Governance issue at Ranbaxy?

In today's TOI, Gurcharan Das has this to say about the sale of the promoters' equity in Ranbaxy to Daiichi of Japan:

For some years now I have been on the board of Ranbaxy and have watched with admiration as the company transformed itself into India's first real multinational. I have seen it inspire a dozen other companies and helped create a world-class generic drugs industry that is feared by western giants for aggressively challenging their patents and admired for lowering the cost of medicines around the world. How, then, was I to respond to the announcement by Ranbaxy's CEO, Malvinder Singh, that he wanted to sell his family's stake for Rs 10,000 crore to a Japanese company, Daiichi Sankyo? The family was equally shocked. A CEO's ability to keep months of negotiations secret in a country afflicted by verbal diarrhoea speaks of the company's character.

Das' comments suggest that, as a board member, he had little inkling of the deal until it was announced in public. Are we to conclude, then, that the deal was not approved by the board? If yes, is this appropriate?

This is not a case of any investor selling off his stake. The dominant investor is also top management. The decision of the promoter to sell his stake thus implies a decision by top management to let another company acquire Ranbaxy. Can such a decision be taken without the concurrence of the board? It does look as though there is something here for Ranbaxy's shareholders as well as Sebi to ponder.

Media hype is a threat to growth outlook

Seeing the coverage of the rise in inflation and the reactions to it, you might think the Indian economy is in the midst of a crisis or headed towards one. Relax. Take a few deep breaths, pinch yourself nicely and chant thrice: this economy is growing at 8%. Done? Now, read my latest ET column, Inflation threat is exaggerated. Let me elaborate on why I am fairly optimistic.

A top CEO told me a couple of days ago that most firms are "investing like there is no tomorrow". Existing projects will be not be delayed or cancelled. Any hesitation will relate to future projects and fresh fund raising. This means investment will continue to drive growth this year. That is one reason for optimism.

Another is corporate profitability- PAT growth of 40-50%! In most economies, this would be regarded as a fantasy. That gives enough scope for absorption of price increases. The consumer will not face much higher prices, so consumer demand, while being moderated, will not be undermined.

Thirdly, extremely low leverage, thanks to strong profit growth in the recent past. With such low leverage, interest rate increases can be shrugged off by corporates.

Fourthly, the runaway increases in salaries- these make it possible for the real spenders to keep spending. The distributive implications of inflation are another matter. Inflation will not affect growth but will demolish the UPA's chances especially if it relates to food inflation.

Most analysts take the view that cost-push inflation is a threat and the RBI needs to clamp down even if it means putting the brakes on growth. I disagree. The impact of supply shocks on the price level is not clear enough, although we can say with some assurance that large supply shocks tend to raise the inflation rate.

I go with the view that inflation is primarily a demand-side problem. This is true of our present situation as well. Aggregate demand is much too strong for comfort. If the Indian economy accelerates in the second half of the year as global problems recede, we may find growth in the region of 9% plus, which I would regard as the 'overheating zone'. So, in my view, it is the prospect of too rapid a growth rate for the sixth year running that provides the rationale for a rise in interest rates, not cost-push factors.

It is not interest rate increases that pose a threat to growth. The biggest threat to growth is posed by media hype on inflation, the global outlook, etc- the continuous blast from news channels may come to be taken seriously at some point by investors and consumers, which is when the problems will begin.

Soaring cost of living- yuppies feel the pinch!

The Indian Express on Sunday had a story about this IT professional, Srijesh Nair, who's struggling to make both ends meet because of the home loan burden he is carrying.

Nair's annual income is Rs 14 lakh. His home loan monthly payment is Rs 17,000. The increase in interest rates in recent months meant an additional Rs 2000. Nair says that he found it difficult to maintain his standard of living in consequence. Nair disposed of stock options and other assets to shrink the home loan outstanding.

I read the story in some amazement. Nair's annual pay translates into a monthly income of around Rs 1 lakh (assuming that Rs 14 lakh includes company contribution to PF). Take away income tax of Rs 34,000. That would leave Nair with Rs 66,000. The home loan at the increased rate of interest would mean a deduction of Rs 19,000. So, Nair would have had Rs 47,000 to cover his monthly expenses. Evidently, this was just adequate, giving Nair's standards of living, so Nair has no savings to dip into.

I do not for a moment wish to question any of this- I accept that Nair's predicament is for real. The question that troubles me is: if this is the situation with somebody making over a lakh of rupees a month, what about millions of others, including salaried employees, who make a lot less? The Arjun Sengupta committee on the unorganised sector showed that the majority of workers were making barely Rs 20 a day or Rs 600 a month.

The question is particularly troubling at a time when the inflation rate is rising. For millions, even a small rise in prices, especially of food, is the difference between subsistence and starvation. When you read stories like Nair's, you begin to understand why a rising inflation rate spells doom for the government of the day.

Business media boom

This is boom time for the business media and business journalists. A business journalist recently filled me in on what is going on:

Mint, the HT publication, is said to have crossed the 2 lakh mark in circulation. Financial Chronicle of the Deccan Chronicle group is also said to be doing well.

The buzz now is about the entry of Financial Times into the Indian market. This should be cause for worry for its present partner, Business Standard, which has positioned itself in the quality segment. Another foreign entrant that can be expected to pose a threat to Indian journals is Forbes magazine of the US.

TV channels for business news are also proliferating. UTV has launched UTVi, its business channel. The Economic Times is said to be readying to launch a TV channel. The Sahara group has plans for a business paper in Hindi.

All this is great news for business journalists. Salaries have spiralled. Journalism in general and business journalism is no longer an underpaid profession- it has become highly lucrative.

CMIE growth forecast is 9.5% !

As readers of this blog and my column, I remain upbeat about growth prospects in the current year (2008-09) despite the combination of financial market shocks and oil shocks. But the CMIE forecast for this year takes the cake- they see growth at 9.5%! This is driven by a huge investment boom.

I agree that investment will be a big driver but my own assessment was that growth would be moderated by interest rate rises and would settle at 8-8.5%. If the CMIE's forecast is borne out, Indian growth would be an astonishing achievement. It would demolish once and for all the thesis that the recent growth boom was a cylical phenomenon, driven by foreign inflows, cheap credit and global demand. It would confirm the view that many of us hold that growth is structural in character.

Secondly, if underlying growth is as strong as CMIE believes, that gives the RBI so much more elbow room to tackle inflation. The inference that would follow is that there are strong demand pressures in the economy and monetary policy needs further tightening.

Bank consolidation not a priority in India

Some people get a terrible complex when they look at the size of Indian banks. Too small, they say, compared to even banks in China. We have to do something about this. Indian banks must consolidate.

I have long been sceptical about this proposition and have written about it at length. My scepticism was reinforced when I had a chance recently to compare the market caps of Indian banks with those of the world's top banks. The comparison is quite revealing.

India's top two, SBI and ICICI Bank, are not very far from the world's top banks in market cap. Both are valued at over $20 bn today. This is not bad compared with $110 bn of Citigroup or about $53 bn each of Barclays Bank and Deutsche Bank. Only HSBC with a market cap of $200 bn looks distant.

Two factors are responsible for Indian banks drawing closer to the world's top banks in market cap. The proximate factor is the sharp decline in share prices of international banks consequent to the sub-prime crisis. Indian banks too have seen sharp declines in prices. But the effect has been to narrow the absolute difference in market cap. Citigroup is down from over $250 bn to $110 bn. SBI is down from nearly $50 bn- which was one fifth of Citigroup's market a year or so ago- to $23 bn, which is close to a quarter of Citigroup's market cap today.

The longer term factor is the wide difference in earnings growth. Indian banks are growing earnings at 20-25%; the world's top banks consider themselves lucky if they touch 10%. This is bound to draw the top Indian banks closer to the world's majors.

Can Indian banks then hope to make international acquisitions? Unlikely, I am afraid. Financial muscle is not the only thing that counts, you need solid managerial capabilities. Most banks lack this. ICICI Bank may just bring it off but not public sector banks.

More on this in my ET column, Banks' asset size is not the issue.

Six new IITs- will 'merit' be a casualty?

Today TOI carries an article by Swagato Ganguly on the proposal to set up 6 new IITs. Ganguly finds fault with the idea of starting IITs without campuses. Later in the piece, he indicates they may not have the requisite faculty either given the huge shortage of faculty.

What is the government to do? Should it wait until full-fledged campuses are set up and the country starts generating enough faculty? IIMA started off in a small building and with a small complement of faculty. So have the newer IIMs such as IIM (Indore). Over time, these problems came to be addressed. The point is: you get started, you muddle through for a while and then things start happening. I am optimistic about the new IITs and the contribution they can make.

Let me add: you can have spanking infrastructure, you can pay faculty very well and yet you may not have a good institution. In many private business schools, neither of these is a problem but the institutions don't count for much in academic terms.

The concerns about faculty and infrastructure may be valid but from there Ganguly wanders off into reservations and their potentially malign impact on IITs. He seems to suggest that the new IITs are all about pandering to caste politics:

The human resources minister, in particular, has turned the IITs and IIMs
into a tool of his political ambitions. A 27 per cent OBC quota is being rammed
down their throats, yet the number of open, non-quota seats has to be preserved.
It was decreed, after doing the math, that the total number of IIT seats
have to be expanded by 54 per cent, with next year's Lok Sabha elections setting
the general deadline. Therefore, the phenomenon of building- and facility-less
IITs, in one case even a homeless IIT which doesn't know where it will be
eventually plonked down.

Sorry, I don't get the connection. You can have OBC quotas by expanding seats at existing IITs by 54%- the government was under no obligation to set up new IITs. Having new IITs expands the availability of seats for the general category as well, so I can't see what the complaint is.

Ganguly warns: "If IITs are made to jettison merit they, too, will be forced to their knees."
As an ex-IITian, he should know that IITs have long had SC/ST reservation. Over 50 years of such reservation, the IITs have built up a formidable brand. I rest my case.

Oil prices in India

Two notions about oil prices in India need to be debunked.

One, the notion that the consumer is being subsidised. True, the consumer is being charged a price less than what the price would be tax is added to oil companies' selling price. But this is only because the duties are stiff. The consumer today does not bear all of the duty but he is still paying a price above the oil companies' selling price. This means he is being taxed, not subsidised.

Two, the notion that oil in India is still very cheap. The Economist compares petrol prices at the retail level in several countries. India ranks seven in a list of 15 countries- China, the US, Malaysia, Indonesia all have lower prices than we do.

Secession of the Indian elite

Gated housing enclaves, private guards, exclusive clubs, private aircraft.... the Indian elite has known how to insulate itself from the masses. But when industrial barons decide to hope from their helipads to private airports they propose to build for themselves, they have taken a truly gigantic leap.

Ronald deSousa, director of the Indian Institute of Advanced Studies, Shimla, has interesting thoughts on the subject in an article in ET:

Three basic arguments have been forwarded for private airports. The first concerns simple pragmatics. It will reduce congestion at a time when our airports are getting overcrowded and since private planes take longer to land, by moving them out we will save landing time of the other aircraft. The second relates to safety. The aviation authorities will ensure that these airports will maintain the highest safety standards and so, for the flying public, there is no cause for anxiety. The third is a version of ‘he who pays the piper calls the tune’. As long as they pay for it they can have it.

......When seen from a host of other perspectives the policy seems perverse. Take the secessionist argument which holds that the policy encourages the super-elite to live life in a bubble. From the helipad at the top of the corporate headquarters, to another helipad in the factory complex, to perhaps a private airport for a journey to Delhi, the captains of industry can journey across the country without having to meet, or rub shoulders with, or even see the ordinary Indian, let alone experience the minimal existential reflections on the lives of those who live in the slums they have to drive through on their way to the airport

Those people, in many cases, might be their own workers. They will thus never know the possible causes that have reduced to a life of indignity those who beg at red-light crossings, or the conditions of the villagers who have to walk for miles for water, or the anxieties of our rural youth as they search for a space between the rural and urban

There is more to private airports than elitism or snobbery. At a time of soaring oil prices, we would like to encourage public transport as a substitute for private cars. Private aircraft as a substitute for public ones seems the ultimate obscenity. Finally, as always, there is always the issue of land, as deSousa points out:

There is another important concern. Private airports will require a lot of land. The country has just witnessed political movements on the SEZ policy requiring the government to take corrective measures and in some cases reverse its decisions. Again the poor farmer will have to give up prime land with the Land Acquisition Act being used to get (let me get it right) private land for a public purpose for a private airport.

Managing versus teaching management

"Those can, do; those who can't, teach." There is profound truth in the old crack. But we need not be ashamed of it. Teaching management and managing require very different skills and temperament- and rarely shall the twain meet.

Accepting this fact would save us all unncessary vexation. The question is frequently asked: if management professors know so much about management, why can't they do a good job of managing- starting with their own institutions? For instance, B-schools have renowned professors of strategy who go out and advise corporations on how to win. Why can't they apply more of their expertise indoors?

The story is told of a finance professor who was asked by a senior executive in a training programme, "If you are smart, why aren't you rich?" To which the prof retorted," If you are rich, how come you are dumb?"

I argued in my last ET column, Can management gurus manage?, that this is a pointless debate. Knowing something in the sense of being able to conceptualise something is very different from translating it into practice- the translation requires implementation skills, people skills, high energy levels, commercial acumen, etc all of which management gurus are liable to lack.

By the same token, we cannot expect managers to come into the classroom and excel. They may have done a great job of managing but putting things in a conceptual framework is a discipline in which professional teachers excel, not managers. My own experience with inviting senior executives to offer sessions has been less than exhilarating. Many can't do better than recount anecdotes. ("I was having lunch the other day with the prime minister of Singapore...). The ultra-bright types at the B-schools can recognise bullshitting when they hear it and quickly switch off.

How can managers contribute to improving the quality of teaching at B-schools? My column offers a couple of suggestions.

World Bank wisdom- or lack of it?- on growth

This is the hottest new thing on how to achieve growth and it has been driven by the World Bank, among others.

A high-powered 21- member Commission on Growth and Development headed by Nobel Laureate Michael Spence has published a report, “Growth Report: Strategies for Sustained Growth and Inclusive Development.” (India is represented by Montek Ahluwalia, Dy Chairman, Planning Commission).The Commission is an independent body supported by Australia, Sweden, the Netherlands, United Kingdom, William and Flora Hewlett Foundation and the World Bank Group.

I haven't had a chance to read the report but I did read the overview at the World Bank website. The report identifies 13 economies that sustained growth of ovr 7% for 25 years. It says they had the following in common. Each economy:

• Fully exploited the world economy
• Maintained macroeconomic stability
• Mustered high rates of saving and investment
• Let markets allocate resources
• Had committed, credible and capable governments

Since China is among the economies mentioned, one has difficulty accepting all the five "common" elements. Nobody can seriously argue that China, which has undervalued its currency and has a state-dominated banking system that funnels resources to state enterprises lets "markets allocate resources".

The report will fuel much comment, not necessarily favourable. William Easterly, himself formerly of the World Bank, has a scathing piece in the FT- he calls the report a "debacle":

After two years of work by the commission of 21 world leaders and experts, an 11- member working group, 300 academic experts, 12 workshops, 13 consultations, and a budget of $4m, the experts’ answer to the question of how to attain high growth was roughly: we do not know, but trust experts to figure it out.

... Why should we care about the debacle of a World Bank report? Because this report represents the final collapse of the “development expert” paradigm that has governed the west’s approach to poor countries since the second world war. All this time, we have hoped a small group of elite thinkers can figure out how to raise the growth rate of a whole economy. If there was something for “development experts” to say about attaining high growth, this talented group would have said it.

What went wrong? Experts help as long as there are useful general principles, such as could be established by comparing low-growth and high-growth countries. The Growth Commission correctly pointed out that such an attempt to find secrets to growth has failed. The Growth Commission concluded that “answers” had to be country specific and even period specific. But if each moment in each country is unique, then experts cannot learn from any other experience – so on what basis do they become an “expert”?

China's turn to lecture the West !

A fallout of the sub-prime crisis is that financial regulation in the US and other industrial economies has been shown in poor light. In contrast, regulators in China and India are patting themselves on their backs for their measured approach to financial sector liberalisation, which, they say, has helped insulate their systems from the financial market crisis.

The acting of the China Banking Regulatory Commission did not mince words in an interview to FT:

“I feel the western consensus on the relation between the market and the government should be reviewed,” said Liao Min, director-general and acting head of the general office of the China Banking Regulatory Commission.

“In practice, they tend to overestimate the power of the market and overlook the regulatory role of the government and this warped conception is at the root of the subprime crisis.”

When asked what other countries could learn from China’s regulatory system, he pointed out that Chinese financial institutions needed CBRC approval to launch individual product types, making it nearly impossible for exotic financial instruments, such as the ones blamed for the subprime crisis, to exist in China.

The majority of China’s financial sector is still owned by the state, and the government retains tight control over many aspects of the industry, including senior personnel decisions at the country’s largest banks, insurers and brokerages.

Thanks to China’s lack of integration with global financial markets as well as the cautious regulatory approach of the CBRC, Chinese banks have emerged relatively unscathed from the global credit crisis, which so far has caused nearly $380bn of losses at western financial institutions.

Not everybody buys the argument that the diminished frequency of crises is an argument for hastening slowly with financial liberalisation. Alan Greenspan argued recently that occasional financial turmoil may be the price to be paid for rapid innovation and growth. The answer, Greenspan urges, is to ensure that banks have enough capital to withstand shocks:

“If we want rapid growth in productivity, innovation, standards of living, we may have to accept that there will be periods of turmoil,” the former chairman of the US Federal Reserve told the Financial Times.

Rather than try to suppress bubbles, he said, policymakers should ensure that financial institutions were well enough capitalised to withstand the hit from bursting bubbles as well as other shocks.

Mr Greenspan backed efforts to develop counter-cyclical capital rules that would force banks to hold more capital in good times than bad.

Such rules might make it less likely that asset price and credit booms would feed each other, as they did during the housing upturn.

But he said this would be difficult to implement in practice because “we are never certain where we are in the cycle”.

New spin to dynastic politics

PA Sangma was among those who walked out of the Congress along with Sharad Pawar to form the Nationalist Congress Party. At the time, they said they could not stomach the Congress' brand of dynastic politics any more.

Now, Pawar has now qualms about being part of a Congress-led coalition. As for Sangma, he is busy inducting his kids into politics, whether at the state or national level. His justification: he is not grooming any kid in particular, there will be equal opportunities for all, so he can't be said to be guilty of practising dynastic politics.

Sangma even distinguishes his brand of dynastic politics from Sonia's: Sonia has clearly identified one successor, Rahul! Even by the standards of Indian politics, this qualifies as a new low.

ET has some acerbic comments:

His (Sangma's) daughter Agatha has just been elected India’s youngest MP. His elder son Conrad is Meghalaya’s Cabinet minister for finance and power.

His younger son James is the parliamentary secretary for home. The position of Meghalaya Planning Board chairman is itself defined as equivalent to that of the CM who is expected to step down after two-and-a-half years so that Sangma can take over for the next 30 months.

And yet Sangma maintains he is not trying to encourage any dynasty. His children, he says, are foreign-educated and it is their duty to pay the state back. Earlier this year, when he resigned as MP from Tura to contest the assembly elections and his daughter was chosen as the NCP candidate for the Lok Sabha by-election, he was quoted as saying that the “people of Garo Hills did not have any other choice as Agatha K Sangma is the only available right choice”.

....Maybe it is just as well Sangma left the Congress exactly nine years ago. In the latest Karnataka polls, the Congress insisted that the kith and kin of party office-bearers should not be allowed to contest. All of which upset some senior leaders who wondered why the same principle did not apply to the Nehru-Gandhi family

UBS

UBS has had the second biggest write-downs in the sub-prime crisis after Citigroup. This once highly regarded bank is now the butt of jokes. The Economist has a crack in its recent survey of international banking about what the acronom stands: Used to be Smart.

Soaring oil prices- are analysts to blame?

Are high-profile analysts responsible for oil price soaring past $130? One analyst who's frequently mentioned is an Indian, Arjun Murti, who works for Goldman Sachs. Murti is credited with having forecast the rise past $100 long back- now he's looking at $200 in the near future. FT has a report on this:

Ali Naimi has been the most powerful man in the oil market since he was named Saudi Arabia’s oil minister in 1995. Even the smallest hint from him about future supplies or prices could send energy prices spiralling up or down.

But Mr Naimi’s influence is today being threatened by a gang of Wall Street and the City of London analysts whose price forecasts and trade recommendations are not only moving spot prices but also shaping long-term trends.

Among those with the strongest claim to take over Mr Naimi’s mantle are Jeffrey Currie and Arjun N. Murti of Goldman Sachs.

Three weeks ago, Mr Murti suggested that crude oil prices could hit $200 in the next two years.

“The current energy crisis may be coming to a head,” he said on May 5. This immediately sent spot prices to a new record, but also triggered an unprecedented rally in long-term prices such as contracts for delivery in 2016. The bullish trend was reinforced last Friday when Mr Currie told investors to buy long-term crude oil futures, warning that “long-term oil prices will need to continue to rise to bring trend oil demand growth in line with trend supply growth”.

I have said before: speculation is an element in the rise in oil prices but the root cause is a imbalance in supply and demand. The imbalance is small but in commodities small imbalances suffice to create huge swings in prices. I would also mention geopolitical factors: nervousness over the Middle East and especially Iran.

How high will oil prices go? As far as the US can stomach, to put it bluntly. George Bush's visit to Saudi Arabia elicited a commitment from the Saudis to step up output. That and weakening demand from China in the coming months should rectify the supply-demand gap in the near future. The medium-term outlook is hard to call.

Techies didn't vote in Bangalore

Bangalore's techies were vocal on TV during the Karnataka elections. The Congress directed much of its campaign towards them. But they couldn't be troubled to go to the voting booth, it appears.

Swapan Dasgupta had some scathing comments in Sunday's TOI:

In London, the voter turnout on May 1 was 45% — very high by the standards of British local elections; it was 44% or so in Bangalore — pathetic by Indian standards. The turnout of registered IT professionals was estimated at just 20% — a far cry from the 78% turnout in Bangalore Rural.

The poor turnout of those who see themselves as the face of a new India is intriguing. First, the English media gave disproportionate coverage to the views of the IT sector during the campaign. To a non-Bangalorean it appeared that there is nothing apart from IT in the city. The Congress Party's advertisement campaign seems to have been directed totally at this special interest group.

Secondly, the ambassadors of the Brave New World were vocal in articulating their dissatisfaction with the state of Bangalore. They gave umpteen sound-bites sneering at politicians, almost implying that it would have been better if politics was run by corporates. Finally, while "old industry" engaged with politicians to promote and safeguard their own interests, the IT sector spurned them — that is, all except S M Krishna with whom it has a very special relationship. The techie honchos conveyed the impression that they were in Karnataka on sufferance; they could just as well have been in Shanghai.

Will oil prices derail the Indian economy?

Could soaring oil prices wreck short-term growth prospects? The pessimistic view is that it can - especially because it comes on top of troubled conditions in international financial markets.

Not so, methinks- and I said as much in my ET column, Please, this is not the 90s economy.

• First, I don't buy the proposition that prices above $125 are here to stay. The imbalances in oil supply and demand are very small - and feverish speculation is at the root of the present spike. Saudi Arabia's decision to step up oil output in response to President Bush's plea will have the necessary softening effect.
• Oil prices of around $100 are not a big deal for the world economy- in real terms, these would be close the peak of the seventies. But the developed world is far more energy efficient today than i the seventies.
• A high inflation- high interest rate cycle putting the brakes on India's economic growth is unlikely. Inflation will moderate in the months to come. Interest rates have risen but, in real terms, are way below those in the nineties.
  
• The structural characteristics of the Indian economy are far superior to those of the nineties, so the chances of a lapse into a 6-7% growth band are negligible.
• The prospects of the international financial market crisis receding are brightening by the day- the latest addition to the ranks of the optimists is Fitch, the credit rating agency. Ftich estimates total losses on account of the crisis at $400 bn, with banks accounting for half of this. Of the total $200 bn in estimated losses, banks have already provided for $160 bn.
  

RIchard Nixon the wierdo

Much has been written about Nixon's mental make-up and temperament. His bizarre behaviour when he was under pressure over Watergate has been particularly well documented- one story is about how a wild-eyed Nixon would go racing down the stairs with Secret Service personnel in hot pursuit.

A recent biography, reviewed in the Economist, adds to the repertoire of stories of Nixon's weird behaviour:

Nixon hardly has a reputation as Mr Normal. But it is still astonishing to be reminded of quite how odd Nixon and his circle were. He wore a necktie when he was in his dressing gown. He once visited his mother, camera crew in tow, to wish her a happy birthday—and shook her by the hand. He sent memos to his wife, Pat, about how “RN” would like his furniture arranged. Nixon matter-of-factly ordered H.R. Haldeman to draw up a list of the “big Jewish” contributors to the Democratic Party. “Could we please investigate some of the cocksuckers?” Chuck Colson, Nixon's general counsel who famously said that he would run over his grandmother for his boss, once contemplated firebombing the Brookings Institution, a stately think-tank, and then sending in FBI officers dressed as firemen to steal a document that Nixon wanted.

To think that such a man was in charge of America's nuclear button!

OBC quotas-uncertainty continues

I was away over the past week. I found I couldn't escape the OBC quota row even while away from the campus.

The SC has stayed the Calcutta High Court's own stay on the operation of OBC quotas in IIM- Calcutta. The Hindu's report provided more detail than most others:

the Chief Justice said: “It is strange that such an order has been passed by the Calcutta High Court. Once the Act has been upheld by us where is the question of stay? We don’t think the [Calcutta] High Court can sit over the judgment of this court.”

When counsel for respondents — K.K. Venugopal, Harish Salve, P.P. Rao and Rajeev Dhavan — opposed the stay on the Calcutta High Court order, the Chief Justice said: “Your argument is very strange. If you feel our judgment is being violated, you file a contempt [against the Centre]. We can’t allow the stay order to operate.”

The way I understood the various petitions filed in the High Courts, the principle of OBC quotas in central educational institutions is not being questioned. The issue now is whether the HRD ministry's directive on this subject is in conformity with the letter and spirit of the SC judgement in the case.

The CJ's remarks suggest that the remedy, in the event that the HRD ministry directive is in any way violative of the judgement, is to file a contempt petition against the government, not to seek a stay of OBC quotas in IIMs and elsewhere.

But I am at a loss to understand what would happen if the government were to be found guilty of contempt- say, because some of the admissions made were not in strict confirmity with the SC's observations and guidelines on the 'creamy layer'. The present SC order says that admissions made wil be 'provisional' subject to final disposal of the present bunch of petitions filed in various High Courts ( a point missed in the Hindu story).

What happens if some of the admissions made in accordance with Ministry's directive are seen to be violative of the SC judgement in the OBC quota case? Will the concerned students have to withdraw? Suppose this happens several months after they have joined one of the central educational institutions?

There are more fundamental issues that have been raised. One is whether the proportion of 27% would be valid if the OBC population after excluding the creamy layer turned out to be lower than this. The appropriateness of the figure of 27% was one of the issues raised when the SC heard the petitions against the central educational institutions' Act. The SC then took the view that since Parliament had accepted this figure, there must be some basis for it.

C K Prahalad on corruption

Management guru inveighed against corruption at the CII:

On the civic side, he said the prerequisites for growth were an emphasis on individual rights as against group rights and the urgent need to treat corruption as treason. "A nation becomes less corrupt before it gets rich."

Rousing stuff - and no doubt the money-bags at CII cheered lustily- but not something that withstands critical scrutiny. If Prahalad's statement is correct, China should have become poorer by now, not richer. When you look at the rankings of, say, Transparency International, you find that there is no precise correlation between these rankings and growth performance. Some corrupt economies flounder- as in Africa. Others prosper.

As a nation gets richer, petty corruption diminishes- the traffic constable is not going to wave you on if you pay him Rs 25 because this is small change in relation to his salary. But big ticket corruption is not eradicated as easily- and is indeed embedded in the very fabric of most economies, modern or antiquated.

More broadly, the evidence on the relationship between institutions and growth is suspect. Historian Gregory Clark points out in his monumental work, Farewell to Alms, that the quality of institutions in pre-industrial England was as good as it is in modern societies today. Yet, the existence of sound institutions did not cause growth to accelerate. America's own rapid growth at the turn of the last century happened against a background of some pretty weak institutions- banking and capital market scandals were rife at the time.

It may be well that a society that is not corrupt, that sets store by all sorts of norms, is a nicer place to live in. But it is not necessarily more prosperous.