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Mom's the word. only the two grubby
tear-stained faces waiting for mother to kiss and make things better
don't belong to infants; they belong to two of India's best-known
financial institutions, Industrial Finance Corporation of India
(IFCI) and Unit Trust of India (UTI). And mother, to make the analogy
transparent to all, is the Government of India which has, time and
time again, bailed out the two delinquents with that fail-safe kiss
of life: money.
April saw the two at it again. Credit rating
agency ICRA-ironically, one of its promoters is IFCI-downgraded
IFCI to 'non-investment grade', indicating that any investment in
the institution came with more than its fair share of risks.
Two other credit rating agencies, care, and Fitch placed IFCI
under a rating watch following its default on payments to some institutional
investors. That meant IFCI couldn't raise much-needed money easily.
True to form, it ran to mom. The specifics of the handout it sought:
a rollover on debt of Rs 1,000 crore, essentially investments of
banks and some institutional investors in IFCI bonds. And it also
wanted the government to guarantee its borrowings.
The country's largest mutual fund, UTI, didn't cover itself with
glory either. It made up a shortfall of Rs 600 crore on one kind
of assured-return scheme-the Monthly Income Plan 97-by paying out
of its Development Reserve Fund. There are other assured-returns
schemes in UTI's portfolio, though, maturing in the next year-and-a-half
with an expected shortfall of Rs 3,388 crore.
Indeed, UTI hasn't put a foot right since the reserves of its
largest fund, US-64 turned negative (for the first time in 25 years)
in 1998. Part-reason for the trust's woes is the way its schemes
are structured, claims one Mumbai-based fund manager who requested
anonymity. ''You cannot have guaranteed returns on products in a
falling interest-rate regime.''
Only, UTI has, and constituted as it is, by an act of Parliament,
its management plods on under the reassurance that even if things
go very bad, the regulator-the Securities and Exchange Board of
India (SEBI)-can't do much.
The government may not have had a role in facilitating the latest
escape of the two troubled financial institutions-it actually refused
to help IFCI-but it hasn't always been (and won't always be) so.
As recently as August 2001, it announced a Rs 1,000-crore financial
package for IFCI. And it bailed the Trust out of its 1998 and 2001
troubles.
Strangely enough, it is government ownership, and the implicit
perception of a 'sovereign guarantee' attached to the transactions
with these institutions, that are pushing them towards their inglorious
ends, believe many market watchers such as Vimal Bhandari, the Executive
Director of IL&Fs. ''(The state has) multiple roles, of which
seeking returns is definitely not the highest priority.''
Thus, the government, not the management of these institutions,
is accountable for decisions; it (the government, again) may push
the institutions into less-than-desirable transactions; and it also
could use them to fulfil socio-political objectives which don't
always make economic sense.
Then, there's the venal bit: political interference could be behind
some of IFCI's non-performing assets (bad loans) and UTI's unintelligible
investment decisions.
To avoid future crises in UTI and IFCI-crises that strain its
already stretched finances-the government should consider exiting
the mutual funds and development finance businesses. But what was
it doing in these businesses in the first place?
-Roshni Jayakar
G-SPOT
For The Paranoid
...and the health conscious-an Austrian inventor
launches a radiation-block add-on to the mobile phone.
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| Gunter Zingerla: Health in his hands |
The jury is still out on whether radiation
from cellular phones can harm, but Austrian inventor, Gunter Zingerle,
is a step ahead. He has developed the Strahlex-Chip-a paper-thin
gold dot that can easily be inserted between the battery and the
phone-to neutralise the effect of electro-magnetic radiation. ''None
of us can live without our mobile phones,'' says Zingerle, who was
in India to launch the chip, ''but we can do something to protect
ourselves.''
At Rs 999, the chip isn't expensive, but Zingerle will have to
battle ignorance: not many mobile phone users are aware of the alleged
risks the instruments come with. Still, something tells us the Strahlex
won't exactly set the market on fire in a country where people have
to be threatened with punitive measures into wearing seat-belts.
-Abha Bakaya
INTERVIEW
"You Can't Push A String"
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Bimal Jalan: Looking at 6.5 per cent
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Bimal Jalan has had one of the best runs as the Governor
of the Reserve Bank of India. In his time, foreign exchange reserves
have soared from $25 billion to $55 billion, bank rate has fallen
from 10.5 per cent to 6.5 per cent, and inflation has sunk to an
all-time low of 1.25 per cent. Still, as Jalan told Shankkar Aiyar
soon after the credit policy announcement, there's only so much
that even a good central bank governor can do. Excerpts:
You seem to have kept your promise of making the credit policy
a non-event. No drop in interest rates and status quo-ism...
Well, we try (laughs). We are in a comfortable position; the situation
is stable so you see no fireworks.
What is the focus of the RBI now?
Its aim is to continue to provide an environment of soft interest
rates, adequate liquidity and assure the market that it would continue
to remain so.
You have forecast GDP growth at 6.5 per cent? What is driving
this optimism?
Essentially, the projection is a factor of calculations based on
numbers coming out of the ministries. Agriculture is projected to
grow and services are doing reasonably well. Allow for a pick-up
in industry and exports and the number adds to 6.5 per cent.
Would you agree that successive monetary policies have failed
to push non-food credit, investments in industry and, thus, growth?
There is an old saying: you can't push a string. Similarly, the
monetary policy can only create conditions in the hope that it will
create a demand-pull. There are some signs in terms of a pick-up
in consumer lending. The hope is that demand-pull will trigger investments.
You complete five years as RBI Governor later this year. What
would you list as your major achievements?
The first would be management of the external sector. Did you know
that we have had 36 crises in BoP/forex in the 42 years till 1991.
In fact, in my book I had listed it as one of the major challenges.
Now we have reached a comfortable position where many take the reserves
for almost granted. The second major achievement would be the level
of disclosures, transparency brought into the banking system. We
are fairly up to international standards. Not there, but close.
The third would be the liquidity adjustment facility. And the
fourth would be the successful management of government debt through
open-market operations, private placements, auctions and such instrumentalities
while managing to usher in a low inflation-low interest rate regime.
What about disappointments?
The big disappointment is the low levels of efficiency and the
levels of fiscal deficit both at state and Central government. What
adds to the disappointment is that despite the level of borrowings
and soft interest rates, we have not made much headway in power
and other infrastructure sectors, barring the success in the roads
sector.
JAMBOREE
Acting School
The India chapter of Wharton's alumni association
has some seriously entertaining networking plans.
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Bachchan at the Wharton meet: One-man industry meets
industry
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For India's own Sean Connery-it's
the beard that forces us to use this sobriquet-it was a unique occasion.
In the last week of April, Amitabh Bachchan performed a management-act
before a 100-strong audience, comprising CEOs of some Indian blue-chips,
and assorted chatterati who throng such dos in Mumbai.
''I don't have a business degree, I won't know if a strategic
paradigm had shifted from under and I don't walk the talk or talk
the talk,'' began Bachchan whose son-in-law, Escorts' Nikhil Nanda
is an alum of Wharton.
Still, the man pressed all the right keys: of how his core competence
lay in the entertainment business and of how the future of Indian
show-biz was a function of its ability to go global.
Lapping it up were Anil Ambani (Class of '93) and wife Tina; Mallika
Srinivasan (of TAFE, class of '85, and she flew down from Chennai
specifically for the event); HLL's M.S. Banga (not from Wharton,
alas); Adi Godrej, wife Parmeshwar, and daughter Nisa (class of
'92), and Aditi Kothari (daughter of DSP Merrill Lynch Chairman
Hemendra Kothari; class of '98).
''A gathering like this provides an opportunity for the alumni
to get to know each other, network, and help in professional development,''
says Lalit Jalan, a Senior Vice President at Reliance Industries,
himself a Wharton alum, and the prime mover behind the event. Forget
the development part, pumping the Rolodex is the event's primary
selling proposition (and the reason journalists such as this writer
make it a point to attend)
Now, don't you think this a better piece than that page three
nugget you wasted time over this morning?
-Roshni Jayakar
PLASTIC SURGERY
The Magic Kiss
Courtesy the boom in insurance, a decrepit
profession is undergoing an impressive makeover.
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| Face-off: John Woo would have liked this
change at ASI |
Barely 10 years ago, if you had told
anybody that you were signing up for an Actuarial Society of India
(ASI) membership, you would not have made many friends. For, unlike
chartered and cost accountancy, only residual talent got into the
actuarial business. Today, graduates of elite courses, including
some MBAs and CAS, are making a beeline to ASI's offices in Mumbai.
With dozens of insurance joint ventures setting up shop in India
following privatisation of the industry, there's a virtual scramble
for scarce actuarial talent. Hard-pressed insurance firms are willing
to cough up top-rupee salaries (as high as Rs 50,000 a month) to
get actuaries. Says Nalin Kapadia, President, ASI: ''Student membership
has tripled in the last couple of years to more than 1,500.''
For the uninitiated, the actuary designs insurance products, fixes
premium rates, and also certifies the solvency of the insurer. In
fact, no insurance company launches a product without its actuary's
approval. In India, because of limited demand, the profession went
to seed. In fact, ASI is still a non-statutory body and cash-strapped
for funds. Half of its members are foreigners who don't live in
India, but have significant voting rights. You can bet that'll change
too.
-Nitya Varadarajan
POWER PLAY
If Andhra Pradesh Is Really Power Surplus...
...then how come its villagers have just six
hours of supply every day?
 It's
a case of a half-hungry offering to feed a starving another. Last
month, Andhra Pradesh bid (and won) to sell 100 mega-watt of power
to Karnataka, never mind that there is an official six-hour power
cut in rural areas, and the agriculture sector gets just nine hours
of supply every day.
So, why does Chief Minister Chandrababu Naidu-he's promised zero-outages
beginning August 15-think his state has extra power to sell? His
officials point to NTPC's 1,000-mw project that has come up near
Vishakapatnam. The first 500 mw of the project was commissioned
in February this year and the rest will be by the end of this year.
That apart, there is the expectation that a good monsoon will add
another 10 million units in hydel power every month between July
and November. All told, a surplus of 2,435 million units (net revenue
of Rs 133.61 crore) is expected this year.
But that, it turns out, is not the complete story. Says K. Balarama
Reddi, former Chairman, Andhra Pradesh State Electricity Board:
''Currently, power is made available at 48 Hz, and raising it to
the stipulated minimum of 50 Hz alone in the whole of southern region
would require an additional 1,500 mw.'' Now that's a whole new twist
to the story.
-E. Kumar Sharma
BARBIE TIMELINE
Mattel's plans for Barbie
Mattel co-founder and Barbie inventor Ruth
Handler died this April. Here's how her best-known invention-she
also did the prosthetic breast-evolved.
1959 Mattel co-founder Ruth Handler launches Barbie. The
doll is 11 1/2 inches tall and features a movable head, arms, and
legs. In the first collection, blondes outnumber brunettes by a
margin of two to one.
1960 Barbie's boyfriend Ken makes an entry, sporting a
head of fuzzy hair. Two years later, his tresses are replaced with
blond or brown paint.
1964 Barbie's little sister Skipper is introduced. She
is joined by Miss Barbie, the only doll in the collection whose
eyes open and shut.
1968 Barbie's girlfriend Christie, an African-American
doll, is introduced in 1968. Barbie also speaks for the first time
this year. At the pull of a string, she utters six phrases, including
''I have a date tonight!'' and ''I love being a fashion model!''
1971 Barbie's trademark sideways glance is replaced by
an attentive, straight-ahead look.
1976 Barbie becomes an Olympic skier, a gymnast, and a
skater. She also moonlights as a doctor, a surgical nurse, a ballerina
and a flight attendant She is placed in a time capsule, scheduled
to be opened in 2076.
1980 Mattel launches Black Barbie and Hispanic Barbie.
"Oriental" Barbie follows the next year. The company also
launches its ongoing International Collection, beginning with Italian
Barbie, Parisian Barbie, and Royal U.K. Barbie.
1985 An international Barbie exhibition showcases Barbie
in clothes designed by Yves St. Laurent, Pierre Cardin, Jean-Paul
Gautier, and Christian Dior.
1987 Barbie's line of Concert Tour fashions, inspired by
Madonna, include a Day-Glo bustier and skin-tight black pants.
1990 Barbie has a short-lived rap music career, dropping
dope rhymes with her group Barbie and the Beats.
1989 Barbie joins the U.S. Army in 1989. Air Force, Navy,
and Marine Corps fashions follow over the next three years.
1993 Mattel launches Native American Barbie.
1994 Teen Talk Barbie utters the phrase ''Math is hard!''
1997 Harley-Davidson Barbie becomes the hottest doll of
the year
1999 Barbie celebrates her 40th birthday with her girlish
figure intact. Mattel celebrates the event by forming a partnership
with the non-profit Girls Inc. The project, called ''Ambassadors
of Dreams,'' uses accomplished women to advance the message that
''girls can be anything.''
2000 Backed by Girls Inc., Barbie runs for President. Her
campaign issues include equality, world peace, animal kindness,
education, and the environment.
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