by teamrecIt’s a general observation that if things are going good, there are a lot of pundits in the market who claim the credit for the good things happening, but, the moment things go wrong or don’t work as per expectations, the same pundit is not available for comments, a situation aptly described by “Success has many Fathers and Failure is an Orphan..” .
In today’s time of media frenzy, when one and all believe in the freedom of speech as guaranteed by the Constitution, with out reading on to the part which speaks of fundamental duties, a lot of so called “experts” are doing the rounds of various TV channels filling the space and giving us viewers a monumental task of deciphering what they have communicated and what they intend to communicate.
Being in the field of Recruitment Consultancy, gives one an advantage of interacting and updating oneself with information relating to various segments of the industry, economy and world scenario. Activity in this line of business closely mirrors the World Economy and thus it can safely be christened the “barometer” of the Economy. Before getting on to the subject of “What went wrong???”, I would like to draw the attention to possible solutions, to the problem in economic perspective.
The solution which I agree to & read was given by an Economist, J M Keynes (forgotten for the last 3 decades) approx. 70 years ago. Keynes pointed out, “When shocks to the system occur; agents do not know what will happen next. In the face of this uncertainty, they do not readjust their spending; instead, they refrain from spending until the mists clear, sending the economy into a tailspin.” An economy hit by recession is not buoyant, it becomes a leaky balloon. Hence Keynes gave governments two tasks: to pump up the economy with air when it starts to deflate, and to minimize the chances of serious shocks happening in the first place. Today, that first lesson appears to have been learned: various bailout and stimulus packages have given us sufficient hope that the worst of the slump is over. But, judging from recent proposals to reform the financial system, it is far from clear that the second lesson has been learned. Salvation does not lie in better “Risk Management” by either regulators or banks, but, as Keynes believed, in taking adequate precautions against uncertainty. As long as policies and institutions to do this were in place, Keynes argued, risk could be let to look after itself. Treasury reformers have shirked the challenge of working out the implications of this insight.
One of the main problems with the meltdown this time is that households have taken the brunt of the shock, having overextended themselves in the housing and consumer markets. The problems essentially lay in the severe liquidity crunch, with banks not wanting to lend to even creditworthy units. This has resulted in firms putting on hold their investment and hiring plans as they seek to offload inventories and rein in new orders. We try to look into some of the key factors which have played a role in this meltdown:
The Realty Sector – a perspective.
The Realty – Sector both organized and unorganized has been in focus in this recession and quite a few of our “Experts” would say that the Realty Sector has been the “Initiator” of the recession world over. There is an opinion that other than the “Tax Havens”, Realty has been one of the avenues were money (of dubious source/origin) has been parked. So, a cartel of sorts has been formed either knowingly or unknowingly, pushing up the prices steadily, exploiting the Demand – Supply gap. In Indian economy, the liberalization of the economy, high growth with increase in disposable income levels, easy availability of loans at a lower rate, fiscal push thru’ income tax rebate and Media hype have all contributed positively to egg on to this demand. The peak was reached in 2004 when FDI was allowed in Realty Sector and the Interest Rates slowly came down to their lowest. This was the time when returns in the Realty Sector started to get higher than the Financial Markets a trend which continued till the markets collapsed. The result of this was to be seen much later in 2008 – 09 and beyond. This movement in prices for both Commercial and Residential Realty was reflected World over. With liberalized global economies, free trade and the Media frenzy creating a pressure on our societies, investment in Real Estate was the “in – thing” globally. Such was the pressure, that Banking – be it in US (Sub-prime Lending), Europe, China or in India (lending almost 90% of the value) invited a younger breed of professionals to go for ‘it’. The fashion statement for the generation has changed; cars, mobiles etc. have been replaced by “Realty”.
Advent of Plastic Money and the Loan Regime…..
If we observe the growth of the Indian Banking industry in the late nineties, one thing which stands out is the systemic availability and ease with which liquidity has been increased in the urban market. Not surprisingly, this period also coincides with the market opening up to global players and the advent of new products targeting the Life Style segment be it the Television, Air conditioners, fancy Mobile handsets, to Cars, International Food Chains, fancy residential apartments etc. The change from the conservative banking to aggressive banking, from cash to Plastic money, addition of the Loan as a “hot product” to the banks product portfolio, increasing acceptance of the professionals from the Private Sector, increase in International travel and exposure due to the booming IT / ITES and the increasing salaries have all gradually shifted the focus to “Consumerism”. The easy access to the plastic money and the growing dependence on Loans (because of increasing competition in the Banking Sector) was fast catering to the growing demand of products and the easy availability of the same was adding fuel to fire. The Indian Consumers had never had it so good and within no time a generation shifts from being savers to spenders, was hooked to the use of “CREDIT”. However, two major points standout if we look at the rural market. One, the bulk of the population is financially underserved and relies on informal lending. Two, non-institutional agencies have together achieved a much higher penetration than institutional agencies. Rural financing still remains a dream – however in some pockets micro-financing seems to be making a dent into the money lenders’ preserve.
Skewed Growth of the Economy
With advent of time, the policy of the Indian Government to make India a “Self sufficient” country, be it in Food, Energy, Technology, Healthcare etc. lost its focus and we ended up being a mixed bag economy. The focus on Rural Agricultural economy to strengthen the growth and prosperity of the country slowly changed to policies focusing on the growth in Urban Services Sector. The investment in R&D and Technology reduced in each Budget and the same was brought in from outside with the concept of “Royalty” being coined. It was easier to trade than to produce and the globalization and the concept of “Free Trade” made easy availability. India moved from being a “Planned Economy” to a “Mixed Market Economy”. Good performances in IT / ITES sector shifted the focus to export oriented activities, but here too we lost our edge of competitive pricing because of internal pressures on the salaries in the domestic market. The Services Sector growth picture looks very attractive but with more of the developing countries replicating the Indian model, competition is fast catching up and the future does not look as bright. A drastic strategizing needs to be done on the policy level keeping the long term perspective in mind, if things are to move forward from here…
Growth of Speculation in the Financial Market
The drastic increase in speculation in the Financial Market has played havoc with the sentiments running at an all time low. In the last 10 years the market has gone up ….. to more up and such was the expectation that people were talking of the Sensex touching 25K mark. The Government was content with the gradual addition to its coffers in the form of Taxes and extended the speculative market from Equity to Commodities, Currency to Energy. The implications if any, were not considered or should we say overlooked. From being a Public Enterprise looking after the well being of the economy on the whole, the Government started functioning as a Private Sector entity, being driven by market forces and bottom line profitability. An example to address the issue would be the furore created on the trading of Power by the privately held Power Distribution Companies in Delhi when the residents had to suffer long hours of power outages despite it being available. The Distribution Company made their neat crores while the people of the capital sweated it out in the sweltering heat. Similarly, the Indian market has seen an upward movement in the prices of all major commodities in the last couple of years. Similarly, the households (Retail Investors) have taken the brunt of the loss due to the meltdown, as there was no concern from the Government for them, no bailout packages seem to be coming as they were left to fight their own individual battles. The growth of speculation in the Financial Market needs to be seriously reconsidered and safeguards need to be put in place. A Statutory Warning would not suffice. Such was the impact of these policy decisions, that one could see Brokers get into an overdrive mode and open shops by the dozen. Even the smallest of towns had all major Brokers’ office with all fancy fixtures in place. There was less focus on the value addition to the bottom line and more on increasing the penetration. The move boomeranged and at the first sign of trouble there was a drastic re-strategising adding to the woes of the masses.
Mismatch of Job – Opportunities / Incentives
There has been a drastic rise in salaries being offered and expected by professionals in all sectors of the economy. The rise has been such that India has started loosing the edge it enjoyed earlier in competitive pricing. This needs to be understood and addressed if we have to continue to be the preferred global destination for outsourced jobs. Good performances in the IT / ITES Sector resulted in good salaries / incentives to the employees. We have to understand that the “Talent” is the only asset that the Sector / Company has and other than that there is no major investment by the company in these sectors. The infrastructure is common to all sectors and minor variations are there across industries. The manufacturing industries invest heavily into plant and machinery and salaries for them are a smaller component. But the pressure created by the IT / ITES sector employees salary pushed up the salaries in manufacturing and other sectors hence squeezing the profit margins and putting them in a major competitive disadvantage. Further, with easy access to information it has become tough for employers to have different salaries for different locations. The result being higher salaries being paid to employees even in B & C category towns in India, which further put a strain on the profitability as the returns in these smaller towns at times do not match up to the results from Metros / State capitals. Another serious problem arises due to the short sightedness of the recruiting company. In order to lure “ready” talent (for reducing the gestation period in performance of the newly hired employee) the company hires professionals paying a premium expecting better results. A lot of times there is a gap in the Salary vs. Performance parameters but the mistake has already been committed.
Reducing Role of Government
It has been observed that the vision of Nehru’s India with the government’s active role in Industrialisation and Infrastructure development has undergone a sea of change. The government today seems very keen to move out of these areas with talks of disinvestment and Private / Public partnership in almost all new projects. It is a fact that the performance and the accountability of government run set ups have drastically been affected but instead of addressing the problems from the front the government today seems to be keen in getting out of these engagements at first notice. There is no initiative to bring about a change, neither the willingness to identify and address the problem areas or increase the accountability. An Airport modification has to take place – the people have to pay, a road is laid and a bridge / flyover made – the people have to pay Toll. So where is the investment from the government? Despite paying taxes, direct and indirect, excise, service tax etc. we pay cess for education, toll for the road, bridge, flyover. It requires some introspection from the Government which is becoming top heavy. The government needs to streamline its activities and get professional. There has to be accountability for all work it undertakes. It cannot forever remain a leaking bucket. Earlier there was licence – permit raj – the ill effect of which was remedied by the gusts of liberalization. However, politician – bureaucracy – capitalist nexus has conspired to deny the benefits of liberal capitalism to the countrymen and crony – capitalism has taken roots thereby increasing the inequity in the society. In a recent survey by Hong Kong based Political & Economic Risk Consultancy, India was ranked the worst of 12 Asian Bureaucracies. Its time to let professionals compete for the top posts and help make the system more efficient.
A few Concerns
• For the last so many years there has been a lot of talk from the developed economies of the world regarding the need for Free Trade regime. Developing and Under-developed markets are being coerced into opening their borders to the products of these developed economies. At this juncture, when the world market is at a crossroad and is under pressure from all quarters, it is imperative that the same policies are pursued. However, there has been a lot of talk and hints from the developed economies on bringing about a policy change in the stance. They now want to isolate their markets and focus on preserving their economies. A step in this direction would have a negative impact on the world economy and the sentiments would further take a beating.
• There is a fear amongst people that the recession phase would see a knee jerk reaction with tightening of the Financial Policies and that, stringent laws would be put in place, which would mean reduced liquidity in the market. This phase would continue for sometime before the sentiments are back to normal and the policies ease out.
• What worries us is the lack of coordination which gets reflected by the various statements coming from people in the “Hot seat” particularly in these troubled times when sentiments are down. The Finance Ministry comes out with a statement which is echoed by the RBI Governor but the same is not reflected by the No. 1 Bank SBI. Be it the issue of the state of the economy, interest rates, different voices comes out giving a very confusing picture.
• The reduction in earnings of individuals, job losses, fears of job loss, a poor monsoon and add to that the rising prices of essential commodities. A very grim picture……….
To conclude on such a vast subject is not an easy task for “experts”, I am a mere mortal. One tries to look for the silver lining in the ever darkening clouds. Despite all problems facing the world economy today, we believe that things will change for the better, in times to come. The citizens of India have immense strength oozing out from their culture of hard work ethos, self dependency psychosis, strong family support system and a very high premonition and understanding of the economic environment and the action to be taken therein. They know how to sail through the troubled waters. In this strength lies my hope and belief that new champions would come out of India.
“The plus symbol is made with a pair of minus symbols……. All negative things can be shaped as positive. Always think positive in your way of life.”
ABOUT THE AUTHOR
Abhay has 19+ years of experience in Recruitment, Mentoring and Business Development. He is an entrepreneur and a professional with 14+ years in the industry specialising in Manpower Planning, Strategy and Recruitments. He heads Operations and Business Development at Team Recruiters a Delhi based Manpower Consulting company with clientele in both domestic and overseas market. Abhay is widely known across the industry and has a great reputation across Capital Market and Travel Trade, which has been the focus of Team Recruiter’s business interest for the last two years. He has been a hands-on person spearheading the operations for the company and has a good connect with people across the board.
He has earlier been an entrepreneur with 12+ years at the helm of Teamvision Solutions a Delhi based Manpower Consulting company with clientele in both domestic and overseas market.
In his previous roles, prior to Teamvision, he has also worked with Thapar Groups IT venture iBiLT Technologies Ltd, Excel Infotech Ltd and US based AVS Systems Inc. and was instrumental in growing the business tremendously.
