Noise and Clutter

Dialogue of the Deaf

The Government and the RBI

TCA Srinivasa Raghavan

Tranquebar Press, 2017

pp.308. Price: Rs.599.

The title of the book says it all. It is jarring and in your face. It is casual and conversational. The objective of the book is to make RBI “easily accessible to the lay reader” (inside jacket). There is a style that makes complex things accessible, a narrative style that is bereft of jargon; a style that flows smoothly. However, if one were to look at a breezy, interesting account of how the central banking evolved in this country, this is not the book.

TCA Srinivasa Raghavan (TCA) hedges his bets by putting a request in the Preface: “.. don’t nitpick. Instead, just read and get a sense of it all”. What if, the book is an invitation to nitpick? If (according to TCA) the official history of RBI published in four volumes is boring, then there were interesting ways of addressing that.

That alternative style would flow according to a narrative choice, usually on a chronological basis with digressions into the past or the future to illustrate a point or to bring in the consequence. A chapter plan and a sequence of chapters which convey the drift of the narrative. If the author is at a loss to give titles to the chapters, we really wonder where this is headed.

In a book on history, with verifiable records and access to archives, there is no playing around with facts. There could be an element of drama as we have seen in Tamal Bandyopadhyay’s book on Sahara. Historical accounts are expected to provide a perspective on why and how these events have shaped the present and give us the benefit of hindsight to look at the past more objectively.

TCA’s style is that of a cricket commentator, getting excited by the here-and-now of the events. He puts his heart into his writing and describes events with great passion, slipping in his two bits. For instance, SS Tarapore is repeatedly referred to as “one of the greatest central bankers India has produced” (p.18, p.44) but he does not describe the contributions of Tarapore that justifies the tributes.

TCA is casual about facts as well. In discussing the creation of the State Bank of India, he says “The government agreed. It also took over the RBIs stake in the newly created State Bank of India to prevent any conflict of interest between the banking regulator and the bank” (p.80). Later, discussing Governor Reddy’s failures he says: “transfer of ownership of SBI to the government from RBI – for which RBI was made to pay!” (p.241). So, when did the RBI let go of its shareholding in SBI?

And this casual writing: “Like Reddy, Subbarao was also from the Andhra Cadre of IAS but unlike Reddy who had a PhD in economics, his training had been in physics…” (p.205) and then “Like Reddy he (Subbarao) too was from the Andhra Cadre and held a PhD in economics” (p.247). Andhra Pradesh becomes Andhra, and Subbarao alternates as a Physicist and an Economist.

In 1997, the RBI in response to what was then called the CRB scam tightened the regulation of non-banking finance companies (NBFC), making it mandatory of all NBFCs to register and get a licence; imposed capital requirements and prohibited NBFCs from accepting public deposits unless they met some capital and rating criteria. However, without much discussing the events that lead to the NBFC regulations makes this statement: “It went on like this till 1997, when the RBI finally delivered the coup de grace saying the NBFCs could take only very small deposits. No one was fooled that the entire effort had been aimed at protecting the inefficient and sometimes corrupt public sector banks.” (p.134)

Having nitpicked we can now get the “sense of it all” (Preface). If there is one underlying takeaway on the relationship of RBI with the government, it is about leadership. Depending on the style of the Governor, and the finance minister, the RBI alternates between a division of the finance ministry, and an autonomous authority.

TCA brings this out when he poignantly asks how many Governors use “we” as against “I” when referring to decisions and policies. But TCAs himself is a victim of this as he structures his narrative around the Governors. We, for instance, do not get to know how the internal structure of RBI evolved. Were there independent internal voices in the RBI like Tarapore, Usha Thorat, Shyamala Gopinath and Rakesh Mohan – all referred in the passing – who could constrain the Governor to ensure that an onslaught from the government was resisted? What is the advice that the governors get? From whom? How has that evolved?

The book gives an impression that managing RBI is largely a turf war between the Governor and the Ministry of Finance, and Governors like Reddy “dribbled past” “Jaswant Singh whose knowledge of economics bordered to nil”, but it became difficult with people like P Chidambaram “who knew the ministry and RBI and was a master of detail and had a clear understanding of issues” (p.239).

An potentially important book, with much access to archival material and several side stories is lost in a double whammy – the casual style of TCA and the non-existence of an editor. In the turf war between an aggressive author and a docile editor, the editor has lost. And thus, we have lost an important book on the history of RBI that could have been narrated from an independent, unbiased and uncluttered mind.

 © M S Sriram |

Big Data Big Concerns

Weapons of Math Destruction: How Big Data Increases Inequality and Threatens Democracy

Cathy O’Neil

Allen Lane, 2016

pp.259. Price £.12.99

These are the days of big data. This seems to be the new fix for all the problems that we forsee, particularly in providing technology enabled solutions for the most pressing problems of the world. Big data will help you diagnose diseases, it will predict frauds, tell you the patterns in customer behavior, and of course, there is a whole host of free stuff that you will get in return for authorizing an app to use your personal information. What possibly started as the Google experience – where you get the ease of searching with the non-intrusive big pasted advertisements or pop ups, has now become almost a lifestyle. While we merrily share data, the intrusion of commerce into our lives is subtle and slowly we are unable to see where our private persona ends and the public persona takes over.

Cathy O’Neil has been there and done that. She has worked on big data and has seen how the modelling happens, and how the results are interpreted from close quarters. She recognizes the importance of big data and the benefits it brings. At the same time, O’Neil puts out a warning bell on the indiscriminate use of big data for modelling on real lives – how this analysis does not consider exceptions and how even when exceptions are found, they become a data point for recaliberating the model, a human being or a life seen as a data point, falling down by the wayside as a collateral effect in a larger journey of data becoming commerce. It is an important voice to be heard when the big advocates of the JanDhan-Aadhar-Mobile trinity are talking of India moving from a data poor country to a data rich country. We need to understand the meaning of data rich and its implications.

O’Neil talks about where the data and patterns would be useful: Certainly in baseball games (or for that matter in cricket) where you could use this to analyse the opponent team and make your strategies. In the process you are making the game even more interesting and not killing anybody. However, what happens when the data that you use turns out to be circular and possibly leads to patterns similar to racial profiling in crime data? Herein comes the problem. Because, what big data does is exactly what our minds do – create patterns – based on past experience. These patterns would keep the exceptions out as “errors”. But what happens to these exceptions in real life? Would they become a victim of a predictive model? This is an important question to ask. This question then leads us to consider that more and more “scientific” models would have an objective way of getting people in, but will have no objective way of making exceptions. Afterall each human being is an exception and unique. While it is okay to make a game based prediction, how fair is it to take legal action based on a suspected movement, just because the machine told you so?

O’Neil brings in interesting human stories – of those who were victims of big data based models – who became collaterals in the performance modelling. Like the story of Sarah Wysocki and other teachers who were classified as failures because the district administration had used one of the sophisticated models. Firstly, firing her was an “error”. A large part of the evaluation was based on the difference between what her students scored when they came in and what the scored when they went out and there was no objective way of telling if they had come in with artificially inflated scores by the previous teacher who actually helped the students to score better with their own intervention. Secondly, the fact that she was fired was an error was not even reported back for the system to learn. Most of the Big Data models work as black boxes, without as much feedback that is necessary to train the models. In any case using Wysocki as a data point in itself should be an ethical and moral problem.

Given that we are on the verge of many tech-enabled start-ups coming into the fray to help the inclusive business – say peer to peer lending, payday lending, cross selling of third party products, the scene is getting scary. There are companies that are building credit behavior models based on the data mined from facebook, whatsapp posts and geo-locations. Big brother could never be watching the customers for preying so well, ever before. In this context it is important to read this book and look at the limitations of data and seriously examine the ethical limits of the machine invading our lives and making decisions for us.

Cathy O’Neil’s book is in the same league as Michael Sandel – though not having that width or depth – of reminding us of the limits of commerce, bringing fairness to the fore and asking difficult questions on whether poor and customers are to be seen as data points or as active and alive human beings. This is a book that should be a must read for all the youngsters building “apps” to play around with human behavior and all the venture funders who encourage these youngsters. It is important that they stand up to the start ups.

Demystifying RBI

Whom Moved My Interest Rate?

Leading the Reserve Bank of India through Five Turbulent Years

Duvvuri Subbarao

Penguin Books, 2016

pp.308. Price: Rs.699.

When Duvvuri Subbarao took charge as the Governor of Reserve Bank of India (RBI) he had two challenges to face –(a) his predecessor Dr. Yaga Venugopal Reddy had left a great legacy as a forward looking but conservative, non-compromising Governor, and (b) the global meltdown triggered by the sub-prime crisis in the United States of America was having its shocks on our economy as well. Subbarao was moving directly from the Finance Ministry into the central bank and many thought that he was chosen to toe the Ministry line. The other candidate up for the position – as we know from Subbarao’s book – was Rakesh Mohan, by then a seasoned central banker, having served as a Deputy Governor. Subbarao was relatively unknown to the finance world. Not many knew what he stood for and if he would stand up like Reddy.

Under normal times, there would not have been such a detailed scrutiny of his tenure. His tenure was one of the most testing in recent times. On balance, the verdict was that he came out as one of the best Governors the RBI had. Unfortunately for Subbarao, he was sandwiched between two formidable personalities. Reddy who had a much larger reputation as a sharp, shrewd and witty Governor whose was endorsed by no less than Joseph Stiglitz as the best person that US Fed did not have, and Raghuram Rajan whose reputation as an economist preceded the governorship. But a fair assessment of Subbarao’s performance as a governor is to be done after shedding the reputational baggage of his predecessor and successor.

The book under review is a remarkable self-assessment. It is candid, clear and opens up the vulnerabilities, loneliness, dilemmas and the doubts that a position of a Governor brings. Subbarao was not the best of orators - his style pales into insignificance when compared to Reddy’s wit and Rajan’s theoretical and philosophical overlays. Even the jokes which he rendered with a deadpan face took time to sink in. But that is not the case with the written word. This book achieves one of the many things that Subbarao set out to do as a Governor – demystify the RBI.  It is a remarkably well written book, with deep introspection of the actions taken during his tenure without any chest thumping. Subbarao uses the distance of time to assess his tenure with a sense of awe and humility. He has a wry sense self-deprecating humour which makes the book even more readable.

While the narrative is personal and introspective, the communication is universal and generalizable. It needs a skilled writer to elevate personal experiences and into insights on a larger framework. Subbarao achieves this effortlessly. He takes us on a tour of the functions of the RBI: monetary policy; inflation targeting; forex management; banking; the developmental role of financial inclusion; non-bank finance companies - all narrated through his personal experiences and anecdotes, but elevating them into generalizable concepts.

The personal style makes the book human – conversations with his wife, the need to step out and take a walk, the awe of the Governor’s residence and the immediate contrast with the poverty around, keeps the book firmly grounded and does not degenerate into aggrandizement.

Subbarao is very candid throughout and does not hold back any punches – whether it is his displeasure about the finance ministry, his differences with Chidambaram and the somewhat irrational effects that it may have had in the functioning of the Reserve Bank. One episode which resonates in contemporary times is the way in which the re-appointment of Usha Thorat as a Deputy Governor was dealt with, undermining the position of the Governor – somewhat similar to the process that the current government followed in finding the successor to Harun Khan who demitted office recently. Subbarao says that “Usha became a part of the price we had to pay for asserting the autonomy of the Reserve Bank”, and continues to express his displeasure on process of considering the re-appointment of Subir Gokarn. The friction with the political class was not only about interest rates and monetary policy, but spilled over.

His predecessor Reddy in contrast has wit and could take any question with a twinkle in his eye and provide an answer that could at one level be diversionary, and at another leave it open to multiple interpretations. Rajan, his successor has used his opportunity to talk to elevate the discourse to issues much beyond the RBI – an interesting strategy of continuing communication without really stirring up the markets. That, Rajan stirred up some other hornets’ nest, is a different matter. That he was not a very flamboyant speaker is (in retrospect) our loss. However, in writing this remarkable book, but he has more than made it up. It is clear that Subbarao was a great team man, respecting and standing by his colleagues and constantly craving to communicate to the outer world.

The only aspect in this book that stands out by its absence is how little Subbarao mentions his predecessor Reddy. Given that Reddy also had famous run-ins with the government, that he was a much respected Governor and he belonged to the same cadre of Andhra Pradesh in their previous avatars as civil servants, one would have expected a much more active exchange of views – but that is not to be found in the book. While there is much warmth for the colleagues and even his successor – Raghuram Rajan, the silence about Reddy is somewhat conspicuous. That certainly does not diminish the value of a wonderful book that takes us through the tumultuous years with a sense of insight and humor.

© M S Sriram |

Grand ideas and simple solutions for India’s large sized complex problems

Rebooting India

Nandan Nilekani and Viral Shah

Allen Lane (A Penguin Imprint), 2015

pp.337. Price 799.

There are ten grand challenges, it needs ten start-ups within the government, with a crack team of ten handpicked people per challenge, to solve the most significant problems. There is evidence that this can be done, as evidenced by two “problems” for which solutions are considered “firmly established, large scale (p.291)”. These ideas would transform India and realise a billion aspirations.

Does the above statement sound ambitious, audacious, boastful or a pipe dream? Well, the answer according to Nilekani and Shah is that they are plausible and realistic. They think it is possible to achieve these dreams in a timebound manner if we apply a mission mode and get this going within the government, bypassing several of the checks of balances that a democracy would have –  the checks that necessarily slows the process of development. How would we achieve this?  Here is the job description:

“A true entrepreneur would figure out all the government processes and follow them to the letter (Note: it does not say spirit). He will navigate the byways of bureaucracy, keep his multiple masters happy, get his project mentioned in every important speech and every government document of relevance, get his bills tabled in Parliament and enacted as law, secure his budgets, cooperate with investigating agencies, respond to court orders, answer Parliament questions, tirelessly provide information sought in RTI requests, build a general consensus with multiple interest groups within the government as well as citizen groups outside, find allies who will support him when under attach, and do all this while staying focused on hiring the best team and building an organization that is dedicated towards achieving a well-defined goal. (p.xxiii)”

The ideas of Nilekani and Shah are largely rooted in the use of technology to solve many of the asymmetries that might be existing in the system. The arguments are that much of these asymmetries are solvable by technology. Decades ago, we had a similar initiative of entrepreneurship within the government when Sam Pitroda revolutionized the telecom network, much before the advent of mobiles and then the same frame work of a “mission” was used to multiple sectors with relatively modest achievements.

There are two problems with the arguments extended by Nilekani and Shah – first they assume that the template they have in terms of the art of the possible – that of Aadhar is a success; second, this template is largely applicable to solve other problems. Infact most of the solutions offered in the book are building on the Aadhar base – which is now termed by Nilekani as India Stack. The authors admit that the person who got the first Aadhar number Ranjana Sonawane did not benefit much from the number because there are multiple government systems that need to work in tandem to achieve her inclusion (p.21). But Aadhar, nevertheless is declared a success story. This is precisely the problem with the approach and tonality of the book. It offers simple solutions, and simplifies the problems. This approach is somewhat surprising because Nilekani himself had to deal with multiple complexities when he was at the helm of the Aadhar project and the potential of Aadhar is yet to be tested at scale. What is successful, are the enrollment numbers in the Aadhar system. This is impressive and stands almost kissing a billion residents, but what is to be tested is the biometric verification at scale on a real time basis. When that system is stabilized we certainly can claim victory, subject to the other hurdles the project faces from the courts and the challenges to privacy.

Irrespective of the reservations on the overall simplicity and the “achievability” of the solutions presented by Nilekani and Shah, the chapters on electronic toll, and other ideas that are at “early stages” of experimentation show promise and look plausible. The long term aspirational ideas need much more than the fixes that are provided through the technological interventions. Education and Healthcare for instance are not just about entitlements, vouchers and choices but also about the multiple systems that need to work in tandem that builds in the back end infrastructure to service these entitlements – irrespective of whether this infrastructure is in the private sector or run by the State.

The broad tone of the book was extended in the recent piece the authors wrote about Freebasics initiative of Facebook to make basic internet services available to all without a charge. In their write up which criticized the concept on the argument of net neutrality they advocated the “direct benefit transfer of internet data packs”.

The book is audacious in its approach; seems to advocate steamrolling “reform” on a mission mode with a readymade solution. The dissent and debate is to be considered as a necessary element to “win over” opposition. That there might be some merit of the dissenting voices is not considered seriously. The dissent is treated as a necessary constraint in a project chart that needs to be addressed in a manner that it does not stall the “progress”. It is this approach that is jarring in a book that is so wonderfully full of ideas.

History online

Beyond the Call of Duty

V Raghunathan and Veena Prasad

Harper Collins India, 2015

pp.224. Price Rs.299.

Raghunathan has been writing books on diverse issues – about locks, a popular book on game theory, one on paradoxes, a book on rationality and also on Duryodhana – a character from Mahabharata. His latest offering (with Veena Prasad) is a book on Britons who made a positive difference to India - a positive spin on the colonisers. While the idea itself is very interesting, there is a certain laziness in the approach. Let me elaborate:

Look at the essay on Mark Tully – a name that would easily resonate in contemporary India: Writing about Tully the authors say “Google Mark Tully and you find no less than 8.5 million results. He is all over the web space. And yet, try finding some intimate details about how well he did in school, or when and where he met his wife, or exactly when and where he got married, and when and where his children were born, or what their names are, and so forth, you find he is not such a public persona after all. (p.201)”

So, they claim, it is difficult to fill in the details in the essay about Tully. That is because of what the authors admit: they restricted their research to what was available on-line. The book is to be examined with this disclaimer in place. Having considered the limitation, then next test would be what is “in” the book. With any selection of personalities and some details about them, critics could quibble about what is excluded, an argument that can be made with the best of the selections. But what should be the criteria for including a personality and classifying all the scattered information about such a personality on the net to weave a coherent story?

Given that this is not a piece of historical research, neither is the book having a common underlying theme (apart from the positive contributions made by the subjects) one would think that there would be some relevance to the current times through the historical significance of the contribution. If we apply this test, the chapter on Sleeman, who chased thugs in his spare time would possibly fail. What is the point?

Similarly one does not figure out why Sir Mark Tully has made it to the book. Certainly being a journalist and being interested in India (mostly post-independence) would make him a person doing his duty, rather than going beyond the call of duty. While the rest of the personalities discussed in the book were born in the late eighteenth and the early nineteenth century (the latest being Ronald Ross born in 1857), the authors go out of the way - almost jump a century - to bring in Tully – somebody so contemporary – in a historical book.

These exceptions notwithstanding the book is interesting. Of particular interest would be the chapter on Arthur Thomas Cotton, who was singularly responsible for Andhra Pradesh’s agrarian prosperity. We have the hindsight of time to look at what irrigation did to an entire region, quite detached from the “here-and-now” issues of rehabilitation, resettlement and issues of human rights. It is not that those issues are not important, but a detachment from time gives a better perspective.

The important chapter titled “Getting India on Track” talks about the investments made in the railway network and the benefits that we continue to reap from the backbone laid by Stephenson and Chapman.

The detailed chapter on Ronald Ross and his contribution to the discovery of the fact that malaria spread through the anopheles’ mosquito gives us a perspective on the state of medical research and how frustrating it was for Ross to find a needle in the haystack of research.

While one can quibble with the research based on material available on-line, it does not discount the fact that to put these disparate pieces of information together, in reading and understanding material, and sifting the mundane and the trivia with the substantial is not easy. The book is also written in an easy style.

The personalities featured in the book were born between 1746 and 1857 (except for Tully). This in itself is important because evaluating the contribution of these persons after almost a century and a half would mean that these contributions – as they continue to be relevant to this day – were never trivial. It is therefore important to flag these events and the commitment of these gentlemen (there is not a single lady featured in the list) and evaluate their contribution and its impact.

The book should be welcomed as it brings back into the focus, the large impact made by these dogged and persistent personalities not only on the Indian space, but the contribution to the lives of citizens across the universe. The language and style has positively contributed to the authors’ agenda. The book is a contribution to the extent that it reminds us of all the important positive contributions that were made in the Raj era.

The Leadership of Elephants

How to Help an Elephant make a U Turn

GK Jayaram

Maven Books (A Rupa Imprint), 2015

pp.263. Price 500

One more book on leadership; one more model that tells us that times are changing –we live in a VUCAI (volatality, uncertainty, complexity, ambiguity and interdependence) world and how we should instantly change; one more book that proposes a new framework of leadership; one more book that talks down to the reader; one more book that has all the “feel good” factors of leadership – systems thinking, inclusiveness and how leadership comes from within.

So what is different in the book? To start with, the narrative style. The author decides that he would have a conversation with the reader and therefore has a one way conversation, peppered with comments that digress; he cracks poor jokes; admonishes himself, and then moves on into the class room. It is not only irritating, but also digressive from the arguments. And this style is not even consistent through the book. If it were so it should not have had any trace of diagrams, arrow marks, boxes; it is a conversation. These do appear, as the conversation moves from the sidelines over a cup of tea to a more formal classroom and a whiteboard with a marker. In between there is the digression of other voices of business leaders pontificating on a specific question under the “leaderspeak” head. These are interviews done by the author, with specific questions and brief answers. The leaders giving sound bites possibly do not know the context in which their quote would be used, and are just responding to the questions as they encounter them. Therefore, these leaders make embarrassing guest appearances in Jayaram’s leadership class. All in all the book is a mishmash of styles good enough to put the reader off.

 

Beyond these distractions what does Jayaram convey? The essence is this – we are living in a time of a revolution of rising expectations (RORE). Western societies have gone beyond RORE to a spiral of reduced expectations (SORE). “There is a need to rejuvenate these societies and provide them with a sense of constructive purpose. Hope needs rebirth; and for that we need great leaders” (p.2).

Jayaram argues that there is something called a transcendent leader – a leader who would connect to the followers, but also engage deeply with the immediate surroundings and the larger world to evolve vision, values and strategies. He argues that transformational leadership is a part of this. However, it is the transcendent leaders that create transformational change in the organizations (p.xiv).

The transcendent leadership model is conceptualized as a 3+5 model. There are three layers of foundation - integrity/character, intensity/courage and intelligence + intuition = imagination (p.42). Standing on these foundational elements are five pillars of execution – self-awareness, empathy, interpersonal wisdom, our world - community wisdom, Transcendence – global wisdom. This is the mantap on which the rest of the arguments in the book are built. Jayaram picks up quotes from the leaders, examples to illustrate his point from both his personal experience and the global knowledge and fits them well into his argument. Following this, there is a step-by-step roll out plan for transformation, with more models identifying the pitfalls and speed breakers on the way and how the leaders can carry people along. He ends the book by providing a model on how the transcendent leadership could be modelled in a real life.

While there are interesting questions that Jayaram deals with in his book – the usual questions of whether leaders are born or can be trained, the question on whether integrity could be taught or it is a value innate to people etc., the answers to these are lost in the stylistic quagmire. For instance on the issue of integrity he says “… companies have leadership development academies where they ‘teach’ the code of conduct, but just as religions can vouchsafe and corporations concur, I am sure no one has yet invented a sure-fire way of inculcating integrity in every leader” (p.215). While this section does talk about organizational credos, and codes of conduct, which brings up organizational values that might dictate personal action he throws it all away with this flippant conclusion: “From personal observation (I have no proof to adduce), I would like to conclude that integrity can be ‘taught’ 49 percent of the time, and the rest has to be learnt” (p.215).

Another irritating feature of the book is the number of acronyms used – RORE, SORE, VISTAR, YOCO etc., without providing a referral list of acronyms.

The book comes with some heavy endorsements, but as we have seen in the recent past, the heavier the endorsement, the more suspect books are turning out to be. I only wish that Jayaram’s book was a bit underwritten, more serious and looked at the reader as a thinking-reflecting individual than an argumentative Indian. He has converted something serious and profound into a chai pe charcha. It might be possible to have such a charcha with the author in person, but to use an inanimate book as a medium for a charcha is irritating and ill advised.

© M S Sriram |

Looking for innovation, looking for frugality

Frugal Innovation

How to do better with less

Navi Radjou and Jaideep Prabhu

Hachette India

pp.252, Price Rs. 599

Ron Adner’s “Wide Lens” (2012) looked at innovations, why they succeed, and why successful innovations could be business failures. He used a series of cases to build a story that was coherent and consistent. Theory building in an area like innovation is difficult. Innovation by definition should break the status quo and the existing understanding. Therefore an attempt to find the “principles” of innovative business should be lauded for courage. The authors usually expect is to decipher a pattern that could be applied on an untested area, and based on the principles, we should be able to predict success. However, an easier path would be to put the principles upfront, or develop principles from a handful of instances and then populate each principle with multiple examples, even if the example that illustrates principle one, contradicts principle six.

Navi Radjou and Jaideep Prabhu have written another book – Frugal Innovations. This follows their highly successful first book Jugaad Innovation. Both these try to retrofit a series of real-life examples into the pre-canned principles. “Jugaad”, was meant to be innovation carried out by untrained people finding a localized solution from available resources – possibly meant for a different purpose, but innovatively fitted to the purpose that the innovator had to use at a given point in time. Maati Cool – a refrigerator based on locally available resources to cool vegetables, using a washing machine for churning lassi could be Jugaad. But could a car – based on a conviction that there was a market at the right price – a Tata Nano – based on the principle of target pricing be called Jugaad? Or frugal innovation? The objective might be to make a frugal product, but is the innovation itself frugal? Much the way products delight customers on some attributes, the pricing could be a delight, but the innovation itself was not Jugaad – with serious engineering and design that went into Nano.

There is a problem in how Radjou and Prabhu look at frugality. Whatever they see, they have to see from the perspective of a frugal innovation. It becomes easy, because then, you have millions of examples. That is what they do in Frugal Innovation. They advocate six principles of frugal innovation: (1) Engage and iterate; (2) Flex your assets (3) Create sustainable solutions (4) Shape consumer behavior (5) Co-create value with prosumers and (6) Make innovative Friends. While in several parts of this book and the previous, the authors admiringly talk of Apple and Steve Jobs, the first principle was blatantly and consistently violated by Jobs. One of the principles of frugal innovation (p.28) is to involve customers from the outset. But by the time we move to the sixth principle we see this quote which has got nothing to do with co-creating value with customers – (entrperenuers) “create breakthrough solutions out of sheer (personal) necessity” (p.163)  .

For a person with a hammer everything looks a nail. We have two here. A lot of space is devoted to Unilevers’ sustainable living plan: doubling the company’s revenue by 2020 and cutting environment footprint by half. I will not argue on whether this is frugal innovation, I will let that pass. But the gem is here:

“It is important to convince employees, but it is equally important (and possibly harder) to convince shareholders and analysts of the need for change. In some cases, board members may worry that shareholders will punish the company for focusing on frugal products. To make a strategic shift, CEOs will need to take on hard-headed analysts and the board.” (p.204).

   

This is followed by a quote from Paul Polman, CEO Of Unilever: “I don’t think our fiduciary duty is to put shareholders first. I say the opposite…..Most CEOs go to visit their existing shareholders; we go to visit the ones we don’t yet have” (p.205)

Aren’t we happy that this is not a book on corporate governance?

Or let us try to understand what Radjou and Prabhu are advocating through this quote: “after spending millions on developing its Android operating system, Google gave away the technology so it could be incorporated into the maximum number of devices, thus securing a vast market for its search engine and other digital services. Google’s open source strategy paid off: Android is now available in over 1 billion devices, overtaking Apple’s iOS as the world-leading mobile operating system”(p.172).

So, what is frugal? who was the innovator? (Google or Apple?) and what was the innovation? (operating system or putting it on open source after spending millions). The above sentence does not make sense for the overall argument of the book, but if the chapter title is “make innovative friends” then it is justified.

One thing that is not frugal is the endorsements – 6 pages for the current book and 4 pages for the previous. They would need it, when the product does not speak for itself.

The many panic buttons to press

Restart: The Last Chance for the Indian Economy

Mihir S Sharma

Random House India, 2015

pp.362. Price Rs.599.

Mihir Sharma is a known to the readers of Business Standard. His articles are incisive, sharp, hard hitting, have a good measure of sarcasm. In his book “Restart” we see one more aspect: impatience. Sharma is in a hurry to cut the fluff and get to the point; to give a list of policy measures gone wrong from time immemorial and initiatives to fix them. He understands that the answers are not simple; there are multiple pressures on policy making; there are vested interests about which he writes extensively in the book; but still believes that way to go is take the route of rapid and drastic reform. Reform that does not exploit the farmers, the poor; reform that does not stop manufacturing and industrial growth; reform that does not compensate farmers for parting with their land at the current rates laid out by the recent land acquisition bill but compensates farmers “fairly”. While he criticizes successive governments for taking the middle path and not taking tough decisions, the solutions he provides are certainly not far from the middle path. No Sir, they follow the golden average.

This we grant: he has a unique approach to identifying problems; at using statistics; at drawing conclusions. Add this: he has a unique way of connecting with his readers. If we are used to people pressing the metaphorical panic button Sharma has a whole panel of buttons which he keeps pressing like a trained pianist.

Sharma’s style is conversational and direct. The data is usually camouflaged in the diagnostic and dialogic sentences without the need for tables, graphs or analysis. He has done the homework, knows the data. He expects the reader to take his word. So far so good. But what if the data is to be interpreted differently? How does one engage with him and pick up a nuanced argument? While Sharma himself has fairly nuanced arguments, he gives his readers no choice to frame their questions. He asks the readers’ questions himself and answers them.

While this style is ideally suited for an opinion piece in the op-ed page of a newspaper (pink or otherwise), where one is short of time and therefore the need to trust the writer for doing the background work and take writers’ word, does it suit a book length work, where one has the luxury of a more informed style of conversation? No Siree, that is not his style. Nope. Not at all.

Talking about why the second airport in Mumbai (that is so important for national development) is held up, he says “…  the Union environment ministry was worried about 160 acres of mangroves – the gloomiest plant known to man, even if you include the weeping willow.” He then goes on to ask: “Are mangroves perhaps endangered? Nope. They’re being depleted, but are not endangered” (p.131). He goes on to argue that the depletion of mangroves on account of the new airport is about 0.24 percent of the mangroves in Maharashtra. He does not use (possibly) the more relevant statistic that it would be about 1.11 percent of all of Mumbai’s mangroves. Nor does he counter the argument of ecological fragility of the coastal zone. On the contrary he could have made his argument even stronger if he used this statistic against the total acerage of mangroves in the entire country!

Does this remind us of somebody else who uses statistics equally powerfully to make a point? You guessed it: P Sainath is equally good in drawing our attention to the agrarian crisis and employs a similar style. It is interesting to see that these two gentlemen have divergent views, but have such a similar style. While Sainath laments the reduction in the number of “cultivators” and brings about the nature of the agrarian crisis culminating in farmer suicides, Sharma dismisses that as being “disrespectful to mathematics and common sense”, talking about how the police “define and categorise ‘farmers’” (p.26). While Sharma argues that suicides are a function of complex interplay of economic, cultural, and psychological factors, his larger statistic of comparing the suicide rates of the “so called farmers” with the national statistic of Japan or Bhutan is taking Sainath’s specificity away to a generalization of suicide statistics.

Sharma’s book has a wide canvas, goes deep into history and uses statistics, anecdotes and episodic events effectively to narrate a coherent tale. This tale becomes sharper because he has done his homework, knows his numbers and has a big picture in mind. His style is chatty and engaging. However, Sharma becomes quickly predictable both in his analysis and in his final solution. But if you are left with a sense of disquiet and discomfort at the end of the book, as I have been, then he has achieved his objective of making the point that Indian economy is in a mess. That is the point he makes effectively and convincingly.

 © M S Sriram |

The Sahara Story: more unsaid than said

Sahara

The Untold Story

Tamal Bandyopadhyay

Jaico

pp.374. Price Rs.450.

There as successful businesses, and they create an aura around themselves, become subjects of case studies and help us to build theories. And there are enigmatic business that have a mystery around them, raise the curiosity leave us guessing. We do not know whether these enigmatic businesses have been innovative and path breaking or just plain unethical or illegal. Sahara was always perceived as a business shrouded in mystery with several conspiracy theories doing the rounds on its sources of funding and its business practices.

Tamal Bandyopadhyay’s book on Sahara is as close as it could get to prying open the lid. It does not reveal much; does not tell the untold story in detail, but has information, events, conversations and exchanges that attempt to tell us what it could be. Even this small prying of the lid was not acceptable to Sahara. They filed a defamation case against the publisher and author, which was eventually settled with a two page disclaimer that indicates that the book is part fiction. Whether this prominently displayed disclaimer was in itself a marketing tool can be discussed by experts, but the buzz around the controversy was enough to raise the levels of curiosity about the explosive stuff that the book could have had.

Bandyopadhyay writes carefully and meticulously. He pieces together information, interviews and research, done painstakingly over the years and presents it in a readable style. He adds drama – makes it appear like a participant-observer giving details of the venues, almost verbatim reporting of what was said and the exact timings of when text messages were exchanged. That adds to the readability of the book, without much distraction.

There are two strands in the Sahara story that Bandyopadhyay weaves together. The first strand is the structural issues where the regulator’s concerns about Residuary Non Banking Finance Companies (RNBC) are discussed. As a supplement he also discusses the other large RNBC – Peerless. He discusses the regulatory architecture for raising resources; the jurisdiction of the Securities Exchange Board of India (SEBI) and other elements of the financial system. The second strand is the story of Sahara, its promoter and the Pariwar. This strand is set in a larger imprecise maze. The maze helped Sahara to leverage every loophole in the system. The also has some sub-strands that do not add value to the story: The chapter in pages 185-224 where he discusses the roles and profiles of people on the regulatory side, is an example of force-fitting details into the book. It makes the book look well researched and meticulous but adds little value to the narrative.

How do organisations like Sahara evolve and thrive? Bandyopadhyay says that Sahara “has 4,799 establishments and businesses under 16 verticals in its fold and is the second largest employer in the country after the Indian Railways…” (p.xiv). That a group could be so complex in its organization and so diverse in its business ranging from retail to real estate, with a finance company in its core could be a challenge even for financial forensics specialist. How did the regulatory agencies allow Sahara to grow and become a case of too-big-to-fail – moving beyond the financial sector, in a diversified set of activities? Sahara is a case that poses challenges to arguments on convergence versus specialization in regulatory approaches. I wonder if the financial sector legislative reforms committee (FSLRC) report would be written differently if it’s singular purpose was to deal with an organization like Sahara.

The book demonstrates (a) how frail our regulatory architecture could be; (b) how a smart business house could constantly exploit the regulatory arbitrage; and (c) how slow the system is to plug the loopholes. The book demonstrates the complexities in regulating a fully grown business with its complex web of transactions like Sahara. Any inquiry or regulatory intervention on Sahara is obfuscated two of its favourite tactics: (a) overload the regulator with truckloads paper and (b) go to the press with full page advertisements on its innocence. In documenting the story of Sahara, Bandyopadhyay has rightly raised more questions about the Indian financial system and has answered lesser questions about Sahara itself.

The details of the Sahara story goes much beyond Sahara itself. Sahara is a case in point, but it is a story of our regulatory and policy architecture that left enough space for a player like Sahara and Peerless to operate, in a space that appears to be regulated, but difficult to regulate. In the story it is only the Reserve Bank of India (RBI) under Governor YV Reddy that comes out as a mature and patient regulator, who is trying to fix the system, while the other regulators are groping around on how to deal with an instrument issued in the market here, a tax dispute there and so on. Surprisingly the Sahara also does not appear to be as sure footed as it usually is, when it comes to RBI. This is possibly because Reddy looked at the larger picture, more from a systemic view with Sahara being a case in point. That may also be why Bandyopadhyay deals with Peerless in such detail, while the book is about Sahara.

While the regulatory frame provided Sahara to thrive and prosper, its strength was in raising resources. Any diversified business group of that scale would have accessed the capital markets regularly for equity and debt. Surprisingly Bandyopadhyay tells us that only four of the 4,799 companies of Sahara Pariwar are listed and the one time it went to the capital market for substantial funding was when the RBI choked its milking cow – deposits raised from RNBC. This public offering was of Optionally Fully Convertible Debentures (OFCD). If we put the sequence of events together, it appears that this was the turning point for the business group. Investigations started and legitimate questions were raised. Approaching the market meant offering a prospectus with substantial amounts of data which was subject to the scrutiny of the regulators.

The book discusses the regulatory jurisdiction and the nuances involved in the OFCD issue and how it started spelling trouble for the group. So, what was the source of funding before Sahara took the public offer route? This is where we get to discuss the opaqueness of the Indian financial system.

The source of funding for Sahara till then was the RNBC which was providing unlimited amounts of cash for the group to indulge in businesses as diversified as Formula One racing, owning a cricket team, media, real estate, hospitality, financial services and retail. The bone of contention was the source of this money. The argument of Sahara was that these were deposits painstakingly collected by their staff from large number of retail depositors who are very poor and were looking at a safe and reliable place to park their savings. This is explained by an army of deposit collection agents recruited by Sahara which takes it to the claim of being the largest employer after Indian Railways. However, the moment that channel is choked – we saw that the empire was in the danger of crumbling – particularly with the fact that raising resources from the mainstream markets appeared to be fraught with regulatory and disclosure related risks. The entire episode pertaining to the identity of the depositors of OFCDs indicates what Sahara was up against once it moved from its traditional and opaque source of funding.

This takes us back to the RNBC – which was the main source of finances for the company. There are enough indications in the book to hint that it was difficult to identify the depositors. There isn’t enough material to establish the widespread perception that Sahara was funded from unaccounted finances from politicians. If we were to give the benefit of doubt to Sahara - that it was indeed collecting deposits from the countryside with an army of its agents; their customers were known to the agents but were the ones excluded by the banking system because they did not have identity papers, it brings us to a larger question on financial inclusion – particularly on the savings side. By closing this option, has RBI closed one option in the formal sector that the poor could access to save their money?

We need to examine the proposal for setting up of payment banks in this context. On the liabilities (deposit collection) side, Sahara was like the proposed payment banks: providing the savers opportunities to put in small amounts of savings. On the assets side while the stipulation for RNBCs was to park 80% of the deposits collected in safe government securities, the stipulation for the payment banks seems that all the money (100%) has to be invested in government securities. Sahara possibly was able to garner profits through using the 20% buffer it had on free deposits to invest in diversified businesses that fetched handsome profits to service the depositors. With payment banks having no head room for managing the assets side, and with heightened regulatory requirements on know your customer (KYC) norms applicable to the depositors, is there a business case for the payment banks? Bandyopadhyay’s book does not offer an insight into the business model of this structure, but at this juncture it is important to examine the experience of the RNBCs while we make a case for the payment banks.

 

The book is lucidly written, and while there are many digressions from the core and the narrative gets chatty at places, we could allow that stylistic freedom to the author considering the painstaking research undertaken for this study. While it is a well-researched book, what is unsaid seems to be much more significant than what is said. The author is to be complimented for doing such a fine job. We should also welcome the fact that the author settled the dispute with the Sahara group to go ahead with the publication with a disclaimer. If that has not happened we would have missed out on an opportunity to get this insight into a significant player in the financial sector.