Tuesday, June 4, 2019

Does India Need to Revisit its Macroeconomic Framework?

In his new IDFC Institute () Working Paper, Dr Niranjan Rajadhyaksha (  asks if simultaneously met the targets in a hypothesized '2-4-6-8'  macroeconomic framework that, without explicit enunciation, one can assumed it has followed over the past decade or so: with a 2% target for the Current Account Deficit, an Inflation Target of 4%, a 6% target for its Consolidated Fiscal Deficit (i.e. fiscal deficits of states and the Centre combined, as a percent of national GDP) and an 8% (aspirational) target for RGDP growth. The short answer is No, but even the more nuanced answer cannot see the glass as half-full. the Table below shows the results over the last decade. The caveat being that, except for the inflation target and the target for the consolidated fiscal deficit (which have each been set out explicitly), the other two targets have not been explicitly stated, and the RGDP 'target' is more aspirational than normative in nature.

The data for the past decade with respect to these big macroeconomic variables is set out in the Table below.But, left-to-right, the targets for the variables in the columns are actually in the order 8-4-6-2]

The best years for Growth & Inflation: 2015-16 and 2016-17 (8% 4.9%; and 7.9% 4.5%) but these are also years with fiscal deficits higher than target & with the Current Account Deficit below target. The Working Paper nicely explains a that Indian macroeconomic policy faces (as do the macroeconomic policies of all countries similarly situated), suggests the right choice of path among the three, and further strongly recommends that future targets should not only be internally consistent but also with the Tinbergen Rule, named for Dutch economist Jan Tinbergen, that the number of variables to be controlled and the number of policy instruments available for the purpose must be equal.

Saturday, June 1, 2019

Mark Zandi of Moody's Analytics on the US Economy

Mark Zandi, the Chief Economist at Moody's Analytics () said that the first quarter 2019 (Q1 2019) US RGDP growth of 3.1% resulted mostly from the precautionary that businesses carried out in anticipation of US tariffs on Chinese goods and services; and the second quarter of 2019, Q2 2019, the  increase in RGDP  would likely be just around 1%, reflecting the normal stage of the business cycle.  He further added, that, so far tariffs have mainly been borne by intermediate capital goods (used by businesses to make consumer goods). They were thus absorbed by businesses. However, the tariffs will now begin impacting consumer goods, and will thus directly impact total consumption in the economy. via

Thursday, May 30, 2019

How Age Affects Management Styles

. et al writing in the MIT Sloan School of Management Journal, of a survey of managers with a view to uncovering how Age impacts management styles via biological, generational, seniority-& experience-related effects. Such effects are often intertwined in their expression, even when a clear separation on a conceptual basis is possible. Their paper  report on the survey - of 10,000 managers, with ages in the range 21-70, and they discuss the nuances of their results. Overall, they contrast the external and internal (to the firm) focus as evident in their attitudes, actions and survey responses. They find that older managers focus more on Core Competencies of the firms and Client relationships as part of their external focus; but their focus within the firm is on building coalitions, developing empathy and  on effectively delegating functions.  While by contrast, younger managers focus more on learning about or developing entirely new Business Models & on their company's Competitive Positioning externally;  and on finding a good Mentor within the company or developing training programs as part of their internal focus.

The overall set of results broadly resonate with conventional wisdom, but is invaluable in emphasizing the broad complementarity in what older and younger managers can bring to the table, and that age-diversity is as critical for a firm as diversity along any other axis. Even more, the authors go out of their way to assert that the qualities of older managers *(such as being reflective, intuitive, savvy, holistic or inclusive) cannot, quite obviously, be replaced by any 'artificially intelligent' machine!

Wednesday, May 22, 2019

CRISIL's Report on 'Whither Inflation?'

. presents a very deep dive on 'Whither ?' Many excellent insights emerge fro their analysis, especially on India price inflation. They provide a great survey-based comparison of the general public's Inflation : Before and After the introduction of in India (it was introduced 27 June 2016) and a particularly interesting comparison of the evolution of inflation expectations among the Public versus how they evolved for Forecasters.  


While public inflation expectations did indeed come down after Flexible Inflation Targeting was introduced, the expectations are still noticeably higher than actual, realized inflation. And while realized inflation did come down after Flexible Inflation Targeting was introduced, that was mostly because food inflation decreased (and that happened from idiosyncratic factors such as a good monsoon). The bottom line is that while both inflation and inflation expectations came down after Flexible Inflation Targeting, the decrease cannot be unambiguously attributed to monetary policy actions. Indeed, when FIT was proposed as a monetary framework for India, the biggest drawback foreseen was in monetary policy transmission, which even now, with the FIT framework being nearly 3 years old, is still an issue. via

Will 5G Networks Give Chinese Firms a First-Mover Advantage?

Of 22 panelists that the MIT Sloan School Strategy Forum (Organized by the MIT Sloan Management Review, polled, on how strongly they agree with the statement 'Introducing 5G networks 3-5 years ahead of other countries will give Chinese firms a () advantage' 19 panelists said they 'Agree or Strongly Agree'; only Timothy Simcoe of the Boston University Questrom School of Business  ( said that he . However. he did concede that wireless equipment makers (like transmitters, routers, towers, distributed antenna systems, interference mitigation devices, resource management software and hardware, ie all kinds of wireless equipment, but not the phones themselves) like / will have an advantage (but on cost, resulting from their overall cost structure, not as first-movers); while data carriers [because they will compete locally with other carriers in China, where 5G networks will already have high penetration] or device makers [who will all simply take the available 5G network as standard, so that it will not be a distinguishing feature between them] will have no advantage whatever). (Note: Huawei and ZTE are notable mainly for the equipment they make, but may also make phones. In that case, their equipment manufacturing divisions will gain on cost, not on first-mover, while the phone manufacturing divisions will not gain at all.)

Olav Sorenson ( is the only other panelist who disagrees with the motion, but does not 'Strongly Disagree' - says that the question is moot because 5G is already being deployed, eg in USA and (South) Korea. One panelist, Richard Florida, hedged completely, neither agreeing nor disagreeing.

Nineteen of the twenty-two panelists (which includes, coincidentally, my old friend Ashish Arora of Duke University) thus agreed that introduction of 5G networks will give Chinese firms a first-mover advantage. To my mind, it was Tim Simcoe's disagreement that was best argued, being based on detailed knowledge of both technical and market issues, while all the rest, in agreeing, did not present any overwhelmingly compelling arguments, although some panelists did enlist 'network externalities', 'control of standards', 'learning-by-doing', 'scale economies', or the 'it depends on the merits of the Chinese technology' arguments. These are pretty old ideas and it is not absolutely clear that they do indeed apply in unmodified form, to the problem at hand. Erik Brynjolfsson's  'argument' if one could call it that, and even, or especially, if one agrees with it - was more a political statement than anything else: '5G is a Big Deal, and the US is fumbling its rollout'. Barry Nalebuff of Yale brings up a historical vignette - the case of France's Minitel (the introduction of which, in the early 1980s) was thought to provide French internet/phone companies a huge first-mover advantage. As things turned out, the advantage was very small or non-existent.

In the end, any decisions on 5G, and Huawei cannot be expected to be made solely on techno-economic arguments of the sort that Tim Simcoe provides, geoeconomics is likely to be much more important - an issue no panelist brought up even tangentially.

Monday, May 20, 2019

Jonathan Garner of Morgan Stanley on BloombergQuint

Jonathan Garner of speaks with on is expectations for the Indian economy following the release of Exit Poll results on the 2019 General Elections (but pending the results themselves). He expects the Reserve Bank of India, to lower rates by about 50bp over the next 12 months; he expects that GDP growth will rise (more in an upward mean-reverting phenomenon than in reacting to any specific positive development). He expects this to happen as the Indian economy recovers from the series of demand and/or liquidity shocks it has experienced over the last 2 years - including demonetization, the introducton of the GST, the IL&FS and the non-banking financial companies scandals, and the monetary policy actions by the RBI [rate increases during 2018]). He expects as a consequence that the Indian Rupee will appreciate against the US dollar, to about $ @ mid60s₹  over the next 12-18 months; and the Sensex to rise to 42,000 some what sooner, over the next 12 months.

Friday, May 17, 2019

The AI Bubble

Gerbert & Shira of the Boston Consulting Group, write in the MIT Sloan Management Review that 'yes, today’s fascination with all things has most of the trappings of a financial ...in most cases there is no clear path for (AI startup) companies to become profitable.' Under the circumstances, small start-ups, having developed their technology, or having run out of venture capital money, will seek to be acquired by larger companies. These acquiring companies, they warn, should be wary. Two things may be worth noting when assessing AI startup companies - first, most algorithms (machine learning especially) used in AI applications are several decades, if not half a century old (a version of backpropagation was, for example, used in the Apollo-11 moon landings). The main new development has been in the development of faster computers on which machine learning algorithms can run, and in the availability of large new data sets on which neural nets/machine learning algorithms can be trained. 

But the first development is ironic in a way - in that, neural nets were intended to be archetypes of parallel computer architectures, so the fact that they are simulated in conventional (though very fast) computers of the conventional type should give one some pause. To be sure, there are some new special-purpose hardware architectures (including new chips) which are designed to optimize the computational power used by neural networks. But this has not yet become altogether commonplace. But even when this comes to become more common, rare will be the startup that owns the data which it will use to train its neural network application. The lack of clear ownership of data means that a startup may not be able to optimize and customize its application to the ultimate user, while the machine learning algorithms themselves are publicly available practically, or actually, for free. Thus, on the critical axis of value creation: the trained network, a crucial aspect - the data used - is not owned by the startup. How then can the typical AI startup aim for profitability? What will be its critical determinant of value and distinguishing characteristic? These questions are precisely the ones that acquiring companies will need to ask themselves and the startups they hope to acquire.

While of course one can see the bubble emerging in AI startups, and AI applications, this bubble may not ultimately prove as harmful as a purely financial bubble (eg the 2008 Global Financial Crisis) did. Some good may come even out of AI investments in companies that may ultimately have to be wound up before turning profitable. Some knowledge generation and diffusion will indeed occur, perhaps some patents will be filed or even approved, and ultimately some value may accrue to the investor, though perhaps not at the scale originally envisaged

Wednesday, May 15, 2019

The Evolution of Global Capability Centres (GCCs)

. & write in the Economic Times that set up by Multi-national companies in India initially in the 1990s, have transitioned from having business models based on cost arbitrage centers to R&D value creators; developing, for example, generic malware signature generators (including by using Generative Adversarial Networks in ) to address issues in #Cybersecurity. The total employment in such GCCs located in India is now estimated at 1 million, with the overall value created of $28 billion.

Saturday, April 27, 2019

Financial Volatility in an Age of Geopolitical Risks

. conference on 'Financial Volatility in an Age of Risks', Bennett Golub of spoke on ' Risk Management: A Structured Approach'. The Blackrock Geopolitical Risk Dashboard uses subjective judgment to create hypothetical scenarios and then stress-tests portfolios against them. Blackrock South Asia Geopolitical Risk Index was at 1.33 on 18 April 2019 vs 1.37 on 18 Dec 2008 (~3 wks after 26/11). Highest (Impact, Likelihood) currently: Global TradeTensions v Cc:

Thursday, April 25, 2019

South Korea GDP Shrinks 0.3% 1Q2019 Q-to-Q

. GDP *shrinks* 0.3% 1Q2019 QtoQ; Exports, ~50% GDP, have been slowing (Fig ↓ ), esp those to ; Also, falling , perhaps related to US-CHN trade tensions; both fiscal & monetary (benchmark rate 1.75%) stimulus expected via

Wednesday, April 24, 2019

Global Warming Has Already Slowed Economic Growth in Poor Countries

. 'We find that global warming has very likely exacerbated global economic inequality, including ∼25% increase in population-weighted between-country inequality over the past half century.' e.g., vs ... via

Figure abv shows the simulated impact on per-capita GDP from the effect of on **that has already occurred** over 1961-2010, (using a model w quadratic dependence of GDP on Temperature and Precipitation). %ΔGDP/capita 1961-2010 : -31%, -1.4%

Monday, April 22, 2019

D Wallace Wells Speaks At Goldman Sachs on 'The Uninhabitable Earth'

speaks on his book : not a issue or just about Melt+ : 'Let us not be afraid to be afraid' ' was fought w & '

And a vexing - comparison - India will be hit hardest - whereas India will have 4X the relative to its , China will have only 0.25X the Impact relative to _its_ Footprint (And China's C- Footprint is ~ quarter of Global C-Footprint!) 

around will transform the world. is failing unraveling... hope is US-China will pool resources for joint R&D on climate change mitigation, adaptation, and particularly on , (since CC M&A won't be enough).

Friday, April 12, 2019

Characterizing Successful Digital Executives

Fabian Reck, a PhD candidate at the University of Bamberg, and Alexander Fliaster, a Professor there (and also a Visiting Profressor at IIM Bangalore) have a very interesting paper in the April 10, 2019 issue of the MIT Sloan Management Review. The paper reports on a Survey of 211 of manufacturing companies in Germany, Austria and Switzerland. Based on their observed characteristics, four profiles of Chief Digital Officers (which include a number of executives in the CXO category from CEO to people directly reporting to them) are arrived at.

Chief Digital Officers which fit the / profile were found to have been very effective across many situations (varying in the degree of competitive pressure faced by the company, and the amount of control and authority that the CDOs possessed). When both the Competitive Pressure and the degree of Authority of CDOs are high, then the situation best utilizes the strengths of CDOs possessing the  Networker/Catalyzer and the   profiles, who therefore do better in that set of circumstances than either the Insider Expert or the Innovation Evangelist.

Of the four profiles, all except the Lone Icebreaker possess Strong Interpersonal Skills, while only the Insider Expert and the Lone Icebreaker possess deep strategic and business knowledge & IT Expertise. The Innovation Evangelist, possesses limited IT knowledge, but has a deep knowledge of business and economics. Given their strong external and internal networks, they receive a variety of ideas, and evangelize cross-fertilized versions of these ideas in their companies. Thus, Networker/Catalyzer types flourish in a wide combination of external and internal circumstances, while the Lone Icebreaker needs strong executive authority to function well in a highly competitive environment.

What the paper is invaluable in uncovering about the Digital Transformation journey is that as between companies and CDOs, there will not be a one-size fits all formulation, but instead there will be a number of competitive situations and possible CDO profiles, and different situations will call for a play of different strengths for the CDOs to be most effective. All real CDOs will possess some combination of the strengths identified - they will not strictly fall in one or other of these 'profiles'. So the contribution of the paper is in helping identify the strengths that CDOs will need to call upon, based on the specific internal and external environment that they face - so that they can be successful in taking their companies on a successful Digital Transformation journey!

Thursday, April 11, 2019

Shradha Sharma of YourStory Interviews KK Natarajan of Mindtree

I thought this interview worth blogging for several reasons. First, the impending merger between Mindtree Ltd and Larsen & Toubro Global Infotech (LTI) raises a number of issues which Shradha Sharma (SS) and KK Natarajan (KK) discuss in great depth. However, this is not the exclusive focus of the interview, in fact, the interview is set up in the same format as the ones that SS normally does with founder-entrepreneurs for YourStory; and Mindtree, while no longer a startup as such, is still a fairly young company. So the interview provides KK's perspective on many of the issues that arise in the context of the 'startup ecosystem'. Then of course there is the utter unflappability of KK himself, leaving one absolutely astonished to see the CEO of a company that is about to be 'taken over' without its approval so calm and composed in the middle of all that might be happening. I thought this was definitely worth writing about.

KK begins by mentioning the original Mindtree motto 'Welcome to Possible' to set the tone for the entire interview. He mentions 'Optimism, Optimism, Optimism!' as the basic ingredient of his overall mental makeup several times (but especially when SS asks him what the secret of his unflappability is.)

In the first few minutes, KK briefly reviews the current situation, in which a large Mindtree shareholder agreed to divest his 21.5% stake, which LTI agreed to buy. LTI further placed an order to buy 15% of Mindtree shares from the open market, which gave them the ability to make an 'open offer' to buy another 31% stake; this would result in LTI owning a 67% (21+15+31) stake in Mindtree.

KK explains that Mindtree has always seen itself as fostering a 'High-Performance, High Caring' culture; with impeccable integrity & governance; that has generated high value for all its stakeholders. Thus, any intervention that could alter or 'take away' part of that culture is seen as ultimately lowering value to investors  - both the ones in LTI and the ones in Mindtree. One source of competitive advantage for Mindtree was that it was able to see the idea of Digital Transformation as a business need as far back as 2012, and has made proactive investments in it, which are beginning to pay off now. The implication seems to be that this is one reason why it is the object of a 'hostile takeover' (i.e. that the takeover is not solely about scale).

KK further expands on the theme of Mindtree strongly believing that 'startups are the lifeline of the business ecosystem' - responsible both for Innovation and for Job Creation. The entrepreneurial mindset is that which forsakes the 'Job Seeker' mentality for the 'Job Creator' mindset. Further, he believes that both central and state level governments are doing a lot to facilitate entrepreneurship today, so that the path for would-be entrepreneurs now is much easier than it was when Mindtree was a startup two decades or more ago. Today, however, the entrepreneur needs to choose his initial investors very much more carefully. Such initial investors cannot just have a financial interest but must also be willing to leverage their own networks to help grow the business they are investing in.

But more than just that, KK also believes that if  and when the initial investors want to 'exit', then the business founders must have the 'right of first refusal', i.e., the exiting investors must first offer to sell their stake to the business founders or their nominees. Mindtree had such clauses in its agreements with its initial investors for as many as three rounds of investment, but once it went public, such clauses became invalid. He laments the lack of 'poison pill' type of regulatory exceptions in India, which elsewhere allow founders greater control over the total shares of their companies. 

In response to a question from SS about how founders could 'build a moat' to prevent hostile takeovers, KK mentions the 'Dual Voting Rights' (DVR) idea, on which he said the Securities & Exchange Board of India (SEBI), the regulator, has put out a white paper for consultation very recently. Such DVRs would provide founders much greater voting rights than happens currently. Depending on the details of the DVR, for example, founders could get a 10X voting share. Thus with slightly more than 5% of the shares, founders could, have a controlling vote share. 

SS asks about 'unicorns' and 'soonicorns' (soon-to-be unicorns) - to which KK provides some statistics about how the venture capital funding pyramid gets built - only 4% of startups that get Angel funding get 'Series A', and at most 8-9% of those which get 'Series A' funding, also get 'Series B'. He adds that, for a startup, 'scaling up' is an essential part of the game, but it should only be undetaken when the founders have understood the path to unit profitability. Without that understanding, it makes no sense to try to scale rapidly. As for unicorns, he mentions a statistic he read in a book - that only 1 in 20,000 startups becomes a billion dollar company!

When SS asks him about a people management tip - his response is that 'one must be a patient and active listener', because all engaged employees want to be heard. But it must be clear also who makes the final decision. The result of active listening must be a fully-aligned team, which is essential for efficient execution. Aligned teams deliver 40-50% better results than teams which are even slightly mis-aligned. 

The interview ends with the listener/viewer (including me!) marveling at KK the man and the CEO, and with SS expressing the hope that all would turn out well.  KK reiterates that he would like the present management team to continue to remain in charge of Mindtree.

Wednesday, April 10, 2019

Solely-for-Scale 'Mergers of Equals': The Python That Died Eating The Deer?

Siddhartha Pai, of Siana Capital has a very interesting article in today's Mint newspaper, also carried in the online version livemint regarding the impending merger between Larsen & Toubro Infotech and -Mindtree Ltd where he uses the colourful metaphor of the python eating a deer its own size, failing to digest it, regurgitating the contents of incomplete digestion, and possibly dying a premature death itself - to focus attention on the supposed 'Merger of Equals', that the 'suitor' is pursuing 'solely for scale' in this case.

In such a case, he argues, clients of the pursued company are quite likely to adopt a 'Wait and See' attitude to understand how the merger will play out, especially whether the 'pursued company' in the merged entity will have the same strengths that it did previously. Talented employees more in demand elsewhere will not wait and see - they will leave, if only to extinguish the uncertainty in their own professional lives. This is always the case even when the merger is 'friendly' because mergers make sense only when the merged entity, by virtue of larger scale, 'de-duplicates' some functions in the new company and brings about at least some cost savings. Why, one may indeed wonder, do companies look for scale anyway? Because, especially in an intelligently organized company, larger scale can enable the realization of economies - both of scale and also of scope.

However, it is the 'human capital intensity' of the software industry and the very high mobility-quotient of critical human resources in it that makes the possibility of losing such talent during a prolonged merger-transition particularly deleterious. Traditional HR management techniques in 'traditional' industries or companies are built around the idea that no single person can be seen as  indispensable. In the software industry, for many critical domains, this is just not true.

But there are other issues too - if a merger is 'confrontational' then it takes much longer to close than a friendly one would. This then exacerbates the risk of the 'Wait and See' approach of clients and potential clients. Worst of all, rather than focus on new possibilities that the merger makes available, dealing with such internal issues ('friendly fire') tends to distract management in both companies impending merger, and then beyond, in the merged entity. Often this is serious enough to question the logic of the merger itself and often drastically reduces any 'value added by the merger' calculations.

Dr KK Natarajan, CEO of Mindtree Ltd, speaking with Shradha Sharma of Yourstory.com: