Why large companies does not lead Innovation?

Why it’s always an unknown start-ups linked to every disruptive innovation in recent times and not large corporates. This malaise could be traced centuries back.

“Why large companies does not lead Innovation” may not be appropriate since they do innovate but it’s incremental. Innovations from their stable is like Version2, 3 and so on. Their innovations are rarely disruptive or game changer except in few cases. And this seems to inflict every company who starts with a Big Bang Innovation but as it becomes large, forget to how to be creative again. It was not established large IBM but off the block Microsoft to bring the best Personal computer operating system but then it was not large Microsoft but relatively start-up Apple, which got it right with mobile operating system. There are umpteen such examples where start-ups have beaten large companies in bringing about disruptive changes in their Industry.

It should not be the case. Innovation = Talent + Resources and who could beat these fortune 500 companies in hiring the best talent from campuses or managing all the resources needed. So what’s going wrong?

I just finished reading Simon Singh brilliant book on origin of Universe; Big Bang. It was surprising to note that even innovators / Scientists / astronomers were behaving like large corporates of todays. It takes ages even to acknowledge new Idea from a budding scientist by the renowned names thereby wasting precious human time and endeavour to move forward. Copernicus, first mooted the Idea of Sun and not Earth being at the centre of Solar System in 1514 but it took more than 300 years for the scientific community to accept this Idea. Almost 200 years after Galileo made observation to support Copernicus. This was not only because of religion (Church being against the change) but also due to well-known and reputed names in the field of astronomy resisting the new Idea. This has not changed in 20th century as well. It took almost 40 years for Einstein to be convinced that there is no need for a cosmological constant in his general theory of relativity as Universe is expanding. He out-rightly dismissed this new Idea from new kids and his dismissal means instant death to the new way of thinking about origin of Universe. Though later this was proved right and Einstein himself acknowledged that cosmological constant was the ugliest idea and he was never comfortable with it. Simon Singh has summarised this beautifully in his book;

The shift from one paradigm to another could happen only once the new paradigm had been fully discredited. The speed of the transition depends on numerous factors, including the weight of evidence in favour of the new paradigm and the extent to which old guard resists the change. Older Scientists, having invested so much time and effort in old paradigm, are generally the last to accept the change, whereas younger scientists are generally more adventures and open minded. The paradigm shift might therefore be completed only when the older generations have retired from scientific life and the younger generation has become the new establishment.

This is so true for an established large corporates as well. The do recruit the best talent from younger generation but hierarchy on the top always comes from older generation (more so now as average life span has increased and retiring age is moving north). This Older generation has tasted success albeit a long time back by doing things in a certain way. It’s impossible for them to understand why same way of doing things will not bring in more success. They only promote those new ideas / innovation which is only incremental, does not try to make paradigm shift and is predictable. Imagine how a 70 year old head of any large conglomerate would have reacted in late 1990s if one of his young recruit has presented a social networking Idea like Facebook. He will be lost to understand why people need to connect on Internet, they could probably connect over a dinner at Restaurant and therefore opening a restaurant is probably better business for him.

So how to make that leap from slow moving behemoth to nimble start-up. You can’t. But there is way out and some of them have already started doing. Remember, these behemoth has the best talent and resources. They could not only make disruptive changes but also mobilise resources to quickly get the acceptance.

First, Instead of trying innovation in the existing and tired corporation, support a budding start-up like any other PE / VC fund. The R&D fund given to these start-ups will provide better results than wasting on internal R&D, where any good idea will take eternity to come out of bureaucracy and gain any visibility.

Second, encourage entrepreneurs within organisation. Start-ups within conglomerate, divorce from any existing corporate hierarchy.

Third, move older generation out of the way. Let them lead and run established business, don’t let them take decisions on new Ideas. They should be driving at left lane and right lane should be cleared for new generation.

We need Innovations / New Ideas to fight against poverty, climate change, income disparity, gender inequality and so on. Start-ups ability to bring change at large scale is limited and takes time. Large corporates hoards all resources and it’s important that they become part of change. Otherwise it will take another 300 years for Sun to occupy centre of our solar system.

2017, a year of hope & despair

2017 was such an roller & coaster ride for Indian economy.

What a contrasting two years for Indian economy, 2016 started with hope and ended in despair and in contrast 2017 started in despair but ended with hope. Who could remember that 2016 calendar year first quarter started with India growing at 9.2% while 2017 at 6.1% which plunged to its lowest at 5.7%. That’s where it’s important to look at events which shaped up during this year and in spite of one of the lowest growth year for India in recent years has more of hope at the end of it.

Even before 2016 was hit by demonetisation of high value currency, GDP trend was already heading south, from Jan-Mar @9.2%, to Apr-June @7.9%, Jul-Sep @7.5% and Oct-Dec @7%. Demonetisation was the proverbial last nail. Young 2017 inherited the mess of demonetisation with business confidence at its lowest but ended up by helping markets to grow by 28% from 26595 to 34056.

Demonetisation hardship to public was expected to last beyond March but an early end to general suffering mitigated some of the fears. ATMs and banks were back to normal in dispensing cash which helped people and businesses to quickly get into recovery mode, though impact lasted well into Q1 of the current financial year, with GDP hitting the bottom at 5.7%. Next on card was Budget, with UP election round the corner, there was general expectation that government may go for charity and miss the fiscal deficit target. A budget which not only kept fiscal deficit target sacrosanct but kept in line with long term goals restored investors’ confidence in India story. Thumping UP election victory meant, demons of demonetisation was finally buried for the good. How could we miss our own Rexit story, our own RBI Bond, Mr. Raghuram Rajan was on his way out. There were concern around his replacement and the stance on banks NPA, monetary policy etc. By nominating Mr. Patel to the post was continuation of Rajan mandate (as actual architect was of this policy was Mr. Patel) and implementation of Monetary Policy Committee (MPC) ensured transparent way of setting inflation target (and therefore Interest rate – a continuous bone of contention between RBI & GOI). Under his watch, RBI referred first set of cases under Insolvency & Bankruptcy code (IBC) triggering the final act of clean-up and pushing government to shore up the PSU banks capital, which they promptly announced.

But mother of all was announced mid-night of 30June in the Central hall of Parliament. India was finally going to be a true single market economy with implementation of Good and Services Tax (GST). This was truly revolutionary and as it happens with any such gigantic disruption – Chaos followed. It disrupted in the way business was done till date. Not only people were not ready, it turns out government didn’t helped the cause. Thankfully, system were responsive and during last 6 months, through multiple pro-active interventions, implementation has been stabilised to a large extent albeit taking its toll with Q2 GDP growth rate struggled at 6.3%.

Still, the million dollar question is, was 2017 a glass half full or half empty and depending on your allegiance to government or opposition, there are enough arguments for both sides. If we go by markets, it seems they are on the half full side. Sensex has moved from 26595 to 34056 and rupee strengthen against dollar from 68.32 to 63.83. This has to do more with hope (than facts) reflected in trend. Unlike last year, after hitting bottom in Q1, Q2 GDP moved to 6.3 and with tailwind, this trend is expected to continue with better GDP numbers projected for Q3 and Q4. The increasing trend line is also supported by global growth rate of 3% plus and general positive cue from around the globe. Brexit seems to be on track after initial hic-ups, Trump has got his Tax reforms through, and China is doing well and so on.

While it’s not all great going into 2018. Domestically, there is lurking inflation and political drama unfolding with IBC impact yet to hit Banks in full. Globally, demise of ISIS is followed by Saudi – Iran problem, possibly hitting Crude Oil price.

All said and done, 2018 inherited a far better world than 2017 and as we welcome young 2018, let’s say goodbye to our old friend 2017 who helped us all to be more hopeful about our future.



US tax reforms – time for India

US tax reforms should help us to make changes to India direct tax code

Yesterday President Donald Trump signed sweeping tax reforms impacting Individuals as well as Corporates. The tax cuts are significant with peak corporate tax reduced from 35% to 21% and Individual highest bracket from 39.6% to 37% (important changes in 7 buckets for different category of tax returnees). Reform also include changes in components like standard deduction, exemptions, and tax credits and so on.

On 20th Dec, Indian Income tax department released a report basis FY14-15 income tax returns. Only 4.1 Cr. (Population – 130 Cr.) has filed returns of which 2 Cr. has declared NIL taxable income, which is less than 1.5% of the population. And surprisingly (not really), less than 10,000 Indians have taxable income of over INR 1 Cr. (2000+ cars sold by Merc, Audi & BMW in first 5 months of current year!). The growth in taxpayer has not been any great averaging at about 50 Lacs annually for past 3 years (could be higher in current year due to demonetisation). And therefore Tax-GDP ratio is at 5.6%, compared to say US which is at about 26%.

After long-awaited indirect tax reform through launch of GST, it’s time to look at direct taxes. Fact remains that given a choice none of us would like to pay a dime to government and hence a large number of tax payers are salaried who have no choice but to comply (TDS means government has taken its cut before it reaches our pocket; traders are learning it now). Most of them try all the trick allowed like fake LTA, Medical bills, rental deduction and so on. Post demonetisation, GST roll-out and initiative to link Aaadhar means there is likelihood of increase in number of people falling under taxable income. To ensure that all these people, instead of trying to figure out a way to avoid paying tax (and filing NIL tax returns), willingly pay their share of burden towards government expenditure – There is urgent need to rationalise our tax structure. GST will help government to increase their indirect tax collection and with subsidy being rationalise, it’s only right to provide some relief to honest tax payers and add fence sitters, who would like to change colour of their money.

US tax reforms provides a good benchmark. If a country with such high per-capita income is willing to cut down rates, why not India. Direct tax reforms should include lowering tax, increasing tax-slabs, increasing standard deduction, doing away with exemptions and cess, simple filing etc. The rumour mill is buzzing with such an expected reforms being announced in current budget. Let’s do it now than waiting for 10 long years, as we have seen in GST – 10 years has not helped to implement any better.


Prime-time is dead!

Sad demise of Indian electronic media.

9 PM, Prime time at news channels was my window to India and World. After a day’s work, since 1984, when television first came to my home (Delhi Doordarshan) and 1991, when private cable networks invaded, the newsreader was a friend, philosopher, teacher and guide who will not only let me know what happened during the day but also an honest and unbiased opinion on its impact; which was debated with family, friends and relative the day after.

Something changed once Gujarat Chief Minister, Mr Narendra Modi decided to contest for the post of Prime Minister of India. Suddenly we realised that majority of these news channels, their news anchors, owners and guests belongs to one fraternity, so called liberal, secular, centrist / leftist. Every channel was reeling out stuff after stuff with doomsday scenario, if this man is elected. First, we all believed. Than we started doubting when every action of this man was denounced even when our common sense was saying he is right on this. We wanted to know other side, which these channels were refusing to share; and then there came channels who started showing only other side of the story.

So, we did have 2 side of the story. But on different channels.

An action from government will have positive reviews / opinion on one set of channels having a set of guest panels and negative on another. We all started to know the affiliations of these channels and their anchors. I no longer trust any channel, any news anchor, and any guest; there is nothing called honest opinion.

9 PM is dead, long live Prime time.

I no longer watch 9 PM news. Check news apps to read relevant news (no opinion). It seems lot of my friends are doing the same; there is no debate in offices on topics discussed during last night prime time. It seems, people have not only lost interest in political debate but also non-political ones pertaining to economics, social and cultural. Why? because these channels end up giving political colours to all such debates. A rape victim is no longer a rape victim; but she is a religion, a caste, a state, a party, an ideology. So, if you happen to be on another side of caste, religion, state, part and ideology; victim no longer mater. And therefore no anger on the street; Media just lost the credibility to raise any issue.

It’s sad. Media did a wonderful job to mainstream issues which otherwise politicians and the government of the day would loved to put under the carpet. There will be no candle light march to show solidarity for Jessica Lal, which one news channel managed to get it into the conscious of so many people that it became an overnight people’s movement for justice. And she got the justice. Alas there will be no other Anna Hazare anti-corruption movement, which got the mileage only because media was trusted till then. There will no more Nirbhaya. We have already seen that; no uprising for Vemulla or Nazib. Media tried and failed to even get the justice for their own journalist friend from Bangalore.

We lost one pillar of the democracy.

USA has seen the repercussion.

India has to get back its vibrant and free media. Old generation has to go. They have sold their soul and trust, both left & right. New generation has to join, who can freely and honestly present both side of coin.

We badly want our 9PM back.


I do what I do – Raghuram G Rajan

excerpts on recently published book, I do what I do from ex. RBI governor, Raghuram Rajan

Indian public seldom recognises the importance of regulatory institutions like Election Commission, CAG, and RBI etc. These institutions have made significant contributions over the years in ensuring check and balances, which helped a poor & emerging nation to not to fall into chaos like its other South Asian neighbours. During the life of these institution, sometimes they find a leader who led them into public imagination. It’s not as if predecessors had capability issues, they all have made huge contribution to these institutions but mostly worked away from public limelight. What T N Seshan and Vinod Rai did for election commission and CAG respectively; Raghuram G Rajan did for RBI. And therefore any book from him was eagerly awaited.

True to his word on not writing or speaking on his RBI experience for one year post RBI, He released his first book in Sep’17 aptly titled I do what I do. Before I summarises what this book is all about, let me tell you what it isn’t?

This book is not his biography or memoirs during RBI days and hence if you are expecting post retirement dirt on politicians; I’m afraid there is none. So avoid if that’s what all you are interested. But if you are interested in understanding his thoughts on various RBI policies, his views on India’s economic particularly financial sector, his thoughts on world finance, please read “I do what I do”.

This book is collection of lectures and speeches delivered during his tenure as RBI governor, Non RBI days and as IMF chief economist. His resume is exceptional. Not only because he was the one to predict global financial meltdown of 2008 in 2005 (one chapter is on his 2005 Jackson hole speech) but his career as youngest chief economist of IMF, Vice Chairman on board of BIS and Central Bank governor of the fastest emerging nation besides being professor of finance at the University of Chicago. His speeches do reflect this diverse experience and the talent of being teacher, economist, researcher and administrator. As he clarifies all these speeches are written by him (and hence not works of his support staff) and curated as well by him for this book. Instead of putting these speeches chronically, its bundles around theme say Inflation. So all speeches where he has shared his thoughts on Inflation (including the famous dosanomics) is clubbed under one chapter. He has closed the chapter on Demonetisation, the most eagerly awaited, in the introduction itself. He has explained this in his various interviews post book release as well. His quote “although there might be long-term benefits, I felt the likely short-term economic crisis would outweigh them, and felt there were potential better alternatives to achieve the main goals. This was orally communicated to government in Feb2016. He had shared these views in one of the speeches in Aug14, Black Money hoarders find ways to divide their hoard into many smaller pieces. There are two interesting facts;
First, his consistency about an issue. This reflects in all his speeches on Inflation, Monetary Policy etc. even though selected by him but it’s across time-lines and across various forms.
Second, ability to predict future almost like an astrologer who can see future.

There is an introduction before every speech and conclusion. Introduction is to set-up context for the speech, like where was it delivered, agenda for the forum and what was his idea behind the topic. Conclusion is either to clear misconception, which media has created or to present current perspective. The speech could be categorised as;

1. His views on Indian economy, policy, banking etc.
2. His views on world finance.
3. His views on competing economic theories.

His India view is summarised through speeches delivered as RBI governor or prior to being RBI gov. around five key themes which he has been advocating during his tenure, Monetary Policy including Inflation, banking structure, broadening & deepening of financial markets, financial inclusion and dealing with distress asset. As we know, he worked to ensure that these were implemented and to his credit, instead of going solo, he picked up reports of various committees and tried to deliver them on the ground. He has not shied from admitting his ignorance, NRI FCNR deposit was one. He pointed out that he was not sure of the success but went along since his team were convinced and surprised to get the result. One of the interesting fact on his RBI tenure was his role as CEO and team leader. Being managing team myself, his email to RBI staff in Dec15 (which attracted media controversy) manifest his understanding of team dynamics and workers / managers motivation. During IMF economist as well he has given views on staff compensation, particularly investment manager incentive (one of the reason cited by him for 2008 financial crisis). He has categorised staff into 4;

1. Tier 1 – Best performers, who carry the organisation.
2. Tier2 – Exceed the need for Job but fall short of excellence.
3. Tier3 – Time-servers, source of livelihood. Reasonable work but no desire to excel.
4. Tier4 – Overwhelmed by work, lost any desire to work.

How true!

His world views are mostly around financial market. Most of the speeches are critical of central banks laxity on monetary policy, quantitative easing or increasing cheap money supply, lack of regulatory oversight on financial intermediaries and new financial products while appreciating the effort in advancement of market technology, increase of market participant and so on.

Overall, this book provides good insight into what he has been thinking over last 15 years. It’s like going through the diary for him. You may agree or disagree on his views but you have to give him for consistency. What he was talking about in 2005 has not changes in 2017.

A must read book even if you are not an Indian.

India de-coupled with India

Why our market is not in sync with all the news on economic fundamental. Who is right, market or economy?

Q4 GDP at 5.47% is lowest in last 3 years, PMI reading is trending below 50, Trade deficit is increasing with current account deficit at 2.4% is highest in 4 years, retail and WPI inflation are trending up, demonetisation impact as per first reading is discouraging, final reading of Monsoon is poor with uneven distribution leading to flood in some parts and drought predicted in other parts of Country, Crude price is inching up, PSU Banks continue to struggle under NPA with promised capital infusion still to come in, Private Investment is off the radar, new job creation is minuscule, start-ups are going belly up for want of funds.

Sensex at 32,272.61 and Nifty at 10.085.40 are at their peak levels, Forex reserves hit $400B.

Both statistics are from last 45 days.

To an alien who landed today and read both numbers, will conclude that one country is wretched and another is prospering. He will be mighty surprised if told that both information pertains to one Country, Incredible India.

Does this mean India has decoupled from India. At one level, this looks like a very likely scenario. Our macro & micro economy published (projected seems great?) indicators are poor & discouraging but if you watch our markets, the see-saw is now mostly linked to global indicators. Even if India PMI has dipped but China manufacturing numbers is strong or US employment data is positive, markets will move up. Conversely, if India inflation is down but due to Irma hurricane, crude prices has firmed up; markets will go down.

During last year global crisis, we were boasting that India is decoupled with global economy and hence the crisis is insignificant for India. Part true, but not entirely as we seen subsequent and delayed impact.

Since then, it seems we have moved to other extreme. While domestic economic indicator is weak, market is still going contrary fuelled by overdose of liquidity as both FED and EURO Central banks have still to curb / hold bond purchase? Post demonetisation, even domestic funds / financial institution, retail investors are flushed with liquidity, with real estate sector in limbo and no private investment is coming up, all are flowing into one direction…..to market.

Investors are holding on to any good new, however irrelevant it is?

All are talking about impending crash. But wish & hope that Sun never set.

Logic says, it will not sustain, it will collapse.

But we all are busy manipulating logic.

As happened in 2008, if market has to sustain its new found glory, global good news will only take it so far. Domestic fundamentals has to improve and all current information has to be feed into market to take a sensible long term approach. It does not mean that there is crisis, but current euphoria is not aligned to ground reality and sooner market found its feet, we all be less bruised.

India can’t be decouple with India; however incredible we might be.

Mr. Prime Minister, It’s your turn!

Voters are still waiting for promised Land.

26May2014, Mr. Narendra Damodardas Modi takes oath as 14th Prime Minister of India. There was hope all around, even among people who were against his party brand of politics. And there were two principle reasons, his own track record as Chief Minister of Gujarat and second the poor show of the outgoing PM, Mr. Manmohan Singh in his second term. During 3 years of Mr Singh reign, India started losing its tag as one of the leading emerging economics. This was not only due to global slow-down but also on account of policy paralysis as government struggled against corruption charges and PM lost its mojo to internal party politicking with emergence of crown-prince.

For Indians, Modi was everything which Manmohan was not. Aggressive, Excellent public orator and strong leader with his own large constituency. And he connected well with mass, almost hypnotised them with promises of bright future aka Ache Din.

3 years and 3 months later, Mr Modi has to admit that voters stood by him.

Except for early Delhi and later Bihar / Punjab election loss, all section of society through pain and difficulties kept faith on him. This is a Country where governments are kicked out even if Onion prices goes up! They stood by him through Farmer’s suicide, pain of demonetisation, terrorist attack on our forces in Kashmir & Pathankot, Mob lynching in the name of cow slaughter, Vemula suicide, JNU fiasco, flood in Bihar, Chennai, Assam and draught in Maharashtra.

They were not on road, when petrol prices are deregulated, subsidies are withdrawn, and prices went up, trains got derailed, patients died in Hospitals, sisters got raped.

They didn’t listened to opposition or media, when your party orchestrated political coup in Assam, Goa, and Uttarakhand. Ignored their warning and supported demonetisation, GST; even surrendered LPG subsidies.

And why?

They believed your promise of Ache Din. They appreciated your zeal for Swatch India, Beti Bachao, and Beti Padhao. They dreamt with you for Digital India, Make in India and Start-up India.

Mr. Prime Minister, It’s your turn now.

It’s your turn to deliver your promises to people who kept the faith, walked the mile and lived the hope. They are waiting. Other than low inflation and gyrating Sensex, They are not feeling Ache Din.

• Promised 10 M jobs per year are now-where; in-fact FY15 and FY16 only 1.5 lakhs and 2.3 lakhs jobs were created (lowest since 2009).
• At-least macro numbers like GDP and PMI were promising in early days. All were hoping for double-digit growth but with 5.7% in Q1 FY18, even very optimistic will not go beyond 6.5 for year. Below graph trend shows this year is not very far-off from the worst 2 years of previous government.
• Make in India has only remained slogan. Private Investment still to take off. Public sectors banks are still struggling to get their house in order. PSUs are going no-where, neither disinvestment nor revival
• Digital India has meant IT companies are slowing down, telecom are just surviving and 4G speed is below 3G speed standard. And Cash is coming back.
• Start-up India is closing down for want of fund and no support from ecosystem. Government own research shows that there is no improvement in ease of business.
• Power is one bright spot. There is surplus power. But ask end consumer. The power-shortage is still at same level. This time blame is on Transmission, power infrastructure and state government but your promised 24×7 electricity is not reaching them.
• They are willing to wait bullet train. But what about trains, which are still running late, service is still as bad and accidents have only gone up.
• India is still as dirty as when Swatch India was started 3 years back.
• Betis are still hoping to be saved.

India Manufacturing PMI


To your credit, Mr Prime Minister; you did took some difficult & challenging decisions which will definitely benefit India in long-term. The list includes GST, bankruptcy law, strong action against bank loan defaulter, no large public corruption, strong foreign policy, continuation of congress policy on Aadhar / MNREGA etc. You were also lucky as Crude price has stabilised at lower level and global economy is getting back on track.

But after 3 years and 3 months gone and less than 2 years left, they are asking what’s there for us. What have they got for all the sweat. And they should we be so enthusiastic about your return in 2019. You may return as there is no opposition and once a while public could be bought to vote (Old Congress tricks – Loan waiver to farmers, Job / education quota, buying out opposition and so on).

You promised to be different. They believed You. They still believe you.

It’s your turn, Mr prime minister!