Thursday, August 18, 2011

Forget S &P downgrade, watch Eurozone

The S&P downgrade is a non-event. It could be turn out to be an event for S&P and for other rating agencies, given that the Senate is to initiate hearings into the downgrade. This could eventually result in a major downgrade of the ratings business itself, but that's a different matter.

The downgrade signifies nothing of importance in the US economy itself. All the bad news is already in and there is nothing to suggest that a recession is imminent although recovery will remain sluggish. The danger to the world economy is posed by the Eurozone where bank exposure to government debt has the potential to trigger another financial crisis.This too is a low probability event as of now, since it appears that sense has dawned finally on the leaders in the Eurozone.

Comparisons of the S&P downgrade with the collapse of Lehman are completely misplaced. The Lehman collapse happened when banks were battered and it wrecked money market confidence in the banking system, making things worse for banks. Banks are today better capitalised and bank exposure to Eurozone debt is well documented although exposure to credit default swaps is a grey area. The S&P downgrade changes nothing on the ground and it could, in effect, be something of a wake-up call for leaders everywhere.

The prospects are for slow growth in the world economy and this will impact on India's growth prospects. Since, lower growth is what our policy makers are praying for in their bid to contain inflation, they will not lose much sleep on account of recent developments. More in today's ET column, A continuation, not a repeat, of 2008.

Wednesday, August 17, 2011

Anna Hazare's googly

Am I the only one to be taken by surprise by the turn of events in L'affaire Anna Hazare? Yesterday, when I heard on TV that Hazare had been subjected to preventive detention, I cannot say I was outraged.

There is merit in the contention that the police, having availed of Sec 144, were within their rights to judge whether Hazare's proposed actions would disturb the peace or not. But I did feel that the politically astute course for the government would have been to allow Hazare and his fans in the visual media to spend themselves over a day or two.

That was not to be. The government sent Hazare to Tihar Jail only to reverse its decision and order his release by the end of the day. I am not in a position to judge how great was the groundswell of sentiment in favour of Hazare in Delhi and elsewhere. But the TV channels (one of which openly espouses his cause) certainly made one feel it was significant. They and sundry personalities kept clobbering the government through the day, perhaps giving the Congress bigwigs the sense that they were losing the PR battle.

What followed was even more astonishing. Hazare refused to accept the release order and leave the jail until assured that he could carry on his protest at a venue of his choosing. This was indeed a googly and the government was completely stumped. It could not, I suppose, have asked the cops to evict Hazare. The option of escorting Hazare out of Delhi must have been weighed and rejected. It appears now that Hazare will have his way.

It is certainly a blow to the government but that is not the point. We need to consider what the episode forebodes for the functioning of our democracy. What happens to the prerogative of parliament to make laws? Does this get suspended when parliament is seen to be not heeding the wishes of a large number of people? Who decides this in a given case and who is to be presumed to speak for the people? And if some of the clauses of the Janata Lokpal Bill are to be included in the government's draft, what purpose will be served by parliament debating them? Parliament can reject them only at the risk of facing another fast and trial by media!

This is not a referendum. It is not even mobocracy. It is mediacracy. Once the TV channels decide to root for a cause, an individual with a reasonable following may be able to foist his wishes on the elected government and parliament. Why have elections, let's settle for TV debates and online polls.

Friday, August 05, 2011

Ratan Tata succession

There is word of a professional (instead of a member of the Tata family) succeeding Ratan Tata as head of the Tata group. Many people have been rooting for such a move. I am not so sure. There was the same talk when Mr Tata himself succeeded JRD. Not many gave Mr Tata a chance of succeeding. The sceptics have been proved wrong.

The number of businesses in the group has been pruned (although not enough, some would say). Controls have been tightened. The group is more international today (with the majority of revenues coming from overseas). The group has got into areas for which many had believed it unsuited (eg cars, communications). Mr Tata has put pep into many of the older businesses (steel, power, chemicals, tea).

True, the group's image has been dented by the 2 G affair and the Radia tapes. But, in commercial terms, Mr Tata has succeeded beyond all expectations. I see the Tata experience as part of a broader phenomenon of the reinvention of Indian family businesses. Reforms have not sunk India's family managed businesses but have brought out the best in many. It is no longer obvious that family-managed businesses must turn to professionals and not entrust their destinies to family members.

More in my ET column, It's okay to keep it in the family