Wednesday, November 05, 2014

Will Narendra Modi change India ?

Narendra Modi led his BJP to a historic election win.

He is a powerful speaker and draws huge crowds. He talks about himself in the third person. He's the most energetic leader India has had in years, burning the midnight oil and campaigning for his party with equal fervor.

He's also an astute performer: recently he dropped into a police station and picked up a broom to promote a campaign to clean up India. Behind the bluster and performance, he, according to insiders, is a loner who trusts his instincts but very few people.

Narendra Modi is also possibly India's most powerful leader after Indira Gandhi, the mercurial former prime minister.

Five months ago he led his Hindu nationalist BJP to a historic win. In a country used - in recent decades - to feeble leaders running flimsy coalitions, Mr Modi is a marked departure.

Like Mrs Gandhi, a cult of personality is slowly building around him. Similarly, Mr Modi is also his party's biggest vote-catcher.

Centralising power

No surprise, then, that he rules firmly. The party old guard has been effectively retired. One of the few men he trusts, Amit Shah, a savvy organizer with a controversial past, runs the BJP. Media access to his government is tightly controlled, though recently Mr Modi promised to make amends and meet journalists.

Although his cabinet is somewhat thin on talent, he runs his team of ministers and a bunch of trusted bureaucrats in his office with an iron grip.

"His working style is very presidential. He centralizes power. He needs to delegate more authority and crack the whip," says analyst Neerja Chowdhury.

Mr Modi rode to power in May on the promise of getting India's economy back on track. All the good work of the Congress government led by the taciturn Manmohan Singh in the first term had unraveled in the second thanks to a string of corruption scandals, a slowing economy and inept governance.

Mr Modi inherited a sluggish economy with high inflation and declining employment. His supporters expect him to reform the economy, tame inflation, create jobs and cut red tape to make it easier to do business.

Mr Modi has launched a campaign to clean up India

It is early days yet, but Mr Modi has energized government and launched a few headline-grabbing schemes, some of which are smartly retooled programs introduced by the previous administration.

There's a commendable campaign to clean up what remains a filthy country, though critics say it ignores reprehensible practices like manual scavenging of human waste.

Another proposes to provide a bank account for every household in a country where only 40% of people have one. The success of this will possibly be linked to eventual welfare cash transfers, which Mr Modi proposes to move ahead with. Mr Modi also wants to turn India into a manufacturing hub to create the millions of new jobs that India badly needs, so he's launched a curiously named Make in India scheme.

All of the campaigns, say critics, are long on promise, but short on specifics. Mr Modi clearly believes that he needs to rejuvenate a tired and cynical people into believing that his government can work with them to make change possible.
A lot of people continue to believe the rhetoric, as his party's recent win in state elections prove. "The initial days of the government," says analyst Milan Vaishnav, "have been characterized by an almost exhausting hyper-activity in many respects."

Mr Modi has also unveiled a few labor reforms, freed diesel prices from state control and backed an executive order to allow private companies to mine coal, which supplies some 60% of India's energy needs.

There's talk of more reforms in the days to come. He also, quite rightly, plans to get rid of obsolete laws that clog the statute books, though there is still no word on why India can't do away with a retrograde law which makes homosexuality a crime, and a colonial era sedition law which is often used by governments to harass opponents.


Mr Modi's foreign policy moves have been marked by briskness. There is a new dynamism in bilateral ties in the neighborhood - he made quick trips to Bhutan and Nepal early on; his first major foreign visit was to Japan, where he secured a $33bn pledge from Prime Minister Shinzo Abe.

Mr Modi also made a bold initial foray in reaching out to Pakistan by inviting Prime Minister Nawaz Sharif to his inauguration. But he later cancelled planned talks and India threatened heavy retaliation after a recent surge in violence on the disputed border left 19 people dead.

So, according to Harsh V Pant of London's King's College, Mr Modi has decided to take a gamble by resetting the terms of engagement with the nuclear-armed neighbour. "It was possibly long overdue, but it is not clear what India's options are should this gamble fail," he says.

Mr Modi wants to make India a manufacturing hub.

Although Chinese President Xi Jinping's visit to India turned out to be a bit of damp squib, Mr Modi's government, according to Mr Pant, is "trying to increase its scope for diplomatic manoeuvring vis-à-vis China by building substantive ties with Japan, Vietnam and US". And during his trip to the US, he reached out to expatriate Indians and tried to put defense ties back on track.

"He seems to be redefining the terms on which India is likely to engage with the world in coming years. Pragmatism coupled with a more confident assertion of Indian interests is likely to be the hallmark," says Mr Pant.
At home, Mr Modi needs to allay some fears.

One is rising concerns over a resurgent Hindu right, exemplified by the RSS, the BJP's ideological mentor, and a bunch of hardline outfits who believe in establishing Hindutva (Hindu-ness) as a superior political ideology. Many fear that unchallenged by a weakened opposition, Mr Modi will help turn the world's largest - and most diverse - democracy into a Hindu nationalist state.

There's trepidation over a lack of tolerance among many of Mr Modi's supporters, particularly on social media, to any criticism. There are more prosaic fears that environmental concerns will be given short shrift as he pushes reform, and some headline welfare schemes will be cut back.

So will Mr Modi change India or will India change Mr Modi? Many believe the latter will happen. "You cannot be a polarizing leader and rule a diverse and plural country like India. You have to take everybody along with you," says Neerja Chowdhury.

Will Mr Modi turn out to a reformer? With growth expected to rebound and inflation on the decline, Mr Modi will continue to win admirers. But, as Milan Vaishnav says, without deeper policy reform or "revisiting a government style which is premised on centralizing power", the jury is still out how sustainable this rebound - and Mr Modi's popularity - will be in the long run.

 Article written by Soutik Biswas BBC Delhi correspondent – 5 Nov 2014

Tuesday, November 04, 2014

Guide to Getting out of Debt

60 Second Guide to Getting out of Debt

Imagine being free of debt -- no more sleepless nights over mounting credit card balances, no more ball-and-chain of debt feeding your anxieties, and no chance of threats from dreaded collection agencies. You can do it! Here's the scoop -- in one minute flat.

0:60 Resolve to spend less than you make

Make it a habit as fundamental as stopping for red lights. Realize once and for all that if you can't pay for it today -- you can't afford it.

0:55 Distinguish between Bad Debt and OK Debt

OK Debt has an interest rate well under 10% -- preferably with some tax advantages to boot. In the best case, what you bought with borrowed funds will appreciate in value. Home mortgages and student loans are examples of OK Debt. Automobile loans are on the border: They often satisfy the low-rate piece, but automobiles almost never appreciate in value. Bad Debt is everything else -- from your titanium credit card to the 35% loan from Larry's Kwik Kash.

0:50 Pick a winner

Out of all your cards, pick the one or two major credit cards that feature the lowest annual interest rate. Resolve to use those cards for emergencies only. As for all the other plastic pals in your wallet, remove temptation by taking them out of your wallet. Throw them behind a major appliance, freeze them in a bowl of water, or decoupage them to a shoe box. Do whatever it takes not to use them.  

0:41 Gather the latest bills from all Bad Debt accounts

Line these up on the kitchen table. Find the minimum monthly payment for each account and then add these up to get an overall monthly minimum. Pledge to pay this overall minimum PLUS a hefty additional chunk every month -- enough to make a solid dent in the outstanding balance of at least one account. 

If you can't pull this off, you'll have to make a drastic move to increase your income or lower your expenses. It's harsh, we know, but it's also an inescapable fact.

0:34 Pick the highest interest rate account and: Attack!

Next, order the latest bills according to annual interest rate charged. Apply the "hefty additional chunk" (beyond the minimum) to the highest rate account(s). Repeat this process monthly until the last Bad Debt account is paid in full.

0:26 Ask for a lower interest rate

Grab a bill from any account charging you more than 14% interest. Dial the toll-free number on the bill and ask to have your rate reduced -- say, to 11%. Tell them that you'd really like to stay with them out of customer loyalty (embellish according to your acting skills), but that you have received offers for much-lower-rate cards.

Expect to be made very uncomfortable, but stand firm and remember that, to them, you are both a customer and a profit center. You also stand to save a bundle. The more calls you make, the more persuasive you'll become.

0:18 Be prudent

Be aggressive in paying down Bad Debt, but don't get so ambitious that you risk missing minimum payments on your mortgage, automobile, or any other secured credit account. (Secured means that if you miss enough payments, the bank can show up and take away your stuff.)

0:12 Commiserate with others 

On our Consumer Credit / Credit Cards discussion board, you'll find plenty of emotional support and great ideas. Help others celebrate their debt-free "happy dance."

0:05 Dance, Fool!

You're done when the Bad Debt is 100% exorcised and you can make remaining OK Debt payments with ease, leaving plenty of budget room for savings.

Got another minute?

Our Credit Center offers many more workable ways to help you get out of debt.

Tuesday, October 28, 2014

India, the Brightest BRICS Star

India Is Eclipsing China Economy As Brightest BRIC Star

By Elvis Picardo, CFA | October 23, 2014 

It seems altogether fitting that on the occasion of Diwali – the Hindu “festival of lights” – India should emerge as the brightest star in theBRIC firmament, threatening to eclipse perpetual economic luminary China. While the planet’s largest democracy has long toiled in the shadow of the world’s second-largest economy, India is finally stepping into the limelight thanks to the election of a pro-business government in mid-2014, even as growth slows perceptibly in China. Will Diwali of 2014 usher in a new age of prosperity for the Indian economy?

A brief economic history of India: 1947 – 1991

India’s economic history since it attained independence can be divided into two distinct phases – the 45-year period to 1991 when it was largely a closed economy, and the period after 1991 when economic reforms led to revitalization and rapid growth.

India faced a host of daunting challenges when it became an independent sovereign nation in 1947, ranging from religious riots and war to rampant poverty, low literacy and a shattered economy. These issues shaped its economic policies – which were somewhat socialist in nature and designed to encourage self-reliance while lessening the country’s dependence on imports – for the next 40 years. However, the government’s iron grip on nearly every aspect of the economy only succeeded in creating a pervasive industrial licensing system, disparagingly referred to as the “License Raj,” that served to breed bureaucracy and foster corruption.

Despite these obstacles, the Indian economy managed to amble along at a 3%-4% growth pace until the 1980s. In fact, economic growth increased in every decade from the 1950s onward, except for the struggling ‘70s, when the economy was hampered by oil shocks and near double-digit inflation. The Indian economy continued to remain closed to foreign investment throughout this period, its insularity highlighted by the exit of multinationals like Coca-Cola and IBM from the country in 1977. This exodus was precipitated by the stringent provisions of the Foreign Exchange Regulation Act, and tough demands made by the new Indian government, such as its insistence that Coca-Cola partner with an Indian company and share its secret formula. (Related: An Introduction to the Indian Stock Market.)

The post-1991 period

Although India had made some perfunctory attempts to open up its insular economy in the late 1980s, these efforts attained the utmost urgency from 1990 onwards, as a balance of payments crisis took the country to the brink of bankruptcy. The collapse of the Soviet Union eliminated a major supplier of cheap oil to India, and as oil prices skyrocketed due to the Gulf War, India’s foreign exchange reserves were depleted to less than $1 billion by mid-1991, only enough to cover two weeks of imports.

With the country in the grip of an economic crisis and still reeling from the assassination of former Prime Minister Rajiv Gandhi, an unexpected free-market champion emerged during this dark hour in the form of Manmohan Singh, a well-regarded economist who became India’s new finance minister in June 1991. Singh immediately launched an ambitious slate of economic reforms based on three pillars – devaluation of the rupee, slashing of import tariffs, and decontrol of gold imports (to eliminate the “hawala” or currency black market). Singh also liberalized the industrial licensing policy and relaxed the rules for foreign direct and portfolio investments.

The measures paid off very handsomely, as the Indian economy was transformed into an IT and knowledge-based powerhouse with one of the fastest growth rates of the major global economies.  From 1991 to 2011, India’s GDP quadrupled, while its forex reserves soared more than 50-fold to over $300 billion, and exports surged 14-fold to $250 billion. The benchmark BSE Sensex index rose almost 15-fold in the 20-year period from June 1991 to June 2011.

Rapid economic growth also led to the emergence of a huge middle class population that had an insatiable demand for consumer goods. An example of this runaway demand can be seen in the explosive growth of the phone industry in India. India previously had an antiquated phone system that resulted in a landline waiting list that was measured in years. The overhaul of the telecom sector and the introduction of cellular phones in the 1990s dramatically changed the phone industry. The number of phone subscribers soared from 0.5 million in 1991 to 960 million by May 2012, the overwhelming majority of which were cellphone users; this was not just an urban revolution but a rural one as well, with rural users making up 35% of the subscriber base. As a result, the number of phones per 100 people in India increased in leaps and bounds, from just 0.02 in 1950 to almost 3 in 1990, and over 79 in 2012.

The second wave

Despite these tremendous achievements, the Indian economy was bogged down in recent years by various factors. These included inadequate infrastructure, a deteriorating financial position characterized by rising fiscal and current account deficits, and most importantly, fractious coalition governments that made it difficult to achieve consensus and push through the tough reforms needed to take the economy to the next level.

However, the landslide victory of the Bharatiya Janata Party (BJP) in India’s general elections in May 2014 handed the party and its pro-business leader, Prime Minister Narendra Modi, an unequivocal mandate. Investors were confident that Modi would be able to replicate the success he enjoyed as chief minister of the western Indian state of Gujarat, where annual growth from 2003 to 2012 averaged 10.3% with Modi at the helm, a faster pace than India’s 7.9% GDP growth rate over the same period.

There was also unprecedented optimism that Modi would be able to expedite decisions on critical projects worth almost a quarter-trillion dollars that had been stalled by infighting between the previous government and its coalition partners.  

The second wave of landmark reforms may not be as dramatic as the first wave that commenced in 1991, but they will have far-reaching effects on the Indian economy just the same. Proposed measures include infrastructure development, implementation of a goods-and-services (GST) tax that could contribute to a percentage point increase in annual GDP growth, and opening up more areas of the economy to foreign investment. Another priority would be reducing the burgeoning subsidy bill that had grown fivefold over the past decade to 2.6 trillion rupees annually.

Long-term growth drivers for India

  • “Demographic dividend”: Half of India’s 1.2-billion population is under the age of 25. By 2020, India will have the world’s youngest population, with a median age of 29 years, compared with a median age of 37 in China. This demographic dividend could potentially give India the biggest labor force and make it the largest consumer market in the world.
  • Growing middle class: India’s middle class of 250 million already represents one of the biggest consumer markets in the world. This educated, tech-savvy and relatively affluent group is expected to continue its rapid growth in the years ahead.
  • Low penetration of goods and services:  Despite the economy’s progress over the past quarter-century, the Indian market still has a relatively low penetration of goods and services, which translates into massive untapped potential. For example, in 2009, there were only 11 passenger cars per 1,000 people in India, compared with 34 in China, 179 in Brazil, 233 in Russia, and 440 in the U.S.
  • A functioning democracy:  One of India’s greatest strengths is that it is a vibrant and functioning – albeit a trifle chaotic – democracy, where the electorate regularly exercises its constitutional right to kick out non-performing governments. India’s army, one of the world’s largest, is also staunchly apolitical and has consistently remained aloof from political shenanigans.
  • Established companies and institutions:  India has a thriving business sector with dynamic SMEs and large companies that are increasingly expanding overseas, educational institutions that are among the world’s best, and competent financial organizations. India’s central bank, the Reserve Bank of India (RBI), is currently headed by Raghuram Rajan, who was formerly chief economist at the IMF.
 Contrasting outlooks

The long-term outlook for the Indian economy is getting brighter just as that of its BRIC counterparts is getting murkier.

The IMF projected in its October 2014 World Economic Outlookreport that the Indian economy would accelerate from a 5.6% pace in 2014 to 6.4% in 2015 (see Table), propelled by rising exports and investment. In contrast, China’s growth is projected to moderate to a more sustainable pace, from 7.4% in 2014 to 7.1% in 2015, as decelerating credit growth slows investment and real estate activity continues to ease. While China continues to grow at a faster pace than India, the performance differential is shrinking, and for the first time in years, the growth trajectories are moving in opposite directions.

The outlook for Brazil and Russia is much less positive. The Brazilian economy contracted in the first half of 2014, and is forecast to grow only 0.3% in 2014, hindered by political uncertainty, low business confidence and tighter financial conditions. The IMF forecasts growth to rebound modestly to 1.4% in 2015. Russia is forecast to post the slowest growth of the BRIC nations in 2014 and 2015, as economic sanctions in the wake of the Ukraine conflict take their toll on the economy.

BRIC GDP growth rates (2011-13) and projections (2014-15)


The Bottom Line

The IMF forecasts that India will become a $2-trillion economy in 2014 – the tenth biggest in the world – and will cross the $3-trillion threshold in 2019, which would make it the world’s seventh biggest economy. But while the long-term outlook is very positive, the 26% increase so far in 2014 in the BSE Sensex index – which reached a record level of 27,354 in September 2014 – has made valuations among the most expensive in the emerging market space. Nevertheless, for investors who are comfortable with the risks inherent in emerging markets, India represents an alluring investment choice on a pullback, which could well occur if Modi is unable to proceed with reforms as rapidly as investors expect.

Wednesday, October 22, 2014

CEO Succession Planning

Ensuring a Successful Leadership Transition

In this issue, Clarke Murphy and the CEO/Board Services Practice set forth the specific elements and timeline of a successful CEO succession plan, as well as the steps necessary to ensure a smooth transition.

The transition from one CEO to another is a critical moment in a company’s history. A smooth transition is essential to maintain the confidence of investors, business partners, customer and employees, and provides the incoming CEO with a solid platform from which to move the company forward. A properly designed and executed succession plan is at the center of any successful transition.

CEO vacancies can be planned or unplanned; in either scenario, by the time a succession plan is needed it is far too late to start building one. Because of this, it is the responsibility of the board to make succession planning a priority, even in the face of more immediate and tangible issues. In addition to being necessary for risk mitigation, succession planning brings with it several beneficial byproducts:

It provides a framework that drives senior executive development, aligning leadership at the top of the enterprise with the strategic needs of the firm.

 It gives the CEO, through an ongoing analysis of the job requirements, the opportunity to adjust his or her role in light of changing business conditions and strategic imperatives.
It strengthens the relationship and information flow between the board and the senior management team through the regular contact that is part of the board’s review of candidates.
Russell Reynolds Associates regularly advises boards and CEOs on Chief Executive Officer Succession Planning, and from this experience we have developed the following practical guide to the succession planning process.


Establishing The Foundation

Succession planning is usually directed by the governance or compensation committees, or occasionally a special ad hoc committee. The current CEO’s involvement varies (depending on whether the succession is planned or unexpected) with primary responsibility being the development of internal candidates. The Lead Director often acts as the single point of contact between the board and the sitting CEO on succession matters.

Succession Planning Roadmap

How to build a robust succession planning program that aligns current talent development with future leadership needs.

If your CEO has a sudden heart attack, do you know who will take the chief executive's place? What if your top executives are wooed away to another firm? Do you have the next generation of leaders ready to fill those roles? If not, you may end up with an empty C-suite—or worse, under-qualified people moving into leadership roles because there is no one better to take over.

The only way to reduce the effect of lost leadership is through a strong succession planning program that identifies and fosters the next generation of leaders through mentoring, training and stretch assignments, so they are ready to take the helm when the time comes. Research supports sound succession planning. A study some years ago from consulting firm Booz Allen Hamilton concluded that "over their entire tenures, CEOs appointed from the inside tend to outperform outsiders" when it comes to returns to shareholders. Yet many organizations struggle to take their succession planning programs beyond a static list of names slotted for a few top spots.

"Every company has a succession planning document," says David Larcker, a professor in the graduate school of business at Stanford University. "The question you have to ask is, 'Will it be operational?"

This Roadmap offers human resources leaders a framework and advice on how to create a robust succession planning program that aligns talent management with the vision of the company, ensures employees have development opportunities to hone their leadership skills, and guarantees that the organization has a leadership plan in place for success in the future.

Jim Skinner, former CEO of McDonald's Corp., was known to tell managers:

"Give me the names of two people who could succeed you." It was just one way the CEO continued the culture of succession planning at McDonald's.

It was an understandable priority considering Skinner only landed in the role in 2005 after two other CEO's died suddenly over the course of just two years. And when he retired in 2012, Skinner was confident that his successor, Chief Operating Officer Don Thompson, was ready to take over, because he spent much of his seven years mentoring him.

"I basically felt the responsibility to the board of directors to be sure I provided them with someone who could run the company when I'm gone," Skinner told Fortune a year before his retirement. "Until I was capable of doing that, I would not have left."

This kind of leadership level commitment to training and mentoring the next generation is a vital component of succession planning. And while most executives understand the importance of succession planning efforts, few of them believe their organization excels in this category.