why we need more jio-styled cos, and psu need to cut costs

the world is becoming ultra-competitive, all thanks to greater than ever dissemination of information through electronic means. today, no company (except those with cutting-edge tech like google and microsoft) operating in a specific industry can expect to be the sole beneficiary of demand for a particular product/ service. margins are getting thinner and this is all a good sign, we will tell you why.

for a country like ours, all problems lie in income disparity that has only exacerbated despite of political promises to curb it. with those who earn handsome money and are willing and actually spending large sums on imported goods like electronics and garments, our trade balance has suffered. this ‘handsome money’ that they make can be attributed to the irrationality of their employers.

companies, both private and public, have not prudently considered changing market conditions and are thus unable to rein in rising operating expenses, especially those incurred on salaries.

take airtel for example. post jio’s entry in the telecom sector, not only the competitors had to reduce their prices for services they offer, they also had to cut on operational costs, resulting in laying off of large number of employees and rationalization of salaries of others.

take another case of private vs public sector banks. when one compares annual cost to company of a state bank of india (sbi) employee with that of his counterpart employed with a private sector bank, huge difference in favour of sbi employee comes as a shock. when market was opened for private and foreign banks in the country, the public sector banks didn’t notice the competition coming and failed to cut their operational costs. the irony is they gradually increased perks of their employees.

jio teaches a lesson to all market players. every sector is vulnerable to competitive forces and no enterprise can senselessly spend on pleasing their workforce. gone are the days when near-zero annual salary increments came as a shock only for a few handful companies. today, enterprises may even need to cut down salaries from past years so as to survive the competition. else, there will be no alternative to posting losses in books, defaulting on bank loans and finally going into liquidation.

to correct the market and more importantly correct the distortion in salaries, we need more and more market participants like jio. they would teach their respective sectors how to run businesses with thin margins by rationalizing costs.

sbi, other psb have only abused their hegemonic position

the 2 percent wage hike proposed by indian banks’ association to psb employees is unacceptable to them, and they have their own set of reasons. just one question- are present pay structures of psb employees commensurate with their skills and duties they perform? when one compares the monthly pay of an sbi staffer with that of a private sector staffer with identical skillsets, say with an accountant at a private enterprise, the picture that bank staffers are already drawing exceedingly high salaries becomes clear.

for decades, public sector banks misused and severely abused their dominant positions, which is owing to the general public viewing these banks as quasi-government, not just government-run banks. people feel safe when their savings lie with public sector banks and this compulsion of people to use the services of psb has been exploited to the core.

sbi, for example, not only pays lucrative and unreasonable salaries to probationary officers and other staffers, but also takes care of their utility bills, even petrol expenses and furniture for their home. how sensible or rational does this sound?

the above mentioned roles do not require any extraordinary skills and are only routine jobs, very similar to that of a worker at a mcdonald’s outlet. while a private sector employee would not be paid more than inr 25,000/ month for a similar job, bank employees are being paid much more than industry standards, besides being given perks and allowances.

a news report sympathetic to the demand of bank employees for a much better wage hike has quoted their ‘commendable work’ while executing government policy actions like demonetisation, jan dhan yojana and mudra yojna. why not initiate an enquiry and you would come up with unbelievable number of frauds and misappropriations and abuse of power by bank staffers while implementing these schemes.

even non-performing assets of psb is a product of unprofessionalism and lack of sense of duty in psb staffers. this aside, as per the latest data, nominal rural wage growth has plunged to its lowest level (real wage growth is in negative territory), what salary hike are psb staffers demanding?

why doesn’t one decode the lately declared sbi quarterly loss (q4, 2017-18), which shows that net loss from corporate segment was at inr 13,525 crore, while from retail banking segment the bank earned inr 3,586 crore net profit.

the only way to rein in these staffers is to immediately recruit special staff in all psbs so that banks can remain open to the general public even on sundays, all saturdays and public holidays, that too from 8 am to 8 pm with staffers working in two shifts of 6 hours each.

the newly recruited staffers will not only remind the existing ones of a fundamental market theory that only work is rewarded but will also make banking services more accessible and thus pushing the economy to new heights.

problem with government banks is that they are government banks

while everyone is counting the exact figure of non-performing assets, no one has taken time to see how messy, obsolete is the slip that is to be attached when depositing cash in a public sector bank. the modus operandi of government banks has led them to where they stand today; india’s so-called gem of banking sector, state bank of india, has posted a quarterly loss for the first time in 17 years.

cut to solution. divestment is the only option to revive indian public sector banks, and yes this can come with challenges hence the need is to think of an appropriate method of divestment.

when divestment is considered, we only think of making a public sector unit private by way of selling the stake of the government. this, however, can be a kneejerk decision. what is the alternative then? form a government trust and handover the stake currently held by government in public sector banks to this trust. yes, it sounds similar to how the tata group operates.

the government trust so created must have as its trustees experts from different spheres. what you call a ‘ppp’ mode of ownership in projects has to be replicated in this scenario. the majority of trustees must come from private sector and the trust in itself should not be considered as child or property of the government.

tasks given to the trust must include rationalization of salaries of personnel in public sector banks and a quick shift from the present modus operandi to functioning in a corporate, professional manner where customer is considered the king, profits are considered the prime target and the enterprise as a whole is run as a corporate venture, not a government enterprise.

the recent fraud unearthed in the pnb’s mumbai branch and central bank’s tough directives on recognizing and resolving bad assets are indicative of the severely bad health of government banks. and accept this, the sector is on the verge of falling into the category of ‘irreparable’.

the only problem is that the modus operandi of our public sector banks has worsened to the core and the banking staff, at every level, is motivated only by high salaries they draw, which in itself is a reason for failing banks.

form trusts and pass over the entire government stake in public sector banks to these trusts (individual trust for every psb) at the earliest to save the backbone of our economy.

instrument to end npa crisis – ‘irreversible debit order’

country’s banking system is reeling under non-performing assets and a solution is being sought by way of forced bankruptcy, takeover of management and rulings by national company law tribunal. this basically means that the disease is being cured after it has managed to inflict irrevocable damage. a simple tool, in the form of ‘irreversible debit order’, can however bring an end to this by immunizing banking companies against loan defaults.

an ‘irreversible debit order’ or ‘ido’ can work as an instrument of repayment of debt facility availed by the borrowing entity from the lender.

in the present setup, the borrower, who either pays through cash/ cheque or an instruction in form of automatic monthly debits from bank account toward repayment schedule, has an upper hand. the borrower can either choose not to make the cash/ cheque payment on the pre-decided date or he can instruct his bank to not allow further automatic debits from his/ company’s account toward loan repayment.

it is entirely on the desire of the borrower to delay repayments, after which the lender resorts to reporting such cases as stressed/ bad debts. in most of the cases where the borrower delays repayment to the lending entity, it is only his ‘will’ that lacks, not his ‘capacity’.

this is where the law needs to be strengthened. unlike in cases where the borrower is genuinely facing financial crisis, instances where only his willingness to repay lacks, he must be ‘compelled not requested’ to repay on the very date as per the schedule and this agreement must be backed by an irreversible debit order.

ido will not work as standing instruction or anything of that sort, but as a guarantee to the lender that the borrower will abide by the contract of repayment at least until he has the capacity of doing so. the ‘irrevocable’ nature of such contract between the borrower and lender will ensure that companies which deliberately delay repayments are barred legally from doing so.

to make this a reality, a separate bank account for a borrower company can be set up which should be linked to company’s current account/s and all other places where the revenue received is stored. the repayment of credit availed by the company from the banking system should have ‘first preference’ over all other liabilities.

this way, the need to move courts and tribunals for receiving back the amount extended as credit by banks will virtually no longer exist. any npas will only be due to genuine financial incapacity of the borrower and can be recorded in real-time. if worked out wisely, there shall exist no need to liquidate company’s assets, which entails a lengthy and cumbersome process, for repayment to creditors.

differential taxation of corporations; segregate primary, secondary and tertiary

no two industries will be functioning alike, impacting the economy in same manner; hence both cannot be subjected to identical degree of taxation on income. rational segregation of enterprises is the foundation of this notion.

any enterprise would be involved in either an ‘essential’ or ‘complimentary’ production. steel, consumer goods as essential, and telecom, information technology as complimentary.

we know that contribution from primary, secondary and tertiary sectors makes up country’s gdp. primary sector includes agriculture, mining and like, secondary includes manufacturing, electricity and like, and tertiary includes all services.

alike taxation of companies functioning in different sectors is irrational in long run.

let’s understand why. an enterprise undertaking mining activities has dissimilar factors of production as compared to another that produces computer programs. the risks in agriculture or manufacturing sector outnumber those in tertiary sector, while margins of latter outdo that of former.

for instance, retail works on the difference in price charged from buyer to what was paid to the seller. manufacturing a garment, however, is poles apart, from spinning machines to dyeing machines procured, intensive labour applied, servicing of interest on loans for plant and machinery.

it is simple. similar to how the rich are taxed more than those earning less (progressive taxation), companies working on more risks and less margins are to be incentivized on similar lines.

else, as is in the present state, we can see telecom and it ventures faring exceptionally better than their counterparts in steel, infrastructure and other core sector activities.

once put into place, this mechanism will not only help recover the health of manufacturing and primary sector, it will make our banking system healthier, will push real and sustainable job growth, will bring down inflation and promote equity.

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