Archive for September 14th, 2015

Are Indian businesses shunned scared of risk taking and prefer to be consultants?

September 14, 2015

Reviving Animal Spirits is as much to do with Businesses as it is do with Governments. Indian PM recently gave Indian businesses a rude shock. He said that they should be like business people taking risk and not like consultants who just advice and avoid risk. Indian business world which thinks highly of its prowess was taken aback to say the least.

Prof. Dipankar Gupta of Shiv Nadar Univ has a piece on this. He says historically, India’s business world have been like this:



Should payment banks appoint non-bankers as CEO?

September 14, 2015

Paytm is planning to have a non-banker as its CEO:

The company is looking to hire around 600 for the bank, at various levels. As for senior leadership and the CEO in particular, it is searching for non-banking talent. “Our CEO will not be an ex-banker. We do not want more of the same. We want a new, fresh-thought process. However, in departments such as compliance, finance and treasury, we want banking people because this is where the banking core is,” Sharma said.

People who have horizontal experience in multi-sectors work out better, he said, disclosing that the sectors of fast moving consumer goods and telecom were among the hunting grounds for the chief executive. “This is a new business model. So, we need people who are risk takers and want to try new things.”

Currently, a Paytm board member and a top banker, Vivek Mathur, is driving the payments bank project. Mathur was earlier chief of financial matters at Standard Chartered’s global back office in India and also at ANZ Grindlays wholesale bank in the country. An internal team comprising ex-McKinsey people are also working on the project. Many leading consultancies are in the process of making a pitch to handle the banking venture for Paytm.

The way technology has shaped finance and banking, is quite something. Infact technology has always been integral to banking/finance. The earlier technology of  telegram etc was used in banking quite actively. The idea of settling payments in as fast and as efficient a manner has been one of the major objectives of a financial system. So any new technology which eases these processes eventually funds huge application in banks. The recent technology of mobile and internet is shaping banking like nothing before.

This blog has wondered given this emerging scenario, could we have technologists heading banks in future? Come to think of it, most banks are as much about technology as they are about finance. A bank can still work if most of its treasury staff is absent but will just collapse if technology team is missing.

So, does not look like a technologist will head Paytm as of now. Most likely it will be someone from FMCG kind of sector. This reminded me of a similar debate on Mutual Funds space as well. It seems both ex-fund managers and those from sales do a good job as a CEO of a Mutual Fund.

Will be interesting to see how other payment banks react.

Further, the article points to how technology could lead marginal costs of a transaction to zero:

Paytm’s payments bank will start operations with central and northeast India. “We will build our banking correspondent network first and also lead by technology,” according to Sharma. “The cost of a transaction should tend towards zero. When you use traditional banking methods, an underprivileged customer is costlier to serve for a bank, as the interaction is more and technology used is less.”


As Marginal costs equal to zero, will marginal revenue follow as well? How will banks make money then? This actually is also a problem most people see with payment banks as well. How will they make money?

Shakuntala Railways: A glimpse of fascinating history of Indian Railways and complications as well..

September 14, 2015

Bibek Debroy is easily one of the most interesting persons to have been elected on those several committees which are formed in India. On being appointed as the chair of nth committee on railways, he could have been another of those committee chairs which just submits its reports. But not for Mr. Debroy. He in his various articles on Indian Railways is educating us about many interesting histories, aspects and complications of Indian Railways. And most articles avoid the usual LPGisation (Liberlaisation, Privatisation and Globalisation, whatever that meant) of Indian railways. It is much more nuanced and informative. Though the following piece makes a case for Privatisation but the line already runs in private hands.

In this recent piece, he points to this rail line called Shakuntala Railways formed in 1910. It was operated by Central Provinces Railway Company . It runs from Ellichpur-Murtazapur-Yeotmal in Maharshtra. The line was part of Grand Indian Peninsular  Railway which became part of Indian Railways in 1925. Apparently, everyone forgot about this line in the transition to nationalisation. So what we have is a private line on which Indian Railways runs!

I know of only one Shakuntala, the one Kalidasa made famous. I know of nothing that suggests Shakuntala had anything to do with Vidarbha, though Kalidasa (and some of his non-Shakuntala characters) did. You may not have heard of Shakuntala Railway, but it is supposedly named after Shakuntala, princess/queen of Vidarbha. There is no reason why you should have heard of Central Provinces Railway Company Ltd (CPRC). It was formally incorporated in 1910, has three directors and does everything you expect a company to do.

Many people may be unaware that CPRC still runs a railway network in India. This isn’t one of those railway networks on private estates, plantations, sugar-mills, collieries, mines, dams, harbours, ports and steel plants. Nor is it a line that a private company temporarily builds and operates, to be eventually handed over to Indian Railways (IR). CPRC is unique.

Once upon a time, CPRC used to have other lines, like Dhond (Daund)-Baramati (opened 1914-15), Pulgaon-Arvi (opened 1917-18), Pachora-Jamner (opened 1919) and Darwha-Pusad (opened 1931). These became part of IR, continued as narrow gauge and remained neglected lines or were wound up (Darwha-Pusad). The only exception is the strange case of the Ellichpur-Murtazapur-Yeotmal Railway, owned by CPRC and known as Shakuntala Railway.

Murtazapur/Murtizapur is in Maharashtra (Akola district) and is a junction in Bhusawal division ofCentral Railway (CR), along the main Mumbai-Nagpur-Howrah broad gauge line. However, a narrow gauge line also passes through Murtazapur, divided into a 76-km northern stretch between Murtazapur and Achalpur/Ellichpur and a 113 -km south-eastern stretch between Murtazapur and Yeotmal/Yavatmal. The Yavatmal stretch was opened in 1903 and Achalpur stretch in 1913. Both segments were constructed and operated by Great Indian Peninsular Railway (GIPR). In 1925,GIPR became part of IR. Therefore, as a legacy, IR started to operate narrow gauge trains alongShakuntala Railway (the train is known as Shakuntala Express).

Usually, rail lines are maintained by the govt and the trains that run on them can be private. Or atleast that is one way to move towards privatisation. But here we have an opposite situation:

Locomotives were initially steam, replaced with diesel in 1995. Usually, when one thinks of liberalising railways, one has in mind private train operations (and other forms of private provisioning of goods and services). Track is presumed to be owned by the government. If you don’t do that, there will be accidents and safety issues. There will be management and coordination problems. So runs the refrain. Therefore, the liberalised foreign direct investment and private investment policy don’t contemplate private ownership of tracks and related infrastructure. When built by the private sector, it will have to be handed over to IR.

Shakuntala Railway is the opposite. The track is owned by a private company and trains are run by IR (meaning CR). Sure, this is a narrow gauge line, what might be called a branch line. Shakuntala Railway is still owned by CPRC, presumably because the government of the day simply forgot to nationalise it. Since GIPR was only an operator, who owns Shakuntala Railway? Killick Nixon (set up in 1857), the agent for CPRC, does, though Killick Nixon has now moved from British to Indian hands.

This has led to a complicated relationship. Given the status of the line, the Indian Railways does not want it in its hands:

There is a contract between CPRC and CR, to be renewed in 2016. Under the contract, CPRC can keep 55 per cent of passenger revenue, giving the rest to CR. Naturally, CPRC is meant to maintain track. But it doesn’t possess the resources and CR has refused to give CPRC the 55 per cent, because CR was forced to spend on renewal and repairs. In fairness, CPRC disowns the contractual liability and this is now stuck in a judicial dispute. By the way, that 55 per cent is worth just over Rs 2 crore. Total annual passenger earnings (there is no freight) are hardly Rs 5 crore.

Through a cotton cultivating tract, Shakuntala Railway once transported cotton to Manchester. But today, CPRC is not interested in it. In 2016, when the contract is renewed, IR can pick up the line for 10 years’ revenue, say, Rs 50 crore. Given the state CPRC is in, IR may get it for less. However, IR isn’t interested. To rehabilitate 189 km of track, IR will have to spend at least Rs 1,890 crore. Once in a while, demands arise for nationalising the line, with little traction.

As of now, once a day, there is an irregular passenger train that runs on either side of Murtazapur, towards Achalpur and Yavatmal. If the train is irregular, what other choice for passengers? They travel by road, at five times the cost. Ipso facto, someone granted the flexibility of choosing fares should be able to tap the market better and modernise Shakuntala Railway. It can’t be IR and has to be someone other than CPRC. Why not hawk Shakuntala Railway, lock, stock and locomotive, to some other private player? That’s sacrilege. Don’t you know what happened when privatised ownership of railway infrastructure in Britain? Private ownership of track and related infrastructure is taboo, unless it happens inadvertently, as with Shakuntala. Those who resist change will argue Shakuntala is an exception, it’s a “branch” line. A nuanced opposition is understandable. But why is there this blanket opposition to private ownership of track? Do people in IR not know about their own history and Shakuntala?

🙂 Knowing history is a luxury Prof. Debroy. Keep educating us about Indian railways.

Fascinating. Of all transport methods, railways is by far the most interesting. It has such amazing history.

History matters: How King Ashoka is being used in Bihar elections even after 2300 years?

September 14, 2015

Nalin Mehta of ToI has a piece on this. Politicians can go to any extent to win an election. And what better way than to stir history for one’s gains.

Apparently, they are now trying to show how Ashoka (and Chadragupta) were Kushwahas. This is an attempt to please the Kushwahas which form around 10% of votebank. The politicians are promising the Kushwaha community the same eminence the community enjoyed 2300 years ago. The present CM Nitish Kumar is being projected as Dhanananda, the villain king who Chadragupta threw to set up the great Maurya empire:


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