Business – Business Mandate

Trading in Indian Rupees: Reach & Outreach

Read Time:15 Minute

Trading in rupees has a wider reach and has triggered expectations. India has begun working out arrangements for this purpose, with close to 50 nations. Will this lead to a clash of currencies in Asia, and what could be the consequences, especially for India and Indian businesses?

Mr N Sathiya Moorthy

Convener, Policy Matters

When we talk of trading in Indian rupees, many questions arise. How good is it as a policy? Are we ready for it? About 30-40 years back, the rupee global trade collapsed for various reasons. There is a news report that says that the BRICS currency is being revived. Will it work and where does it fit into our idea of trading in rupee? Occasionally, there is also the realisation of India having to trade with our neighbours in a common currency and it could be rupee. For instance, Sri Lanka because of their current economic crisis, have said that they want to trade in Indian rupee. They have allowed Indian travellers to go there and do business locally in Indian rupee. But this is only at the individual level.

In trade terms, there is a totally different picture. 15 years back, the Sri Lankan President of the day said, “Let us have a common currency or let us do business in Indian currency.” Around that time, Maldivian President also agreed to that. I read that Bangladesh was also not unwilling to consider it, if we could evolve something. Indian currency is acceptable in both Bhutan and Nepal. But we wanted to wait, watch and proceed.

Mr M R Sivaraman

Former Revenue Secretary, Govt of India & Former Executive Director, IMF

There was a trade agreement between the Government of India and the Government of the then Soviet Union in 1953. It led to the establishment of the rupee-ruble trade with India. Article 6 of that agreement states that all payments between India and the USSR described in Article 7 may be made in Indian Rupees. Article 7 states that all payments of trading goods and other transactions will be carried out in Indian rupees. This was there with all the Soviet Union Bloc countries like Hungary, Bulgaria and Romania. The rupee-ruble rate was then fixed at 34 rupees to a ruble, which was at least three times more than the market exchange rate.

What to do with Rupee?

In this agreement, there was an article 8 which said that any balances in the rupee accounts maintained by the State of Bank of USSR with the RBI or with authorised commercial banks will be convertible on demand into Sterling. That was the initial position. But thereafter it also changed because we didn’t have enough dollars or sterlings. Then started all the problems.

We started buying a lot of equipment from Russia- mostly military equipment, heavy earthmoving equipment and various kinds of machinery. Russia used to buy detergents, soaps, pharmaceuticals, some chemicals and consumer items. The rupee balances with Russia started mounting and it reached a stage when Russia did not know what to do with the rupees. After the collapse of the Soviet Union, Russia said that we’ll go back to normal foreign exchange hard currency transactions.

Now we import a lot of oil. We very quickly entered into the rupee trade agreement. Russians also wanted to show they have some friends in the Ukraine war. But then they realized that all these billions of barrels of oil which we import, get paid in rupees and they wonder what to do with the rupees. The talks have stalled and are not progressing anywhere. Because of sanctions, we can’t send to Russia anything except engineering goods which are manufactured in India and Russians don’t want that from us.

When Nehru turned down a request

Sri Lanka or Bangladesh is slightly different where we have a huge trade surplus with them. Bangladesh exports over $2 billion a year to India and we export about 10 to $12 billion. How will the Bangladesh find the rupees? These are complicated issues. I get the feeling that Reserve Bank of India was pushed into it. If you look at the history of the Reserve Bank of India, in 1961, H V R Iyengar was the RBI Governor and he wrote to Mr. Nehru that the rupee trading arrangement was going to fail and requested not to push it. When confronted with his letter by the Department of Economic Affairs, Mr Nehru turned it down, saying it was a political decision.

There are 18 currencies in the world, which are freely convertible. A freely convertible currency means that there are absolutely no restrictions by anybody on the use of that currency. Australian dollars, New Zealand pounds, Singapore dollars, Kuwaiti dinar, UAE dirhams are all convertible currencies. Interestingly, Kenyan shilling is also a convertible currency. I spent 40 years in finance. From my experience, if we are going to do something, we must do it the whole hog. Don’t leave it for any interpretation by any clerk or undersecretary or somebody sitting there, because then the entire scheme will collapse.

SDR: A Basket of Five

The International Monetary Fund has got a unit of account known as the SDR. Its value is based on a basket of five currencies. The Chinese renminbi was added in 2016. The US dollar, euro, British pound sterling and Japanese yen are the other currencies. The SDR or special drawing right is a unit of account in which the International Monetary Fund carries out transactions. There is a formula by which these currencies are put into the basket and their exchange rates are also fixed. Although renminbi is not a freely convertible or a freely usable currency, it is still a part of the SDR and it can be given only for capital account transactions. The Central Bank of China has put some restrictions.

In the years 1940-42, John Maynard Keynes, the father of modern economics suggested the creation of a currency known as bancor for use in all international transactions but the proposal was not accepted.

If our currency has to become global, we must be a very big trading nation. The United States does international trade of about $6.6 trillion; China does $7.4 trillion. In the case of India, last year, we touched $1.4 to $1.5 trillion. It’s not a small amount. We are a large trading nation if imports and exports are taken together. But our merchandise trade gap is huge. We export $460 billion and import around $700 billion. The countries whose currencies are freely tradable, more or less balance their merchandise trade.

AI Threats for Software

Mr Raghuram Rajan, former RBI Governor has suggested that India should focus its attention on exporting services. In the case of services exports, there is a problem. Right now, we have been doing software services and we are slowly advancing into other areas, but the entire software area is getting transformed to artificial intelligence and quantum computing is coming in. We have to do a tremendous amount of research in artificial intelligence to be relevant. China is spending on developing a high-grade chip to two nanometers. India has already designed 5 nanometer chips in Hyderabad and it has gone to TSMC for manufacture in its current design but we have no manufacturing facility yet.

Indian rupee has been depreciating in the last few years. Other global currencies have not depreciated to that extent. The exchange rate has to be stable and there should not be any restrictions on the movement or use of currency anywhere. Our merchandise trade also has to improve. Then only, we can attempt to make Indian rupee global, but unfortunately, we have not done it so far.

Dr Sanjay Kumar

Partner – Public Policy & Tax, Deloitte

In the world, you will find that there is a complete dominance of the US dollar. 90% of all foreign transactions are done in the US dollar; 50% of the global trading invoice happens in dollars; 60% of the global reserves are in dollars. So, whatever others do, the dollar still remains as strong as ever. The next one in row is the Chinese currency. Their economy moved to $17 trillion and there was a larger trade. The space occupied by the Chinese renminbi has moved from 2.2% to almost 7%. European Euro has been on a decline, though very marginally. Indian rupee is on the ascendance from 1% to almost 1.6% But it’s not yet there. Brazilian rial is almost the same. To think of a Euro or US Dollar decline in the recent future seems tough at the moment, based on the numbers that is coming through.

India’s Journey in Promoting Rupee

Look at India’s journey from 1950s to 2022. In the 50s, India traded oil from Iran and that was in rupee. In the 60-70s, India signed several trade agreements with the Soviet Union and Eastern European countries to trade in rupee. In 71, India signed a bilateral trade agreement with Nepal. In 2000, India signed an FTA with Sri Lanka. In 2012, India again signed an agreement with Iran to conduct oil trade in rupee, bypassing the US dollar and US sanctions. In 2017, we signed an agreement with Bhutan and in 2022, RBI has permitted banks from 18 countries to open Special Vostro Rupee Accounts to permit rupee trade.

Each of these things have happened in bits and pieces and not in a very continuous manner. There has not been a thrust towards the rupee trade. And largely one of the reasons is the difference in value between what we export and import. Only 5% of India’s imports originate from the US and 15% of our exports go to the US and that is largely in the services sector.

Singapore and UAE Reap it All

India gets only about 10 to 15% on the cost from the GICs (Global in-house companies or back offices as we normally call them) though, in terms of numbers, 54% of the GICs exist in India. What is holding it? Do they not consider us as important players in the economy? Do they think that we are not capable? The answer is they can’t take whatever money that they receive here. If they want to take it, there’s a lot more restriction and the two island nations on either side of the Indian peninsula-Singapore and UAE are getting benefitted out of it, as they have such a free economy. You can move out and can come in and they offer a lot more protection. They have no taxes or reduced taxes. Most of the global companies have the second layer or intermediate level layer in those places. The work of the GICs will happen here. The IPR will all be sitting in those places—largely in Singapore and not in India. They fear that our patent offices are leaky and therefore move everything to Singapore.

Russia recently suspended rupee trade negotiation because they have 40-billion-rupee reserves. They are pressurizing us to pay for oil in Renminbi. The world needs to have more confidence in our economy. We need to have a lot more trade going from us and a lot more economic growth. We have not been able to breach 7% for a really long time. That remains one of our major concerns.

Dr Suresh Babu

Professor of Economics, Department of Humanities and Social Sciences, IIT Madras & Adviser to Economic Advisory Council of Prime Minister

We started RBI’s trade settlement mechanism in July 2022 and by December 2022, we saw the first settlement of foreign trade in rupee with Russia. These are baby steps and over a period of time, we want to have the rupee as a global currency. That 18 countries have agreed to trade in rupee-some big and some not very big ones- is a good first step for us.

Towards De-Dollarising

There is a kind of thinking to de-dollarise the international market, because of the constant threat of global economic slowdown. Our game plan is to try and turn this into an opportunity. What the Chinese did some time back, we are trying to do it in a different way. This is the background in which we started this exercise. As there has been a strengthening of the dollar over time, imports have become expensive for many countries in the world. So, there could be an incentive for some of these countries to de-dollarise and we want to entice them with rupees. We are not making it as an alternative to dollar.

The idea is that a reliance on Indian rupee, away from US dollar, could mean some respite for some of these countries and if not now, over a slightly longer horizon of time. The immediate decision on rupee trade settlement was taken in the backdrop of the geopolitical tensions and the current global economic currents, including the US sanctions on the use of dollar for transactions with both Iran and Russia, who are very important trading partners of India. There is also a continuous weakening of Indian rupee. The move was expected to reduce the pressures of India on our foreign exchange reserves. That’s the broad macroeconomic objective which we had.

Arresting Rupee Decline

India is a net importer, especially in terms of manufactured goods. The rupee was one of the worst performing Asian currencies in 2022, that had a fall of around 10%. By using rupee for international trade sanctions, it was anticipated that it would help protect the flow of dollars out of India and also slow down the depreciation of the currency. We don’t have tall claims for that and the idea was to have some intervention. There was also the crude oil import from Russia, which we are capitalizing on. The idea was that if we can have a rupee settlement mechanism, then we could actually save around $30 billion outflows, even if there is a partial rupee settlement and it would help our foreign exchange reserves.

When we went into this decision, there was a 17% drop in the exports to Russia. The trade deficit with Russia was widening and we had to do something. The widening of trade deficit was because there was a delay in the payments that we were receiving from them because of the international sanctions against Russia. In this backdrop, we thought we can have this settlement mechanism, which will be beneficial to both the countries.

18 Countries Given the Nod

Now 18 countries have been permitted by the RBI to open Special Vostro Rupee (SVR) accounts. The bank of a partner country may approach an AD (Authorised Dealer) bank in India. This AD bank will then seek the approval from RBI with the details of the arrangement and subsequently approval from the RBI is granted to this bank. Trade settlement will happen in Indian rupee.

The best definition of an international currency has been given by Chinn and Frankel in a fantastic paper published in 2008. The function of an international currency is in terms of the store of value; medium of exchange and a unit of account. We know that any currency has these functions but governments as well as private actors should be able to use this international currency for all transactions. It should also become a kind of local currency. Our wish or dream, in the years to come, is to make rupee as an international currency.

There are some benefits in rupee invoicing with some trade partners such as Russia, Saudi Arabia, Nigeria, UAE where India is a larger importer. There is potential for exports as well. There is a possibility for India to enter into contracts with these countries because we have an unfavourable trade balance with them. If we can settle it in rupees, there is a possibility that India might benefit and that is the idea that we are pursuing this.

60 SRVs in 7 Months

In a very short span of seven months, we have 60 Special Rupee Vostro (SRV) accounts, which is not a very small number. India has a large trade deficit with eight countries: Botswana, Germany, Guyana, Malaysia, Myanmar, Oman, Russia and Singapore. With all of them, we look at how we can push our rupee trading and it could be mutually beneficial.

A very interesting research was done by the State Bank of India research group and it showed that there is a change happening globally in the trade of oil and commodities. Some countries are in favour of settling in Hong Kong dollar or UAE dhiram. If we can get somewhere close to that, there is a possibility that Indian rupee might also be accepted globally for settlements. The BRICS countries tried to de-dollarise. It gave an opportunity for China to push its agenda. It could also be an opportune moment for India to encash. But we have a long way to go.

The Challenges

When our trading partners have depreciation of their currency against dollar, it might not be appealing for them to do rupee trading. Bangladesh, Turkey and UK have depreciated against dollar by more than 10%. Turkish Lira depreciated almost 94% against the dollar. There is also a need for a much more sophisticated financial system in India, if we want to push for a global currency. We have to develop both regulatory mechanisms as well as depth in our financial markets.

Finally, when we look at this whole effort to internationalize currency, we find that it could affect the service sectors, because if we try to push this agenda of de-dollarization beyond a point, the US might not be very happy with that and might retaliate. Then the first hit for us would be service exports. We have to be extremely careful in pushing this agenda.

Taking Care of 3 Issues

Three issues have to be kept in mind in taking up rupee trading mechanism:

Bilateral trade equilibrium
There is a possibility that it could lead to macroeconomic imbalance and lead to a situation where India’s trade deficit is financed with surplus investments of trading partners, which might go to government securities and treasury bills. Inflationary tendencies might push us into a very difficult situation, if we don’t have a comfortable exchange rate management policy.
We are fighting in an era of global trade protectionism and geopolitical rivalries. It is very difficult to push rupee further in a situation in which every country is trying for a protectionist trade policy. That puts a limit on us.

The company we keep

Read Time:18 Minute

The book, The Company We Keep, is a market research-based exploration of Indian corporate culture. It looks beyond the glamour and jargon of the business world to individual stories.

Ms. Divya Khanna, the author, in conversation with Mr. C Siva Kumar, Director, Roots Industries India Ltd., Mr. G Giridhara Gopal, Director & CEO, Addison & Co. Ltd., and Mr. Vinay Kamath, Senior Associate Editor, The Hindu BusinessLine.

Ms Divya Khanna: In 2017, I was burning out. I was overstretched and overworked. When you work too much, your work can suffer and that’s extremely demotivating. My health was suffering and I didn’t have much of a personal life. I took a break and started focusing on my health. I started realizing that everything didn’t happen to me. Maybe I made some of those things happen. We’re a very diverse country. Some of the unifying things are that as Indians, we feel we are very hardworking. We need a purpose. We need to be doing something. I felt I needed to get the answers to my problems because I didn’t want to make the same mistakes again.

I started researching the corporate world and came out with my findings, essentially in four parts. The first part is about cultural conditioning. Not just the corporate world, every one of us has deep cultural conditioning. We all grow up with a certain competitiveness within us. We have a lot of status consciousness. The second part gets into the corporate lifestyle. What are the attractions of the corporate lifestyle, why do we want corporate careers and what are the compromises that we have to make to get our careers going? The third part looks at different stages of the corporate life cycle. There are freshers, people who are in their first job and people in the middle and senior management. I also studied the retired cohort. Today, health is such that people can retire but they’re still perfectly capable of contributing. My father has officially retired but he works three times harder than I do. In the fourth part, I sought expert opinions on topics such as neuroscience and its role in the corporate life, leadership, HR aspects, collective collusion, workspace design, etc.

Mr C Sivakumar: Not only companies, cricket teams have a culture. The IPL team, CSK has a culture and it explains how they handle every situation. The new generation earns a hefty salary and a lot of perks. People skip jobs once in two years and try to adjust to the culture without losing their job. The new culture, new salary, new ways of living and the lifestyle changes come with a challenge. By chasing only wealth, we soon realise that it’s a wrong desire and we are in the wrong path.

You have deadlines to meet and unrealistic targets set by your boss. There is a lot of pressure from your peers. You need to say ‘yes’ to your boss very often if you have to climb the ladder. You need that big salary as well as the negative ones that come up with it. You have to do a fine balancing act. For people like MS Dhoni, the CSK captain, every pressure is a pleasure.

HR has a big role to play. The HR job is just not about motivation, recruitment or retainment. It must bridge the gap between boss and the subordinates, understand the employees and give them breaks and the right experiences. It should give them a feeling that there is a social care for anyone working in the organization. HR has to lay stress on the physical, mental, emotional and spiritual well-being of the employees.

Mr. Giridhara Gopal: I’ve been in the manufacturing sector for last 30 years. Stress affects every human being in this world, not just the people who are employed in corporates. Work has life in it and life has work in it. It is no more a work-life balance. One must know how to integrate work and life. Our parents never talked about work life balance or stress and they all lived happily. The generation next talks to us nothing other than the work-life balance. The status of an individual becomes his/her identity today. The path that you took to make the wealth is forgotten.

Those days, the companies were valued based on what they were contributing to the society, to the country. Today, the identity of companies is based on what revenue and profit they make, how much dividend they pay and what the stakeholder wants. In this situation, changing the corporate culture is a challenge. The individuals have to change to have a societal change. The entire mindset of the society should change.

Another challenge for companies is if they should make the shareholders happy or their employees happy? You have to take care of both. Eventually, the customers are the ones who make a company. The CEO must balance these needs.

Today, ESG (Environmental, Social and Governance norms) has become very important. It is no more the profits that you make. It is also an interesting revelation to know about neuroscience and its role in influencing and understanding the employees, especially the role of body chemicals like oxytocin, serotonin and dopamine.

Mr. Vinay Kamath: All of us have worked in traditional companies and but increasingly, we now see now the gig economy where the employees relate to companies in a contractual role. What does that do to their attitude and their understanding of the company? How does the company deal with these people and try to develop a corporate culture?

Ms Khanna: I have not researched the gig economy. But in the last few years, I have been part of the gig economy. I don’t know if it’s true for everybody but for me, wanting to be part of the gig economy was a reaction to the corporate culture that I couldn’t deal with. As a contract worker, I can say ‘no,’ much more easily, because there’s a contract that says what I will do and what I won’t do and how much I will be paid for it. When I was an employee, my contract didn’t say any such thing.

The other part depends on HOW the company treats the contract workers. For example, in advertising, we had certain people, especially in the creative team, who were technically contract workers. They were on contract, so that they could be paid a higher salary. They functioned pretty much like regular employees of the company and were very much integrated. There are also cases where the contract workers don’t ever come into the office. They’re just a face, perhaps on a zoom conference. It depends on companies on how they’re treating the contract workers and how they’re integrating. It also depends on how much the worker wants to be part of the corporate culture.

Mr Kamath: What would be the company’s relationship with the person who does contract work? If they treat them as a regular employee, what happens to the dynamics between the contract worker and the rest of the employees? I’m sure companies are going to face this scenario increasingly.

Ms Khanna: That depends on the employer and their policy regarding contract workers. Why do they have contract workers in the first place? In the advertising example that I gave, the only reason those creative people were contract workers was that as an employee of the company, they could not be paid a higher salary. The company wanted to hold on to the creative talent and give them what they felt they deserved. On paper, they made them contract employees. So, you must know the reason for having a contract employee. Then, is it a short-term project? Is it something that you don’t have it in house? It depends on a lot of factors.

Mr Sivakumar: Today, every organisation has a set of people who are contracted and a set of people who are direct employees. I will answer this question from two parts—from my manufacturing experience and also as a retailer with Titan. Titan as a brand has taught us about a culture that they maintained within the organization. It was the first CEO Mr Xerxes Desai who paved the way for that culture. He said that, first, we need to provide service to a customer, whether he bought from a franchised outlet or a company outlet. His emphasis was on building a culture where all belong to a single family. In that culture, you can be frank enough and accept your mistakes.

Though we are franchisees, he made us travel across Europe, Australia, New Zealand and many places to understand the global trends, which he could have done only for the company employees. That’s the importance he gave to contracted franchisees and it has made us to be in the front end of the brand to the customer. My own employee at the franchisee outlet will carry a Tanishq card and he won’t say I am contracted. We are a part Titan and there is no differentiation.

From a manufacturing side, I do a lot of work for Leyland for tipper and haulage bodies, in Hosur. I have engaged a lot of contract people. Hosur is a place which is highly unionized. I have about 1000 people for over 30 years and there has not been a single strike, layoff, lockout, suspension or dismissal. We won the national award. Even during the Covid, we paid our contracted employees and made sure our north Indian workers stayed back, for which, we were featured in the newspaper. There is no difference that we have created between the contracted employee and our own employees. Education is one area that can transform their family. Even for a contracted employee, we’re looking at education to be provided in order that they grow in their life. In fact, we are tying up with some colleges to help them seek further education.

Mr Kamath: The aspirations of the young people who join companies are quite different. When we were young, it was very important to earn a good salary, then to buy our first car and our first home. But I find these youngsters want to soak in experiences and not so much into buying or holding assets. They want to go on a holiday or take some courses. How can companies deal with aspirations of this kind? How does this impact a company’s culture?

Ms Khanna: I think that applies specifically to Gen Z. When we were young, there was no Ola or Uber. There was either public transport or you had to have your own car. Therefore, the car was a great aspiration. Today, you have a fantastic cab service. You don’t have to worry about parking or if the road is good or bad, for you to drive. The context has changed. The right experience is very important to them.

The HR departments need to think about this change. Work is a very important part and I think every generation, including Gen Z, wants to feel that they’re making a contribution and that they are doing something worthy of vindicating for themselves. The social purpose behind what you do, the environmental issues like sustainability have now become important. It is not just about the absolute amount of money. Companies must create community outreach, so that, these people can be a part of something bigger than themselves.

Mr Gopal: When we talk about the gender bias, we read about two or three things. We say that India’s GDP has not gone up over the years, because we haven’t used the potential of women, whereas China has used it. My point is India is not a monolithic country. We have different culture, different kinds of background- urban, rural- and a lot of value systems. There are certain things which are inevitable for women, even if they don’t wish to, like going on leave during maternity period. We say they have to be treated on par but when she’s on leave and somebody else is promoted, she feels humiliated. In the first 25 years, we train a girl saying that she has to compete with a boy to be a first rank holder and when they get married, we say that she has change her culture. There’s a complete conflict of interest, a conflict of ideas. How do we deal with this?

Ms Khanna: Going into my research, my hypothesis was that corporate culture is something separate and Indian culture is something separate. I was wrong. Our attitudes as a society get into the corporate culture. For us, patriarchy is a very benevolent protectionism. Sometimes that comes in our way. When you say women can have maternity leave, then men may complain. Either way, somebody is going to feel that it’s not fair. That creates extra competitiveness from a gender perspective in the company. I feel, today there are opportunities for fathers to take paternity leave. The opportunities and benefits should be equal to both genders.

A lot of young men who work in call centers in shifts complain that the girls have transportation but they don’t have and it’s not fair. They have a point. I also feel that there is this flexibility stigma. When a woman is having a baby, she has no choice. Even if she doesn’t want to take maternity leave, she will have to. It’s not that she didn’t choose to have the child. She did choose to have the child and she knows that this is something that she has to do. For a father, it’s still a choice.

Not everybody can be like Virat Kohli who took leave for his baby and was celebrated on social media for it. There are men who would genuinely feel that, if they took paternity leave, it would affect their camaraderie with the team, if nothing else and that people would make fun of them. We have to encourage making it fair. If a woman cuts short her maternity leave and says, ‘my husband will take care of the baby and I want to go to work,’ that should be acceptable. That should be some choice that a young couple should have—both the man and the woman.

Mr Sivakumar: On the four pillars that the HR must take care in the employees—namely, physical, mental, emotional and spiritual sides, I’m sure a lot of organizations have worked to improve the employees’ morale and happiness. How can companies focus on the spiritual side?

Ms Khanna: When I was doing my management trainee program, we had a course on transcendental meditation. The HR can organise celebration of festivals. They can have a competition for the best Christmas tree or something like that, which can bring the spiritual dimension in. Encourage people to be part of their communities in whatever religion or faith that they follow. The organization can’t take the complete responsibility for the spirituality like they do for the health. The individual has to be participative and willing.

Q&A

How effective is grapevine communication in organisations? Bosses sometimes use this to their advantage. Won’t it impact the corporate culture?Mr Khanna: Grapevine communication is not within the management’s control. It is organic. You can do things that will stimulate that. If the company does that to promote the good things they did, so people should talk about that, it’s fine. But equally, if they do something bad, which they want to hide, they may not be able to do that. It’s very much like the word of mouth. You can treat it like PR and do little things that will generate more positive conversations. Mr Sivakumar mentioned that there was no strike or layoff in their organization. What is one major factor that contributed to that success? Did the organizational culture help to achieve this?MrSivakumar: Hosur has a very turbulent atmosphere. Every organization has different unions. Mine was making loss and no union wanted to enter a loss- making company. That is when I went into some research with a lot of workers. I visited their house. I had dinner with them and asked them, “Why is it that many of you resort to strike?” After going deep in the conversation, most of them said, “Sir, I am a welder. My son will become a welder and my grandson will become a welder. But in your case, you’re a managing director. Your son will become a super Managing Director and therefore there’s a divide. The only way for us to get what we want is to rebel. And that’s why we have the labour unions and the strikes.”

That brought deeper thoughts in me and I thought the only way to make my company different from the other companies is to look at education for the employees’ children. I brought about a new scheme called ‘GenNext,’ where the children were attached to people in Chennai—lawyers, doctors and sportsmen. The professionals were told to just guide the children and advised not to give them money but only their mind space. Many of the children took the messages and started transforming. The workers said, “Look, my son is doing better,” or “My son is equal to my supervisor’s child / my manager’s child.” Then they found a big difference in the way our company was run. So, the one single factor for our success is education for employees’ children.

Are there any limitations on relying on jugaad, which is typical of Indian culture? Mr Khanna: In the short term, when you are worried and you need to do something to make it work, it’s okay to use jugaad. But it’s also better in the long term to think of a long-term solution. For example, you have a small one-city startup and there is some transport problem on the ground. You solve it by doing jugaad with some local transporter. That is great. It will work as long as you are only limited to one place but when you scale it up nationally, you may not be able to use that technique in every city that you go to. You also do need the long-term thing.

The other thing is to ensure that there is no ethical breach in your jugaad. If I’m driving late in the night and I’m desperate to get home, there’s a one-way street, which I take. As a woman driving alone in the night, I’m doing this jugaad just for my safety. But it is an ethical breach and I’m going to create a problem for somebody else. We have to be careful in how and when we use jugaad. We need better, long-lasting and sustainable solutions.

How can companies build a deep-rooted culture over a number of years that is different from foreign companies?

Mr Gopal: Most of the companies are valued by revenue and profits. But for us, profit is not the only reason for running the company. There are many other things that a company is supposed to contribute to the society. The company that I represent is 150-year-old. We have gone through a lot of ups and downs. But we have stuck to the culture that we wanted to bring in-that is being ethical and being honest to the society, employees and to every stakeholder. We haven’t made the best of the money that we can make in the industry. But we stick to the fundamentals and value systems that has been taught to us by the culture and systems of India.

The HR people are getting younger. They might have come from great institutions but may lack expertise. Do you think that the companies getting younger are good for organizations? Mr Kamath: I wrote an article in The BusinessLine captioned, “Indian CEOs hail from Youngistaan,” taking a line from Pepsi’s ad. In that, I did a dipstick study of Indian CEOs of professionally run companies and not family run business who had to anyway make their son or daughter a CEO at 27. I found these CEOs were in their 40s, unlike a generation earlier, where perhaps the CEOs were in their 50s. Some of the HR people I spoke to said that younger people are getting more varied experiences at a very young age. They come up with the skillsets that the contemporary jobs require and that’s why they’re coming into these senior roles at a very young age. I am not talking about startups, which anyway, will have young CEOs.

Mr Gopal: I don’t think that the age alone is an issue. How many CEOs who are in their 60 react weirdly? How many of them are seasoned enough?

How is the concept of carrot and stick applied in Indian corporate culture? Ms Khanna: Carrot and stick is not only specific to Indian corporate culture. There a lot of things we do because we see a carrot at the end of it. And if the carrot is attractive enough, then we will endure some of the sticks. If I am on my weight loss journey, being healthy is a carrot for me. The stick would be the diet or the exercise I would have to do. But in the corporate context, many times I have been feeling that the stick is too much and you feel that the carrot is not worth it. It depends on your personal level of motivation and what motivates you.

We are in an age of personalization and customization. As an employee, I may not really care with great policies, because these policies may not apply to me or I may not want them. I may need a specific flexibility or a specific kind of solution from my workstyle perspective. If the company is willing to make that, it can make me feel motivated and committed to the organization.

Shaping Tamil Nadu Towards a Trillion Dollar State

Read Time:19 Minute

Dr Palanivel Thiaga Rajan, the Tamil Nadu Finance Minister, outlined his views and perspectives in his address at the Fourth R K Swamy Memorial Lecture.

Many states have announced their trillion dollar goals, including the state of Uttar Pradesh. Of course, the first difference between us is that by population and size, Uttar Pradesh is about three times that of Tamil Nadu. So even when UP gets to a trillion dollars in roughly the same time as us, it would still be—at a per capita level—one-third at best. Whereas, in Tamil Nadu, we are already effectively a ‘below-replacement’ rate society. But, slogans and targets are important in the political discourse. They are important in setting a common agenda for everybody to work towards. For Tamil Nadu, I want to discuss about how we to the trillion dollar goal with three different perspectives: one, purely a mathematical or macroeconomic perspective; two, an administrative or a top down perspective; and three, a people-based, bottom-up perspective.

Numerical perspective

The problem with targets is that there are two or three major variables beyond our control. The first is population. Economy has a very different feel, depending on the size of the population and the rate at which it’s growing. The second is that we don’t control the value of the dollar. And finally, the targets are set in nominal terms or that day’s money. When you set it in nominal terms, you have a variable of inflation or the weakening of money, which is also not in your control.

If we assume that we’re starting roughly at around 300,000 and we have to get to a trillion dollar, assuming that there is not any dramatic movement in the exchange rate, then mathematically, we’re looking at a compounded annual growth rate (CAGR) of about 14 to 15% a year, between now and the year 2030. That seems like a lot. But it is neither that big a stretch nor historically unprecedented. For example, in the years 2006 to 2011, we achieved about 10.15% real growth without the effects of inflation. If we assume inflation was 5 to 6%, we were averaging 15 to 16% growth. The odds are that inflation stays closer to 6% for the foreseeable future for various reasons around the world. So it’s eminently doable in terms of just the mathematical requirement.

The tailwinds and headwinds

We have some very good tailwinds and a couple of looming threats. From the tailwinds perspective, the diversification and logistical delinking from China and the increase in the scale and scope of the Indian economy, all benefit Tamil Nadu disproportionately. We are one of the preferred destinations of the global de-risking and decentralization. As has been the case since 1991, the year of the reforms, we generally have a levered rate relative to the Indian average. If the Indian economy grows at 6 or 7%, we tend to grow at 8 to 10%. That’s because we have relatively good infrastructure, a very well educated, large and young workforce and better connectivity than most people in terms of ports, airports, internal transportation, etc. These are some of the good tailwinds. We have seen 40 to 50% increase in global investments since last year. We’re continuously fielding new inquiries and trying to close new transactions. In many ways, we will benefit from that. This morning, I had the Vice President of Uber Global from the Bay Area here, talking about how they could help with public transportation models and new approaches.

The one real fear I have which is not unique to us, is that we are in an unprecedented situation in terms of global liquidity and global fiscal constraints. If you look at global monetary policy since 2008, there has been unprecedented excess liquidity—probably to the order of 4 or 5 trillion pre-Covid and then another 2 or 3 trillion since then—sloshing around in the system. Very few countries like Singapore are desperately issuing new securities and soaking up the excess liquidity in the market.

After the pandemic, most governments did a lot of fiscal stimulus. As long as was only monetary stimulus, inflation was contained, as the money was not actually reaching the hands of the people who could spend it. But fiscal stimulus by design gets it into the hands of every citizen or the lowest part of the economic structure. They spend it and then they invest it like low level stock investing as opposed to the big conglomerates that get access to the liquidity and buy real estate, market assets, etc.

I’ve never seen this rapid rate increase in the 20 years I lived in the US. Of course, it started from unprecedentedly low levels. I’ve never seen this kind of a rapid rate increase by the Federal Reserve of the United States and many other banks are keeping up with it. So there is a reasonable risk of a global recession and the central banks of the world cannot engineer a soft landing through an unprecedented storm of liquidity and inflation.

The Top-Down Perspective

As government, our job first is to manage the fiscals of the state properly. It is an undeniable truth that states that borrow for capital investment and states that control their interest payments as a percentage of their total revenue spending, tend to have better growth, going forward. That is a truism. I quoted it right out of the RBI book at my maiden speech in the Tamil Nadu Assembly in July 2016. It’s as true now as it was then.

So from that perspective, our first job as government is to bring the fiscal under control and meet those two criteria—that we borrow only for the sake of investment and that we control the interest cost as a percentage of the revenue. Now, both these deteriorated dramatically between 2014 and now.

From 2003, the passage of the FRBM act in Delhi and the FRA act in Tamil Nadu, till 2014, across all parties, the fiscal of the state kept improving. Debt-to-GDP came down from 28% to 16 or 17%. Interest revenue came down from 21-22% to 10 to 11%, till there was a serious political leadership vacuum. Our view may have been different than that of Ms Jayalalitha of ADMK. But as long as there was some leadership executing some view, the fiscal was in control. After her incarceration in 2014, things turned dramatically worse. And for eight years in a row, we had record revenue deficits, culminating in a revenue deficit of about 62,000 crores in 2021.

We have started to make a big dent in that in 21-22, though coming to office after 10 years and spending about 20,000 crores more than what was planned in that February in the interim budget and losing about 8000 – 9000 crores in revenue due to multiple lockdowns for second and third waves. We reduced the revenue deficit and the fiscal deficit by 16,000 crores last year, the first turnaround in eight years. And we are on track this year to do something similar. So when we borrow less for revenue expenses, we are able to invest more.

We have a debt ceiling, both in terms of the FRA act and more stringently by the one imposed by the union government on all states using their Article 293(3), the equivalent of first lien rights where they limit our borrowing. So, the less we borrow for revenue spending, the lower we pay in interest later. The more we invest this year, the more capacity we build as buffer for the future. Under the terms of the 15th Finance Commission, if we do not use the allowed borrowing limits, we are able to roll them over till the period of expiry of the 15th Finance Commission, which is 2026, after the one year extension that the Prime Minister gave them due to COVID. So, we are doing that part properly.

Caring for MSMEs

The second part is to improve the ease of doing business. Because the government can only do so much, what we really need is private investors, private entrepreneurs and independent businesses, particularly the MSME sector, which creates about 70 to 80% of all jobs, to step up. We need to make it easier for them to do what they do, which is to take risk, build rewards for themselves, create employment for people and improve the overall economy of the state.

We are doing quite a lot. We are now actively engaged with the state-level bankers’ committee, ensuring access of credit and distribution of client base, to reach as many entrepreneurs as possible, partly through improving communication and training through the MSME department whose Secretary happens to have double hat as the expenditure secretary in my department. So we work closely together. There’s a lot more we can do. Guidance Tamil Nadu, which is a single window promotion agency, almost routinely wins Best Agency of the Year awards. We are generally reducing the red tape.

I’m also starting to have discussions with my counterparts in Andhra, Telangana and Kerala, particularly with Telangana, which is the most direct competitor to us. I’ve had a couple of conversations with my friend KTR to make sure that we don’t get cannibalized into transactions that are disruptive or destructive of value. But that’s something that’s on the fringe.

Need for execution skills

The biggest constraint for the government of Tamil Nadu is not money but the capacity to execute on time, under budget, and deliver finished outcomes as planned. That’s not new or unique to the government of Tamil Nadu and that’s all over the place. But in Tamil Nadu, we have a problem because our capital expenditure ratio went down from almost 3% of GSDP in 2011 to about 1 to 1.5% at the bottom, in 2021. Now, when you reduce your spending that much relative to the scale of the economy, clearly, the capacity of execution does not sit around idle waiting for you to spend that kind of money. So some people go out of business, some machines get moved, some companies diversify, some relocate. And so overall, our ability to execute as quickly as we can provide the funds is in fact a bit constrained. And that’s partly a legacy problem. After seven, eight years of falling investment, it’s not likely that you can just turn that switch on overnight. So it will take us a while. Particularly, we’re very focused, therefore, on more and more PPP model, rather than the Government of India’s model where you build something first, and then try to monetize it later. We believe that doing it as PPP—not for core things like citizen services like drinking water but for construction, for infrastructure, for ports, airports, roads, and so forth.

Ms Jayalalitha too had a model under her Vision 2023, though it never got executed. The vision was to double capital expenditures from 3% to 6%. By having the 3% borrowing plus 1.5% surplus in revenue plus 1.5% of private investment, either through funds or directly into projects or in partnership with the government in some other PPP way, we can get to 6%.

But certainly our ambition is to get to 3% and to find another 1% or 1.5% in PPP. The greater value of a PPP model is not just that we leverage capital but they will bring the execution skills, the EPC capacity, the engineering talent, the ability to deliver on time under market discipline of the capital they have raised and their need to answer to. So top-down, this is the way we see it. We need to ramp up annual capex back to 3% of GSDP.

We’ve just put that in a quantitative model this year. Nominal GDP is estimated about 24.5 lakh crores. If we continue down this path, we will be at 30 lakh crores or so in two years. So, 3% of 30 lakh crores will be about 90,000 crores. If we have reduced or eliminated the revenue deficit by then, which is the track we are on, barring a global recession, we will end up tripling our capex in two or three years. As long as we can find the execution capability to do that much capex in time, then, we will suddenly see a huge multiplier effect and not have a problem in reaching our 15-16% CAGR in nominal terms.

The People Perspective

But there’s a third component or a third perspective to this. Just because I have the money or engineering capability or a company with the administrative bandwidth or systems, it does not guarantee outcomes. At the end of the day, it is the people that are the most important asset or limitation of any society, community or state. And since we are in a global economy, whether we like it or not, the final deciding variable is per capita productivity. The higher we have per capita productivity, the more globally viable and competitive we are and the better the quality of life that we can deliver to our citizens, if we do everything else right.

And in particular, I would focus first on the notion of inclusion. Different people have different philosophies. The Economist recently carried an article and was called the Gujaratification of India. It basically showed how the investment ratios have changed—how much towards capex, towards social spending, and so forth. They compared Gujarat and Tamil Nadu and said the two of us have roughly the same per capita income. But the poverty rate in Gujarat is four times the poverty rate in Tamil Nadu. We are fundamentally different societies in terms of the distribution of wealth, consumption, education and access.

This is a very important distinction. When you build refineries and robot driven manufacturing plants, you’re going to pick only the cream of the crop. But if you want to build a wide-based average productivity model, where many people get better off and not a few, then you have to increase per capita productivity and increase inclusion in the quantifiable economy.

Investment in children and women

So from that perspective, I would say the more we invest in children, the better. For example, in the remedial education program, Tamil Nadu is a pioneer. Our Illam Thedi Kalvi scheme has now been presented at the UN General Assembly. For 2% increase in spending, we have achieved a 17% improvement in the remedial upside of children coming back to school. We have started under the chief minister’s leadership, a pilot program to provide free breakfast to young children. Most mothers are not able to get up, cook and supply food to their children before they go to work or before the children go to school, which is often very early – 7or 8 o’clock in the morning.

The other huge variable, I think, is to truly be inclusive of women in every aspect of the economy. We take some pride in Tamil Nadu, in that, with the Justice Party government at the helm, starting in 1921, women were given the right to vote and stand for office. We had women legislators. We had a woman deputy speaker or leader of the Madras Legislative Council. Compulsory elementary education when legislated in 1921, covered both boys and girls.

We have almost 85% of all our 18 year old girls either graduated from high school or gone through high school. That’s not so in most other places. In Gujarat, it’s 50%. But that is only a beginning. That is nowhere near enough. Every time I go to a school or a college, especially women school and women colleges, I exhort them to continue. Having gotten good education, having come this far, having more girls as rankers in the exams too few of them get to operate in the quantifiable GDP calculable economy. Many of them get married or for other reasons, they don’t participate.

So the government is focused on increasing their activity in multiple ways, starting with something as simple as providing free bus transportation, so they’re not dependent on anybody and can actually find their way to work, even if it is a domestic work or anything above that. The free bus rides enable them, empower them and free them up from constraints. We focus on a lot of other ways to bring more women into the workforce.

We found Tamil Nadu has the highest gross enrolment ratio into tertiary education at 52%, almost double the national average and 15 points higher than the second state which is Kerala. But there is a dismally low college enrolment rate for girls coming out of government sponsored or government run schools. So, we have now put out a new scheme where any girl who comes out of a government school and joins ITI or a polytechnic will get 1000 rupee a month scholarship. And anyone who comes out at 12th class and joins a regular college will get 1000 rupee scholarship.

Matching jobs and skills

In Tamil Nadu, like most places in India, we have a surplus of college educated graduates who are looking for work on the one hand, and many companies who say that they don’t have enough employment-ready or skilled-ready workers to recruit, on the other hand. When you expand the scale of education, this is only to be expected. Partly to fix those problems and partly to give proper career guidance and counselling to current high school students and their parents, our CM Mr Stalin has inaugurated his pet scheme, called ‘Naan Mudhalvan.’ It provides the kind of skill and work ethics to increase the employability of the workforce. This is for both existing young people who don’t have jobs, as well as future generations that will come out of school.

We are working closely with many different models, including with multiple organizations from Germany, where they have a skilled apprenticeship model of very highly paid skilled trades, particularly in the automotive and robotics and other sectors. I learn that IBM is working closely with us and creating a lot of certified programmers for particular kinds of needs.

So I would say in conclusion, that, barring a global recession, we will get to our goal in time. On the other hand, if we were to see a global slowdown, Tamil Nadu is better hedged than most others. Above all, I was a risk manager in my career in the financial service industry. I’ve applied my own way of thinking and will ensure that we’re properly hedged as best as we can be. A recession doesn’t mean that money disappears. It just means that growth slows down or goes negative. That’s when governments really need to step up spending and support the bottom of the pyramid and stimulate demand.

Need for 3 Cs

In the final analysis, there are probably three important things that I can see if we have to achieve relatively above average outcomes. The first is, we should have compassion. To me, the overarching quality of a public servant, of a government, of a party is humanity. We are here for improving the lives of people, starting with those that are the worst of the least and provide them with opportunity. Not that everybody stays at the same place all the time. Some people improve, some fall behind, some get hurt, some lose their jobs. So we ought to have a system that is flexible and dynamic enough and we should be able to find those in need today. There is no such thing as permanently in need and permanently not in need. So we need to think more dynamically about that.

The second quality, I would say is competence. Everybody talks big. The question is: Can you deliver what you say you will deliver? I think very few people focus on that and very few people actually deliver that. I’m very proud to say that my chief minister every day holds us to that standard.

To do all of this, you really need political courage, because without reform, there is no improvement. You can’t keep doing the same things and expect that suddenly the world will give you better results. You got to do things differently and better. And in politics, reform is a very dangerous word.

Yes, Minister!

Many of you may have seen the comedy series called ‘Yes Minister’ and ‘Yes Prime Minister.’ The civil servant, Sir Humphrey who wants to put a noose around his minister’s neck, waits till the minister makes a proposal and he says, “Yes, yes, that’s all good. Very good. That’s great.” And then he says, “But Minister, that’s a very courageous decision.” That’s the anathema in politics. Not many people can make courageous decisions. I’ve been very fortunate to have a chief minister, who, himself makes courageous decisions and most importantly, backs me limitlessly when I have to make courageous decisions.

Elections in India – Past, Present and Future

Dr N Gopalaswami, Former Chief Election Commissioner

The Election Commission was formed a day prior to India becoming a Republic, to convey the message that it is an independent body. In the first election that was held in 1951-52, there were only 17.32 crore electors. There were 403 constituencies. Contrast this to 2019 elections when we had 543 constituencies; 91.19 crores of voters and 10 lakh and 10 thousand booths, said Dr Gopalaswami.

According to him, the makers of the Constitution deserve applause for believing in universal adult franchise, even though 15% literacy rate was found in men and only 7% in women. However, when it came to voting, women participation was very low to start with. In the 51-52 election, it was only 1.15%. But in 2019, women have overtaken men by 0.17%.

Tracing the evolution of election commission over the years, he touched upon the crucial role played by former CEC Mr T N Seshan in making the election commission an independent and powerful body, enforcing the model code of conduct, introduction of voter ID cards, etc.

He also traced the evolution of EVMs. In 1982, the then EC started using the EVM but in 1984, its use was stayed by the SC and ballot paper was restored. It took another 8 to 9 years before the constitutional amendments were made and EVMs were re-introduced. EVM has gone through various iterations. The latest machines allow a maximum of 384 candidates to fight an election in a constituency. TN was the first state to use EVM for an entire state election, followed by Punjab. In the 2004 Parliamentary election, the entire country went with EVMs. Integrity of the machines has been verified through VVPAT, he said.

Dr Gopalaswami highlighted that there are many reforms that need implementation and listed some of them: giving rule making power to EC, proxy voting for overseas Indians, need to relook at electoral bonds, power to de-register political parties, preventing people with serious criminal records from contesting and so on.

On one nation, one poll, he said that it is technically possible but politically, it may be difficult. As a pre-requisite for this, Article 365 should be done away with. Regretting that electoral participation in cities is very low, he paid tributes to India’s first voter Shyam Saran Negi from Himachal Pradesh, who died at 105 years recently, having voted in 17 parliamentary elections and upholding the spirit of democracy.

What makes a behemoth remain nimble? Lessons from Google

Read Time:15 Minute

Dr Suresh Ramanathan, Dean & Principal, Great Lakes
Institute of Management, in conversation with
Mr T T Ramgopal – Global Head, Android Partner Engineering, Google.

Dr Suresh Ramanathan: Companies like RCA, Kodak and RadioShack were behemoths in their own right, at one point in time. Yet they seem to have lost their way and some have even receded into the annals of history. What gives Google the longevity that it enjoys right now?

TTR:

The companies that you mentioned were around for 100 years. They have been through World Wars, multiple depressions and so on. Google is 22 or 23 years old and it is just a young adult. So I cannot compare Google with those companies. However, if you look at Google in the technology timeframe, I would say it has done really well. We have an approach of launch and iterate.
Why did we create Gmail, when it was just another email product? A few engineers said they found it difficult to understand conversations and how they tied to each other and that it would be nice if they were clustered together. The second issue was storage. We built this big cloud with a lot of storage, so you don’t have to constantly delete emails because you run out of space on your local machine. Some of these led to the creation of a tech centric product. When we launched it, it had a lot of errors and bugs in it and over the years, we constantly reiterated and made it a much better product. Similarly Chrome. The world didn’t need another browser. This is something that Sundar Pitchai had actively worked on and we have over a billion users today for Gmail and Chrome.

The strength of analytics
The other aspect is our analytics. We look at data very closely and see how products are performing and where the issues are. We have built a very robust analytics background into it. We had a product called Google video. It was a very early version, where people could load some videos and share them but it was very clunky and there was not much adoption at all.
We found a start-up ‘YouTube’ did well in this. We paid what seemed then a huge price to pay to acquire YouTube and now we have billions of views every day, with thousands of hours of videos being uploaded every minute. The analytics informed us that our own product was not working. So we had no fear in acquiring and replacing that.

Fail well
The third, we fail well and fail fast. When we sunset a product, there is this sunk cost fallacy. Teams and users get disrupted, yet we haven’t shied away from doing it. Picasa, the photo sharing app is no longer there but Google photos is there. It took a lot of efforts to transition users from one to the other. We put a lot of time and effort to make sure we don’t hurt the end users but we are not afraid of making some of the bold changes.

If you don’t cannibalize yourself, somebody else will. When I first came to head the Google ads business in India, we noticed there were a lot of advertisers who were not logging into their ads account for a year but were spending every month. This was not giving them any returns at all. So I thought why we should be taking money from them. We contacted them and told them they were spending this money without any benefit. From our side, it was a very risky move because most companies would not even touch their holy cow revenues coming in.

We bet on technical insights. Google’s overarching mission is, to organize the world’s information and make it universally accessible and useful.

Many of our advertisers were very happy that we told them about it and shut the accounts down. Others were very happy that they learned about it and spent more time, optimizing their ads campaign. So we ended up at the same level or better.

Think 10X
The last one, we encourage everybody to think 10X. Think big, think of big problems, think of radical solutions and think about breakthrough technology.

We have a self-driving car. Google is not a car company but there are millions of people who are unable to drive because they are either physically challenged or really old and very constrained. We wanted to solve this problem. We have machine learning and we have a great vision. We asked: can we do this in a scale? Now, the Google cars have driven millions of miles. We have solved some of the hard problems through technology and some of it through analytics. We studied and found out that 53% accidents happen when people make a left turn (in India, when you make a right turn). We had to spend a lot of time on how to optimize that user journey. So we constantly cannibalise, check, iterate and launch.

Companies like Netflix, for example, were prepared to disrupt themselves before someone else came in and disrupted them. What is Google’s approach about innovation? Large companies typically tend to innovate by listening to its existing customers or potential customers. Invariably, the type of innovation that happens tends to be sustaining or incremental, trying to improve an existing product to such a point that it exceeds customer needs. In Google, do you listen to your customers or to your engineers?

Google is first and foremost an engineering driven company. It has a highly engineering culture. The first several hundred hires at Google were all engineers. The DNA of the company is very much engineering driven. A lot of our investments go into R&D. Fundamental engineering work takes up a lot of the investment—be it in the cloud, building the open-source Android platform or creating text-to-speech or speech-to-text technology or AI/ML technology or Quantum Computing. We invest heavily in them. However, there are companies like Amazon that are highly customer focussed. For a company like Google to work, we have a few fundamental things. We invest in building scalable platforms. We bet on technical insights. Google’s overarching mission is, to organize the world’s information and make it universally accessible and useful. It’s a fairly straightforward mission. But that means a lot of things to a lot of people.

The DNA of the company is very much engineering driven. A lot of our investments go into R&D.

The user-led innovation can come from anywhere. There are 400 million people who are hearing impaired. It is a very big disadvantage for them. Not more than about 20% of them can afford to have training, go to a university, learn sign language and get hearing aids. Among the rest of the population, very few people know how to use the sign language and communicate with them.

User-led innovation
We have an engineer by name Dmitri who went deaf at an early age. He worked in the speech research team. We have the Android phone which is available all over the world. We have speech-to-text engine and multi-language support. A group of folks figured out how they can build a product that can help Dmitri. It was not a top-down. We don’t have an innovation officer. A bunch of people organically created and built a prototype. Once it was validated, that team got investments to make this a legitimate product. It’s called Live Transcribe and it’s freely available in 50 languages. It gives deaf people an opportunity to be more empowered.

Now there is a battle for standards; in other words, one who drives the dominant standard in the whole technology ecosystem matters a lot. For example, Blu-ray versus HD DVD—Blu-ray became the dominant player. We have Q-LED from Samsung vs. OLED from LG. Over time, one standard becomes the dominant standard around the world. Yet we see this very interesting divide in the world, where in the rest of the world Android probably dominates 72% and iOS has 28%. In the US, it has flipped around with iOS being 59% and Android about 41%. How does Android manage to fight this battle of standards?

The question isn’t so much about standards because iOS / Apple is a closed ecosystem. Everything is vertically integrated from the chips that they make, all the way to the iOS software. Then we have the Android ecosystem that has 3.5 billion users. We had amazing phones from Palm and Nokia. The Symbian Nokia phone was well ahead of an Android phone. By the way, iOS produces some amazing products. I also use an iPhone though I’m an Android Developer. So I am well aware of both the products.

The fundamental thing we have in Android is we want to make it easy for developers who can write one application and it will run on any phone from any manufacturer, whether it’s a 35$ phone or 1300$ phone. Of course, the performance may be different across those devices.

We had the Symbian and Microsoft Office, and each platform was different. The developers had to build an app for each of those platforms and maintain them. They had to pay for the license. With Android, we have it as open source. Anyone who wants to use it can use it. We have also put Google applications on it. The developers follow API compatibility. This also allows innovation to happen. Many OEMs are developing products based on Android. Thus, Android became really big.

Supporting the OEMs
There is also a healthy competition between all these OEMs because each of them wants to have a better camera or a better screen. Android supports that. The OEMs add their own secret sauce on top of it. So that’s how Android has succeeded. There’s a lot more of work that goes behind it. My team has to work with over 400 OEMs building devices and also chip makers like Qualcomm and Mediatek. It’s a huge ecosystem and it is very complicated trying to get everybody to move in one direction. iPhone has it easy compared to us because of their one unified approach in one thing alone. Every year, we try to corral this ecosystem and make it move forward. It has been a very challenging but interesting journey.

At least four years before the iPad was launched, Microsoft had the technology for a device on which you could write with your fingers and flip pages. I’ve taught a Harvard case based on that. Microsoft chose to market that device as a laptop plus an additional feature, as they had existing relations with Compaq, Fujitsu and others. Apple was not constrained by any such things. Today your grandmother can play Candy Crush on the iPad. How does Google manage to get the cell phone manufacturers and others to think about innovation at the cutting edge rather than simply doing incremental stuff?

In Android ecosystem, innovation has been happening not from within but from outside. The cell phone market is highly commoditised. The margins are very low. So to distinguish their products, the phone makers have a better camera, better user experience or better sharing. It is either hardware or software improvement. A year before, there was a company that had a rollable product. It wasn’t a foldable one. You can roll it in and out. We had to do a lot of changes to the framework and to the UI in order to smoothly transition the home screen as it expanded. It was very difficult and they have big demands on the Android engineering team to support them.

The cell phone market is highly commoditised. The margins are very low. So to distinguish their products, the phone makers have a better camera, better user experience or better sharing.

Chinese OEMs came out with different demands. You use the three-button navigation on your Android phone. But a Chinese OEM had the gesture navigation. You can the flip it back and forth and up and down. I told the OEM when I met them in Hong Kong that such demands would completely break the developer ecosystem. They didn’t listen. They went ahead and launched it in China. We came back with a lot of data that this was working. Now we have adopted this as part of the platform and you have a choice when you set up your phone whether you want to use gesture navigation or the three-button navigation.

Does enough innovation reach the bottom of the pyramid? Are underdeveloped worlds and underdeveloped economies getting the benefit of the developments? This is a question that needs to be addressed.

We have Android phones with a low cost to a very high cost. We have 2 GB RAM phone or a 16 GB RAM. The performance differs. We have invested a lot to make sure the operating system works well in the low end phones too. The other part is the apps. We have studied the use cases to make useful apps work in lower end phones also. For maps and YouTube, we have light weight apps called Maps Go and YouTube Go. We have done a lot of work to make the apps work in the local market. Like I said earlier, if you build for India, you can build for the rest of the world. Though data is cheap in India, we have connectivity issues here. So we have eliminated a lot of dependency on the cloud and created ‘on device-AI/ML’ model.

If you build for India, you can build for the rest of the world. Though data is cheap in India, we have connectivity issues here. So we have eliminated a lot of dependency on the cloud and created ‘on device-AI/ML’ model.

Many users have language and literacy problems and they have difficulty in operating the phone and understanding the messages. If we can use voice to operate, that will be very easier for such people. So we voice-enabled the entire phone. Today, smartphone has become a super computer and people use to make payments and do many other transactions. Security of transaction is therefore very important. So we have made sure with the OEMs that security updates are available to all the users at least once a quarter, so that privacy and security are not limited only to the rich but to everybody.
A bunch of passionate Googlers went out and spent several immersive weeks with the users of the phones to observe and understand how they used them. One of them went to a family who was a daily wage earner. The children were sent to school. The mother and father were not literate. They did not know what the teachers wanted their children to do. We created an app called ‘Bolo.’ When the child reads out the lesson, the app will detect if every word is read out correctly.

We also have an app called Google Lens for text recognition from a camera image. The phone can convert the text to voice. With this, a mother can scan the progress card of her child and the app will convert it to voice, so she can know about the marks scored by her child in every subject. People can use it for a variety of applications like reading a train time table or reading a bus number. We launched a phone called Jio Phone Next. In that, you can launch the camera and walk around the world and experience whatever is written by selecting your preferred language. The phone will read out to you whatever is written.

Tell us about the culture at Google. What makes it tick?

I am reminded of a Peter Drucker’s quote that culture eats strategy for breakfast. I have been with Google for 15+ years. When I joined, we had 8000 people. Now we have 160,000. The company has grown twenty fold. Obviously, culture changes and it evolves. Yet, fundamentally certain things remain the same.

We have a fairly unique and democratic hiring process. We don’t look at just deep technical knowledge. We also want to make sure that those who join us are adaptable, have team management and leadership skills. Can I sit with them and make an interesting conversation?
We have a panel that looks at these things quite objectively. The recommendation of the panel goes to a hiring committee. It slows down the process but we take the recruitment process very seriously.
We also look at D&I.
We set stretch goals to our engineering team also. What is important for us in not what you do but how you do it.
Team dynamics is very important.
By default, we are very open. Our software and promotions are all peer-reviewed. People can nominate themselves for a promotion. It goes through a committee that evaluates their performance. We also have peer feedback.
Take action and beg for forgiveness if something goes wrong. Last year, during Covid, one of the updates we had done to the Android had created huge problem and my inbox was flooded with emails. 300 million users could not use their phones. It was quite a disaster and we gracefully recovered within 24 hours. Instead of firing the few people who set the wrong configuration, we had a blameless post mortem to figure out what we learnt from it. We improved the processes. The person who messed it up had, in fact, helped us to fix it. We have open hierarchy.
Every week, I have certain non-office hours where any employee can discuss anything that he/she wants to discuss. We expose people to this culture from the time we hire them. We also listen to them as they come with different perspective. We even encourage them to tell us what is wrong with us.

All these make Google’s culture a different one.

Ethical Blindness

Read Time:16 Minute

When ethical blindness occurs, managers tend to make decisions only using a business-frame or a legal-frame, ignoring moral aspects. The failure to visualize moral components in a decision-problem causes even good managers to make bad decisions, at times with disastrous effect.

Mr P Jeyadevan
Executive Director & State Head – TN & Puducherry, Indian Oil Corporation Ltd (IOCL)

Ethics is related to moral and physical values. During primary classes and later during engineering education, we could clearly distinguish between right and wrong; in science and engineering, there is only one right way of doing things.

But when we went to management classes, there was a dilemma, especially with case studies. I found that some of my ‘rights’ were someone else’s ‘wrongs’ and some of their ‘rights’ were my ‘wrongs.’ The answer that I found to navigate this dilemma is to have an ethical headlamp to look at issues. With this, we can look at right and wrong in a balanced way and all of us will be able to work on a similar decision-making process, which is beneficial to the organisation, both in the long term and short term. Ethics is a real cementing factor to build the structure of an organisation and to keep it very stable. Technology plays a big role in helping us to be transparent. We need coherent communication across the organisation on the Code of Ethics. Today, there is a blitzkrieg of startups. I strongly suggest that startups must have an ethical foundation before they scale up.

Dr L S Ganesh
Professor (Retd), IIT Madras

Ethics is defined by what it is. There is a subtle difference between morals and ethics. When we talk about morals, we bring in the concept of God and Mother Nature. When we talk of ethics, we normally talk of the conduct of the human society. There are four contexts of life for every human being.

Me alone—Ethical behaviour is demanded as ethics must sit in your thoughts, words and actions.
Me in my family—You are dealing with whom you know and they also know you.
Me at work—You are with your colleagues, subordinates, peers, superiors and supply chain partners.
Me in public—These days we all are virtually in public. You deal with people whom you don’t know.

You have to be clear as to whether you have committed an error or a mistake or a sin. This distinction can be had only from your intention, which only you can judge. ~ Dr L S Ganesh

Ethics must be understood and practised in all these four contexts without violation. There are also personal ethics, interpersonal ethics and systemic ethics (public rules and regulations and public order). Ethical blindness seems to be a widespread phenomenon because many people are not aware of the basic tenets of ethics. They say that all is fair in love and war. If all your life is spent in love and war, does it mean that all you do can be unethical? It is a funny kind of stance that many people take. You have to be clear as to whether you have committed an error or a mistake or a sin. This distinction can be had only from your intention, which only you can judge. Nobody else can judge your intention. You are the master of your intention and knowledge.

Dr V R Menon
Ethics Coordinator, IOCL, TN & Puducherry

The destruction caused by ethical blindness is much more than what is caused by corruption and, therefore, the topic of ethical blindness requires increased focus by managers and executives. According to Harvard Business Review (Dec 2001), good managers often make unethical decisions and don’t even know about it.

Wells Fargo

Let me first touch upon three interesting anecdotes. First, The Wells Fargo case. It was the number two largest bank of the world in 2006. When Jim Collins wrote the famous book, ‘Good to Great,’ Wells Fargo figured in his list of 11 good-to-great companies. In 2015, there was a damning article in the Los Angeles Times which said that over 1.5 million unauthorized accounts were created by the sales executives of Wells Fargo with fraudulent signatures of customers.

Why did they do that? Because their Retail Banking Head, Carry Tolstedt, was very strict about targets; the number of accounts created by customers reflected in the share price. If the sale people were not able to do it, then she humiliated them. A US Consumer Financial Protection Agency fined Wells Fargo 185 M$ for the scandal. Both the CEO John Stumpf and Carry Tolstedt had to resign, foregoing their severance packages.

The question is, were those sales executives intentionally unethical? Interestingly, John Stumpf, the CEO was adjudged the best banker of the world by the Morning Star Magazine, a year before this happened. Carry Tolstedt was adjudged the 37th most powerful women in the world by Fortune Magazine. They were very efficient people but the pressure of targets made them unaware of the ethical implications of their actions.

The Challenger Tragedy

Most of you would have heard of the horrific tragedy of NASA space shuttle Challenger. At that time, Morton Thiokol was a consultant to NASA. A day before the launch, he suggested to NASA not to do the launch because he feared there was a faulty component which could cause problems.

Were the managers of NASA intentionally unethical? They were good guys but the cognitive space of their mind was fully occupied more by those timelines and there was no space for moral evaluation. ~ Dr V R Menon

NASA was going through a difficult time with public and political pressure weighing on it. They were supposed to do some 50 launches a year but were hardly able to do three. Those pressures and timelines worked on the NASA managers and they somehow convinced Morton Thiokol not to raise any objections to the launch. It was some sort of group think. They unanimously agreed to launch it. In the end, Challenger crashed killing all seven astronauts on board.

Were the managers of NASA intentionally unethical? They were good guys but the cognitive space of their mind was fully occupied more by those timelines and there was no space for moral evaluation. The effect? NASA never really recovered from that. Their space shuttle program was stalled for 32 years.

The Ford Pinto Fiasco

The third one is a very commonly discussed case of Ford Pinto car. Lee Iacocca, the famous management guru was the Chairman of Ford. He asked his team to make a 2,000$, 2000 lb car in 25 months because Japanese small cars were selling well in the market and Ford wanted to give a stiff competition to them.

Ford Engineers worked hard and efficiently and they produced the car in record time, not costing more than 2000$, but during that process, they ignored some of those very safety aspects which would have prevented accidents. One of them was a safety mechanism that would have cost just 11$ but then it would have crossed the red line of 2000$.

Terrible accidents started to happen and people in the car were burnt to death when an accident happened. The management had to take a decision whether to recall the cars. Just like we do in normal situations, they did a cost-benefit analysis. If they recalled and fitted the 11$ dollar mechanism and made the cars safer, they would have spent 137.5 M$. If they did not do it, what were the costs? They calculated the cost of litigation, cost of funerals, cost of sundry expenditure and cost of pain. It was much cheaper than the cost of recall.

In the end, they did not recall. Accidents started to happen and images of people burning came in newspapers. There was tremendous pressure on Ford and it stopped production of the cars and Ford Pinto disappeared. Were the Ford engineers intentionally unethical? No. They were just efficient. But it brought down part of the organization due to ethical lapse.

Thus they spoke

Now let us see what important people said about these three cases. “I really feel for Carrie and her team. We do such a good job in the area. I will fight this one to the finish,” said John Stumpf, CEO. This is when the Los Angeles Times report blew up in his face. He was trying to justify his executives being blind to the unethicality of such a vast nature.

The second is from Lawrence Mulloy, NASA Program Manager. When Morton Thiokol suggested postponing the launch, he blurted out, “My God, Thiokol, when do you want me to launch? Next April? If we miss the window now, then the next window for launch will be after few months.” What this shows is that his cognitive space was filled with timelines and there was little moral evaluation.

In simple language, they were ethically blind. This shows how the stretch targets can cause a lot of unethical behavior unintentionally. ~ Dr V R Menon

The third one is from Dennis Gioia, Recall Coordinator, Ford, about the Ford Pinto fires. He was the recall coordinator when the accidents started to happen. Denise Gioia finally quit in disgust.

He later had this to say: “After I left Ford, I now argue and teach that Ford had an ethical obligation to recall. But, while I was there, I perceived no strong obligation to recall, and I remember no strong ethical overtones to the case whatsoever.” In simple language, they were ethically blind. This shows how the stretch targets can cause a lot of unethical behavior unintentionally.

Obedience to Authority

Let me move on to excessive obedience to authority and power, and the role they play, and talk about the Milgram Experiment and Stanford Prison Experiment. In the Milgram Experiment process, Prof Stanley Milgram was investigating how obedience to authority leads to unethical behavior. He assigned some participants as teachers and some participants as learners.

The teachers were supposed to give electric shock to the learners if they didn’t learn enough, progressively increasing from 15 volts to 450 volts. Actually, no voltage was applied but the teachers did not know that and they believed that they were applying electricity.

In such a culture, the consequences do not come into your mind. Cognitive disengagement happens. This can also cause ethical blindness. These issues are very relevant to all organizations. ~ Dr V R Menon

Milgram asked the teachers before they started the experiment if they were willing to apply 450 volts and all of them said, ‘No.’ But as the experiment progressed, Prof Stanley Milgram, gave very authoritative instructions, “Do it, Do it.” 65% of them applied 450 volts. 100% of them applied 300 volts. As there was no compulsion, they could have quit the experiment. They did not, because of the magnetic power of authority.

This is especially true for us in Indian conditions. We respect individuals, elders and teachers. We touch their feet and therefore there is an innate process which makes us obedient to authority and that can cause unethical behaviours.

The Poison of Power

The Stanford Prison Experiment was conducted by Prof Philip Zimbardo in the Stanford University lab. He took random participants using a public advertisement. He segregated them as prisoners and prison guards to understand their behavior. It was supposed to be a 14-day experiment but he had to stop the experiment on the sixth day because the designated guards started to become abusive to the prisoners. Power engulfed them and without that awareness, they started abusing, maybe because of pent up anger or so. The context of power and role can make us ethically blind.

Toxic Organizational Culture

When the organizational culture is only based on the bottom-line mentality—increased profit at whatever cost without looking at the sustainability of the society, what will happen? The toxic organization’s culture and the pressures of the organization will make banal even evil things. ‘Banality of evil’ is a famous phrase used by the philosopher Hannah Arendt, talking about very nasty criminals. In such a culture, the consequences do not come into your mind. Cognitive disengagement happens. This can also cause ethical blindness. These issues are very relevant to all organizations.

Bounded Ethicality

What psychological mechanisms can cause ethical blindness? One is the use of euphemisms—use of nice words instead of harsh, blunt words. For example, I may want to tell my subordinate to go and bribe some government authority to get an approval. If I say, “Go and bribe,” immediately the moral emotions like shame and regret come up and these are stumbling blocks for our unethical behavior. When we convert them as good words and say, “Go and give a gift to that person,” we suppress those moral emotions and get affected by ‘Bounded Ethicality.’

Mythical numbing happens if you are in an organization, in a location or in an operational unit where unethicality abounds, everybody is getting bribe or something like that, then even if you are of an utmost, straightforward character with integrity of the highest order, still you get affected. After some time, you get numb, just like your senses become numb if you are in the Arctic region. That, in turn, affects your ethicality. Slippery slope is another aspect. We start with the smaller deeds like taking a stationary home from office and incrementally, increase our ethical violations. Our mind does not have the capability to understand that incremental increase and then we fall into the depth of unethicality.

In-group bias, implicit prejudice, conflict of interest and over claiming credit are examples of implicit biases. These are deep-rooted. ~ Dr V R Menon

Implicit Biases

In-group bias, implicit prejudice, conflict of interest and over claiming credit are examples of implicit biases. These are deep-rooted. For example, when we have in-group bias, we tend to unconsciously favour people from our group and disfavour people from out-group. These biases cloud our objectivity and cause ethical blindness.

Moral Disengagement

Though we know we are unethical, we disengage. Displacement of responsibility (we only follow orders and our boss is to blame for unethicality); diffusion of responsibility (all have unethical behaviour, hence my action is not unethical); attribution of blame (finding others to blame for our unethical actions) and distorting consequences (we tend to believe that we caused good, though we caused harm and selectively remembering the good things) are all examples of moral disengagement. For example, I give a stressed target to my subordinate and an impossible time frame. He understands that it is neither impractical nor viable. So he either manipulates the data to show a good performance, or achieves the target using unfair means. He would still think it is not his fault as his boss gave him something unviable. He rationalises his action and becomes immune to his unethicality.

Some of the Possible Remedies:

Shape the environment with transparency, salience and openness.
Rely more on data and less on intuition.
Make your ethical stand know to others.
Remain vigilant to implicit biases.
Take ‘joint decisions’ and have a devil’s advocate.
Follow the Publicity Test of Ethics

Ethical Practices: Indian Oil Way

In India Oil, we have a full-fledged vigilance department and ethics codes. Our vigilance department is represented at the board level. We have strong foundations, yet we are moving beyond all those things.

We have a State Ethics Committee (SEC) formed by senior officers. We plan, initiate and monitor various ethical initiatives for improving the ethical culture. That is the major point, the top of the pyramid. The SEC reports to the State Head. There is a lot of support from the top management that is very important. Below the Ethics Committee, we have created Ethics Circles, like we have Quality Circles in many companies. Ethics Circles are created in all operational units.

We have a mix of officers and staff who meet regularly and whose primary function is to understand if there are any ethical infractions happening here. If so, what actions can be taken? They discuss and suggest. They also plan and take part in many socially responsible projects, promote volunteerism like blood donation camps or tree plantation projects, or collecting clothes and giving to the needy in the society. Because of these positive actions, people’s energy will be diverted and used for a positive purpose. It improves the ethical climate of the organization. Another is the Ethics Training. Our unit conducts training within Tamil Nadu. We have trained all executives in business ethics, including ethical blindness. We have trained all staff members for ethics and social responsibility. They create a solid foundation on which we can build on.

We changed our Vision Statement to read what it is today. In short, it is: Where integrity meets excellence. ~ Ms Sarada Jagan

We have also created an anonymous ethical feedback mechanism where people can report, without fear of retribution, violations including mis- reporting of data and sexual harassment. We have a set protocol on how to handle all these cases. The SEC goes into it, recommends action and submits to the State Head.

Increase Salience

We also wanted to increase the Salience of Ethics in the organization. We have frequent ethics broadcasts so that they reach all the employees. We have also fixed posters in all operational units about social responsibility, the importance of sustainability and about ethics. The purpose is to increase the salience.

I suggest that a body to promote ethical awareness may be formed under the aegis of MMA to promote ethics in the corporate world. MMA can also conduct regular training sessions/workshops on Ethics. Organisational members can collaborate and exchange best practices.

Ms Sarada Jagan
MD (HR & Corporate Services), The Sanmar Group

Our ethics philosophy and practices are written in a manual that runs to around 200 pages. We took KPMG’s help in 2002 to articulate in a formal manner what the group has been practising ever since Mr Sankar ran the Sanmar group. We conducted sensitisation workshops to employees to understand what ethics means to them.

We changed our Vision Statement to read what it is today. In short, it is: Where integrity meets excellence. We don’t want to do business any other way. We want to do it with integrity. The Ethics Manual addresses our Vision and our guiding principles or the philosophies. To make people understand them, we have come up with general business principles, illustrated with examples and recommended what one should look at and what one should not look at.

We also have our Code of Conduct. We have Ten Codes. We have systems in place and an ombudsman to administer all these. We end these manuals with 42 typical dilemmas that we face in business situations and ask our employees to choose the option that is appropriate for Sanmar group and understand why Sanmar wants them to do it that way. New employees on their first day in our company undergo a quick session on Ethics. At the end of the session, a declaration is signed by them that they have understood the Ethics Code and they will abide by its letter and spirit. We do ethics dipstick tests periodically to find out gaps and provide re-training where required. In the last three years, instead of classroom training, we have branded all these initiatives and coined it emotively as, ‘Ethically Ours.” ‘It is not ethics of Sanmar but our ethics.’ This has led to greater employee involvement.

Robust Public Policy for Business Transformation

Read Time:11 Minute

Business transformation of the innovation ecosystem is not only inevitable but also a highly complex and uncertain process. The way to facilitate transformation with policies has become a topic of common concern for academia and policymakers.

We need public policy to ensure stability. We need public policy if we want to change or transform. We need public policy to adapt or react to change. In all these three situations, public policy becomes very critical; its absence or a wrong public policy can lead to disaster as we have seen in many instances. It is an understatement to say that we are in a world that is transforming exponentially on all fronts. A simple illustration of ‘exponential’ is the story of the chessboard that may you recall.

The man who designed the chessboard presented it to the king. The king saw it and was so impressed that he said, “Ask what you want.”

The man said, “I only require one grain of rice on the first square of the chessboard; twice that on the second square, twice that on the third and so on.” The king said, “Oh, is that all what you want?” He ordered that to be fulfilled, not realizing that when you double 64 times, you will reach a fancy figure of one quintillion. The entire granary in the kingdom was not sufficient to meet the man’s needs or desire. That’s the power of exponential and that’s what we see now. This is apart from the Covid effect, which businesses and commerce are facing. We will continue to be in a world that is volatile, uncertain, ambiguous and fast-changing exponentially. Forget about differences in generations. That’s the pace of change and development happening. In his book, ‘The Law of Accelerating Returns,’ Ray Kurzweil did the math and found that we are going to experience 20,000 years of technological change over the next 100 years.

Built for stability, not disruption
Our biggest companies and government agencies were designed for another century for purposes of safety and stability—built to last as the saying goes. They were built to withstand rapid radical change but not the exponential change, which we are seeing today. That is why, according to Yale’s Richard Foster, 40% of today’s Fortune 500 companies will be gone in 10 years, replaced by the most part by big upstarts who are not heard of before. This is true of regulations and public policy too. Their shelf life is significantly limited and will soon become outdated. These need to be contemporary. A leading author predicted that in 10 years from now, you may perhaps need a license to possess a human operated car. During my younger days, we needed a license for a radio and a transistor; for a bicycle and a bullock cart. That was the policy in those days. As things changed, today you don’t need a license for a mobile or any other wireless gadget.

If you look at the graveyards of companies, there you will find all those businesses which did not recognize and adapt to change; those businesses that did not read the tea leaves or smell the coffee brewing and which did not adjust their sails to the wind. This is true of professions too.

Introspect and evaluate
My first message to businesses is to introspect, which they often don’t do. When things are going well, one doesn’t introspect. One must identify the trends and patterns and all that is happening around. What is gradual today can become exponential tomorrow but the most important thing is determining the elements which contribute to the success today. Why am I successful? Why is my business successful? Why is my profession successful? Why am I wanted? Why are we in existence? What are those elements which contribute to your success today? That is the analysis which often people fail to do.

The next step is to evaluate if those elements will continue in future. We need to apply the same test for all the regulations and public policies. Will this continue in future? If not, what does it mean for your businesses? The corporate strategy work is not just about improving profits. It’s about understanding the tea leaves; looking at what elements contributed to the success. Particularly, those businesses which are exposed to or impacted, whether favourably or unfavourably by regulations need to focus even more on public policy and ask: Will this be forever? What are those changes which are likely to happen? What are the changes which should happen? Businesses need to identify who their competitor is. For Toyota, it is not General Motors. It may be Tesla or Google.

End of exclusivity era
If you are in a space where you are exclusive—whether as a profession or a business—like a chartered accountant who is the only person authorized to audit or somebody else who is the only person authorized to represent before tax authorities or a particular business which is the only business licensed to do a certain thing, remember that those businesses and professions are under threat. You have to realize that exclusivity cannot continue forever.
It is equally important that regulated businesses which are protected are also highly vulnerable. I remember the time—before the Narasimha Rao government came in the 90s—when you had to import goods and services using an import license. The business that thrived in those days were canalising agencies. When regulations got dismantled, those businesses disappeared completely.

Not cast in stone
This is what I mean by evaluating the current systems and looking at everything, including regulations and public policy around us. Let us look at some of the areas where public policy plays a key role and will continue to play a key role. Take the first one, which is about trade agreements—the economic boundaries. You would recall that when Donald Trump came in, overnight he started dismantling trade agreements, reneging on all the trade agreements. That means that all those who were relying on those agreements as being cast in stone were suddenly disrupted. It required a revisiting and reshaping of public policy. This can happen to anything. Don’t proceed on the basis that a particular law has come in and that it is a law which is cast in stone. We have seen what has happened in the farmers’ agitation recently.

Not a mere buzz word
The second important thing is the fourth industrial revolution. It is a congruence of the physical world, the digital world and the biological world and it is revolutionizing businesses. It’s revolutionizing the world. Everybody will be impacted by it. No profession is exempt from it. But what is happening is that the change is so rapid that the society’s systems and laws are not keeping pace with it.
That is where public policy plays a key role. We suddenly saw the Ubers and Olas coming in. The yellow and black taxi drivers started waking up. Everybody started waking up and pressed for regulations around the drivers and pricing mechanisms. This is a classic example of a business model which arose first and then the society started waking up to say that they need public policy and regulatory changes. The question is—shouldn’t we be looking at all of these, including the impact of the 4th Industrial Revolution, climate change, ESG and diversity? These will not only transform our businesses but we will also have public policy that will impact the businesses.
We need to have public policies in the areas of autonomous vehicles, labour laws, non-tariff barriers which are coming up and alternate dispute resolution (ADR). Our courts are clogged and increasingly, there is a talk of alternative dispute resolution. We need public policy mandating ADR so that we can de-clog the judicial system. Businesses have started looking at their contracts to see if alternate dispute resolution with a conciliation or arbitration clause can be built into their contracts rather than pursuing a protracted litigation. New business models are coming up like the emergence of Ola, Uber and AirBnB. With the growth of the technology companies like Google or Facebook, the world is now waking up and realizing the power which they have over all of us, especially with the data they possess. There is talk of antitrust rules and if they should they be allowed to continue in the same way.
With increasing cybersecurity threats, what are the policy initiatives that are required? Look at education. The other day Byju’s announced that they would raise 4 billion. What does it mean? What happens to the brick-and-mortar schools? What happens to the education policy? What changes are required in the way online education is to be conducted? Do we need regulations and public policy initiatives? Cryptocurrency is being widely discussed today. These are just some illustrations.
The three who can shape it
Public policy can be shaped by three sets of people—the Government; the businesses; and the users or those who are impacted. Advocacy and shaping of public policy has become a key agenda item for businesses.
Let’s look at some of the businesses which have been impacted very recently by a lot of these changes. NBFCs were suddenly impacted by RBI’s new regulations in terms of how provisioning should be done, particularly in the case of restructured loans. For RTPs (Related party transactions), SEBI has come up with a document and a new set of rules. Corporates are grappling with it. The question in all of these is, will you be reactive? Will you be proactive? Do you need focus on public policy? What are the areas that you need to focus? How do you shape public policy? How do you shape regulations? For more than a decade, telecom companies were battling the interpretation of a regulation on spectrum charges. Finally, all of them had to cough up thousands of crores of rupees. Had they worked on public policy initiatives in terms of getting the definitions upright or right upfront, perhaps the pain would have been considerably lesser. The same situation will be faced by automobile companies in terms of pollution or the electric vehicle policy. Credit card companies were suddenly disrupted when RBI came down heavily and barred them from issuing new credit cards because they had not complied with certain requirements. Overnight, their businesses were disrupted.
Drive the agenda
So to conclude, businesses should drive this agenda. And how should they drive this? First, they should have a responsible person or a department which continuously monitors the developments and prepares the roadmap for action. In your business, if you do not have a person in charge of public policy or regulation, you will be history soon because you’ll only be reactive and not proactive. The second is, businesses and professions should actively work with industry and professional bodies as a collective voice.
The third and most important aspect is that an industry body, business body and professional body must try and have a seat at the table where policy and regulations are shaped. The fourth, identify and connect with influencers. There are many experts in the field who the government and others go to for advice in terms of shaping regulations. Businesses and professions should connect with such influencers.
Listen to and also use social media and other channels to ensure that your voice is heard. Most importantly, be proactive and not reactive. Whilst we talk of public policy and regulations, I am passionate that there needs to be a balance. You can’t have over-regulation. At the same time, you must ensure there is a free market. Today, we are seeing a trend where regulations are more knee jerk in nature. Regulations are introduced without doing enough work. Maybe, it is because of a lack of early inputs in shaping the regulations. In the case of Companies Act 2013, there were multiple parliamentary committees, finally ending with the 2013 bill, which became an act. At least, there was a lot of debate and there have been numerous amendments thereafter.
Nail the root cause
The point is, if you have to shape public policy and are able to shape regulations appropriately, you need to first identify what the problem is. See what change is required and why it is required. The second most important thing to do is a root cause analysis. Often, we think of a particular remedy which is, more often than not, wrong because we haven’t done a root cause analysis of the problem. Third, identify potential solutions and determine the right solution. The fourth is to have a very clear view of the outcome of the regulation or public policy. It may be fashionable sometimes to say we need a certain type of voting pattern for independent directors or for related party transactions. But what is the outcome you’re seeking to achieve and how? Outcome determination before a public policy or regulation is finalised is, in my view, very critical.
Have futuristic boards
Lastly, let me come to the role of the boards. The boards play a very critical role. I believe the role and the board agenda has to change. It has to change from focussing on the past and performance, to focussing on the future. Boards have to be forward looking. They must see what the future is going to be. How do we prepare or adapt for the future? What enabling legislation is required? What transformation is required? What public policy changes are required?
As Henry Ford said, “If you continue to do what you are doing, you will continue to get what you are getting.” n