From The Desk Of The Chairman (July 2023)

In the Editorial piece of the previous month, I had made some observations on the decision of the Reserve Bank of India to withdraw the Rs 2000 notes. ?This was focused more on the ethical standpoint of both the government and the currency in question. ??Now we have data to discuss the real impact of the withdrawal of these notes.?Soumya Kanti Ghosh, the Group Chief Economic Advisor of the State Bank of India has come out with a Report of what the withdrawal of notes means to the banking sector and the country’s economy as a whole. Any discussion on the subject of these currency notes would remain incomplete if we do not examine the conclusions drawn by this Report, especially since they are cogent and are based on hard data. We will then proceed to draw our own conclusions.?According to this Report the withdrawal of Rs 2,000 banknotes would have a significant impact on deposits, credit and consumption. It said that consumption demand might be front-loaded by Rs 55,000 crore.?This is news that matters to all of us. As the high value notes are still legal tender, they are being used in the purchase of high value purchases like gold, jewelry, AC, mobile phones, and real estate.?Logically, the reaction of someone with these notes is to use them for immediate purchases, especially at a time when Covid 19 has taught us how fickle life is. That is not all.?If the government’s axe is going to fall, it would first fall on the high value notes.?We know it because we have experienced it. ?That way, these notes are extremely vulnerable in one sense.?These notes are as easy to store as it is easy to spend. All these are expected to generate an uptick in consumption of high value items like boutique furniture, precious jewels and what have you. The Report further states that “Around Rs 55,000 crore could be withdrawn by public from about Rs 92,000 crore saving bank deposits to be made cumulatively through Rs 2000 notes. This should give consumption boost along with increasing the velocity of money,” the Report said.?Again, according to the Report we may expect Q1 of FY24 GDP growth at about 8.1% with an upward bias due to the impact of this Rs 2000 note withdrawal event…this reinforces our projection that FY24 GDP could be higher than 6.5%, as per the RBI estimate,” it said.?Though a government may not be proud to be propping up the economy through these kinds of monetary interventions, at least this time around they need not worry about criticisms of the kind levelled against in as happened the past.

Tata Consultancy Services has been in the news in the past ever since its inception for all the good reasons.?Being part of the Tata group, it could always display its heft whenever it comes to corporate governance practices.?The spiraling prices of its shares has also made the company a darling of the investors – a company with a great pedigree and a burgeoning purse. Consequently, when news about the company’s managers’ unsavory practices while recruiting people broke into the public domain, they were greeted with disbelief followed by shock – disbelief because a scam of this magnitude had gone unnoticed for years together and shock because how could it happen in a Tata company. This is sacrilegious to say the least. The scam came to the notice of all after a whistleblower, in a communication to the Chief Executive Officer and the Chief Operating Officer alleged that those responsible for recruitment had been accepting commissions from staffing firms for years. The company had sacked a few, a few of them had been sent on leave and a high-level inquiry had been ordered. ??Based on back-of-the-envelope calculations it had been reported that people must have made upwards of Rs 100 crores!?Incredible again!?After the story broke out in the public domain subsequent to a disclosure by the whistleblower TCS appears to be busy adding a spin to the story to distance itself from the scam. It is difficult to imagine that a scam of this magnitude over such a long time could happen in a company famous for its corporate governance practices is something totally unbelievable.?Irrespective of what the company does to prevent further damage to its reputation, a major dent to its dent to its image has just occurred.???In India where unemployment abounds the staffing department, by whatever name it is called, is vulnerable to external influences.?This in turn affects the quantity and quality of recruitment across sectors.?Let us face it, jobs are for sale. For the recruitment departments in the IT sector, their job is cut out starting with TCS. Then the IT industry and then other sectors.??At TCS the first fallout they must handle is to bolster the confidence of the employees already recruited. TCS now will have to first separate the chaff from the wheat and initiate appropriate actions. TCS has to now take appropriate extraordinary actions to instill the required confidence in the system of recruitment itself in the company.??Ethical hiring should be made the cornerstone of the company’s recruitment process. The company should take steps to ensure transparency, fairness and meritocracy. Preventing corruption requires a holistic approach that includes a combination of measures aimed at transparency, fairness, accountability, and education. By implementing these strategies, organizations can significantly reduce the risk of ingrained corruption and ensure a level playing field for all candidates. Mr. N Chandrasekharan, the Chairman of the Tata group had this say on the subject. “Let me first say that for a Tata group company, the most important thing that is expected of every employee is ethical conduct and integrity in operation. That comes first ahead of any financial performance” - a necessary condition but not a sufficient one.

As of writing this, Byju’s, the Edtech giant has ceased to be giant – it exists; but not as a giant.?The company has an auditor’s certificate to claim this, in a manner of speaking.?Byju’s also must have learnt that it is easy to appoint auditors but difficult to sack them. They learnt it the hard way.?Today when they are shopping for a loan that they desperately need, they are carrying copies of old certified Balance that is two years old.?The last Balance Sheet that the statutory auditor has certified is as of the financial year 2020-21.?As of writing this, there is no clue as to when the certified Balance sheets for the past two years will be ready.?For an auditor this situation prevailing at Byju’s was simply too much.?The inevitable consequences followed.?Deloitte, the statutory auditors, had enough of the shenanigans of the company.?They did what they had delayed - they resigned. They said in a letter to Byju’s Board that it was resigning because the company had delayed finalising the financial statements for the year ending March 31, 2022. The auditors had concluded that the client’s accounts are complex and messy.?Deloitte said it did not receive necessary documents even after writing several letters to the Board. The primary difference of opinion between the client and the auditors was on the way the client was recognising revenues. ?There were no takers for Byju’s claim that it is the largest educational technology company.?May be.?That is no reason for it to dictate to the auditors on the latter’ duty.?Three Directors representing the investment firms of Byju’s also resigned citing differences with the promoter Baiju Ravindran. That was not all.?For 2021-22 Byju’s had pegged its sales turnover at about Rs 10,000 Crores but it is likely to end up at Rs 7,000 Crores.?The NBFCs that help finance the students to buy company’s products also backed out. Without financial support it is well-nigh impossible to ask the students to take the expensive courses offered by Byju’s. During the pandemic year 2021 Byju’s business had seen a quantum jump – from $8 billion to $22 billion. From there it was a steady decline for Byju’s, but a steep one.?Whitehat Junior, the coding coaching enterprise that Baiju’s had purchased has been bleeding ever since. These are some of the problems facing the Edtech giant today. On the face of it, the problems facing the company look insurmountable. Today it looks as if it is all over for Byju’s bar the shouting. It would, however, be a sad day if this company folds up, however inevitable it may look. Unbridled ambition, easy availability of money, unacceptable level of corporate governance standards, all of which have contributed to the steady decline of Byju’s.?When he Covid pandemic struck the model brought in by Byju’s was like manna brought in from heaven.?With the pandemic getting erased from the face of the earth there was no scope for distance learning enabled, as it were, efficiently by modern technology. One hopes that the company recovers from this hopeless position in which it finds itself. The world, particularly a third world country needs this model developed by Baiju’s.?This piece is written on the day after Byju Ravindran addressed his employees on what is plaguing the company.?He talked about every aspect of his entrepreneurial venture except about employees – the reason a technical glitch in the chat box the prevented the people from asking questions!?Byju Ravindran has a unique place in the history of Kerala. A Malayalee who had never got an opportunity to see one of the homegrown business enterprises and promoted by a local entrepreneur Baiju Ravindran rising to the dizzying heights of being bracketed with companies like Flipkart, Nykaa, Swiggy and PhonePe. It may still not be time to write an obituary for Byju’s. The reasons for his downfall in the end were the routine ones – poor corporate governance, flawed auditing preparedness, mad marketing extravaganza and profligate acquisition spree. Still even while writing this, I do hope that he fights his way back to the top like true Malayalee, all guns blazing!

When news about a putsch that broke out in Russia, the entire world gathered before the TV screens, it was an event considered possible but not plausible in Putin’s Russia. The revolt was led by an oligarch named Evgeni Prigozhin who was the head of the Russian mercenary soldiers (never mind the oxymoron here).?Prigozhin came into prominence as the right-hand man of Vladimir Putin in Russia.?His forces consisting of all kinds of renegades including criminals serving prison sentences fight side by side with the Russian soldiers.?This in turn, inevitably led to the souring of relationships between the regular soldiers and the mercenaries.?On the pretext of ill treatment meted out to him and his comrades at the hands Sergei Shoigu, the chief of Defense, Prigozhin who had hitherto been propped up and nurtured by none other than Putin himself, revolted.?Prigozhin, the head of the Wagner group of mercenaries, was never a stranger to controversies.?Now starts the unbelievable part of the story of revolt, that probably, it never was.??Prigozhin, on the face of it, fought the Russian state without confronting the head of the Russian state!?The entire drama replete with mercenaries and machine guns in full view on live TV was too real to be realistic! Though Prigozhin claimed the support of regular Russian units, none came out before the cameras to display their support to Prigozhin.?Never mind that Prigozhin is an egoist and an egotist, all rolled into one. Still, it is too much to believe. ??Putin is the ultimate example of a macho strong man of modern-day Russia.?Imagine someone close to him like Prigozhin turning traitor and openly taking a group of comrades on a march in full military fatigues, gun and all, after criticizing the military on the main road from Rostov to Moscow. Even as live TV cameras were showing the military march, with the US spokespersons salivating at the prospect of the Russian empire collapsing, Prigozhin suddenly called off his show of defiance and did a right turn in the direction of the capital of Belarus. By the time he reaches Minsk, the capital city of Belarus, comes the announcement that Prigozhin had called off the revolt.?There is something missing in all this – a rationale for the coup and a credible reason for a macho man like Putin developing a soft corner for a man who betrayed him openly. ?To cap it all there was an order of pardon from Putin waiting for Prigozhin when he reached Minsk.?Come on.?The story needs another story to back it up.?Putin made a customary appearance before the TV camaras with a show of anger but not outrage.?When Putin was spewing venom against Prigozhin, the latter could drive through the main highway of Moscow.?If there is a war, it is reasonable to expect a victor and loser at the end of it.?Who won the mutiny and who lost.?It is neither Putin nor Prigozhin. But a man called Alexander Lukashenko, the President of Belarus and a close ally of Vladimir Putin who brokered a compromise for the news media and also offered asylum for Prigozhin.?According to CNN “what had begun as “treasonous” behavior and a criminal challenge to the state that must be ruthlessly dealt with, ended with a?tawdry deal brokered by the dictator next door ?that gave Prigozhin a ‘get-out-of-jail-free card,’ and amnesty to the mutineers advancing on Moscow”.?Come on, tell me something more credible. According to Stephen Kotkin, biographer of Stalin: “for the bigger picture, Putin’s Kremlin “remained, and remains, viable as long as there is no political alternative. Now, we might see just how hollow the regime is. Putin has unwittingly launched a stress test of his own regime.”?However, because of all these shenanigans by Putin and Prigozhin both stand to lose their credibility. This episode is only the beginning of the end of Putin.?As for Prigozhin, who cares?

Before concluding, here is something uncomfortable that must be told.?Gita Gopinath, the First Deputy Managing Director addressed the European Central Banks’ annual conference recently.?She spelt out these three uncomfortable truths about inflation. The first observation she made was that inflation is taking too long to get back to target.?The second uncomfortable truth is that financial stresses could generate tensions between central banks’ price and financial stability objectives and the third is that central banks are likely to experience more upside inflation risks in the future according to her.?Further the fight against inflation is not going to be easy and financial stresses may intensify and as a result growth may slow down.?“We know that we can’t have sustained economic growth without a return to price stability.”

Thank you.

Venkat R Venkitachalam?