the total Chinese FDI in Afghanistan was about 4 million dollars. That is less than 3% of its investment in Pakistan. China's two biggest projects in
I
n view of the security concerns that China has about Islamist terrorist organizations operating in the western province of Xinjiang, they have taken
extraordinary steps and put in a great degree of
Afghanistan are a) developing a copper mine in Mes Aynak and b) an oil field in Amu Darya. Both remain inactive. This was perhaps in the period when there was an American troop presence and more stability and
security than what you have today. Even in this period,
The Chinese have these two broad options. One is that the
they were unable to get their projects going. There were
Taliban while continuing an
recent attacks on some Chinese personnel and projects
Islamic agenda operates much
in Pakistan. Even in Pakistan, Chinese companies
more like Pakistan, which is
currently have put their plans on hold. A lot of the 62
directly responsive to China's
billion dollars of investment spoken about have not
interests. The second is, trying
really materialized.
to understand how Afghanistan
One consistent theme is, Chinese do not want to repeat the mistakes of the West. They don't want to put in dollars that they won't recoup, let alone set boots on the ground. But on the other hand, they are taking more 54
JULY 2022
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will potentially fit into China's foreign policy.
The Taliban government has to
China's foreign policy. We are at an interesting turning
provide some framework of
point in the BRI itself. One of the key things about the BRI was that it was a Eurasian initiative. It was an
governance. None of that, at
attempt to link, under Chinese initiative and leadership,
this point of time is exactly
a series of territories, markets, production centres and
evident to any of us. The only
consumption societies, all across Central Asia, leading
thing clear is that the Taliban's
all the way to Europe. The Ukraine war has effectively
ideological agenda remains
put paid to, at least the European side of the BRI, for
broadly the same.
the foreseeable future. The Chinese are going to find it extremely difficult to do anything west of Russia. That puts a huge question mark on the future of the BRI itself. We have the really affluent societies in Western
surveillance and control, through a system of camps,
Europe and without them, what BRI will achieve is an
for their own Muslim people. There is an upsurge
open question the Chinese will be asking themselves.
against that. The Chinese are concerned about the attitude of the new Taliban government towards these
Restrict BRI to Asia?
groups. Are they going to support them on the basis of
The answer may well be that China forgets the
fraternity of Islamic brotherhood? In the past, the
European side of it and double down on BRI in the
Taliban acted along some of those principles. That's
context of Central Asia and Southeast Asia. That may
how they gave asylum to various groups, including Al-
well be a possible response but it's not very clear. The
Qaeda and for which, they paid a very heavy price. Will
way Chinese have dealt with in most parts of the world,
they go down the Pakistan route of saying that China
we can see that they are interested in possible Returns
is so important to us that even if we support various
on Investment (ROI), that is, projects which have
groups, we will respond to China specific concerns by
worked for them. There's nothing wrong with that
cracking down on terror. Think of what happened in
approach. These are not simply purely political
Pakistan, right in the mid-2000s—the infamous Lal
decisions. Sri Lanka is going through a crisis but
Masjid incident, which led to the fall of General
surprisingly, China has not been that active. In fact,
Musharraf. Since Chinese nationals were targeted, he
India seems to be so much more active in the way
used the Pakistani troops to flush out that area. It then
they've responded to the immediate crisis of Sri Lanka.
spiralled out into things that he could not control.
So there is no reason to assume that the Chinese will do something by way of investments in Afghanistan.
Two Options
Purely from a political perspective, the country has to
The Chinese have these two broad options. One is
stabilize. The economy has to have some legs to stand
that the Taliban while continuing an Islamic agenda
on. The Taliban government has to provide some
operates much more like Pakistan, which is directly
framework of governance. None of that, at this point
responsive to China's interests. The second is, trying
of time is exactly evident to any of us. The only thing
to understand how Afghanistan will potentially fit into
clear is that the Taliban's ideological agenda remains
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A look at the history of
geopolitically? I think it has a somewhat inflated
Afghanistan, you can see their
reputation as being in a very central location. A more
continued status of neutrality or non‐alignment. In fact, in the
careful look at the history of the last 200 years will tell that Afghanistan has not always been that important. It has been important from time to time. The British
1950s, 60s and even early 1970s,
had their own reasons to try and initially subjugate
Afghanistan got economic aid
Afghanistan. A look at the history of Afghanistan, you
both from the United States and
can see their continued status of neutrality or non-
the Soviet Union.
alignment. In fact, in the 1950s, 60s and even early 1970s, Afghanistan got economic aid both from the United States and the Soviet Union. Some of the most iconic developmental projects were done by both
broadly the same. Some of the harder edges may have
parties at that time. Only in the 70s, when the Soviet
been softened out. But the broad plan is still the same.
Union decided to take control of the regime, things
What that means for the future of Afghanistan's
changed. Then again, till the Taliban came along,
economy is an important question.
Afghanistan was on nobody's radar. Post-2001, it again became important. So the geopolitical interest in
Is Afghan’s Status Hyped?
Afghanistan has not necessarily been continuous and
The geopolitics that is going to happen, particularly
sustained. We could well see another phase where
in the heartland areas of Central Asia is going to be
Afghanistan ends up becoming a country, which not
driven by a number of considerations, which in some
everyone is particularly interested in. It could become
ways, is what the US-China rivalry is all about today. It
a backwater, as it was during various times. So I don't
is not the Cold War of the old style where it was a
think that we need to put an exaggerated importance
military or a purely ideological competition between
on Afghanistan. This is particularly important point for
two systems—the democracies in the free world versus
Indian policymakers to understand, because our
autocratic China—but actually the competition is much
Afghanistan policy is more or less seen through the
wider. It is more about patterns of development,
prism of Pakistan. Over indexing the fact that
technology and innovation. It is about who can be more
Afghanistan matters to India in the context of Pakistan,
acceptable and competitive with others. From that
or in the context of China can actually lead to other
perspective, Afghanistan will remain an important
consequences or problems for us. We do not have a
laboratory, within which, to observe this kind of new
land border with Afghanistan and it is very difficult for
geopolitical rivalry between United States and China.
us to have any significant political influence with a
The other question is: how important is Afghanistan
regime like the Taliban.
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