Ten Point Scale

Forget India, everywhere in the world, be it in public or in private sector, decisions are based on guidelines or are arbitrary. This means that very rarely, the decisions will go wrong. Take, for example, the case of Vijay Mallya. Are we to blame or are we to blame those who didn’t notice Kingfisher Airlines is a sinking ship and gave him loans? Every businessman thinks pumping money till the right time comes, things will turn around. And especially if the money is not from his pocket, he will not hesitate to pour it. The onus, in this case lies on those banks, which decided to fund them. How did they decide? Is it based on their internal standards or is it due to corruption? Note that corruption simply doesn’t mean bribing someone. It is defined(by UN I guess) as being of either of the below three categories –

1.     Using your influence

2.     Using the influence of someone who can influence

3.     Buying your way

In cases like Vijay Mallya, we are seeing cases one and two and very rarely three. Someone powerful asked the banks to give him loans. He may be a personal friend of Vijay Mallya, he may be a Minister thinking of the job security of those umpteen employees or someone else. But the point is this – do we have a solid benchmark which banks can use and which people can understand, a benchmark which can be used to question the decision and people will understand why it is questioned?

The answer almost always is, we have our guidelines and we have our questionnaires. But, who will understand questions like How fast is your P/E ratio growing or How much is the Year-on-year increase in your advertising cost? Both of them indicate the slow rotting of the core of the business; but these are for experts. Now, if we say, we have got a ten point scale and any application which has got a score greater than 8 will be automatically cleared; anything below 6 will be rejected and anything in between will go for a second opinion? And if Kingfisher scores 9 and even after it collapses, the only question I will get is, is your formula correct. I will be ready to share my formula with anyone who wants to scrutinise it. I will be out of the hook even if the damage is done. If this is the case, set up a panel who will devise that formula for you. It can be something internal you can do or it can be a consortium defining it for you. May be, for loans, we should consider the possibility of reclaiming of surety, strength of field, strength of company, job creation potential, percentage presence in a field or a ten thousand such questions. It will be a form based questionnaire which the bank employee asks and the output is a number.

Thinking about this seriously, this can be applicable everywhere. What we need is a questionnaire and a formula to convert the questionnaire to a ten-point scale. It can be promotions, it can be development index of a state, it can be defence preparedness, it can be the customer friendliness of a bus conductor, it can be the foreign policy directed towards a particular country or whatever, ranging all across the spectrum.

Let’s take one specific area – promotion of judges. Today, both the government and the judiciary are fighting with each other over who will appoint the judges. Instead of that, let’s see if it fits into a formula. Below are some parameters –

1.     How may awards has he received? Each award will have it’s own weightage.

2.     How many leaves did he apply over the prescribed maximum?

3.     How many days he takes to close a case vis-à-vis the mandated time

4.     Average number of adjournments in a case

5.     Percentage of cases transferred to a different judge before the final judgement is given

6.     Number of types of cases he is handling

7.     How many cases he judged, and the judgements are overturned by a higher judge (well, I don’t want such a judge for obvious reasons)

8.     Number of complaints against him

9.     His total experience

Club them into a formula and if he gets a number 5 and if he questions why he is rejected for the vacancy of a Supreme Court judge, the number will be staring at his face. The same number can be updated daily on a portal, putting a pressure on their working style, ultimately changing it.

Can you tag this number to a performance pay component in their salary? May be. But, the purpose of this scale should not to gauge performances, but to simplify the decision making when staring at potential risks and reducing questions over the decision making process. After all, if anyone is not happy, there is an ocean of logic awaiting him to dig into and pick the gaps.

Income Inequality in India

Credit Suisse Global Wealth Report 2015 notes the below regarding wealth concentration in India –

Top 1% of the population holds 53% of country’s wealth

Top 5% of the population holds 68.6% of country’s wealth

Top 10% of the population holds 76.3% of country’s wealth

Now, attempting to convert it into real money will give this.

India’s GDP in 2016 is $2288.715 billion. Exchange rate on 01 April 2016 is 66.2365 Rupees to a Dollar. India’s population is 1.235 billion. Now, let’s try to convert the wealth holdings into per-capita incomes.

Population %	Wealth Concentration	Per Capita (per annum - lakhs)	Per Capita of Balance (per annum - lakhs)	Per Capita of Balance (per day - Rs)
100%	100%	1.23	N/A	N/A
1%	53%	122.75	0.58	159.66
5%	68.60%	24.55	0.41	111.16
10%	76.30%	12.28	0.32	88.56

Is this a joke or what? Are we saying that the average annual income of the bottom 90% of India is a paltry 32000 rupees per annum? Then, what will be the wealth of the bottom 50% or even worse, bottom 10%? Well, we are on safer ground because bottom 1% include people like those of primitive tribes of Andaman who don’t even know the concept of money. If this is the rosy picture, there is no wonder government declared urban poor as 47 rupees and rural poor as 32. And wait. Going by the definition of Graham and Pettinato, we see that Middle Class in India earns between 92000 rupees and 1.83 lakh rupees or even worse, Pew Research Definition gives the income range as 82,400-2.46 lakh rupees. Another joke on India. Are we saying that a middle class person(has his own house, has a stable job, is a graduate and has his own vehicle) can live off with maximum 2.46 lakh rupees anywhere in India, note the word anywhere? And, if we consider the global absolute definition of poverty, which is anyone living on less than $1 a day, we are staring at maybe 75-80% of Indians as poor!

On the other end of the spectrum, let’s look at the subsidies. The total amounts to 2.5 lakh crores from the central government translating to 2000 rupees per head per annum. Include the states, this may double, landing us in the range of 5000 rupees per annum per head. Now, the question is this. What are these subsidies and what is the leak? Categorize them into various threads, you will see that food, petroleum, electricity, public transport, occupational subsidies(agriculture etc), domestic, educational subsidies and freebies carve out a considerable share for them. Is all this reaching the end user? The answer, as usual is a big no. The Economic Survey 2015 places the numbers as 46% leak for wheat, 52% leak for sugar and 85% leak for rice. This is but a glimpse of how much is getting wasted. Next question is, do all the end users require subsidies. Again, the Economic Survey comes to our help. 44% of wheat, 47% of rice, 54% of kerosene, 56% of sugar, 64% of pulses, 70% of railway fares, 75% of LPG and 90% of electricity consumption is not for the poor. Look at them one by one, the trend is that more the luxury, less the usage by the needy. Assuming anyone getting above 47 rupees per day is rich and anyone getting above 88 is uber-rich, do they deserve the subsidies? After all, they are capable of buying their stuff.

1.     Are we seriously saying that 90% of India is living for less than 88 rupees per day and that, that money is sufficient to run households? If this is the real and precarious scenario India is staring at, what sense does GDP growth numbers and FDIs in billions make? Is it not time for us to concentrate on the real problem along with bringing in real money? For example, doesn’t it make sense if the declared aim of the government is to double the income of the bottom 10% of Indian population every five years?

2.     What are all the subsidies we are having today? How many of them are required and how many of them are not needed? And of those which are required, how many of them can be recast with lesser expenses?

3.     What is the leakage ratio in the subsidized distribution system of India? What is the storage ratio? What steps are we taking to reduce these leaks and wastages?

It’s high time we introspect all these things and try to chalk out a way forward for India.