Desicritics Author: Satya

Indian Oil Companies Bid In Pakistan

Satya — Thu, 16 Feb 2006 18:17:17 EST

The peace initiative that has been going on between India and Pakistan for past couple of years may get a new dimension. The news is that Indian oil & gas companies, IOCL and ONGC are seeking government permission to bid for Sui Southern Gas. The government of Pakistan is selling 51% stake with management control, in this particular oil & gas company It is a gas transmission and distribution company covering the provinces of Sindh and Baluchistan.

In the past few months, the Pakistan government is actively going for privatization to invigorate its economy. In the words of Abdul Hafeez Shaikh, Federal Minister, Pakistan Privatization and Investment "In the last three years, we've done 28 major privatizations". The efforts are yielding results for them. Alongside Bombay stock exchange, Karachi stock exchange has been the best performer in Asia. Recently both of them touched their all time high.

India has been in discussions with Pakistan over the Iranian gas pipeline. The present bid by Indian oil & gas companies seems to be in synergy with that proposal. If the bid goes through and Indian companies get stake in SSGC then it might add fresh impetus to the controversy ridden pipeline proposal. It may help in assuaging some Indian apprehensions regarding the stable supply of gas through the pipeline.

If the economic co-operation between India and Pakistan takes off then not only it will increase political cooperation but will also act as a cushion for any potential fallout in relationship. India has been giving MFN status to Pakistan for years now though Pakistan has not reciprocated. It is a known fact that SAFTA is not getting success only due to bitter relations of India and Pakistan. In this context this proposal to bid for a stake in a Pakistani company can be termed as a fresh and welcome development. We have instances where economic aspect holds heavier than political aspect. The New Year crisis between Russia and Ukraine was one such example.

It is a bit premature to envisage a mature economic co-operation between India and Pakistan due to this bidding process. First the Indian government has to grant permission and then Pakistan government has to allow it, even before the process can start.

If this goes through, it will augur well for both India and Pakistan

Should Stock Options Be Scrapped?

Satya — Mon, 13 Feb 2006 18:04:11 EST

There is this excellent movie released last year, 'Enron: The smartest Guys in the Room'. It is not a commercial kind of movie but more of a documentary.

It traces the rise and fall of Enron, which at one time was 7th largest corporation of US. By now I am sure everyone knows what fraud was being done at Enron. The profit, which the rogue team of Ken Lay, Jeffery Skilling, Andrew Fastow and few others made, was due to stock options. They made millions of dollars by exercising their stock options. A stock option is the stock given by company at a fixed price (may be even free) which most of the time is less than market price. They sell their stocks when the market value is considerably high.

Stock options are part of the compensation package of the most of the top level executives of any corporation. They run into millions of dollars. We also have example of both the founders of Google taking an annual pay of 1 dollar since 2004. They will manage the rest through their stock options. The amount of money they can make this way is directly connected to the share's market value. The underlying assumption of this was to reward them for appreciation of shares worth which in turn is beneficial for all the stock holders of the organization.

If we see this in the context of Enron then these stock options seem to be the biggest motivation for these 'smart guys' to artificially inflate the company's profit and pump up the stock's market worth. Would they have done this had they not had any stock options? Hard to tell, but I think they would not have done it this way. So, should a company give stock options to its top level executives, and if not, then what instead? Before we decide, let's look at another incident which happened last week in India.

Last Thursday (2nd Feb), a top Indian IT company announced it has bagged a deal worth 300mn US $ from a beleaguered US automotive giant. The deal was spread for 5 years, so an inflow of 60mn US $ is expected each year. The media was quick to catch this news. This was the second ever largest deal bagged by any Indian IT company. The stock immediately appreciated, not much, but still 1.14%. This company does not have much of its stock in circulation as the promoter group has close to 82% of the stake.

Next day it opened at much higher price but ultimately settled at lesser value due to weak market overall. On Saturday the same company clarified that the deal was not for 300mn but for only 27mn US $! The figure of 300mn was its estimate of future business they wish to bag from the automotive company. This comes to less than 6mn $ per year. The stock predictably declined on Monday. It is now for the regulatory bodies to find out if anyone profited from this pumping of the stocks. There has been no news till now of anyone even thinking of investigating this. But we saw one more method of artificially pumping the shares. If someone had stock options then it was a good opportunity to exercise them.

All this leads me to ask the question, Should companies continue to give stock options to its top executives?

Of course due to tough regulatory norms and surveillance this kind of fraud is becoming more difficult but still chances always remain. Should the companies explore other ways of rewarding its top executives while acting in good faith of its shareholders? A good option could be to give percentage of revenue or profits realized. This will also, secure the interests of the share holders, as increase in revenue and profits will ultimately increase the market worth of the stock. This would have worked well even with Enron.

What Is Different In Hussain's Caricature And The Prophet's Cartoons

Satya — Sat, 11 Feb 2006 09:08:55 EST

I write this post as an extension of Mayank's post and the comments on it.

We all agree that M F Hussain has done it again. He has learned the fast, effective and cheapest way to gain publicity and he puts good use to it. One would expect a painter and an artist to have certain values but we all need exceptions, so we have him. I never ever bothered to read any news of any controversy surrounding Hussain. It has become banal. But this time he got the timing correct. Just when the debate was hot over the cartoons of Prophet he blew his own fuse. Obviously there would be a comparison between the two issues.

But I see a difference between the two issues. For a start, one is about a religion and the other is about a nation. One is a religious symbol and the other is a national symbol. I have, and will always advocate freedom of expression and I love our democracy for it. But let's just go a little back to history. We all know that the East India Company (EIC) came to India for trade and later ruled India. Isn't it surprising for a business house to rule a country? If we try to analogize it to present time then it will be Pepsico, Coke, P&G, or Unilever ruling India. Is it possible? No. So what has changed between that time and today? The answer is "Nation", today India is a nation and then it wasn't. There was no collective identity then, which is present here today. We are not the only one who advocates 'nation' and 'national theories', every country does it.

I wish all of us to see the present act of M F Hussain in this context . It's okay to have freedom of expression. If one sees my posts on DesiCritics then one will note I attack our government all the time. As others say, this freedom also translates to burning of flags and it has to be approved as in the US. I also approve but what was the need of this mindless act of Hussain? Was he protesting for something?

I believe that freedom of expression should be exercised with a sane mind and an objective and this is where Hussain has erred. And this is why he should be deplored. On the other hand the best way to get Hussain out of his cheap tactics would be to let go these acts unnoticed.

What Is The price India Pays For The Nuclear Deal?

Satya — Fri, 10 Feb 2006 17:38:31 EST

If a country exposes its weakness to one nation then another will also take advantage of it. This is what is happening with India. By prostrating to US for the nuclear deal, the Indian government has shown its spineless character. Result - today French Ambassador Dominique Girard also asked India to make compromises for getting the nuclear deal. France is a part of the Nuclear Suppliers Group (NSG), they will be the one who will supply nuclear fuel to India, if US agrees. Taking his cue from India's impotent response to David Mulford's blunt threat, the French Ambassador went a step forward and said

"Clearly, India has to make some proposals, some efforts acceptable to us, to the Americans and all the other Nuclear Suppliers Group (NSG) countries"

He seems to vindicate what Mr Kakodkar was alleging few days back. Mr Girard said that India has to make some compromises on the issue of separation of civilian and military facilities. What could be the compromise? It simply means, India has to accept the list put down by US about which facilities will be in the civilian or military list?

It is hard to understand why our learned PM has capitulated to the US on the issue of nuclear deal? How much does he want India to compromise to associate his government with one deal? Will he want India to be a stooge of US just for a nuclear deal? Or he does he want India to become a US colony?

If only India would have given a fitting reply when David Mulford overstepped his authority, no other ambassador would have dared to do it again. At this rate I see the possibility of even Estonia giving its piece of mind to India.

The sad part in this whole story is the non involvement of the opposition party. When even citizens are asking for debate, our opposition party is maintaining silence.

I find this nuclear deal quite ominous for India.

Should Parliamentary Approval Be Made Necessary For Foreign Policy Decisions?

Satya — Wed, 8 Feb 2006 12:21:08 EST

Statements by the Left parties of India do not always make sense, but on this particular occasion, I find their demand worthy of debate. After the Indian government's vote against Iran, they are asking for "Foreign policy decisions to be taken by Parliament". Let's try to develop on this.

What is the objective for anyone who gets elected to Parliament? It is working for the development of one's constituency and also to get re-elected. Similarly what would a person elected as minister or even Prime Minister wish? The expectations would be in line with those of an MP, but here the scope is larger. Any minister or Prime Minister has few other interests as well. These are to think of the strategic interests of the country and maybe to go down in history as a great leader.

On a superficial analysis, the objectives for a MP, or Minister or Prime Minister seem to be interlinked. If an MP does well for his/her constituency then he/she will get re-elected. If a Prime Minister thinks about strategic interests then he/she will be remembered as a visionary leader.

On deeper analysis, keeping Indian politics in perspective, this analysis is not true. Any member of Indian parliament knows that for getting re elected, it is not necessary to work for the development of one's constituency. In the same vein the issue of strategic interests of the country is no longer a pre-requisite for being portrayed as a visionary leader. What is needed is getting portrayed as such in national and global media and maybe shaking hands with powerful world leaders. It doesn't matter if decisions taken in the five year term will go against the country in the long run, but still that government will be remembered for those decisions. No one seems to interlink something which happens a decade later. People tend to have short term memory.

In this context, it might be dangerous for our country to let any government alone decide the foreign policies. This is where the proposal to let parliament decide comes in picture. It might not be of that help cause the parliament is still composed of the same MPs we talked about. But ego of any one person or government, would not get free will to mess up with strategic interests of country.

What's The Real Deal, Mr Prime Minister?

Satya — Tue, 7 Feb 2006 08:37:05 EST

Indian political establishments including the executive are not known for quick actions and in many cases any action. So whenever there seems to be an alacrity from them eyebrows obviously are raised.

One such incident is the row between the Government, possibly the PMO and the Department of Atomic Energy(DAE). The recent controversy is due to an interview given by Mr Anil Kakodkar to Indian Express, which will be published on Wednesday. In that interview Mr Kakodar had accused US of shifting its stand on Nuclear deal and asking specific reactors to be put on the civilian list, instead of an earlier decided one. After this statement Mr Kakodkar was admonished and asked to shut up. It was said that our PM will make a statement on the nuclear deal in the parliament.

As a citizen of India, I want to know what exactly is in this deal and why it is beyond reproach? When everything else in a democracy can be debated why this deal is being treated in a hush hush manner. What is the reason the PMO is so active in admonishing anyone who tries to raise this issue in public.

The developments in the last few months makes me feel that there is a wide range of collateral associated with the Nuclear deal. Everything else in India, be it our national prestige, our discretion in matters of strategic interest or our military deterrent has become subservient to this deal. All the nuclear reactors that we got from abroad are already under IAEA survelliance and it was being said that a few more will be added to the list. But is this 'few more' all of the remaining ? In any case it should be the Indian government's prerogative to put any reactor on the civilian or military list.

Manmohan Singh can wear the smug on his face after the pat he got from US government for toeing its line on Iran issue but we can't let achievement of any five year government to be more important than our strategic interests.

French Opposition To Mittal Steel Arcelor Bid - The Real Story

Satya — Sat, 4 Feb 2006 15:50:00 EST

The only surprise in the bid of Mittal Steel for Arcelor has been the bid itself. Every step after the bid is proceeding on expected lines. France is leading the vociferous pack of political opposition to this bid. Given the history, no one would have expected anything lesser from France. It has proved itself to be the most protectionist country in world in recent times. Only last year, it had all its political leadership united to oppose the 'rumoured' bid of Pepsico over Danone, the French food firm. The bid never saw light of the day.

France is the most subsidy-driven economy in the developed world. It is also involved in a debate with Britain in the EU over its protectionist policies. It has used the money paid by EU under Common Agricultural Policy (CAP) to effectively protect its agricultural sector. It was not long back when Christine Lagarde, the French trade minister, bluntly said that Tony Blair is talking about reform as it is fashionable and he is looking for scapegoat in this context.

On closer look, I find many other compulsions for Mr Villepin to oppose this bid. The GDP growth rate of France has been 1.6 % in 2005 and unemployment rate is 9.5%. France is going through the phase of stagnant economy and rising unemployment. The riots by unemployed youths couple of months back must have been fresh on his mind. The social security network and health insurance schemes are going through a rough phase. Top of all this, France is having Presidential election in 2007, so all the aspirants which may include President Chirac and Prime Minister Villepin are trying to improve the labour situation. With 30,000 French citizens working in Arcelor, they don't want to take the risk and maybe this will give them some brownie points with electorates.

But things are different this time for France. Neither does it have any stake in Arcelor, compared to 5.6% stake of Luxembourg government, nor is Arcelor listed in France. This is the reason that French Prime Minister Mr Dominique De Villepin is invoking concepts such as 'Economic Patriotism'. I wonder why this is not invoked when France accuses US of favouring Boeing.

I would rather Mr Villepin invests his time in doing important things as reforming the labour policies and improving the GDP growth rate. It has been proved in many cases that impractical protectionist schemes have always backfired. Let the bidding process take its own course. There is EU competition commission for all other issues.

Opposition To Outsourcing - Propaganda or reality ? Part - 2

Satya — Fri, 3 Feb 2006 20:40:55 EST

Is outsourcing a recent concept? What does outsourcing really mean?

According to me, outsourcing is neither a new concept nor does it include only 'services' outsourcing. Outsourcing has been around for a long while; if we take the example of India, which is blamed by the anti-outsourcing lobby for stealing IT jobs, they have had and still have foreign products such as electrical & electronics appliances from Philips, computers from Dell and IBM, cars from General motors, etc. Isn't this outsourcing of goods production? These products were manufactured in North America and sold in Asian countries, so, why there wasn't hue and cry then? Even today the majority of medical equipment being used in India are from GE, yet when GE outsources its jobs to India there is an outcry in the United States over lost jobs. When the mighty IBM was selling its application software to supermarket retailers, things were fine, but when the same IBM uses Indian work force to build this software there is an outcry. When the slaves were being used to work in tobacco cultivation in Virginia USA, wasn't that an example of outsourcing of labor?

Outsourcing was always there. The thing that has changed is the direct effect of it, people were happy when they were getting more jobs due to outsourcing and now they perceive that there would be job cuts. The opposition that we see is because people go by hearsay and not by analysis. People see on ground level that they have lost jobs, so outsourcing is bad. Well you may have lost the job which you were doing, but now you get to do something else. New jobs are created due to 'additional' money which got parked in your economy. Your old job was shifted because now it is being done in a more 'economically efficient manner'.

No economy is static or can survive if it tries to be static. The dynamics of an economy will always make this sort of change and if one has to survive one has to align with this dynamics. The balance will always be shifting. When the industrial revolution started in 1750s in Europe and North America, manufacturing was done there, now it is in China and next it could be in Nepal or Bangladesh. Did all those who were in manufacturing lose their livelihood? Well, those who didn't re-skill themselves for the new jobs which were created might have lost their jobs.

Globalization does not mean a one way route; if you are able to sell your products in other countries then they will have access to your markets as well, either for products or for services. Outsourcing is not an alien concept but the basic tenet of Economics which says "society must use its resources efficiently ".

All the angst regarding outsourcing is nothing but facts skewed to suit propaganda.

Opposition to Outsourcing - Propaganda or reality ?

Satya — Thu, 2 Feb 2006 21:12:24 EST

Outsourcing is the latest buzzword and also the bone of contention in many economies across the globe. For some countries, it is a matter of concern and for others, it is seen as something which can catapult them to the status of a developed country. Outsourcing, which is part of the general agreement on trade and services under the World Trade Organization (WTO), is becoming more popular in political circles because of the emotional chord it strikes with the masses.

Why does a company outsource any of its activities?

Do they outsource because it is the latest buzzword in the economy? Do they outsource just because HBR mentioned it, and if they don't do it then people will think their CEOs are not reading HBR. Do they outsource just because everyone is doing so? Well, the sole purpose of any business is to 'maximize the shareholder's equity' i.e. to earn money. Do you think the community service aspect of corporations don't have this objective? Think again.

A company will outsource only if they foresee a business benefit, something which cuts back on their operating cost, or increases the revenue thereby leading to profit increase. Take for example a company XYZ Inc doing business in USA outsource few of its activities to India. This outsourcing will increase the profit; assume it to be a modest 20 million US dollars. Where does this 20 mnUSD go? Does it go to India? No, it remains in the US economy, the money will not be sucked under, for no economy is a quicksand (even quicksand does not sucks as shown in some movies). The additional 20 mn USD is going to have a cascading effect, the economy of the US got richer by 20 mn USD. For a country like USA which has got a deficit economy (spending is more than earning in USA) it holds more meaning than say for the Japanese economy. (it has highest saving rate in world). The additional money will spawn more business, more jobs, so on and so forth.

Outsourcing or no outsourcing, jobs were lost and will continue to be lost, 'turnover' is as natural as creation of jobs. The same IT jobs which are said to be 'lost' due to outsourcing, were in the eye of storm couple of decades back when it was said that automation will steal away all the jobs. We can judge for ourselves how that threat came out to be and similarly how credible the present outsourcing threat is?

Protectionism is going to do no good for any economy as it happened in the case of USA steel industry. They had to lift away the protectionist regime on steel industry as it increased the price and ultimately led to job cut.

(This is a two part series on 'Outsourcing', the next part will answer the question "Is outsourcing a recent concept"?)

The Hamas Victory - What It Means For Democracy

Satya — Mon, 30 Jan 2006 20:38:41 EST

The shock waves, which came with the results of the first Palestinian election in ten years, were not limited to West Asia but transcended continents and countries. Most of the western nations and obviously Israel have expressed 'serious' concerns with the Islamist Hamas group getting majority in the Palestinian Legislative Council.

The election which was held on 25th January saw 75% of voters casting the ballot. Out of the 132 seats, the Hamas group won 76 seats thereby getting a majority in the council. The results precipitated the condition of west Asia with comments going back and forth between Hamas and the political leadership of Israel.

There is also a view that Palestine was too immature for democracy as they elected a terrorist group. On careful analysis, I don't seem to agree with this. When the turn out is 75%, which is much higher than the turnout in mature democracies like India, it shows strong resolve of people for choosing their own government. In this particular election, the mandate is not as much for Hamas as it is against the incumbent Fatah party. In the last ten years, Fatah has been taken over by corrupt leaders and the legislative council failed to do anything worthwhile to improve the condition of common Palestinians. There was no other option but Hamas. If there is a question over democracy then it is not due to Hamas but due to Fatah.

Most of the average Palestinians don't agree with the extremist policies of Hamas. They are in favor of negotiation with Israel and ties with the world community. No doubt the principle of Hamas has been extremism; it considers creation of Palestine as its religious duty and it also does not recognize Israel. Until the election results were declared, even Hamas would not have dreamt of such a landslide victory. At most, it might have thought of emerging as some consequential group and to wield influence over the new government. But Hamas in government would be different than Hamas till now. It is going to be subdued in its policy of extremism under the yoke of the immense responsibility running a country heavily dependant on foreign aid. Political feelers are already being sent out by Hamas leadership for negotiation over foreign aid. The exiled political head of Hamas, Khaled Meshal, in Damascus has talked of adopting a realistic approach over Palestinian authority and to work with Europe and US.

It is not the opportune time to come out with charged statements but of giving Hamas time to settle down and take cognizance of ground situation. Who knows the Palestine situation may be solved for good during the Hamas rule. It would then be the finest example of same democracy, which is being questioned now.