Greece gets its 2nd Bailout

Greece has been on the brink of its second bailout for weeks. The  130 billion bailout was first delayed because of the terms of the deal, where private bondholders would take a “voluntary haircut” to avoid triggering the Credit Default Swap (CDS) payouts. Then it was the details of the austerity package, where Greek Finance Minister Evangelos Venizelos was battling the “Troika” of rescuers (European Central Bank, the IMF, and the European Commission) over the details of  3.3 billion of spending cuts. Finally, the Troika wanted the leaders of all political parties to give written assurances that they will not renege on the deal after elections (penciled for April 8^th). 

According to an IMF report published in October last year, a 50% write-down on private sector bonds, stringent targets set by the EU summit, along with  130 in additional low interest financing would give Greece a decent chance to trim its public debt to 120% of the GDP by 2020, from 160% at present. However, since then, Greece's economy has been in much worse shape; it’s already in its fifth year of recession. Naturally, its rescuers – especially Germany – did not want to plug in the bigger financial hole because Greek politicians had already broken several promises on introducing economic reforms in the past. The implications were dire. If there had been no deal by March 20, when a big repayment of  14.4 billion was due (expiration of sovereign bonds), Greece would have no choice but to default. This would trigger a series of CDS payments (the quantum of which are unknown), and that could cause chaos across the entire financial system. Greece could well even be ejected from the Euro (inevitable in my opinion) since the European governments have failed to build a “firewall” around other high debt-ridden nations such as Portugal, Italy and Spain.

Background

For 30 years, the Greeks lived lavishly. Public spending bloated as cheap funding from the US and the EU seeped in, and as citizens incessantly cheated the system, and routinely avoided taxes. The last 3 years have seen Greeks humiliated and forced to endure hardship. Since the first bailout ( 110 billion) in May 2010, the government has imposed austerity and increased the taxes (not a very bright idea for a culture notoriously renowned for evading taxes). Taxes on restaurants more than doubled from 11% to 23%. Property prices and rents have plummeted but property taxes have tripled. An increase in taxes on cars prompted many drivers to hand in their license plates.

Protests against Austerity in Athens

The middle class has been driven into poverty. Many of the small-to-medium sized family businesses (50 employees or less), which make up of about 99% of Greece’s enterprises and 75% of its private sector workforce have either closed down or have sacked many employees. Big businesses aren’t faring much better either. Close to 470,000 private sector jobs have been lost since 2008. In contrast, the (bloated) public sector has seen not even a single job-loss. The civil sector has had a small pay-cut and a minor reduction in benefits, but no job losses. 
 

As a result, the GDP has contracted 12.5% since 2008, and is expected to fall by another 4% this year. Unemployment rate is at 19%, but youth unemployment is close to 50%. Those who do have jobs are over-qualified, underpaid, and overtaxed. In their frustration, they have taken to the streets in protest. Not surprisingly, both, crime rate and homelessness have been surging while investments have practically halted. 

Brinkmanship

Official Handover from Papandreou to Papadamos in November

The leadership battle started in Greece after George Papandreou stepped down halfway through his 4-year term, handing the power to Lucas Papademos. Mr. Papademos, a former ECB vice-president, has already suggested that he will not run; he is expected to take an academic post in America. So the current finance minister Evangelos Venizelos is the socialist party’s front-runner to succeed Papandreou. But preoccupied by the bailout and debt restructuring process, he has hardly been able to campaign. Little wonder that many observers believe that he may have to spend some time in Opposition first.

Evangelos Venizelos (Panhellenic Socialist Movement)

Antonis Samaras (New Democracy)

On the other hand, there is the leader of the conservative New Democracy (ND) party, Antonis Samaras. In opinion polls, his party has an unassailable lead with 33% of the vote, however that is not enough for a clear majority. Hence, the most likely outcome is for Greece to have a coalition party rule. However, a major concern remains the discontent among citizens, many of whom may not even bother to vote at all. They blame not only the New Democracy who was a reckless borrower when in power, but also the Panhellenic Socialist Movement (PASOK) failed to clean up the mess. Also another crucial concern is that without the calm leadership of Papademos, the coalition of populists may not fare well for reforms. Further street unrest could test politicians' commitment to cuts in wages, pensions and jobs. Hence, one cannot blame the Triorka for its lack of trust in Greek politicians, and the reluctance to bail them out.

The Bailout Arrangement

At 5 AM local time (0400 GMT), after 13 long hours of discussion, the Eurogroup of Finance Ministers, chaired by Luxembourg’s Prime Minister Jean-Claude Juncker, finally agreed on the second bailout package for Greece. In return, Athens had to commit unpopular and painful cuts, and private bondholders had to take even bigger losses. The deal still leaves doubts about Greece’s ability to recover, and avoid the default in the long term; but it does buy the 17-nation currency bloc to buy some time to strengthen their ‘firewalls’. The response to this was very dull as expectations of an agreement had been largely priced into financial markets.

As mentioned already, one of the biggest concerns of the deal is the pain that private bondholders have to bear. They will be offered new government bonds with only 31.5% of the principal value, at lower yields and maturities ranging between 11 and 30 years. They will receive another 15% in short-term bonds back by the Eurozone’s temporary bailout fund. The resulting loss of 53.5% is higher than the 50% that was agreed upon in October, but it was necessary to give Greece a fighting chance. This could cause problems in the future as private investors may stay away from Eurozone nations (such as Portugal or Spain) that may need a bailout later.

The Euro zone central banks will also play their part. According to a Eurogroup statement, the ECB would pass up profits it made from buying discounted Greek bonds (over the past two years) to the national central banks so that their respective governments can further pass it on to Athens. This would “further improve the sustainability of Greece's public debt.” The ECB has bought Greek bonds with Face Value of  50 billion on a 24% discount (i.e. for only  38 billion).

Usage of the Bailout Funds

The bond-swapping process for private bondholders, expected to take 3 days, will start on 8^th March. This means that the  14.4 billion bond-repayment, due on March 20^th, will be restructured and Greece will avoid a chaotic default. While a vast majority of the bailout money will be used to finance the bond-swap, some  30 billion will be needed for “sweeteners” to convince private bondholders to sign-up. The remaining funds will be used to cover the budget deficit, recapitalize Greek banks, and finance a bond-buyback. At the end, almost nothing will be left to actually stimulate the Greek economy.

Growth in Austerity

The highlight of the bailout is the demand for austerity from Greece. While it may sound only fair that the Greek Government tightens up its purse strings, it may not exactly be the best approach as it could well lead to a downward debt spiral. Some of the features of the austerity package include a 22% reduction in minimum wage, another round of pension cuts, and 15,000 public-sector job cuts. Mr. Venilezos called these demands “unrealistic” and “farcical” before giving in. Spending cuts are also demanded are in the sectors of defense and healthcare, and to scrap the habit of paying “holiday bonus”. All in all, Greece has been asked to make further cuts in Government spending of 1.5% of GDP. Furthermore, from 2013 Greece is supposed to sustain “primary” budget surpluses (i.e. excluding interest payments). To do this, the government has been considering privatization of national assets such as land, utitilities, ports, mines, etc. 

German finance minister Wolfgang Schäuble suggested that the Greek elections be postponed and a small technocratic government be set up like Italy’s for the next two years to carry out reforms. But the Greeks have now grown resentful of what they regard as German high-headedness.

In such an environment of social upheaval, political uncertainty, insufficient capital, it is not hard to see why Greece has been Eurozone’s most troublesome child; couple that with Eurozone’s out of sync monetary policy, and lack of fiscal unity, and what you get is a system designed to collapse under its own weight. Many economists doubt that Greece will ever be able to pay off even a reduced debt burden, and hint that the bailout has only pushed the can down the road, and Greece will eventually default. After all a return to economic growth could take well over a decade. Little wonder that rating agencies have downgraded Greece and several other Eurozone economies. Yields on Greek bonds have been above 30%, compared to less than 3% on German bonds. However, Considering that Germany has the highest exposure to Greek debt after France, they find themselves stuck in a Catch-22 situation.

Facebook IPO - First Impression

It all started in 2003 in his dorm. Mark Zuckerberg created Facemash, and uploaded pictures of fellow Harvard students online; placing two pictures next to each other, he let viewers rate which one is ‘hotter’. In a matter of 4 hours, the site attracted 450 viewers and 22,000 photo views. Mark was eventually charged by the Harvard administration for a security breach, and violation of copyrights. He faced expulsion, but the charges were dropped later. 

A semester later, inspired by an editorial in The Harvard Crimson about the Facemash incident, Zuckerberg launch Thefacebook on 4^th February 2004. While membership was restricted to Harvard students in the first month, it expanded to Stanford, Columbia, and Yale in March, and later to other Ivy League schools along with MIT, NYU and Boston University. It was soon present in all universities across US and Canada, and in 2005, allowed high schools and major corporations to join too. In September 2006, it was open to anyone who’s older than 13 and had a valid email. Little did he know during his Harvard days that 8 years later Facebook would become the hottest piece of digital real estate and a multi-billion dollar company. With around 845 million active users already, if Facebook were a country, it would be the third most populous one after China and India. And as far as numbers are concerned, that’s just the beginning. Everyday, the social networking site attracts roughly 500 million active users, who upload close to 250 million photos and ‘like’ or comment on 2.7 billion pages. Globally, one in every seven minutes spent on the Internet, and one of every five pages viewed online, are on Facebook.

On 1^st February 2012, Zuckerberg announced plans for a $5 billion Initial Public Offering – the largest tech IPO since Google in 2004 – valuing the company around $75 – $100 billion. The upper-end of that range would value the company at 100x last year’s profits, or about 25x trailing 12-month sales, which, according to Bloomberg, is more than double compared to Google’s valuation when the search giant went public in 2004 (same year as Facebook was launched). The company generated $3.7 billion in revenue and $1 billion in profits last year. According to the Economist, such a valuation would make it more valuable than Boeing, the world’s largest aircraft manufacturer. While that is by no means cheap, other tech giants are worth even more. Based on market capitalization, Google is worth $190 billion, Microsoft is worth $250 billion, and Apple is approaching $500 billion.

When one thinks about the commercial possibilities that Facebook offers, multi-billion dollar valuations are justified. According to Boston Consulting Group, 3 billion people will be online by 2016. Furthermore, mobile Internet usage is rising at double-digit rates. About 425 million people already access Facebook using mobile devices (including tablets). Speculation aside, the one thing that one can be rest assured about is that more and more users spend more and more time on the website (or its mobile app), be it chatting, playing games, sharing news articles, listening to music, or uploading (and commenting on) pictures and videos. Currently, the average user spends around 20 minutes on the website per visit. By ‘liking’ pages affiliated to businesses, sports teams, activities, stories, events, personalities, etc., users associate themselves with lifestyles and brands, and hence create the digital persona they want. And now, with the Timeline layout, they can build a chronicle of their lives too. This is invaluable for large and small businesses alike, both from an advertising perspective as well as consumer research perspective. That Facebook has an information database with such details about its users, and what it could potentially do with it, is another matter altogether. But one thing is certain; the social networking site, now translated into over 100 languages, already has one in every eight persons in the world signed up, and once it breaks into China (where it is still currently banned), it would become an even more attractive platform for businesses (and perhaps even governments).

There is no doubt that Facebook is an exceptional company in terms of its popularity and growth. However, as far as its IPO is concerned, the key question one should ask is why is it going public in the first place? Usually when companies go public, they raise money (by issuing common stock) to invest it in growing their business. So what does Facebook want to raise the funds for? What is Zuckerberg planning to do with the money? How will it help the website grow its business?

       

In its first prospectus filed with the US SEC (Securities and Exchange Commission), the company reported revenues for 2011 worth $3.7 billion, 88% higher than 2010, and net income at $1 billion, which was a 65% rise from the previous year. Hence, it would be fair to conclude that the website can generate adequate internal cash flow to fund operations and expansion (including potential acquisitions). So it makes little sense to raise funds for operational requirements alone. It has after all achieved astounding growth as a private company. So when the prospectus says that the company intends to use the IPO proceeds for working capital and general corporate purposes, I take that with a pinch of salt. Furthermore, it admits that the company does “not currently have any specific uses of the net proceeds planned.”

This brings us back to our main question; if it doesn’t need the money for growth, why is it going public? Facebook answers this question itself. The prospectus states that the “principal purpose” of the IPO is to “create a public market” for its shares and to make the equity stake of the existing shareholders (including employees) more valuable and more liquid. In other words, they are going public to cash themselves in. This is great news for existing investors, but not so much for those who plan to buy its shares via the IPO or in the secondary market.

In a personal letter included in the SEC Filing, Mark Zuckerberg said,

“We’re going public for our employees and our investors. We made a commitment to them when we gave them equity that we’d work hard to make it worth a lot and make it liquid, and this IPO is fulfilling our commitment. As we become a public company, we’re making a similar commitment to our new investors and we will work just as hard to fulfill it.”

The prospectus also states that a portion of the money will be used to pay a portion of the tax obligations related to the initial settlement of RSUs, which in simpler words means that the company would pay off some of the tax due on converting shares given to employees as a part of the IPO. Interestingly, the company intends to invest the proceeds in government securities and term deposits, “pending other uses”. And while the company may use proceeds for acquisitions of complementary technologies and assets, it has made no such commitments yet. Once again, it does not seem like Facebook has a clear idea of what it intends to do with the money.

Another thing worth noting is the arrangement of shares offered. Only Class A shares, which have one vote per share, will be available to public. However, the current board will retain their Class B shares, which have 10 votes per share. Simply put, the IPO is structured in such a way that Mark Zuckerberg (founder, chairman and CEO), who currently owns 28.4% of the company, along with the incumbent management (including the COO, CFO, VPs, other Directors, etc.) will retain majority voting-rights. Hence, the new shareholders will have no say in running the company whatsoever. This is another negative for new investors, even though one can argue that it was expected anyways.

Finally, the company intends to retain its earnings for operational use. This is a deterrent for the class of investors who seek regular dividends. Facebook has never declared or paid any dividends, and does not plan to either. However, considering that the likes of Berkshire Hathaway and Apple (who traditionally were strictly against dividend payouts for many years) too declared a dividend recently, it won’t be a surprise to see Facebook follow suit at some point in the future.

As I’ve already mentioned before, Facebook is an exceptional company. It surely has cemented its place in our daily lives, and has arguably changed the way people communicate, consume and share information. It has given individuals an opportunity to create a digital identity unlike none other. As an organization, it has achieved tremendous growth in very quick time. And it has certainly made its employees and investors a lot of money. However, is its IPO just as exceptional? Will it also achieve the same growth? Will it be able to make the same kind of money for its new investors as it has for its existing investors? Many a times, investors fail to distinguish between a good business and a good investment. As much as I love Facebook as a user, as an investor I am not yet fully convinced about the site’s capacity to translate its impetus into exceptional profits.

That being said, I want to do a follow-up on Facebook, covering possibilities that do make the Facebook IPO attractive, even at such exorbitant valuations. 

             

The Hullabaloo over 2G Licenses

Last year, Time Magazine listed the Indian Telecom Scam 2^nd (after the Watergate Scandal) in the “Top 10 Abuses of Power” list. Considering that it has been making headlines since 2010, I suppose most of you know the details of the scandal. However, for those just tuning in, I thought I’d do a post featuring the 2G Licenses and Spectrum Scandal.

What happened?

In 2008, A. Raja, the erstwhile Minister for Communication and IT, decided to allocate 2G licenses and spectrum to several telecom companies, some of whom did not meet the basic requirements to be granted a license. Furthermore, he sold the licenses and spectrum at apparently throwaway prices, causing the exchequer to suffer from revenue losses, estimated up to Rs. 1.76 Trillion ($ 35.2 Billion) according to the Comptroller and Auditor General of India. Interestingly, Kapil Sibal, the incumbent minister of Communication and IT, dismissed the estimates calling them meaningless “notional” figures. Either way, this led to several new players entering the market, and the increased competition (read: price wars) meant lower tariffs for users, and squeezed the profitability of the incumbent players. 

The matter was mute for a couple years of until 2010, when during the 3G license and spectrum auctions, the government realized the amount it had lost in 2008. This incident of poor governance was termed as another scam by our particularly hardworking media. After much political ruckus, the Supreme Court of India declared the allotment as “unconstitutional and arbitrary” and cancelled all the 122 licenses issued by A. Raja. According to the Apex court’s judgment, A. Raja “wanted to favor some companies at the cost of the public exchequer" and "virtually gifted away important national asset" It is worth noting that the Telecom Policy does not have any specific provision for the licenses or spectrum to be auctioned off, and it was only in 2010 that an auction process was deemed to be the most appropriate method of allocating national resources.

Cancelled Licenses and Affected Parties

 

These firms, especially the foreign players, have complained that the Supreme Court ruling disregards the interests of the business community. Furthermore, it is unfair as it makes businesses suffer for what is in essence the Government’s gaffe.  They also said that such moves would make foreign investors hesitant and cautious against investing in India, and this would hurt the nation in the long term.

So what are the implications?

The cancellation of the 122 licenses will affect close to 45 million people around the country (roughly 5% of the total active user base) who will see their services go off. However, the court has given the companies 4 months, so the users will have some time to switch to a different service provider. As for the companies, they are left with 3 options. First, they can go to court and appeal against the verdict (a very lengthy and expensive undertaking). Alternatively, they could bid for the licenses and spectrum (whenever the auctions happen). Or finally, they could exit the Indian telecom market altogether. As for the incumbent players such as Vodafone and AirTel, it is an opportunity to increase their subscriber base, and also a chance to bid for more spectrum. The sector overall will hence see some much needed consolidation, and with competitive pressure reduced now, the unsustainable price-wars can end and the profitability of the firms would increase too.

Personal Take

At just point, I would like to highlight a couple of points, and let you assess the event at your own terms.

Firstly, If 2G spectrum was to be auctioned (like 3G was, and 4G seemingly will be), the government would get more revenues (only to give out more subsidies in my opinion). But would the tariffs be as low as they are? Would your milkman, driver, domestic helper, fruit vendor, etc. all be able to afford it? Would your life be more convenient or less if that was the case?

Secondly, since the spectrum was allocated on a “First Come First Serve” basis instead of an auction, many new players were granted license and spectrum. As a result, incumbent players such as Vodafone and Airtel who have a larger subscriber base were left with too little spectrum to work with while the newer players who were unable to build a sizable subscriber base were sitting idle on precious resource. So this not only prevents the players from achieving economies of scale, but it also translates to poor quality of network coverage for the 800 million mobile phone users across the country.

Thirdly, the scam has further tainted the image of the Government. However, one should really take a step back, and think if this was really as scandalous a misdemeanor as it seems? After all, it did make mobile usage more affordable to the masses. Would 3G (which was auctioned to service providers for Rs. 670 billion or $ 13.4 Billion) be able to achieve the same reach in India’s price elastic telecom market?

Finally, considering as telecommunication and connectivity as a vital infrastructure of the nation, it was an industry that grew at an exponential pace for some time, but that growth has now halted. Little room to expand due to over-competition has led to unsustainable business models. Hence, some consolidation could do wonders for both, consumers as well as the businesses.

The 2G licenses of 2008 were issued at 2001 prices, on a first come first serve basis rather than an auction.  

So, at this point, would you call it a scam or a blunder ?

Corruption or mere Inefficiency ?


I will let you decide for yourself . . .

Infographics

Browsing the web over the weekend, I came across some very interesting infographics, which I though I’d share here. While some of the data (statistics) featured may be slightly outdated, their relevance still remains. Also, for some people, the scope of information in this post would come as rather limited (to China, USA, and Europe), but then again, I'm not exactly writing a book here.

1. China in numbers - Very interesting compilation

2. Rise of the Giant - Tip of the Iceberg?

3. China's Wealth Gap - A natural byproduct of Capitalism?

4. China Online - China's very own Social Media Revolution

5. US / China Trade - Boon or Bane?

6. Where are American Jobs going? - At least unemployment isn't as bad as the 1930s

7. All the Gold in the World - Not enough to cover USA's National Debt

8. America's Digital Divide - Another interesting revelation

9.  USA v Europe - Who's more Productive? - Can you spot the Irony.

10.  European Debt Debacle - A snapshot

 

11. Europe's Crisis - The Complete Picture

12.  Europe's Crises - Role of the European Central Bank

  

Well, that was Fun! 

And Informative too. 

Maybe I'll do a similar post focusing on India (If I can find good material).

Watch this space...

(Disclaimer: None of the above infographics are my own creation. I am merely sharing them here as they are neat sources of information)

What the Indian Government can learn from Steve Jobs

Recently, stories surfaced that Steve Jobs had designed the iPad for the first time way back in 1999, and the first iPhone all the way back in 1983. If Ray Hammond, who wrote the world’s first guide to e-commerce “The Online Handbook” more than 2 decades ago, is to be believed, Jobs had already conceptualized the iPhone, iPad, even Siri, as early as in 1983. Such stories only make one wonder why were such brilliant innovations locked-up for so long? If Steve Jobs had already understood that the future was about combining computing with mobility, why did he wait for over a decade to launch it commercially?

In 1998, a year after re-joining the company he co-founded (he resigned after a power-struggle between him and CEO John Sculley in 1985), he famously said that he was “going to wait for the next big thing” when asked by Richard Rummelton about his future plans for Apple. The key here is not just patience; as important as it is, it is pointless without preparation. Upon his comeback, in addition to doing the textbook stuff such as reducing inventory and moving production offshore, he also discontinued several product lines (from 15 desktop models to just 1), eliminated peripherals, and fired many engineers. The goal was to save Apple from the brink of bankruptcy, and his way of doing it was to not insert itself into a market already saturated by IBM and Microsoft (desktop computing), but by dominating new markets altogether (iPods, iPhone, & iPad).

In his sunset years, Steve Jobs had become a global icon, inspiring everybody – CEOs, entrepreneurs, engineers, designers, consumers, and even students who weren’t sure yet. So much so that in November 2009, Fortune Magazine named him CEO of the Decade. So, what does the Indian government have to do with all this? Not much to be honest; but there are a few lessons that they can take-away; lessons of vision, opportunity, quality, control, patience and preparation. 

1. Vision – Steve Jobs’ vision needs no further testimony than the fact that the popularity of Apple products have made the consumer electronics giant one of the world’s largest public company with close to $100B in cash reserves alone (more than many national treasures). He knew the future was about the marriage of computing & mobility. So he envisioned tablets before anyone else. He was the first to obsolete the use of floppy disks in 1998. He was also single-handedly responsible for Adobe systems to discontinue Flash (the platform that most games, YouTube, Skype, etc. are based on) about 18 months after he publicly espoused HTML5 in an open letter in 2010, saying that it was faster and more efficient in memory consumption.
   
   
   
   
2. Opportunist – In an interview to Wired Magazine, Jobs once said “Creativity is just connecting things.” He did not create anything new; he did however synthesize things well. Macintosh, Apple’s popular personal computer was essentially Apple II (which by the way was single-handedly created by co-founder Steve Wozniak) plus a Graphical User Interface (created by Xerox) and a mouse. There were already numerous portable media players in the market before Apple launched iPod, and there were already several smartphones before the iPhone, and tablets before iPad. However, Jobs realized that it was time Apple, on the back of its product design competency, forayed into those markets. Soon after, Apple turned into the new benchmark in the consumer electronics sector, from just a niche computer seller before.
   
   
3. Quality– Jobs was well renowned to be an abrasive & ruthless manager. According to his biographer Walter Isaacson, his cruelty was a product of his quest for perfection in everything he did, be it building Apple computers, or a fence with his father. Furthermore, he wanted to be around only such people who also demanded perfection. He therefore took many products off the market when he rejoined Apple if he thought they were not up to his standards of product quality.
   
   
4. Control – For Apple products to be as revolutionary as they have been, compromising on product quality was not an option. To achieve that level of perfection in engineering and design, Steve Jobs tightly controlled everything at Apple from the top and had the final say on everything, be it manufacturing processes, design, logistics, or marketing. Such a structure is usually associated with start-ups, where the entrepreneur has to take charge of everything. But Jobs practiced it at Apple until the very end, and made Apple the largest Corporation in USA (surpassing Exxon Mobil) by market capitalization.
   
   
5. Patience – Results are a product of both, the concept and execution. Within the realm of execution, a very crucial element is that of timing. Wonderful ideas can fail because they’re ill-timed. So it was reasonable for Jobs to hold on to his idea until he felt the time to execute had arrived. His priority was not to be the first, but to be the best. The fact that high-growth economies of India, Indonesia, Africa, and China still haven’t impressed him enough to consider as serious markets (his focus remains on the developed countries) is another example of him showing immense patience.
   
   
6. Preparation – Waiting for the right time does not mean one just sits back and malingers, especially when perfection is desired from the final result. So one has to be prepared. Newton was Apple’s first handheld device (PDA) in 1993. But despite groundbreaking design, touchscreen with handwriting-recognition, it was discontinued by Apple (upon Jobs’ return in 1997) as it was (a) ahead of its time, and (b) not perfect. But until the right time came, Apple continued developing the device further (both hardware and software) and when it launched the iPad, it changed the way people consumed digital information or entertainment. Behind this digital revolution, just like any revolution, was years of preparation.

These 6 ingredients were crucial for Apple’s success, and Steve Jobs ensured that he led from the front. This is the lesson that the Indian government needs to learn. While there is no shortage of visionaries among the bureaucrats, the execution and implementation of their farsighted plan remains poor. India’s biggest advantage going forward would be the size of its workforce, and domestic consumer market. However, what many commentators are calling Demographic Dividend can easily turn into a Demographic Disaster if critical issues like Malnutrition, Poor Education, Infrastructure, Healthcare, Employment, and Disciplined Policymaking are not addressed.

As far as Opportunity is concerned, India’s got its fair share. Not too long ago, the Commonwealth Games presented one such opportunity to show the world a promising new India. What it showed instead was how mismanaged and corrupt India was. How the quality of infrastructure was still grossly inadequate, and how poor the quality of planning and execution of this major event had been. Opportunities came again; with the West grappled with a severe economic slump, capital looked to flow to Emerging Markets, and India was once again in the spotlight. This time, it was partisan politics and policy paralysis that was plaguing the country. 

I admit it would not be fair to demand perfection from any government, regardless of their economic might or political ideology. However, what ought to be expected from the Indian government is to show leadership, and responsibility. The economic policies should pro-business rather than welfare-based; giving away freebies and waiving off loans among the poor during the election periods offer no long-term solutions nor do they improve sustained living standards. By developing an entrepreneurial ecosystem, giving tax-incentives, offering legal and bureaucratic assistance, promoting new businesses, allowing them to fail, and start-afresh (does this ring any bells?), the government will be able to not only improve living standards sustainability, but also see India rise in the global value chain, not to mention the other benefits (such as improved capital inflows, tourism, robust economic activity, etc.) that the nation will gain from. Like I said, perfection is not expected, but even small steps in the right direction would do wonders too.

For a nation like India – large, diverse, democratic, but corrupt and underdeveloped – the need for exceptional leadership from its government is even greater. By no means am I suggesting a Socialist system; if anything, I encourage the Free Markets with Minimal Government Interference. However, it would it would be very inefficient to adopt the same top-down control like Steve Jobs. So the government’s role should be that of an administrator and supervisor. Paradoxical as it sounds, the Government needs to play regulator, and yet, moderate regulations at the same time as over-regulation would be counterproductive and slow down economic activity. One way to achieve this is shrewd decentralization (more on this topic in future posts).

This brings us to patience and preparation. After having gone through the “Hindu Rate of Growth” for decades until economic liberation in 1991, our political top brass already has patience aplenty. The youth, in contrast, born in an age of instant gratification, are understandably impatient. Over time, several opportunities will come and go, but the need of the hour is for the two generations can work together and build the nation’s physical and social infrastructure. Without such intense preparation, opportunities like Commonwealth Games will bring more scams instead of praise, and insufficient nutrition and inadequate education make the Government's job of turning India from a welfare-dependent state to empowered nation an unattainable ambition.