India Inc's Unique Challenges

Plenary session of the International Futures Forum (IFF) headquartered here.

IFF brings together specialists and experts across disciplines, encouraging participants to think laterally and stay open to learning, no matter how high they rank in their vocation. In the process of finding solutions, ‘IFFers' undertake a learning journey, live with the problem and work towards a solution together with all the stakeholders. This approach of collectively working towards solutions, rather than imposing them from outside, is ideal for Indian conditions, marked by complexity and ongoing multiple transitions.

Bottom of the pryamid

Indian business today is in a unique situation that calls for much more than the standard strategic management models. Let me elaborate. First, Indian business, in order to succeed, has to necessarily cater to the bottom of the pyramid where purchasing power is still low but individual aspirations are high and there is a growing demand for globally comparable products. Second, domestic business is increasingly exposed to global competition and yet has to absorb the higher cost of infrastructure and other public goods and services, including security, normally available in other countries at relatively subsidised rates. Third, Indian industry may continue to face serious constraints such as rigid labour markets, higher costs of capital, higher transactions costs and a degree of uncertainty, as distinct from risks, in the investment environment owing to the nature of domestic politics and the relatively autonomous Indian State.

urbanisation to be actively facilitated & comprehensive capacity-building programme for urban governance.

increasing urbanisation, problems relating to slum expansion, shortage of housing and traffic confusion, all make living in India's 5,161 cities and towns difficult.

Our urban population grew from 290 million in 2001 to 340 million in 2008 and is expected to reach 590 million by 2030.

From 35 cities with million-plus population in 2001, the figure is to reach 68 in 2030.

Six of them will be mega cities with a population of 10 million or more.

During the ten-year period from 1991 to 2001, the total number of cities and towns in the country grew from 3,768 to 5,161.

A substantial part — as many as 4,720 of these — are towns with population of a lakh or less, which means they are bound to grow and expand beyond the present limits, and fast.

If 58 per cent of India's GDP came from urban areas in 2008, it will be 70 per cent by the year 2030.

Cities will contribute about 85 per cent of the country's tax revenue.

Waste disposal

If cities have such huge importance in our economic growth scenario, what conditions prevail in our cities?

A fare for the poor

One aspect of the Railway Minister's annual budget that most Indians have got used to over the last six years is the absence of any passenger fare hikes; in the popular imagination a ‘good' railway budget is one that may tax freight but that leaves passenger fares untouched. Yet the Indian rail authorities have to find ways to not just offset the rising cost of ferrying an increasing number of passengers at ‘uneconomic' fares, but also to enhance its rolling stock and services to keep pace with an increasingly competitive environment; road freight is nimbler and quicker with its ‘door-to-door' advantage and the Railways have been losing ground even as they have to cross-subsidise passenger fares with higher freight charges.

This is inevitable in a country such as India, where, as Mr Samar Jha, the Financial Commissioner, Indian Railways, recently told this newspaper, 80 per cent cannot afford even the current fares; the irony is that those fares are unsustainable from the network's point of view. Passenger fares have, over the decades, become a politically sensitive issue and the Railway Ministers have got around this conundrum by introducing luxury, upper-end train services such as the ‘Duronto' trains that they would not feel guilty raising fares on. This hardly helps mitigate passenger service losses that are close to Rs 20,000 crore. Add to this the rising wage bill and the extra payouts to staff, such as that engendered by the Sixth Pay Commission of nearly Rs 900 crore, that left the network with a paltry Rs 75 lakh surplus and it becomes clear that some innovative schemes are necessary to meet both the objectives of increasing access to rail travel for the poor and keeping the railways afloat, as it were.

One way out of the passenger fare tangle would be to target subsidies that can enable the Railways to offer very low fares for the poor, most of whom cannot even afford current fares. The problem with targeting is identifying the right beneficiary; ration cards have not worked. Now help seems to be at hand by way of the UID project. As Mr Jha hopes, the UID will help identify segments just above and below the poverty line that could be eligible for subsidised train travel. This would free the railways from its current bind regarding passenger fares and facilitate the formulation of a tariff structure for the rest of the travellers based on economic calculations. The Indian Railways, therefore, might just be among the early movers to leverage the power of numbers

What Does Nano Want

"Human beings could begin as free men, be turned into slaves and then rise in politics to become advisors to kings or great charismatic leaders. And Marcel Duchamp showed us that today's urinal can become tomorrow's found object, in the right artistic hands, " he added.

"I believe that the Nano, once it is in widespread use, as it surely will be, will speak for itself, but it will also speak for the approximately 20 percent  of the Indian population," he continued, "who can imagine themselves as owning a car, or as owning a car in the near or middle-term."

"India is not a land which thrives on bigness, in the proverbial American, or Texan manner," he continued.

"It is a SOCIETY AND A CULTURE WHICH THRIVES ON DENSITY, INTRICACY AND MANOEUVRABILITY. Nor, like Japan, is it a culture which makes a cult out of miniaturization, of smallness for its own sake, of sheer shrinkage or reduction or subtraction as an aesthetic."

"Indians are not maximalists, but they are not minimalists either. In India, small is better not because of a hidden Bauhaus sensibility, and less in India is not really more. India is ABOUT MAKING AS MANY ACCOMMODATIONS TO DENSITY, INTRICACY AND SMALLNESS AS A PARTICULAR SCALE WILL ALLOW."

"INDIANS LIKE THE IDEA OF MORE IN LESS."

In a remark which was received with many understanding nods and good amount of laughter, he said: "Any American who has asked for any private space or time in an Indian household which he or she is visiting, knows the look of puzzlement and slight hurt that crosses his host's face when this suggestion is made. INDIANS ARE ACCUSTOMED TO SOCIALITY ON THE ROCKS, UNCUT BY SILENCES, BODILY DISTANCE, OR PRIVATE SPACES."

"What they demand is that this sociality be well designed, obedient to the needs of ritual, the rhythms of the calendar and the needs and roles of kinsmen and friends. The Nano has the potential to spark the Indian taste for packing more into less, not because all Indians are ascetics, or Bauhasians or green philosophers, but because they like the intricacy and the intensity of sociality."

"Take the average second-class sleeper train compartment for the Indian middle-classes," Appadurai said. "What are its features? It is small, it is crowded, it is well-designed, it is cheap and it is taking you somewhere with your companions on your journey, some of whom are family or kinsmen, while others are strangers at the outset."

"Or take any religious procession in any Indian city or village. What are these processions? They are festive self-organising modules of celebration, sociality and density. Or we can strip down this example and think of queues in Indian society, which are ubiquitous. Indian queues are a great lens into the subtlety of non-linear and self-organising social processes, chaotic but not lacking in purpose, norms and outcomes, even while they are irritating, noisy and sometimes fractious."

"Indians know how to get somewhere in the company of others and they appreciate any technology which PUTS SIZE AND PRICE ABOVE SIZE AND SMOOTHNESS."

No case for delaying Companies Bill

Laws of work say that 90 per cent of a project takes 10 per cent of the time. The remaining 10 per cent takes 90 per cent of the timeIn the case of the Companies Bill — drafted in 2009, the remaining 10 per cent is taking forever.

It is reported that the Bill, conceived to cleanse and condense a complicated Companies Act, 1956, may not be tabled before Parliament this session. This is ironical considering the fact that close on the heels of announcing 35 Converged Indian Accounting Standards, a new Schedule VI has been drafted.

Revised Schedule VI

For a corporate entity, Schedule VI is the equivalent of the Accounting Constitution. Initial reports suggested that the revised Schedule would apply to all entities, but a detailed look at the Schedule seems to suggest that it could only apply to entities that need to follow the Converged Indian Accounting Standards.

This could immediately spring a question whether one could have two Schedules under the same Act. When one can have multiple accounting standards, why not two Schedules? The stand-out feature in the Revised Schedule is the requirement to segregate both assets and liabilities into Current and Non-Current- a requirement that IFRS swears by.

Business Line : OTHERS / ACCOUNTANCY : No case for delaying Companies Bill

The Garden of Your Mind

If you think of your mind as a garden, what have you planted? You know what's planted there by what's growing!

If seeds of doubt are planted, life may seem uncertain. The harvest may include questions such as 'Do I deserve to get what I want in life?', or 'Can I succeed?' or 'Will I ever be good enough?' These seeds can be planted very early in life without our consent however, once you find them they must be made into compost! If you find these weeds popping up, dig down to extricate the roots completely. Even after doing this, you may find tiny shoots still. They are hardy plants. Weed often. As you remove each weed, remind yourself that you deserve a beautiful, productive, well-balanced garden.

IFRS: More time will benefit all

Finally the Ministry of Corporate Affairs notified 35 Indian IFRS standards (Ind-AS), without announcing the implementation date. Therefore there is no guarantee that the April 1implementation date as indicated in the road map will be achieved. Standards on insurance, leasing, service concession arrangements, mineral resources, agriculture and rate regulation have not been issued. Accounting for real estate, financial instruments, fixed assets, foreign exchange accounting and first-time adoption have been changed significantly. Optional accounting treatment allowed under IFRS have been eliminated, for example, the option to account for investment property at fair value or preparing profit and loss account using a functional classification in IFRS is not available

The implementation of Ind-AS is also subject to successful enactment of the Companies Amendment Bill, as numerous sections such as 391, 394, 100, 78, Schedule VI and Schedule XIV conflict with the requirements of IFRS.

The tax situation is equally compelling. Typically IFRS accounts are meant for investors. Taxation has a different purpose and hence will have a different perspective compared to an investor. For example, an investor in an investment property company would evaluate the company based on the fair value of the investment properties. Tax, on the other hand, will focus more on rental income and realised profits on sale of the investment properties. Given that the objective of investors and tax authorities will remain different, it is an inevitable consequence that two sets of standards would be required. Taxation authorities cannot indefinitely continue to fill the gap by using court rulings as that would make the entire environment uncertain and litigious.

Business Line : OTHERS / ACCOUNTANCY : IFRS: More time will benefit all